The following is an excerpt of a conversation I had with Certified Financial Planner Sumeet Vaid about a ‘Financial Health Check Up’ questionnaire Financial Planners use to determine the state of their client’s finances. I went through the standard questionnaire with Vaid.
Do you take on debt as a speculative action or for a lifestyle you cant support?
Sumeet: It’s a regular question. It tells us about the mind-set of the family. Are they trying to live outside their means by borrowing money? Are they trying to indulge in speculative activities like buying stocks by taking up loans? All this is a definite no-no. If we figure out that the family indulges in such behavior, we try and get them out of it
Do you set aside money for your retirement?
Sumeet: In India people do have a clear idea of when they want to retire. When the question comes to setting aside the money, it is usually ‘Yes, we have set aside a basket of money but not definitely for retirement or any other goal.’ That’s a problem because if you are saving without any defined goal, there is a possibility that you will use your emotion to decide where to spend the money.
Do you have a detailed written Will? Why is the Will important?
Sumeet: A Will is the most important document irrespective of whether you have money or not. What a Will really does is leave a written legacy to try and pass on whatever intellectual, financial assets you have created, over to your next generation in a seamless manner. In India, a Will is a very emotional subject. When you talk of a Will, people take it as if they are talking about when will they die … people should understand that a Will has to be done for it to be a smooth affair for their family after their death.
Are all of your investments or bank accounts in joint names? Why is it important for these accounts to be joint accounts?
Sumeet: You have to be prepared for any eventuality in life. When something happens to an individual, what will happen to all the bank accounts in his individual name? It will then go through a very cumbersome legal procedure in which the Court will decide and give a judgement on who is to take care of that money. This just create problems unnecessarily. So you must have joint accounts or atleast have a nominee for all your accounts.
Who should be the nominee of the joint account?
Sumeet: It depends on your comfort level. By first level, we recommend the nominee be family. Sometimes, it could be very, very close friends. Then, distant relatives like brothers-in-law. But the idea is to create a scenario if something happens to someone, the money which is meant for certain things goes to those certain things.
Do you have a Power of Attorney to operate your bank accounts if they aren’t joint?
Sumeet: Power of Attorney is a legal document which gives the right to operate those accounts in certain circumstances. This helps in articulating and managing the risks in case something happens.
Sumeet, what is the average response to all of these questions?
Sumeet: It’s very, very poor. Most of the time investment is a subject which gets taken care of but till date, we have rarely found a family which is above average. If somebody scores above 30, it’s great. But we have rarely found one or two families with that kind of a score. Most of them are between 10 to 20 which is very, very poor.
But it is very important to do this check up because it will tell you the state of your finances.
