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D. Murali

A BOOK dedicated to "each and every Indian household that seeks financial security but knows not that it is so much within reach" should be worth reading, I guess, especially if it is going to discuss moolah planning all in about a hundred pages. Monika Halan aims to do just that in "Seven Steps to Financial Freedom", from Macmillan (www. macmillanindia. com).

"India's first book on Financial Planning," writes Ranjeet S. Mudholkar, CEO of Financial Planning Standards Board, India, and eulogises further that `the organisation of very complex information and ideas into a book that flows like the proverbial river is indeed a highly admirable feat'. As if to match, the author writes in her preface that financial planning is a "new approach to an individual's financial life," after finding that "financial planning was not really a new concept, it was already a well-established profession in the mature markets of the US, the UK, Australia and Europe."

If you can excuse the author for being overzealous, and also for omitting from financial planning the whole gamut of taxation, you can move forward to step 1, to `find the bearings'. This means "the difference between what you own and what you owe," explains Halan. "This is something that truly belongs to you and is the base... It is this wealth that you need to first protect and then build upon." She points out that most of us don't know how much money we really have, though "all of us know accurately the balance in our savings bank account." A caution is that you shouldn't confuse higher income with wealth.

`Protect the present' is step 2, where the discussion veers around insurance. A wisecrack is, "To buy insurance to get a tax rebate instead of protecting your financial future is like carrying a band-aid instead of a parachute when you go hot-air ballooning." To help compute how much insurance you need to buy, there is a template that the author provides. Have five to seven times your annual income as the insurance amount, advises Halan. "Don't buy insurance for your children," she writes. "Children add a wealth of happiness to a family, but bring little in terms of economic value - the loss of a child is emotional, not financial."

Next, `identify the dreams'. The average Indian family pursues five big financial goals, according to Halan. These are: "A car, a house, children's education, children's marriages, and retirement." Goal setting is the process of forecasting future financial needs in money terms, she explains; it encompasses seven principles such as prioritising and being realistic. "The financial planning process gets you to list out your own unique goals, quantify them, time scale them and then work backward to see if they are achievable, given your current resources."

Choose the route in step 4, because what you need now are "the route and the vehicle" - meaning, "your risk tolerance and the financial instruments". You have three options, viz. `reach-me-safe-and-slow route' that takes a long detour; `get-me-there-quick route' that snarls through "back lanes of residential areas that have potholed roads" and via "seedy part of the city where the crime rate is high"; and `make-good-time' route that is a choice depending upon time, distance and safety. "If you want to grow Rs 2 lakh into Rs 20 lakh, a low risk, 8 per cent instrument will get you there in 30 years," informs Halan. A middle path, that is, a medium-to-high risk 15 per cent product will take 16 years; and a very high risk offering 25 per cent can meet your goal in 10 years. To draw up your risk profile, the book runs you through a quiz.

Step 5 puts it all together. Halan `revisits' insurance and counsels those who are 35 to buy a term policy that costs as little as Rs 6,000 a year for Rs 20 lakh cover for 25 years. Look at your financial goals and adjust them for inflation and factor in current savings, apart from making a few other tweaks, as demanded by the author. "If you're spending Rs 20,000 a month today, you will need to spend Rs 93,200 a month to maintain the same standard of living after 20 years at an inflation rate of 8 per cent." Frightening, isn't it? On retirement, a `quick tip' reads: "A retirement target of Rs 75 lakh, that needs Rs 1.31 lakh per annum to grow at 10 per cent for 20 years can be achieved in just 16.3 years if the annual savings are increased to Rs 2 lakh."

Sixth step allows you to `begin the journey'. In this, there is a five-stage exercise of organising your money, including paying off high-cost debts and selling unsuitable investments. Then, there are 6 questions to ask of your credit card company, 8 questions to ask before you take a loan, 5 questions to ask before buying life insurance, and more. Last step lets you `review the progress'. Do this monitoring work every year, or even half-yearly, advises the author.

Good read.

**

BookValue@TheHindu.co.in

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