Financial Planning

Financial Planning

Financing planning is not just about knowing which investment instruments to invest in; it is about having the right attitude and discipline to brave tough situations and focus on your goals. In a way, financial planners are akin to psychologists or life coaches.   They go beyond financial planning; they help you nurture a habit of discipline and focused attitude towards life.

 Creating a financial plan is something any financial planner can do. But a good financial planner works on developing an individual’s mindset towards understanding the importance of goal setting, the art of balancing investments with expenditure, and the exponential power of compounding.

 We all have the ability to grow rich and contribute handsomely to ourselves, our family and our society. Being rich gives you the ability to contribute to humanity.  As you can see in this COVID 19 crisis, it is the millionaires and billionaires with progressive mindset, who have come forward with generous donations. Why? Because they have the will and the ability to create a positive change.

Seeds of wealth are created in our habits.  Habits are nothing but behavioral pattern that is repeated regularly to an extent that it becomes a part of our personality.  When you do something continuously or regularly, it becomes familiar to us, so much that we can do it without much resistance.   Even if it is something that we may abhor, we tend to develop a certain amount of curiosity or interest in something if we end up doing repeatedly.  When we develop an interest, we tend to excel in that task or endeavor, till we attain a certain amount of mastery on that subject.  This is just simple neuroscience – the more you behave in a certain way, or the perform you perform an action, the more it gets physically wired into  your brain and becomes a part of your daily routine.

 Knowledge is one of the best ways to create interest and develop the base for a good habit to thrive.   When a not-so-aware individual reads or watches videos on investment benefits,  the process of investing, the various financial products,  the power of compounding, the facts and myths that surround investment practices; she or he understands that while the  world of finance may not be as glamorous as entertainment, it is essential enough, and has the power to influence, leverage and positively impact every aspect of life.

 Every action starts with a WHY. Once you are clear about why you want to do a particular thing, you will figure out the ‘HOW’, meaning, you will look for resources that help you reach towards the goal.  Since you are already in the plan, you will begin to evaluate your progress, with the WHAT (what are you actually doing).

 Applying the above concepts to the world of investments – the ‘WHY’ is the financial goal that you have, the ‘How’ is the process of achieving that goal in a particular time frame.  For instance, the ‘WHY’ may be a big house that you want to buy in 10 years, the ‘How’ is the selection of the right asset-mix that helps compound your investments and the WHAT is the analysis of the returns that you can get at the end of 10 years. You can also weigh the pros and cons of a particular investment with the ‘WHAT’ analysis.

Habits and discipline go hand-in hand.  So, when you have made up your mind to invest regularly in the form of say, monthly SIPS, then you will develop the discipline to ensure that you stick to the plan, against all odds.  True, there can be financial hurdles, missed SIPs, crises of various kinds; but if you have set your eyes on the goal, you will continue to invest in your dream. This is because times change, and nothing is constant – what takes you through is your disciplined mindset.

 Let’s say, the 40 year old Akash wants to earn Rs. 40 lakh at the end of 5 years to fund for a house.  Here is how he can work with a good mutual fund financial planner who not only charts out a solid plan but also helps get excited about going after his goal.   The financial planner, at the same time, will keep expectations realistic and give him a clear picture taking into account his risk appetite, tax slab and future investments.

 In this case, on an average, considering a 12 percent expected rate of return, and investing Rs. 50000 per month as SIP, Akash will have invested Rs.30 lakh with earnings of 11,24,319, taking the total SIP value at  41,24,319. To reach this goal, the financial planner will help plan the right kind of asset mix, including balanced funds, liquids funds and equities to help him reach that figure.

 Of course, we cannot predict the future- the actual figure may be lesser or more than 40 lakhs, depending on various factors like market dynamics, rate of inflation, individual’s risk appetite etc.  However, one thing is for sure, if you stay invested, you are better off getting to that figure than just squandering money, being in a debt-trap, or keeping money in the bank with minuscule returns.