Financial Planning - Does it really work for me? Part 2

    

In our earlier blogs, we were discussing about couple of very important concepts. The financial planning is about long term gains rather than short term returns. It’s about the plan and goals, it’s not about only impulsive investing. Financial planning is not about only investing but focusing on the big picture. Financial planning is also about using the expertise available (even at a certain cost) rather than focusing on individual knowledge that you have and that you are planning to gain from the friends and family. 

 Well, sometimes people do feel that they do not earn enough and they do believe that whatever smaller amounts they could save are just to be put in the savings account. They might think their financial planning would be very simple and straightforward. On the other hand, they might think that the rich people require the all this planning as they have a problem of plenty. They need advice on where, when and how to invest. Well, they are only partly correct.

 Commonly heard statement: The rich people and high income earners do have abundance and they would need advice on sound financial planning to invest their riches. Whereas the small earners cannot afford to even look at financial plan as they simply don’t have enough.

 Let’s look at it from a contrarian view. Though statement above makes logical sense, it would be unwise to think only like that, especially for the low income earners! Imagine you are getting a small income, but you have a family to feed, future responsibilities of theirs to tend to; as well as personal retirement savings that they should generate. Now, think who needs the plan more??!! While the high income earners would eventually end up having more money to spend on all the responsibilities and retirement, the low-income earners need sound advice and constant hand-holding to reach all their future saving and financial planning goals. Makes sense??!!

 Well, important point is even the high income earners, business people and top management professionals would need to look at their goals and planning. Have you heard about Mike Tyson, who earned more than 300 millions of dollars during his professional boxing career, but ended up being bankrupt soon after due to bad spending habits (he once spent 400 Thousand dollars on his birthday party) and not thinking about his future and retirement life. Do you wonder even with all this money made during the careers, how this no or little financial planning can break you badly… People who do not endorse meticulous fiscal planning should learn from this and many such stories. Aranxta Sanchez Vicario (14 times Grand Slam Winner in Tennis), Diago Maradona (World famous footballer), Marion Jones (3 times World Champion Sprinter) are just another few names who had to file for bankruptcy even after earning millions during their illustrious careers. With bad or no financial planning, you are simply trusting that everything will work out on its own.

Now, interestingly enough some business owners think that why should they even invest hard-earned money and profits into someone else’s business. Isn’t it most prudent to invest in one’s own business to grow your own business and reap all the benefits? No doubt this is a good thought and a practical one too. But, this means you are spreading too thin or you are actually putting all the eggs in one basket. It could become a very risky proposition, if something goes wrong. Even when businesspeople preach about diversification in their own business, and then why not think of diversifying your own investments into multiple instruments and work on a definite plan to achieve that??!! 

Haven’t we all heard the story of an Inattentive Deer?

One day, a deer is feeding on the coast. She is always worried that some hunter will come through the field and shoot her, so she feeds with her back to the sea so that she can keep an eye on the fields. However, while she is so focused on the fields, she doesn’t notice some fishermen come from the sea and throw their net over her. As she is captured, she exclaims: “ I wish only if I had anticipated this and not ignored the sea-side completely!”

There is no point putting the blinkers ON and think like the race-horse does. While the race-horse has a very short term and clear objective of winning that particular race, wouldn’t it be wise to think that we all are rather in a long haul and possibly need a wider vision and definite foresight into our financial future?  Sometimes, people get into a rut of a particular type of investment like gold investment or a real estate investment over and over, because it has yielded them results for an extended time span. But, it’s not practical to think that for your life-span that same thing is going to be the trend. It’s not feasible that the same instrument of investment will have absolutely no ups and downs, especially when you require money for some contingencies and emergencies. Thus, concrete financial plan and diversification in investments, through the expert’s advice should be top priority.

 Financial Planning is a must for the better future and better life. Now, doesn’t it sound appropriate?