Skip to content

Financial Planning is not just about numbers and calculations..How?

Title of this post will really make you wonder, isn’t it? How is it even possible, when you talk about ‘finance’ and then say there are things more than just numbers? When this is in the context of ‘financial planning’ , it lets you wonder even more….

Well, a recipe of a ‘financial plan’ is made perfect when , along with calculations and numbers, you add and consider other equally important ingredients to it!

Nowadays, almost all websites by financial service providers are loaded with various calculators. Be it calculating your home loan EMI, or getting required amount of SIP for your children education or getting insurance cover for you.

People take help of these calculators when they invest and plan for their finances on their own and plan for their goals .

But getting your dream home in future, seeing your children getting good education in institution of a repute is just about calculations??

Being a practicing certified financial planner, I do agree that , calculations provide a strong foundation to arrive at a conclusion and seeing a road map of financial plan for a client, but we do consider something more while preparing a plan…

What is that ‘something more’? Lets see-

Understanding ‘Money Personality’:

We all have different personalities. We get along and gel with people with whom we share same likes and dislikes.

But,When it comes to money, its not necessary that we have same opinion about spending, investing, choice of investment instruments .

Even your opinion and thinking about money can be different from that of your spouse ,irrespective of whether she/he is working or not.

Some like to spend more and live in present enjoying life, while some wants to invest first and spend a little and stay in budget. Some choose new ways of investing, while some stick to traditional instruments only.

Like above, if we can see so many varieties in opinions , then they do impact your decisions about money.

Calculations give you numbers and bring you to the reality of the fact that where do you stand now and what you need to do to achieve your goals.

But, these calculations have influence of your ‘Money personality’! Specially, when someone undertakes planning and investing on their own, they do fail to understand these things.

So, being a planner, our first job is to understand client’s and respective spouse’s money personality.

This important qualitative input, along with other quantitative inputs from the clients & calculations, help us to see a bigger picture for them.

Understanding risk appetite:

Life carries various types of risks! When it comes to investing, they do carry many.

Investment instruments have their own risk level. Some instruments which are backed up by government itself, are considered safe.

Like instruments, everyone has their own ‘risk appetite’! It is nothing but understanding how much risk you can bear on your hard earned money.

People who are generally carefree, get panic when their investment in stock market linked instruments goes Red! While some people, who are poised and composed, actually can carry high risk on their investments.

Well, when someone just considers calculations,then to get that desired corpus, invest in instruments not matching own risk appetite, create a big blunder. They end up blaming the instrument and whole category and sometimes they stop investing in any such.

Here, big mistake is investing without understanding own risk appetite, then stopping investing in that category altogether and losing future potential goal achievement.

So, to avoid pressing panic button when market goes red, or when your investments perform slowly, please invest in the instrument matching your risk appetite.

Being a financial planner, our important task is to understand client’s risk profile through communications and discussions, getting questionnaire filled up and arriving at a real risk profile.

We help them to be away from false claims on returns, we stop them going behind returns just because as per calculations, they should earn X% return to achieve Y goal.

After understanding their risk profile, keeping importance of achieving their goal intact, we help them invest in suitable instruments matching their risk profile and instruments which have potential to achieve their goal.

Personal And Financial Life goes parallel:

This is one sentence which I tell to every my client in a first meeting! Its so true…

All changes and transformation which take place in our personal life have their impact and reflection on our personal finance too.

When you get good opportunity, change your job and move to another city, equation of income, expenses and investments can change. When you have new addition in a family, again it has its own impact. and so on..

Our life is so dynamic that surely it leaves some reflection on our personal finance too.

Well, while making a financial plan for our clients, we do consider such factors and incorporate them while making a plan. Plan sets a firm ground for your financial journey. Such changes in personal life, though reflect on the plan, you are less likely to deviate from your journey and face obstacles.

Review of a financial plan is a must:

Personal finance is a life long journey. Once you make a financial plan, its important to implement it.

All the thoughtful advice when implements on time, it works well.

Being a financial planner, we do insist to have a regular review of your plan. This makes us aware of the progress in a portfolio, we can track a likely obstacle in this journey and can make appropriate change.

Your new additional responsibilities, new additions in family, addition in future goals, change in income stream, etc all can be incorporated while reviewing a plan.

Many people hate this activity as they think that , once a plan is made they are ought to achieve their goals. But, above factors are crucial to understand.

Your financial planner will review this plan for you. Make sure you exercise this activity as per the advised schedule y your planner.

Your spouse’s opinion and inclusion in financial journey is important:

You and your spouse are different individuals. As explained earlier, you both can have different approaches when it comes to money and future goals.

Some goal which you think is important for you may not be of that importance to her e.g buying expensive car.

So, right from setting future goals to investments, spouse should be your companion in this financial journey.

All the details about your bank accounts, investment records, insurance details , etc must be shared with each other.

Journey of a personal finance becomes easy, when you have support of each other!

So, calculations, numbers and all quantitative inputs are crucial, but when they are considered along with qualitative factor like above, financial plan becomes more inclusive!

Leave a Reply

Your email address will not be published. Required fields are marked *