Photo by Quang Nguyen Vinh from Pexels
There is something very appealing about a well-planned plate of food. The colours are not only pleasing to the eye, but the greens and yellows also present a balanced meal that satiates one’s appetite. Planning a meal, however, is a much simpler task than indulging oneself in the throes of financial planning and budgeting. Nevertheless, we all know that both health and wealth are important pursuits that make up a good life.
Only children can afford the luxury of time...
Sometime back, I ventured into the delicate zone of probing my 8-year-old boys about what they want to do when they grow up. After I got a banal ‘I don’t know’ from one of them, I didn’t stop at that exact response from his twin and probed a little. “But, surely you must have some idea.”
To this, his exasperated response was, “Mamma, I am 8 and a half years old! I have my entire life ahead of me!” At this point he smartly followed his brother out of the room.
It’s not just children who find it hard to visualise the future, I don’t think even at 25, I could have planned where I am rooted today. The difference is that, children have the luxury of time, at 25 I was already running out of time. A child’s essence lies in embracing curiosity and innocence, as adults, we need to find a modicum of foresight to enable favourable outcomes that will serve us well in future. I have never been much of a planner myself; it requires too much organisation. Nevertheless, I do like the idea of planning, of knowing what outcomes can potentially look like in future.
Today, armed with the weapon of hindsight, I can firmly state that my younger self should have planned finances better; maybe my ideas around planning never involved financial growth and that’s where the mistake was made. Having corrected course, I am now tempted to put out this note for all the easy-going young adults, who find it easier to spend ₹1000 on a post work movie + dinner, than invest it gainfully.
Planning need not be too scientific; you don’t have to plan an exact outcome. Rather have a framework for the future. If circumstances change and your position is already above planned estimates, be in in terms of finances or any life situation, count it as a bonus. If not, then what you have gained as a result of planning is a cushion for the future.
Let’s understand this in context of various examples of events through one’s lifetime.
Buying a house
In India, we are always in a hurry to buy a house. As soon as one starts working or gets married, the dream is to own a house. If you have read my previous blog “Should your first asset be a house?”, it’s clear I don’t advocate buying a house in a hurry in the current real estate market dynamic. A slightly more dated article I wrote while I was at MINT, will tell you why.
But home buying is more an emotional need than a financial one and hence, home you will buy at the earliest opportunity. What you need to think about is how you can plan it better. Don’t get me wrong, I am not talking about relentless savings over decades before taking the home buying plunge (although that would be ideal), rather what I want to highlight is planning your life in that house.
Before you make the commitment to buy, why not rent in the location for a year. See if you like the parks around there, or the neighbourhood grocer. Are there enough handymen in the area for electrical fixes or plumbing? What kind of travel time are you dealing with daily, are your neighbours tolerable? Do some of this homework before buying.
Closer to your decision, look into the builder profile, especially if it is an under-construction house. The plight of homebuyers stuck with bankrupt developers and unfinished homes is too heart wrenching to overlook. You can’t always plan to avoid something like this. But what you can do is plan not to buy under-construction units, they will be cheaper but in this market the risk of non-delivery is too high.
So, planning here means experiencing the lifestyle before committing huge sums. Don’t let your emotions overtake prudence.
Spending on lifestyle
This part has a bit of both planning and budgeting. How many times are you stuck wondering at the end of a month, where all your salary got spent?
Leave me an email or a line in the comments section if you are one of those who is not able to save by the end of the month.
Then after some calculations, you realise that you are spending more on your weekend night outs than you make in a month. Not only is salary getting spent, but savings too. If your parents are filling in this luxury gap, you are lucky, at least till the time you don’t go through their savings pile too.
I agree that in today’s times of hyper consumerism, all spends can’t be planned. There are too many temptations with too much ease of spending on them. But, if you want your future lifestyle to also have some luxuries, start limiting your spends. Keep a budget each month and try not to exceed it.
If you like going out on weekends, plan it so that twice a month your weekend dos are at reasonably priced outlets or better call people home. The other two times you can pick the more expensive outlets.
If you like travelling frequently, plan the next destination as your current travels near an end. That way you can buy tickets early and save on costs.
Saving and investing
You can be prudent about your lifestyle without overdoing the planning and budgeting. What about investing? Can’t think of any goals? Not married, no children, too young to factor in retirement?
That’s fine. Your goal can simply be wealth creation. The facts we have to rely on are that you will get older and some day retire. If there is one lesson time has taught me, its to start investing for wealth creation as early as possible. Back when I started working, most people looked towards real estate to provide this wealth creation. Moreover, investing in stocks and mutual funds was not as inexpensive, organised, easy to access and flexible as it is today. We still had to fill up multiple forms for broking account opening and cut cheques for mutual funds.
Now, you can start investing ₹500/₹1000 easily within an hour whether you pick a mutual fund or a stock. Its as simple as downloading a mobile application and linking your bank account. If you can do that for PayTM and Amazon without planning or budgeting, surely you can do that for a robo advisor, broker or a mutual fund distribution platform.
The bottom line
Don’t be bogged down by the idea of planning and budgeting, simply start acting. Its never been easier to execute – even without a plan. There will come a time when you regret not acting sooner, before that happens why not try. Simply, begin with ₹1000 a month and invest in a diversified equity fund; wait and watch where that takes you in two years. If you don’t want to start out with equity risk, consider putting that money in a short-term debt fund and see the result. Simpler still, build your savings habit by putting aside small amounts in a liquid fund.