Personal finance had a comforting rule book for decades: save and invest, buy fixed deposits, get insurance coverage, retire at 60, and live on interest. These thumb rules were suited for a less complex and less unpredictable world. Today, that world is a distant past. The paradigms that dictated the way and means for managing finances by Indian households 10-15 years back are rapidly being made redundant, as twelve expert financial planners told The Economic Times.
The modern investor is presented with a completely different set of circumstances, including unstable job markets, increased longevity, lifestyle inflation, technological change, and rising costs of healthcare and education. Modern financial planning has shifted from thumb rules to adaptability, practicality, and behavioural control.
Buying Advice is No Longer an Option
One of the most important paradigm shifts here is the acceptance of the fact that quality financial advice comes with a cost. Previously, investors felt that they could easily “do-it-themselves” by following free tips from banks and distributors. This is not the case really; quality financial advice ends up saving investors much more money compared to its costs.
This is in line with the trend seen across the world. As Vanguard founder John C. Bogle aptly observed, “The most important investment you can make is in yourself.” India too has seen investors realize the importance of making investment plans in areas related to asset allocation, tax planning, and risk management.
The Effects of Inflation on Economy
One of the most problematic outdated assumptions could be underestimating the rate of inflation. Even the earlier designs involving retirement assumed a 5-6% rate of inflation, whereas current designs indicate that actual inflation is significantly higher. Education and healthcare inflation in India itself is pegged at over 10-12% a year
Take, for example, the cost of schooling that was ₹50,000 per year in the initial years of the 2000s to which it has now risen to over ₹3-4 lakh in the urban areas of the country. Similarly, medical breakthroughs that save lives also tend to be expensive. The retirement corpuses that are accordingly calculated will soon get exhausted even before the expiry of one’s time to stay in this world.
As Warren Buffett wisely pointed out, “Inflation is a far more devastating tax than income tax.”
Insurance: Bigger, Smarter, & More Layered
The pandemic has drastically altered the perception of adequacy in health insurance. An insurance cover of ₹5 to 10 lakhs, which was adequate in the past, is no longer adequate in current circumstances. Financial planners suggest planning ahead and thinking of the cost of a major ailment in the next 20 years. The answer requires a higher basic cover accompanied by a top-up policy.
Correspondingly, the need for life insurance cover has moved from simple multiples of earnings to need-driven calculations, including current liability, future objectives, and the maintenance of dependents, and not the “10x income rule.”
Debt, E.M.I.s, and the New Urban Reality
The age-old guideline that EMIs cannot be more than 40% of the net salary too has undergone a transformation. With the rising cost of realty in India’s mega-cities, along with dual-income families, the EMI ratio as high as 55% may prove feasible for those with stable jobs. However, experts warn against lofty unsecured debts that need to be strictly managed.
This is in line with worldwide prudence. Stability begets instability. As economist Hyman Minsky explained, “Easy money can lead to instability because stability breeds instability.”
Equity Allocation: Age Is Not the Only Variable
“100 minus age” equity principle, which had become a popular norm in the past, is gradually turning outdated. With people living longer after retirement and fixed income generating low real returns, senior investors too may require equity investments. However, the new formula now is “Equity till Need, not Age”
This approach finds relevance in global asset allocation strategy, such as David Swensen’s endowment strategy, which stressed growth investments to maintain purchasing power over time.
Gold, Diversification, and Portfolio Balance
Gold, historically restricted to allocations of 5-10%, is also under consideration as a strategic diversifier in uncertain international scenarios. Certain strategists recommend increased allocations for those familiar with gold’s volatility and as long as there is a well-balanced approach
Families in India have always instinctively prized gold. “In uncertain times, conservatism and balance are virtues, not weaknesses,” N.R. Narayana Murthy perceptively observed.
Retirement and FIRE: More Realism, Less Fantasy
Retirement planning has become more scientific and paradoxically more conservative. The commonly cited 4% rule for withdrawals, which was adapted from developed economies, is fast being considered unrealistic for India because of the more significant contribution of inflation and the absence of sufficient social security provisions. The new norm is that of 3-3.5% withdrawals and the requirement of saving 25-35 times the annual expenditure on retirement planning for those who choose the ‘FIRE (Financial Independence, Retire Early).
Making it even more complicated is the fact that many professionals will not work until they reach age 60. Because of automation, artificial intelligence, and cost-cutting, functional earning years may soon shrink to approximately age 50.
Start Early, Stay Flexible
But more consistent advice offered by every investment planner: start early. A person aged 25 will require very little of the current outgoes that a person aged 40 will require in order to attain similar benefits of retiring. Compounding continues to be its greatest asset in building investments. As Albert Einstein is famously quoted (or maybe only attributed, but certainly accurate): “Compound interest is the eighth wonder of the world.”
Conclusion: From Rules to Reasoning
The breach of old money principles is not a crisis—it is a chance. For investors who have traded rigid principles in favour of intelligent thinking, informed assumptions, and intentional action, the current environment presents a tremendous advantage. The practice of financial planning has changed from accurately predicting markets to becoming resilient in the face of uncertainty. Because in a world where the only absolute is change, the one asset that will allow us to thrive is adaptability.
Dr. Prahlada N.B
MBBS (JJMMC), MS (PGIMER, Chandigarh).
MBA in Healthcare & Hospital Management (BITS, Pilani),
Postgraduate Certificate in Technology Leadership and Innovation (MIT, USA)
Executive Programme in Strategic Management (IIM, Lucknow)
Senior Management Programme in Healthcare Management (IIM, Kozhikode)
Advanced Certificate in AI for Digital Health and Imaging Program (IISc, Bengaluru).
Senior Professor and former Head,
Department of ENT-Head & Neck Surgery, Skull Base Surgery, Cochlear Implant Surgery.
Basaveshwara Medical College & Hospital, Chitradurga, Karnataka, India.
My Vision: I don’t want to be a genius. I want to be a person with a bundle of experience.
My Mission: Help others achieve their life’s objectives in my presence or absence!
My Values: Creating value for others.
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Dear Dr. Prahlada N.B Sir,
Wow, your article on rethinking financial planning is a masterpiece! 💡 You break down complex concepts into actionable insights, and I'm inspired by your emphasis on adaptability and practicality.
Your points on inflation, insurance, and equity allocation are spot on! 🔥 Seeking quality advice and starting early are keys to success.
Thank you for sharing your expertise, Dr. Prahlada N.B Sir. Your article is a must-read for anyone navigating today's financial landscape.
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