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Archive for the ‘Financial Freedom’ Category

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This 7th of December is the International Civil Aviation Day and marks the 50th Anniversary of the signing of the Convention on International Civil Aviation.The purpose of this day, as pilots all over might be well aware of, is to recognize the importance of aviation to the overall development of the world.

And while pilots draw great confidence from being able to manage the process of reaching passengers to their destinations safely and comfortably, a more pressing question can be that are they confident when it comes to management of their finances?

The profession of a pilot demands almost all their time all year round. Hence they are left with limited personal time which they wish to live to the fullest. And like most busy professionals,more often than not money management seems to come at the end of this wish list. Pilots go through meticulous preparation and planning for their flights daily but sometimes are unable to do so for their finances.

While money is not the end, it is definitely a means to achieve certain objectives. Proper planning and structure to a pilot’s personal finances can result in he/she being prepared for all kinds of life events and responsibilities. Events such as:

  1. Sudden Illness:The requirement for pilots to be medically fit is of prime importance as they are responsible for the lives of hundreds of passengers daily. Every pilot needs to ensure a good health cover to cover sudden illness and hospitalisation. A pilot may wonder why would he need insurance when he is already covered. But if one actually things about, it might be prudent to have a separate health insurance cover for times when you may not be employed or between jobs or in cases where employer insurance is inadequate.
  2. Need for upgradation of Skill Sets:Like all professions, skill updation is a critical requirement that must be met by all pilots on periodic basis. But these do not come at a cheap cost. Ensuring enough provision and funds are kept aside and is available at the time of requirement can go a long way in avoiding last minute stress.
  3. Contingency Needs: A major issue plaguing the aviation industry is the availability of opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For eg. Airlines have closed down, pay cuts are becoming common, or there have been significant delays in salary payments. Such events can have huge financial implications on pilots and their families. Having contingency funds parked in highly liquid assets can help bring some normalcy in such difficult times.
  4. Retirement and Sunset Years:Insufficient planning for your golden years i.e. Retirement can cause stress. In case of pilots, who are among the top earners amongst professionals, this only magnifies the problem. Why so? Pilots more often than not tend to have busy lifestyles with high discretionary expenses. As such they are accustomed to a lifestyle that will only get more and more expensive as years pass This year on year rise in prices is called Inflation and it is an important factor that more often that not, is grossly underestimated. Furthermore, like any other busy professional, even pilots like to keep themselves occupied during retirement years. The interests or activities that they might pursue would also usually have financial implications. Activities such as investing into various ventures, pursuing hobbies or dream goals, continuing leisure flying by enrolling in the local flying club can be just some of the examples. To be able to fund these without affecting retirement corpus requires careful planning early on.

Take the case of pilot Mr. Sharma. Currently aged 30, the household expenses for him and his family is Rs. 12 lakhs per annum. Even if we assume a general inflation of 8%, the same Rs. 12 lakh will become Rs. 1.75 crores at the age of retirement at 65. ( Rules permit pilots to fly till the age of 65 ). In other words, Mr. Sharma would need to have a big enough corpus at retirement that will provide them atleast Rs 1.75 crores every year that will help them maintain current lifestyles.

Pilots are aware of the importance of planning. Each flight requires hours of pre flight preparation which means going through weather reports, system checks among other items to ensure that the flight goes by without any hitch. Similarly having a strategic plan in place for one’s finances can also help prepare for any “rough weather” that could come along in a pilot’s financial life.

 

 

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Financial Welness image 1The traditional thoughts on wellness usually revolves around health and nutrition. However, in our current lifestyle, achieving a good health and having decent nutrition involves regular check ups and having healthy eating habits; which may be kind of difficult if we are stressed about our money. If you ask a group of working people who are having difficulties sleeping at night the reason for this, chances are high that a good number of them will cite financial stress as the cause. The impact of such stress is not unknown to us, with impact on health and loss of productivity just two of the effects.

Here are just a few reasons why Financial Wellness should be giving due consideration in today’s time:

Financial Concerns can be a major source of stress

According to the 2017 PWC Employee Wellness Survey (a survey done for employees in the United States), more than Fifty Percent of the employees surveyed are facing some sort of financial stress.

The Global Benefits Attitudes Survey conducted by Willis Tower Watson further showed that Fifty Three Percent of Indian Employee respondents claimed to have some sort of financial worry i.e. either long or short term, or maybe even both. Furthermore Seventy Three Percent of these respondents claimed that these worries have caused them above average stress. Following is a chart depicting the data collected by the Willis Tower Watson survey:

One in two survey participants have some kind of financial worry!

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It can be a major reason for loss of productivity

According to the PWC survey, distractions due to financial stress is a real thing and it can lead to wastage of working hours. The survey indicated that on average, financially stressed people spend up to 3 working hours per week on dealing with financial matters and they are also twice as likely to miss work due to personal financial matters

Improves Physical Well being

The American Psychological Association’s 2016 Stress in America report stated that Sixty Seven Percent of those surveyed revealed that money was a form of stress. And that rise in stress can lead to stress related health concerns.

While these are certain aspects that may be more applicable to an employee, employers should also look at this as a prime employee engagement tool for the following reasons:

Financial Planning take Time

As mentioned above, the stress caused by financial worries forces employees to bring these to the work place. As such they devote working hours to such matters and also altogether take leaves to attend to various financial concerns/emergencies. This only increases the burden of the employer ultimately.

Increases Employee Productivity and builds Loyalty

We have already read how financial worries leads to a loss of productivity in the office. An efficient manner in which employers can counter such trends is to increase financial awareness among its employees. Thus not only will employees worry less and reduce work hours wastage, they are also more likely to use their well deserved breaks better and therefore not be absent from work. Providing financial wellness initiatives can make them confident of planning better for major events like Retirement. This ultimately leads to trust between the organization and its employees, a great source of encouragement for all employers. 

Employees want Support and improve their Financial Literacy

Financially burdened employees would like their employers to help them in achieving wellness. Employees who stress from money issues are looking for help to improve their financial situation.

Financial Well Being is steadily gaining acceptance as an important factor of consideration for one’s overall well being. As such it it becomes critical for an individual to ensure that his/her’s financial situation does not lead to issues that has negative impacts on different aspects of life. And as an employer, Financial Wellness initiatives can be a source of efficient employee engagement and possible retention strategy.

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Retirement 1Retirement is usually something that is not considered by most of us till we are nearing it, so naturally we do not plan for it, until it is probably too late. This general ignorance or lack of attention to retirement planning can have far reaching consequences.

Retirement planning in the simplest sense means preparing for life after the tenure of paid work ends.  This does not only include the financial aspect, but other aspects such as what to do during retirement, the lifestyle choices that one can take and what dreams one might want to pursue during the remainder of the years.

While the concept of Retirement Planning applies to pilots just as it does to other individuals, there are certain unique points that are exclusive to retirement planning for commercial pilots. These unique points are crucial while developing a retirement plan for a pilot.

Firstly, under the current DGCA rules, the retirement age in India has been pushed up to 65. This is an entire 5 years longer than the mandated retirement age in most other industries. This translates to more income earning years, probably at the highest salary slab of the industry, since usually pilots around this age are most likely to have their designations as Captain. This extra income earning period is crucial in formulating and ironing out the retirement plan before the pilot ultimately retires. The significant income flowing could be the difference between living a compromised and a fulfilling retirement.

One of the most important things a commercial pilot has to consider is Lifestyle Inflation. Because commercial pilots have one of the best salary packages amongst all industries, they tend to have more lavish lifestyles. And they are comfortably able to match up the ever increasing expenses that come alongside their lifestyle choices. But on retirement, the salary stops. Yet expenses continue to stay, with inflation only adding to it. But more significantly no one would want to compromise on their lifestyle they have become accustomed to. As such it becomes imperative to plan much ahead so that lifestyle compromises don’t become the norm during your golden years.

Just to drive home the impact of inflation, let’s take an example. Consider a pilot Mr. A, currently 30 years of age and has a monthly expenditure of Rs 12 lakhs every year (not a very high amount, from what we hear from our pilot clientele). Assuming he will retire at age 65 and taking an average of 8% lifestyle inflation till retirement,  the same Rs. 12 lakhs expenditure will inflate to approx Rs. 1.75 crores. In other words, to maintain the lifestyle that costs Rs 12 lakhs as of today, Mr. A would require Rs 1.75 Crores annually to maintain the same expenditure choices, forget upgrading!

Furthermore, pilots are used to having extremely busy schedules. So when retirement hits, they are unprepared to handle the ample time in hand. Hence they always look for options to keep themselves engaged. This could mean, taking long leisure trips or finding, researching on and investing lump sums in “exciting investment avenues”, committing money to be part of a start up or just following their long drawn passions or enrol at the local flying clubs just so that they can regularly indulge their lifetime love of flying. All this comes at hefty financial expenditures.

All of the above means that Pilots would need to plan and develop customized retirement plans for themselves to ensure a smooth flight during retirement.

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As a passenger, getting from point A to B simply includes sitting on your assigned seat and enjoying the flight till the destination. You are completely unaware of the preparation and planning that goes behind every flight.  A smooth flight is an end result of the meticulous preparatory work including facing any emergency.

All sorts of emergencies can happen during a flight. Engine malfunctions, instrument failures and unanticipated weather issues are just some of the emergencies pilots can face at any time.  In such times the long hours of training, learning from past experiences and pre flight preparations comes to the front and saves the day. Sometimes passengers are blissfully unaware of the issue and continue to enjoy the flight. All this all possible because one aspect, planning! More specifically, planning for an emergency.

Yet, more often than not, pilots in the Indian aviation sector seem to be unprepared for one kind of emergency that is their own personal financial emergencies.

Personal financial emergencies can be broadly classified into two types based on nature of emergency i.e. (A) loss of job or life and (B) unexpected big ticket financial commitments.

While both can prove to be a heavy toll on one’s finances, if we look back to the last 5 years of the Indian Aviation Industry, job losses have been a major theme throughout.

Now as a pilot you earn a handsome salary starting from a young age. Hence your lifestyle tends to be on the more plentiful side.  And this only increases in significant jumps as you climb higher in your career. As such expenses are always on higher side. Luxury cars, high discretionary expenses, significant EMI’s and top notch education for children. All well within your reach. That is as long as you continue to earn that kind of money.

But what happens if you can’t? What if salaries are not paid for months or worse, you are given the golden handshake. What then? Take a step back and think about this for a minute. Ask yourself, will I be able to continue to live the life I have led so far under such circumstances; at least temporarily till I can get things back on track?

A majority of pilots will fail to have an answer to this. And that’s far from ideal!

So what should you do now? How do you start preparing for such unforeseen events? A thousand questions and ideas might run through your mind. Maybe you can get it right, maybe not. But with the help of a trusted financial advisor, who knows the intricacies of the aviation sector, you could stand a much better chance of confidently facing such troublesome periods, safe in the knowledge that you were geared up for it in advance. Exactly like handling an emergency while flying a plane.

As professionals specialized in planning for the worse, it definitely be worth your time for us to meet and discuss how to enrich your life.

Till then, happy flying!

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blog picPilots are probably one of the most stretched professionals when it comes to time management. The constant flux in schedules is always a hassle. Even when you are not flying you are on standby which means that you are still on your toes. The weekly off standard in the Indian Aviation industry is one day every week. And money matters are usually the last thing you want to tackle on such a day. Life is already stressful enough as it is!

By most industry standards, Indian pilots take away a very handsome salary. The more experienced you are, the more significant are your financial takeaways. But it is not all rosy all the time.

With the high earning potential at a pilot’s disposal, it becomes vital to channelize these earnings to fulfil a whole set of commitments and dreams that are unique to a pilot’s life, both during their career and post retirement.

But what are some of these unique problems that only pilots face? Pilots for once, have to always be medically fit. And for good reason! Priority to healthcare hence takes prime importance. Now a pilot reading this might say, oh we are covered by our company, so I don’t have to worry above covering any financial cost regarding my health. But if you really think about it, is that actually enough?

Another thing which pilots always need to be on top of is upgrading their skill sets. Not so much a unique item, but very important nonetheless. And it does not come cheap. Preparing for it well in advance can be far more beneficial than just scrapping up every penny at the last moment to fund for this expense.

One another issue is the state of aviation industry and opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For e.g.  Airlines have closed down, (leading large time periods of unemployment), pay can be delayed significantly or indefinitely. All these lead to great financial complications for pilots and their families. Preparing for such circumstances is prudent and must at all times be actively considered.

Probably the biggest challenge a pilot will face is retirement! With no more significant inflows, you are faced with a very real possibility of compromising on your lifestyle just because of a lack of proper planning and this change is not easy! This struggle can be easily avoided with some proper and sustained guidance throughout the earning years so that you can live through your golden years in comfort all the while fulfilling your passions.

Pilots are well aware of the importance of planning. Every flight involves hours of preparation beforehand so that you can take the best possible decisions in terms of route, landing approach and understanding weather patterns of the areas you will fly through, just to mention a few!

As a fellow professional with a prime importance towards professional planning, it would be definitley worth your time for us to meet and discuss how to enrich your life!

Till then..Happy flying!

 

 

 

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Independence Day normally involves a short holiday, hosting gatherings or planning outings with friends and family. I’m sure a lot of you are also targeting your own financial independence ? In fact, a very large number of investors whom we work with, when asked about their financial goals, indicate that they would like to achieve financial freedom. When we ask them what financial freedom means to them, their answer is: ‘When we do not have to work for the money and can actively decide how, when, and with whom we choose to associate in our professional life.’

Financial freedom can mean different things to different people. Financial planning allows them to be financially free i.e. decide how they wish to lead their lives. Over my years of running a practice, here are two examples of people we work with, who we believe financial planning has helped achieve the freedom to do what matters most to them.

Dr. Kumar (name changed) is a cardiologist and runs a hospital in suburban Mumbai. Irregular and long work hours mean that there is very little time to spend with his two young kids and his wife. What he really looks forward to, is spending time with his family and enjoying the kids’ growing up and continuing to stay connected with his wife. Booking and planning his holidays each year – one long international holiday, another week to ten day long domestic holiday and some weekend breaks are what he absolutely loves. The finances for these holidays are a part of his financial plan. Whilst there are clearly earmarked long term investment strategies for his longer term goals like retirement and education for the children, there are also separately defined strategies for shorter term holiday goals through the use of financial instruments that can give him the most optimal returns for these goals, on a post tax basis.

Sanjay and Rashmi (names changed) are currently 41 and 39 respectively and they have a young daughter. Sanjay runs a small sized family business and Rashmi works with a chartered accountancy firm. When most couples are just about beginning to save for their financial goals, and are looking to save for their retirement and childrens’ future, both Sanjay and Rashmi have already achieved their financial goals i.e. even if they do not save any monies from here onwards, and let their existing portfolio grow, they should be achieve their financial goals. This has been possible through a combination of a conservative lifestyle with controlled expenses, a savings rate in excess of 40% of total income, controlled use of leverage on a home loan that has been prepaid aggressively, and a diversified portfolio across equities, fixed income, real estate and gold, that is rebalanced regularly.

Just like India has had many historic events which finally helped us achieve freedom, your path to achieving your financial freedom will be a long-term process, wherein there will be struggles

and various factors which you will be unable to control. However, staying on the path to financial freedom for yourself and your family is the key to pursue your dreams.

Happy Independence Day!

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