Investing without planning is like driving without directions.

If you drive aimlessly, you will only end up burning fuel.

Similarly, when you invest without a specific purpose or goal in mind, you often end up misallocating your money.

You might miss some beautiful moments of your life owing to the misallocation of your financial resources.

Imagine this,

How would it feel if you can’t send your children to a college of their choice due to a money crunch?

And the worst would be to retire without an adequate bank balance and living like a parasite. Your children may not make you feel that even for a second, but won’t it hurt your self-esteem? After all, you didn’t want to depend on them even for pettiest of the things.

And how about buying imitation jewellery for your daughter in her marriage; because pure gold jewellery costs a bomb and, you are scared it may drain your resources. Perhaps, you may avail of a personal loan and buy her a delicate necklace and a pair of bangles. But you will have to repay that loan in the future. You have too much self-respect to stoop low and wilfully default, like many industrialists have.

Consider this scenario too…

You promised your family a vacation in Seychelles, but you had to settle for Thailand in the end because the former was out of your budget.

How to safeguard yourself from being in such awkward situations? It’s pretty simple.

1. Don’t blindly follow the investment plans of your friends and relatives
2. Before you spend, invest
3. Before you invest, plan
4. And before you plan—ask yourself—what you want to do with the money you are investing
5. And set a clear time horizon for all your investments

When you invest in stocks and mutual funds your friends and relatives invest in; you forget two things:

1. Their financial circumstances might be different than those of yours
2. Their risk appetite might be higher/lower than that of yours

Probably your friend can withstand a notional loss of Rs 1 lakh made on his investment portfolio because he’s a long-term investor. You might imitate his/her investment pattern, but in case you need to withdraw money for an emergency, these funds will be what you fall back on. Under such circumstances, can you absorb the loss of Rs 1 lakh?

There’s one more trouble with many of us. We spend first—without paying any heed to what Certified Financial Guardians tell us. The sensible approach is first to save for the future.

Before you invest, it’s always better to take stock of your needs. Unless your investment portfolio is in accordance with your financial needs, there’s a chance of inviting disappointment at a future date.

This is why a personalised financial plan is a must. It gives you a clear-cut roadmap for your financial journey. A personalised financial plan measures the distance between your current location and your destination as the first step. Then it checks whether or not you have enough time to reach your destination. It offers you various routes to reach your destination. Some routes might be short, but full of pitfalls; while others might be longer, but relatively safe. A personalised financial plan identifies your proclivity to suggest a suitable option to you. It informs you of stopover destinations, as well as offers you a pilot view of all scenarios that might possibly unfold. A well-crafted financial plan cautions you against all safety threats and also provides remedies.

To be specific, a sound financial plan considers your financial objectives, current stage of life cycle, available financial resources, and time left in your financial goals falling due. Based on this, it gives you guidelines to make your dreams come true. Children education, marriage, retirement or exotic vacation—all of this might be in your reach if you follow your financial plan meticulously.

Haven’t yet created a personalised financial plan? No need to panic.

It’s never too let. You may try to touch base with a Certified Financial Guardian in your neighbourhood and get it done as soon as you can. Certified Financial Guardians would suggest a suitable asset allocation plan —a blueprint of which assets you should hold with their tentative proportions.

Creating a financial plan isn’t the end of a journey. It’s just the beginning. You should periodically revisit your financial plan to see if it’s capturing all latest developments of your life—promotions, pay-hikes, and job change among others. A periodic review of your portfolio would ensure your investments are well-aligned with your financial goals.
 

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