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Why financial planning should be dull and boring - Outside View by PersonalFN

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Why financial planning should be dull and boring
Feb 29, 2016

Have you heard the term "Numerophobia or Arithmophobia"? If you haven't, then the two represent a fear for numbers. If you were one of the backbenchers who dreaded a math lecture during your school days, appearing for the exams must have been a bigger ordeal. The numbers and calculations perhaps may have spun you 360 degrees and left you befuddled.

But to this day, numbers and calculations are a part of our lives. Whether you decide to go to the market to buy grocery, or decide to buy a beautiful outfit or foot a down payment for your dream car-numbers and calculations have been with you always! For a person who has grown up hating arithmetic-the exercise could be stressful, confusing and even daunting (Thank God for Blaise Pascal who invented the first mechanical calculator).

Financial Planning, today's market buzz word, seems no different. Most financial planners come out as whiz kids who throw around financial jargon, and ask nerve-racking questions to non-finance people. Unfortunately, many financial planners haven't been able to put across the philosophy towards life and money, while advising clients. All they have resorted to in enormous number crunching on excel and doling a financial plan which is nothing more than a trophy in the showcase for clients!

This leaves an investor with common questions such as - Can financial planning be free of jargons? Can it use words that are easier to understand, strategies that echoes one's outlook towards money and can it ever be simple and easy to implement?

Yes, it can! Here are a few simple everyday approaches that can be easily implemented by an investor:

  • Know thyself: The first step, before deciding on where to invest your money and how much, is to know your viewpoint towards money. Psychology plays a very important role in deciding where we would like to invest our money. Life experiences and the family upbringing have also shaped our outlook towards life and money. For instance, by nature, most Indians are risk averse. The word "GUARANTEED RETURNS" immediately appeals us, and we prefer to invest in avenues where the principal amount is safe. It may not be wise, but that's our immediate reaction when asked about investing.

    "When you know yourself, you are empowered. When you accept yourself, you are invincible" - Tina Lifford

  • Have a to-do list: An ideal way to get anything done is to put it down on paper with a timeline-whether we decide to guy groceries or purchase a gift or plan to attend a wedding. A to-do list keeps us focussed on the tasks at hand and helps celebrate success of achieving the task by striking off the points.

    A to-do list in place when it comes to your investments is also handy. As it is said, "If you don't know what you want, you don't know what you need to achieve to get there". Hence, write down your financial goals- and be specific - what kind of house you want to buy, the school that you want your children to go to, the wedding that you have dreamt of etc. Make sure you put a timeline to achieve these goals.

    "A dream is just a dream. A goal is a dream with a plan and a deadline" - Henry Mackay

  • Pay yourself first: The common approach towards investing is paying off your bills as early as possible and saving whatever is left (Income - Expenses = Savings). However, with the mounting costs of living and unending bills, little remains at month end to allocate towards our financial goals.

    However, by setting aside a portion of your income towards your savings before you pay the bills or buy groceries or do anything else (Income - Savings = Expenses) will leave you with a sizeable investible surplus or pool of money for you. By following this rule, psychologist say, you end up mentally establishing saving as a priority and build sound financial habits.

    "Don't save what is left after spending; spend what is left after saving" -Warren Buffett

  • Don't put all your eggs in one basket: This adage is apt for investments. Today, there are lot of investment avenues available; but rather than helping investors, it has left them baffled leading investors either take a wrong decision or procrastinating it.

    The broad investment avenues today are-Equity, Debt, and Gold. The common sense way to investing is to allocate 1/4th of one's savings across all the asset classes

    So for example, if you save Rs 10,000 every month, allocate Rs 2,500 (1/4) to equities, debt, gold, and hold some cash that can help you in emergencies. This will help you diversify your portfolio and act as a shock absorber to the market movements.

    "Asset Allocation is not that different from what mom told us growing up: don't put all your eggs in one basket" -David Lampe

  • Have a Plan B: We all want a happy and peaceful retirement, having achieved all our goals and repaid debts by then. But there could be unforeseen circumstances in life which could throw us or our family off track and off balance. It's wise to provide for a 'rainy day' by buying an optimal life and health insurance cover.

    "The most successful people are those who are good at Plan B" -James Yorke

  • Discipline: The corner stone of success in any discipline is discipline. It brings a razor sharp focus to one's actions and produces results continuously that match one's expectations. This principle applies to the art of investing too.

    Dieting is easier if you don't have a half-eaten cake staring at you when you open the refrigerator door. And successful investing is easier; too, if you limit the temptations to act badly.

    "We are what we repeatedly do. Excellence, then, is not an act but a habit" -Aristotle

To conclude...

Investing and financial planning should essentially be dull and boring, and not as exciting as what the media or other folks may make out to be. Following some basic approach to investing as highlighted above can help you put build a foundation for wealth creation and achieving your financial goals.


PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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