Nikhil Mehta, a hot shot pilot in his late thirties, lived in Mumbai with his wife Nikita and 2 daughters Riya and Jiya (5 years). Infact like most people (with high disposable incomes who are still in consumption phase) , financial planning, risk management & retirement planning seemed like very complex and far off things. Flying is one of the most coveted & glamorous professions with excellent remuneration. However with all the temptations around and the need to maintain a certain lifestyle can have a toll on a pilot’s income.

He had all the best gadgets, a beautiful home (with a hefty loan, a big car, club memberships and credit cards to boast off. On the surface things looked fine but his overall finances were exposed to several key risks. He always felt that there is time to plan and why plan now. However a few months back, one of his close friends died in a car accident and he could see the trouble his friend’s family was going through.

1. He had minimal medical for himself and his wife with no cover for his daughters.
2. He had no critical illness and disability cover. There was a history of cancer and diabetes in his family but again there was no financial protection against these situations.
3. His family was exposed to the biggest risk that all Pilots face today: Loss of License. He had some minimal cover from employer and some from his association’s policy.
4. He was paying several Lakhs as life insurance premium but had a very low cover.
5. He had a hodge podge of investments that were accumulated over a period of time.
6. He had a personal loan at 18% to do his course and maintained a few Lakhs in his savings account earning 3.5%.
7. There was no Will and some investments did not even have a nominee.

When I got these points across to him, Nikhil understood the gravity of the situation. He started to question himself on what would happen should he be temporarily or permanently grounded. He told me that “ I had borrowed funds from my parents to do the flying course and I have seen the tough times we have faced. However when money started coming in, I felt rich and got around buying things to feel rich. I always felt I will invest once I am settled and now 14 years have passed. I have not even pursued higher education because I got paid so well that I felt I do not need anything else. In case of grounding I might be unable to take up another career. I didn’t even introspect or think once on what would happen should something happen to me or this inflow stops. Pilots face the risk of death every second they fly. Will I or my family be able to maintain our lifestyle in case of a contingency? What should I do?”

1. Loss of Flying License can have a significant impact on income and career prospects(low probability and there are insurances available on this front)
2. Lifestyle expenses being on the higher side sometimes results in lower overall savings. In case of any grounding, their income can often reduce to zero with sizeable impact on their finances.
3. There is often no critical illness or disability benefits to them
4. Pension Benefits are minimal and this creates a sizeable shortfall to fund retirement income needs.
5. Lack of time for making prudent financial decisions.

Hence the key issue is to have a sufficient corpus on retirement to maintain a certain lifestyle and provide for medical contingencies.

Nikhil’s  goals were simple
1. To maintain lifestyle by having a Post tax retirement Income of Rs. 200,000 per month in today's rupees.
2. Provide Rs. 50 Lakhs each for his 2 daughter’s education.

3. Clearing off all liabilities and to ensure family’s lifestyle is maintained should something happen to him.

4. To provide for medical contingencies.

Cash Flow Statement.

1. Nikhil’s savings were decent but most of it was going into costly and low return endowment policies from LIC and home loan EMIs. He had stretched himself and was paying almost 50 % of his post tax income in EMIs and insurance premiums. He was getting a paltry 4-5 % return on his insurance but was paying minimum 5 % costs on his policies every year. Additionally he had a personal loan of Rs. 1 Lakh at 18% that needed to be cleared off.
2. Majority of his networth (73%) was tied to his real estate and car. His investments just formed 27% of his networth which was poor considering his income of Rs. 5 Lakhs a month. Additionally majority of his investments were illiquid ones and hence in case of any contingencies there was very little to fall back on.
3. The cover that he got from the life insurance policies was dismal and should something happened to him, his family would have got just Rs. 60 Lakhs which is not even enough to pay off liabilities (let alone managing their expenses).
4. His debt exposure was primarily through insurance policies which were very low return ones. There was negligible contribution PPF and no voluntary contributions to PF. His equity portfolio was in the form of several policies, 4 mutual funds and 3 stocks.

1. Instead of keeping an Expenses budget, we created a Savings Budget and ensured that he saved around 30 % of his monthly income. We decided to put this on Auto pilot through Voluntary contributions to Provident Fund, and Systematic Investments in Liquid Funds (that could earn 5.5-6 % post tax much higher than 3.5 % pre tax returns on bank accounts) and Equity investments. The idea was to first have around 6 months of expenses in liquid & safe forms of investments. We ensured that we paid off personal loan and accumulated around Rs. 8 Lakhs in the first few months in terms of liquid funds.
2. We then surrendered most of the life insurance policies and bought the premiums down to Rs. 2 Lakhs (Term Plan premium included) while at the same time raising his cover to Rs. 2 .5 Crores. This was done by taking a Term Plan (a Pure Risk Cover) of Rs. 2 Crores for which the premium was Rs. 70000 per annum. This improved the cashflows dramatically and we were thinking now of prepaying the home loan and increasing the monthly investments substantially.
3. We increased medical cover for every member in family to Rs. 5 Lakhs.
4. Nikhil bought a Cancer Insurance Policy from Cancer Patients Aid Association for him and his wife. 
5. We ensured that critical illness riders were taken on life insurance and there was separate protection for disability and accident.
6. We also advised him to form an association with his pilot co-friends so that they should share disability and critical illness related risks beyond what is available to them through insurance companies.
7. We ensured that he maxed out his Loss of License cover by opting for the highest cover available.
8. We started Monthly Systematic Investments in the mutual funds and stocks that we identified and decided to add to our existing positions on every 5-7 % fall in the market. This ensured that surplus cashflow just did not lie idle and was deployed productively when available.
9. Since Nikhil fell in the highest tax bracket, any investment in debt should either be tax free or tax advantaged else returns would be very low post tax. Tax Free investments such as PPF, EPF and Voluntary contributions and tax advantaged investments such as Fixed maturity plans were used.
10. We also created a Health & Contingency Corpus that would ensure taking care of the family to the tune of Rs. 50 Lakhs.
11. We created a Will and ensured that all bank accounts & investments had his wife as joint holders. 
12. We decided to review the plan every 6 months so that any changes in the external and internal environment could be taken care of.

All pilots will enter the cockpits only after knowing where they would be flying too. When it comes to their profession, they are very clear about the origin, destination, altitude, and different nuances required to succeed in the profession. However when it comes to making financial decisions , most are at a loss of words when it comes to talking about what their destination could be. It’s understandable that the very nature of the profession leaves little time for making prudent financial decisions but at the end of the day taking a holistic view of their overall finances is something pilots must certainly take up on a priority basis.

A sound financial strategy that will look at every aspect of personal finance right from cashflow & debt management , loans , all risks that a pilot faces , how best to address these risks ,investments , retirement and estate planning is paramount for success of any pilot today. Your ability to address this today can ensure a smooth landing for you.

About the Author:
Amar Pandit, a Certified Financial Planner, runs My Financial Advisor (MFA), a boutique financial planning firm that helps all Cadres of Airline Industry professionals, Pilots Corporate Executives, Business Owners, Doctors, Celebrities to make smart and informed choice about money.

We at MFA help you avoid costly mistakes and achieve your financial goals. We tell you how much you should save, what kind of loans should you have, are you paying too much interest, what kind of contingency planning you must do, we identify all financial risks that your family faces, whether you have appropriate life insurance, are you paying too much premium or whether you need to surrender or chuck out certain products. We then create an asset allocation strategy & portfolio, how best each of your goals can be addressed, tax planning followed by estate planning (be it wills, power of attorney and trusts) and finally any legal advice that you might need.

We evaluate each and every product launched in the market and let you know only if it’s appropriate for you. We do not overload you with irrelevant information and statistics. If however you are intrigued by a billboard and wish to talk to us, you are most welcome to call on to us if this offering is appropriate for you or if you like more information about it.

We are on call for you anytime and we look forward to be your trusted advisor for life.

In the airline industry besides pilots we also help engineers, crew, pilots and co-pilots.

Amar can be reached at amar.pandit@gmail.com. Do visit our website www.myfinad.com