Simple and Effective Ways for Better Financial Planning
Dec 22, 2015

Author: PersonalFN Content & Research Team

Riya (33), an analyst with a leading MNC at Nariman Point in Mumbai, boards an 8.22 am train from Borivali (a suburb) to reach her office by 10.00 am (the official scheduled time). The train takes approximately one hour to reach Churchgate (the nearest railway station to her workplace), and from there she either boards a bus or takes a share-cab (taxi pooling service) to reach the office with a buffer of 15 minutes.

In order to catch the train at 8.22 am, she sets an alarm for 6:00 am as she has household chores to do, after which she drops her children to school. She has checkpoints at various junctures to make sure she is on time. She needs to catch a rickshaw or a bus by 8.05 am so that she is at the station before the train arrives. By following this routine diligently, she has mastered her routine over time.

Like Riya, most of us have mastered our daily routine. We know we have to reach our workplace at a particular time; we know which train to catch and we work backwards to set the “alarm clock”, isn’t it? The routine seems repetitive and boring, but over time we’ve mastered it for desired results.

Have you noticed that this simple, everyday routine to reach office on time shares exactly the same principles with financial planning? Here’s how...

	Timelines: We know the official reporting time and work backwards considering a host of factors to set the alarm clock accordingly. In financial planning too, we have goal to achieve and ought to work backwards keeping in mind the different variables. A goal is a dream with a timeline. An example of a well-defined goal would be—I want to buy a 2 BHK house at Borivali in the next 5 years. While defining a goal, ensure that they are SMART (Specific, Measurable, Adjustable, Realistic and Time-based).
	Know yourself: Riya has decided to set an alarm for 6:00 am after taking into account the different aspects and her ability to manage them. If she would have set the alarm at 7:00 am, she would have to rush through things, which may have upset the schedule. In financial planning too, before deciding on where to invest your money and how much, it is important to understand your outlook towards money. Do not try to compete with what your neighbours do. Each one is different in their approach, following a different path. Thus, follow a strategy that resonates your values and belief system.
	Know your options: Riya has various travel options to arrive at her workplace. She could either walk, take a bus, car, or the train depending on the distance between her residence and workplace and the time it takes to travel. Each of these options have their pros and cons. In financial planning too, there are various investment avenues available to reach one’s financial goals. One could choose to invest in shares, mutual funds, pension plans, debt, or even buy an insurance plan to achieve his/her financial goals. However, a prudent practice would be to know the features and traits of each avenue and assess its suitability to one’s risk profile. You may not prefer a rollercoaster ride if you are averse to risk; if you are a thrill-seeking, adventurous personality, a rollercoaster ride could be just right for you.
	Habit: Jumping out of bed as soon as the alarm goes off is one of the most difficult things to do, especially in winters, isn’t it? The one way to manage your time well is by following a discipline no matter how challenging, repetitive, and boring it may be. Financial Planning is no different. Decide on a strategy and stick to it. For example, if you have decided to fund the marriage expenses of your daughter, 25 years from now, through a SIP , make sure you avoid the urge to withdraw the corpus until it is time to realise that financial goal.
	Buffer: We find out the importance of having buffer time only when we have a flat tire, or we miss the train, or there’s no modes of conveyance available on a rainy day. Similarly, in financial planning too, emergencies knock without a warning and can disrupt the financial plans of the family leaving them off-track and off-guard. Therefore, it is vital to provide for a contingency plan to help reduce the financial shocks faced during uncertainties/emergencies. The best way to provide for a such case is to have 6 to 12 months of one’s regular expenses in liquid funds.

When was the last time you consulted your financial planner? Do you have a financial plan in place? Have you answered the “What-If” questions? Benjamin Franklin, one of the founding fathers of the United States and a renowned polymath wisely quoted, “If you fail to plan, you are planning to fail”. The virtue of planning cannot be overlooked and its benefits have been proved. Start this discipline today, achieve financial freedom!