This is not a dismissive statement as it may come across to some of you! It’s a genuine attempt at ascertaining whether you need financial planning or not. To establish this, answer the two questions below.
- Do you have dependents?
- Do you have goals for your future?
If the answer to either of the questions is a YES, then you need financial planning.
Financial planning sounds like a heavy term, but in reality, it’s a simple process. It’s more about moulding behaviour than anything else. There are three simple steps which can be repeated once a year to start off with a simple yet comprehensive financial plan.
- Take stock of your expenses – This means, write down all your expenditure for a month and compare it with your monthly income inflow. Now determine, whether you are spending within your income or more? If you are spending more, the excess is either lying in a credit card balance somewhere or in loan repayments or in the gap in your parent’s or your friend’s bank account.
Don’t fool yourself into believing that you can achieve any of your life’s goals or manage expenses for those dependent on you if you aren’t yet able to manage your expenses solely out of your own income.
Your first step really is to get on spending in order and ensuring that your expenses don’t overtake your monthly income.
This period of lockdown is the best time to start, sitting at home, with minimum access to frivolous spending you can easily take stock and understand where your excesses were, what you can cut back on and where you must continue to spend.
- Write down your goals – Your goals may pertain to your dependents or to yourself. If you have a family to support, some of your basic goals will be about their future security. If you support your parents, you will be concerned about their future expenses too.
If it’s just you, even then there could be goals. You may want to own a house or a farm or have a travel budget or have a higher education goal that requires you to save up. Whatever your goal, ideally have a financial plan to cover it.
Writing down goals helps in visualising them. Also, you are more aware and will take conscious steps towards achieving them. The financial plan around your goals will not only ensure that you achieve it, but also that you insulate what you need for these goals from sudden market crisis similar to the one we are in today.
- Find an advisor – The advisor will help you implement and fix what’s not working when you try to match your inflows and outflows or when it comes to achieving your goals through the right type of investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More plan. An advisor will also help you undertake the required steps to insulate your goal linked savings from external pressures. In times of crisis, like what we have today, there is always the possibility that cashflows change, you may lose your job or have to deal with a pay cut. However, if you have planned well and implemented it well, you can achieve a lot of what you set out to despite the sudden pauses.
Advisors come in many packages. There are online advisors, there are human advisors and there are distributors. Whoever you pick, ensure that the advisor is adequately qualified and has a financial planning tool for you rather than just investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More suggestions.
Hope this has been useful to figure out whether you need a financial plan or not. Stay tuned for the next update on Three questions to ask your advisor.
[…] Viewers, please bear with us as this interview has been recorded on Zoom, the picture clarity is not the best. However, I guarantee you won’t have a complaint with the content. If you were confused about what financial planning entails and whether you should start with it or not – watch this 10 min discussion with a young planner who got the awareness early in life.Also, read this beginner’s guide. […]