Financial Planning Simplified!

Life is what we want to make it. We all know that.

But, we forget the larger picture and get caught in the minutiae - like completing the mundane tasks and chores. For many of us, these meaningless activities fill-up our waking hours, shift our attention away from truly important activities that would help us glide towards fulfilling our important goals.

Coupled with this, we get lulled into a false sense of security, going by the money we are currently making. As long as we are earning well and the bank balance is good, thanks to the monthly pay cheque, we have a misplaced sense of well-being. The thinking is that there will always be enough to go around! That need not be true when the income stops, unless a corpus had been built for the retirement period.

We also underestimate the amounts required for various other significant goals in life – children’s education for instance. It is best to start putting aside money early, towards important goals. Else, when we are nearer the goal, there would be a scramble to accumulate the required corpus. If the amount falls short, many times we tend to use up the money put aside for other goals or allocated towards long-term investments. More often than not, retirement corpus is the fall guy!

So how does one get these right? The following are the steps -

1. Set goals - For starters, one needs to list the goals and prioritise them. While short-term goals may clamour for attention & may seem important given the proximity of the event, it is better to keep the larger context clearly in view and allocate resources.
2. Budget for them - Arrive at a budget for each of the important goals. For instance, children’s education may be a very important goal and as a parent one may want to do the best. But that cannot be at the cost of one’s own retirement funding, for instance.
3. Stay within budget – It is important to not overreach and vault over what one has provisioned. That may most likely affect another goal.
4. Invest appropriately – Invest such that the tenure, liquidity needs, risk-return profile of the investment, taxation aspects etc., are all in line with what is suitable for a goal. Many make the mistake of investing in certain instruments and finding that in some way it is inappropriate. For instance, investing in a land for child’s education and not being able to sell it or finding it has been encroached upon, can cause serious problems.
5. Review – From time to time, the investments need to be reviewed and any changes required need to be carried out. That will ensure that the investments done stay relevant to the needs.

When the goals are set after proper thought and there is a plan to eventually achieve them, it results in a feeling of control and peace of mind. Once there is a plan, it needs to be put into action and should be relentlessly followed through.

The above is a simple guide to ensure financial wellness & achievement of goals on time. With a plan, we all can make our dreams come true!

Author : Suresh Sadagopan   |   Article published in LinkedIn on 20/02/2015

www.ladder7.co.in