| ABC of Financial Planning |
There are two facets or rather stages to this dream. The first is building enough wealth and the second is making your earnings earn for you or rather managing and preserving your wealth.
Now in order to achieve these aims, every investor does do some amount of financial planning. And they do achieve some success — at times great success. But generally there are two types of impediments: the practical and the emotional.
The first practical obstacle to financial planning success is a lack of specific numbers and goals. How much money is needed to support a present lifestyle? How much money will be needed to support a future desired lifestyle? Exactly what amount of money must be accumulated to achieve financial independence? An effective financial plan cannot exist without the answers to these and related questions. When it comes to ones own finances, many people put off answering — or even asking — them at all.
The second obstacle is resistance to actually sitting down and writing a financial plan. But here's the hard truth: If a plan is not put down in black and white it will forever remain more concept than reality.
The third practical obstacle is the lack of a road map for working the plan. Without direction for ongoing implementation over time, a financial plan's value is drastically diminished, as will be the chances for achieving a desired wealth goal.
Some people have emotional obstacles to building or preserve wealth, that can also be detrimental to achieving or preserving financial independence. One such common obstacle is lack of time. Another is the fear of actually beginning a financial plan. Many people feel they are so busy with work and family obligations that they just do not have the time to spend on their finances. Others are afraid of what a plan might reveal, or that they will not be able to follow through successfully. Ironically, as the stress of not concentrating on their finances mounts, people always seem to encounter another demand on their time ¾ and that demand often appears more important than learning how to make better financial decisions. This is a mistake.
What makes a good financial plan? Most importantly, it should be customized for each person or family for whom it is intended. But good plans do share a few key characteristics. These include:
Realism If your salary is in the Rs 100,000 range, it is probably unrealistic to establish a plan with the goal of saving Rs 1Cr. Numbers and goals must make sense.
Flexibility The plan must not be so rigidly structured that the recipient is discouraged from using it. If the plan totally restricts a person's lifestyle, the plan is not workable.
Staying Power A good financial plan is never like an exercise regimen developed as a New Year's resolution — used for a brief time and then dropped. Good plans last.
Simplicity The financial plan should lay out a road map with clear action steps, provide guidelines for how to make the best decisions on key financial planning issues, and show landmarks for gauging progress.
If these characteristics seem straightforward, it's because they are. Indeed, one of the most difficult aspects of a financial plan is recognizing one's own obstacles. Knowing what leads to failure is as important as knowing what can lead to success — and the wealth that comes along with it.
Aru Srivastava
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