Portfolio : A collection of investments owned by the same individual or organization.
Will : legal declaration of how a person wish his/her possession to be disposed after their death
Investor : An investor is any party that makes an investment.
A set of assets which an investor holds. This may contain equities, mutual funds, insurance and other cash equivalents.
Wealth is accumulation of resources or as on date value of assets a person own. Commonly Net worth is the measure of Wealth of an individual.
It is the raise in the value of Consumer Price Index. That is the rate of increase of the price of a goods or services.
Does it sound crazy that financial planning is a process so simple?
Believe me, it is.
Planning your finances involves nothing else than just building wealth, and having enough for your retirement. You can achieve the first, if you spend less than you earn and wisely invest your savings.
Doing this, you can easily accomplish the later by spending lesser than your investment income and invest the savings wisely. That is all about planning your finances.
Following these two very simple steps, can let you enjoy huge amounts of financial success. However, one might wonder that if financial planning is so simple, then why is not anyone able to do it? Why only a few succeed in attaining their financial goals?
There are several reasons for this. Let us begin with a few evident ones.
1)The Habit of Postponement
The postponement of beginning the financial plan is the first of the reasons for financial planning failure.
Most of the investors today regret not starting to save immediately after creating a financial plan. It is because they realize the fact that early start gives room for your investments to grow.
The simple factor here is, if inflation is growing exponentially year after year, so does the return on your investments. The key is to start without any delay and use the time for your advantage.
Hence, it is wise to start saving as per your financial plan as soon as you have one.
2)Lack of Self-Restraint
How does one bring discipline in his/her life?
The most valuable result achieved out of any learning or education is an impending ability to do what you have to and when you have to, irrespective of whether you like it or not.
No matter how early a man begins to learn financial planning, this is undoubtedly the first lesson that he ought to learn and probably the last lesson also that he learns completely.
The investors’ life is very much exciting than you think. Almost everything you see will look like an opportunity to invest and make money. And if you go after all of them, do you know what happens?
It will result in dilution of your concentration and failure of the financial plan. Restrain yourself from doing things that are not defined in your financial plan.
Lack of self-restraint will make you expose yourself to bad financial decisions and the eventual financial plan failure. As any wise investor would know, wealth is created not by taking one good financial decision but by keeping yourself from bad financial decisions.
3) Overstretching Your Savings And Spending
This behaviour of investors is what called a rookie mistake.
Saving your money is good until it is not good. When you begin financial planning, it’s a fresh challenge and you are very much motivated. As an amateur, you could fall into two kinds of trap.
i) Overstretching Savings:
Your financial plan looks good. You have put much effort in it to make one that fits your financial goals. You are confident and you want to get the best out of it. You want it to over-perform.
This is where it gets tricky, of course, saving is good. But when you’re too inclined in saving you could end up not spending in vital things. For example, you might cut out all your entertainment expenses to save more, which is effective in the short run. But in the long term, it could cause a burnout and financial plan failure.
ii) Overstretching Spending:
Just having a financial plan is not going to fix everything in your finances. People often do that mistake of signing up for a financial plan thinking it will take care of their finances. They tend to forget the very basic rule of taking control of their expenses.
For a financial plan to work, you need to develop the discipline it demands. You must not spend too much and lose focus on the financial plan or try and save too much and end up with a burnout.
Financial plans developed by a Certified Financial Planner will give you a clear definition of the discipline you need to develop, to attain your financial goals.
4) Lack of long-term perspective
The crux of ‘spending less than one earns’ is like a tree that bears the sweet fruits of satisfaction, but delayed. Saving is not a sacrifice, rather it is an excellent return-on-investment if you view your goals from a long-term perspective of around 20-30 years. it will change the world for you.
It does two important things to you as an investor. First, it lessens the financial stress of your future self with regards to planning and financial decision making.
And secondly, it gives you a strong reason to save more and spend less. Since, as humans, we’re all reason oriented and anything that has a strong reason will be less difficult for us to accomplish.
It is like remembering what you truly want to achieve, and working daily to accomplish it. Choose big financial goals, have a long-term perspective and create smaller objectives that will lead to your financial goal.
Certified Financial Planners excel at creating such objective oriented financial plans that will strategically avoid reasons that cause financial plan failure.
The saying goes “Ignorance is Bliss”, but is it?
This could be true if you are immune to your financial plan failure. And the only person who is immune to financial plan failure is who have unlimited wealth.
Unfortunately, the saying is said by those who want an excuse for not trying. Constant learning is one thing that will push you forward, towards achieving your financial goals. Being ignorant is something that will rather push you amidst the crowd, where you just do not know anything better than the rest.
Even if it is your financial fear, do not ignore them. It is because fear will lead to your financial plan failure. On the other hand, you can choose the right financial planner who can help you address your fear and doubts. When you address them, you can very much easily attain your financial goals as per your financial plan.
6) Aimless approach
At times, we do not connect our spending habits with their long-term consequences. We tend to live unconsciously, and spending without paying much attention to the time that is to come.
You need to be clear about two points of your financial graph.
Point A is where you are financially. Point B is where you need to go financially (with your financial goals).
These two points need to be clearly defined. If these two points are clearly defined, then there will be a clear direction for you to move from point A to point B.
This clarity and direction will avoid distraction. Therefore, there will not be any misbuying of financial products.
Instead of making adhoc investments, it is better to invest with clarity and direction.
7) Lack of investment skills
This is the only area where you need to possess financial skills. This is what can legitimately take your fortune down, and that too when everything else is done appropriately.
No schools here in India teach about personal finance. To develop investment skills, you need to get introduced to the art of personal finance.
On the other hand, you can improve your investment skill by working with a professional financial advisor. Majority of India still, think that hiring a financial planner will be too costly the only rich could afford. But how much does it cost to hire a financial planner and save your financial plan from failing?
From this list of some obvious reasons, what do we notice? Let us find out.
- All the obstacles, except for the investment skills, are created by one’s mental blocks. Significantly stating, only you have the power to overcome these hindrances. Therefore, developing these crucial personal skills is not rocket science. Anyone can build his financial wealth upon gaining these skills.
- We may wonder why only one of the causes is financially related, even though building wealth is a complete financial process. It is surprising how achieving financial goals has little to do with finance, but everything related to you and your approach.
Freedom (including financial freedom) is, thus, a state of mind and soul. Only you have the power to choose it.
Why does the financial services industry fail?
What is the REAL expectation from the Financial Planning Industry?
As observed earlier that the reasons behind success in the financial services industry, have almost nothing to do with finances, but everything to do with one’s human nature. Therefore, the only services people need in this industry to do the right thing relates to the accountability, support and the guiding factor.
Are you getting an easy-to-implement Financial Plan?
The technical aspects behind the implementation of one’s financial plan, are thus not very complex. One does not need to be a financial expert to do his job.
The formula for a typical and diversified portfolio should be well-documented, with no serious expertise required.
It is so simple that anyone can learn everything necessary for the implementation of the investment side of the wealth building process, just in a matter of a few hours or even less.Another reason why people fail is again not due to financial reasons, but because of not doing what needs to be done.
A wrong expectation meets the wrong solution
People look for financial help when they need help with resolving their financial challenges. The expectation is to get a quick solution. e.g. An investment to save tax is what badly needed by many investors during March.
However, an investor should not have waited till March and should have planned in advance. Also when planning, he should not plan for just tax saving also he needs to think about how this tax saving will be linked to his long term goals?
Also, experts are providing solutions to people in the form of investment products. They do so as it is the easiest part, but is that required. If they need a tax saving scheme, they just provide that. They don’t go beyond the basic and check with the investor, “Do you want your tax saving investment to be linked to your long term financial goals?”.
What people need is an expert who can help them with recognizing that personal and complicated stuff that is forbidding them from accumulating wealth. We can also take this as anyone would require help with building his/her wealth in the first place.
On the contrary, they are involved in the business of selling their investment products to achieve their own business target. This is what causes the whole confusion.
When people are looking for guidance, the experts are selling them financial solutions. This creates a mess that does not work at all in the actual scenario.
I hope to convey the message that obstacles to wealth are not caused due to one’s financial stature. To get the financial stability and security, to understand our unique Holistic Financial Planning Process we offer