Learning Value Investing: Why one should start FinancialPlanning

Saturday, January 15, 2011

Why one should start FinancialPlanning

Enough good Reasons to start Financial Planning!

I would like to share a few thoughts on Investing ,Importance of Financial Planning which I found interesting ,have complied the following points from other bloggers and books .

Here are enough good reasons why one should Start Investing

On an average Bank savings accounts and fixed deposits earn between 3-6% ,keeping up with the inflation .This means by the time you retire you don’t have enough to support you and your family
Even if you are looking at the quantum of money you will have, rather than purchasing power (though that’s no use, really, due to the fact that prices are also rising due to inflation and a lakh ten years later will not be worth as much as a lakh today), please do note that 3% interest in savings accounts will imply your money will double in only about 24 years (I am not joking). Do you really want to wait that long to see the Rs. 20,000 you have in your savings account become Rs. 40,000? Especially when it will buy probably the equivalent of Rs. 10,000?
Interest rates on government-backed investments like PF are falling and will continue to do so till they reach market rates of interest i.e. around the same levels as RBI bonds. This is because the government cannot continue to pay out artificially high rates of interest while earning less than it gives you. Such a system cannot be sustained indefinitely. If you doubt this, I’d like to draw your attention to National Savings Certificates and Kisan Vikas Patra that used to pay out around 14% in the ‘90s (doubling your money every five years) whereas they are now around 6.5% (doubling your money only in around 11 years). Even the PF rate has come down to around 8% and will continue to decline despite the opposition of various parties in the Indian government
Prices of real estate are going up to stratospheric levels. Mumbai, the city whose property prices I am most familiar with, has seen price rises of around 30-100% per year in the past 5 years, depending on the area. They have reached a level such that a budget of Rs. 45-50 lakhs would be about the minimum you need to get anything decent (good residential neighbourhood, 2 bedroom) in the city. Prices in the crores are now commonplace. Chances are, if you’re buying an apartment ten years from now with the money you have in savings accounts, you will need to move to towns that you haven’t even heard of today!