In our interactions with several investors, we have identified a few reasons as to why you say NO to financial planning.
Without ado, let’s look at those reasons.
Reason #1 I am just a beginner
All you want to do is some tax saving and park your money for long term growth. You already are doing your EPF contributions and saving some money in FDs. You also plan to open a PPF account. Now all this is great. However, I find this saying that I am building my house for the first time, so all I will do is put a wall here, a wall there, a window here and a window there, get some labourers together, buy cement and stones and get the house up.
Is that how you you will build your home? No. Then why are you putting the cart before the horse when it comes to money? As a beginner your need to plan is much higher than anyone else. Financial planning gives you clarity. Plans may not work out exactly but it gives you direction to move in. Hence, you must plan.
Reason #2 I am just not a planning person
Say that when you are traveling with your family. You plan your travel, don’t, you? From the decision about which place to go, which dates, applying for leave at work, to which flights, hotel, food, etc., you put in everything down and book everything well in advance.
You do this because you don’t want any unpleasant surprises later. You do your best to avoid them and make the travel a pleasant experience for everyone. This is exactly what financial planning does to your money too.
You decide your financial goals, when are they likely to happen, how much money will be required to fulfill them and so how should you be channelising your money today so that you can meet the goals well in time and not have any unpleasant surprises later. So, it is highly likely that you are a planning person. You just have to apply the same principles to your money.
Reason #3 The future is uncertain
It’ true. No one can predict the future. At best we can prepare ourselves to handle it the best way possible. In this process, we use best guess / estimates as a guiding tool. Don’t you find yourself saying, “With the traffic, it will take me approx 30 minutes to reach there.” That does not in any way guarantee that we will be absolutely precise.
It is the same in financial planning. Take your retirement, for example. Today if you are spending Rs. 50,000 on your monthly expenses, in 20 years, assuming prices rise by 8% every year, you will need close to Rs. 2,50,000 per month to be able to maintain the same standard of living. The prices keep rising every year from there on. Now, your actual need could be higher or less than this. But it is good estimate to work on.
The questions that you need to ask is do you think you are ready to meet that goal even with this estimate? Will your post retirement life be without any financial stress?
Reason #4 Planning is for rich people
There cannot be a bigger myth than this. The purpose of planning is to “deploy scarce resources to their most optimum use“. Here is what Wikipedia has to say on planning – “a series of steps dedicated to achieve a defined goal”.
Now, who is more likely to have scarce resources – the rich or a middle class person like you?
We must understand that the rich became rich because they planned their way to becoming rich and not because they just let things happen. They applied a method to multiply their money and capital resources. There is no reason why you should not do the same. In fact, you as the middle class person with limited resources, need it more than anyone else.
Reason #5 I don’t want to pay a fee
You don’t have to. You need to have the willingness to put your own time and effort and you can have a basic working plan for yourself. All you need is thinking and an excel sheet. There are several templates available on the internet that you can use. In fact, for retirement planning, you can use this sheet by Unovest. Click to read and download.
You need to pay a fee only when you wish to engage a professional advisor or financial planner who can help you explore deeper your relationship with your money and help you set on the right path with financial planning. A lot of investors have the tendency to jump directly to the investments – mutual funds, insurance, FD, PPF, etc. They don’t see how those investment fit in towards the achievement of various financial goals.
Remember, plan first and then execute. It will bring clarity and discipline to your investments.
Let us leave you with the old saying – “When you fail to plan, you plan to fail”.