Financial Planning: Does it really work for me?

Why do people avoid personal financial planning?

उद्यमेन हि सिध्यन्ति, कार्याणि न मनोरथैः ।

न हि सुप्तस्य सिंहस्य प्रविशन्ति मुखे मृगः ॥

As the antelope does not enter the sleeping lion’s mouth by itself, In the same way we can succeed in our work only if we work hard, not only from our desires.

What a beautiful verse, also known as a su-bhashit in Sanskrit or it literally means well-spoken or eloquent saying and this appears in Hitopadesha written in 8th Century. The philosophy is applicable to anything in life, anything you wish to achieve or obtain. Without any action, the planning has no meaning. Without any deed, all the propositions have no value. And such is its application to our topic of the day: Personal Finance or personal financial planning.

Today, we are going to look at what are some common reasons or beliefs that will stop people from taking the action towards personal financial planning and most importantly take action upon it. The most common reason is procrastination, exactly same as the above verse suggests. There can be tremendous plan and thought put into the personal financial goals, but without taking the concrete steps it’s all about wasting time. We have already talked about capitalizing on opportunities, even in the most turbulent markets, in our earlier blogs. (Refer: Why an investor should never let a crisis go waste) And so, stop procrastination and take action!!

Many times, investors think: Investing = Financial planning! It’s not the same; it can never be the same! It’s like only keep on shooting the rifle and hope that every shot will hit the bull’s eye! Investing without knowing the destination is obviously going to be a big disappointment if you can’t think of: a) the destination, b) how far is the destination; and c) along with that how many twists, turns and pit-stops you are going to need in this journey. Let’s relate it to three particular age-groups and you will see the difference.

Age group 20-30: The freshers from college, possibly single, no additional responsibilities, in Indian scenario probably still staying with parents… They can entirely lay out how the personal financial life can bring them independence in life as soon as possible, by having more aggressive approach.

Age group 30-40: Mid careers, recently married, young children, additional liabilities and responsibilities, possibly Home loans… They are a bit tied up currently on the liabilities front and thus the plan for personal financial freedom looks a bit complex.

Age group 40-50: Seasoned professionals, children growing up fast, possibly high monthly income potential, but limited number of years in hand… The plan for personal financial freedom looks a bit more conservative with low risk approach as you approach the retirement

For each of the scenario above, the investing is not as simple as putting money into different instruments, but rather choosing the correct path based on financial goals. This is where many of the investors make an assumption that they can keep on investing regularly, without any advice or help from the experts. The investing is just one part of it, but knowing when to divest or secure the gains / booking the profits earned before the opportunity loses its shine, is equally important.

The expert or an experienced advisor will play a crucial role to help you understand your goals and financial planning objectives better. They have been through this and done this numerous times with their clients with plenty of success and thus it’s advisable to think of this option. There is a very popular Akbar-Birbal story that we can relate this too.

Once Akbar’s wife (Begum) asks him that her brother should be made a prime minister instead of Birbal. Akbar said that Birbal is there because of his expertise and not just anyone can do the same job. Akbar’s wife (Begum) got angry and asked him to give her brother the next available to opportunity to prove his mettle. Akbar readily agreed and the opportunity just came immediately. The next day, when Akbar was looking out from his Palace window saw some settlements forming at the banks of the Yamuna river. He said to the brother “Find out what it is” The brother ran out and reported back after few minutes- “Your Highness, they are tents”. Akbar asked again “Where are they from”?. The brother ran out again and reported back after some time – “From Persia” Akbar asked again “How many people are there?” The brother once again ran to find out and reported back “675 men”. “No women?” asked Akbar and off went the brother again. Relentless questions and corresponding trips by the brother followed! Begum’s brother was already getting irritated and started wondering why the King cannot think cohesively and ask more questions in one go rather than asking one question at a time.

Finally, Birbal appeared in the court. Hearing the King, he intervened and said “Let us discuss what all we should know about that gathering near the river” They went into a meeting for some time after which Birbal went off to find out more. He was back after 2 hours. And what did he bring after being gone for 2 hours?

“The tents at the banks of the river belong to a caravan of traders from Persia. There are 675 men, 210 women and 85 children. The leader of the group is …” Birbal also reported “they have 200 horses which they want to sell and I have negotiated the price at…… I need your consent on this”. He also explained on what all benefits the kingdom can accrue from the visit of these traders etc etc. Beautiful, isn’t it!! Akbar’s wife (Begum) understood, why it is “Expert’s job”…

If you feel it’s too complex to even think about how this entire financial world works, that’s what the experts are for. It’s what they do for living and they are good at it! Using available help and resources, rather than relying upon self-help all the time, is what wise men do! Work with experts, hire them to do work; which will in turn save you time and money!!

Finally, wisdom is not about education but about execution! Let’s hear more in the next blog… 

(Part II of this blog is coming up)