Financial independence signifies a condition where a person has adequate resources to take care of his or her expenses and realize monetary objectives as well. However, there are times when your clients might say that their salary is not sufficient to meet monthly outlays; how will they be financially self-reliant? As their financial advisor, you can aid clients achieve financial independence with these 4 important steps
1. Encourage them to save (and invest)
Financial experts must help their clients prepare a budget so that they can save money. Convince them to invest at least 20-25% of their income. Explain to clients how the power of compounding works and its advantages. For instance, if an amount of Rs.2000 is invested at 10% per annum, you will receive Rs.5187 after 10 years, Rs.13,454 after 20 years and a large sum of Rs.2,34,781 after 50 years. Such examples will make clients realize the value of saving and investing.
2. Create a contingency fund
Liquid funds are essential to deal with any unforeseen situation. The idea behind persuading your clients to create an emergency fund is to ensure that their financial goals are not affected by any unexpected event at any point of time whether it is job loss, health complications etc. Clients must form a reserve which will last for a minimum of 6 months so that they don’t have to dip into their savings or other investments.
3. Opt for SIPs
Systematic Investment Plans (SIPs) have made it viable for individuals to adopt the disciplined saving approach and reap the benefits of the power of compounding. Moreover, you can ask clients to start an SIP with an amount of only Rs.500 and gradually increase it. At the end of 30-40 years, they will have a sufficient corpus which will take care of their children’s education, marriage and most importantly ensure a comfortable retirement.
4. Review client portfolio periodically
Market volatility is bound to take place; hence financial advisors must focus on the basics of the invested equities. After you have developed an investment plan, make sure it is on the right track. Evaluate the client’s portfolio from the viewpoint of the foundation i.e. the prime reasons or goals for which the investments were made.
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