Getting started on anything – for instance, losing a couple of kilos – is tough, but eventually, we shake ourselves up and just do it. And then, comes the wonderful part – you wonder why you took so long to do something good for yourself!
The biggest hurdle to getting your monthly expenses in control may not be a lack of discipline, but a lack of knowledge. Most of us just don’t know how to go about it. And that is exactly why this section introduces you to savings hidden in monthly bills and to know how much those savings can add up to in the future.
Table of Contents
- What is the REAL expectation from the Financial Planning Industry?
- Are you getting an easy-to-implement Financial Plan?
- A wrong expectation meets the wrong solution
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?Why most people fail at financial planning?
What are the problems associated with poor financial planning? What are the factors that causes limitations in financial planning? There are several reasons for this. Let us begin with a few evident ones.But before that try answering the following questions.
- Do you have the knowledge and time for it?
Financial planning is not just dealing with crises and making money grow. You need the knowledge to invest in the optimum investments, and also know how tax and loans can affect your wealth. People often make mistakes in investments, liabilities, and insurance as there is no much knowledge. A financial advisor can help you with all these.
- Do you know to risk-proof your finances?
Risk-proof is securing your wealth against risk. To explain in brief it is protecting your assets and family against the risks of job loss, death, ill-health, accidental disability, natural calamities, and financial crises. If you don’t know how it is done, a financial adviser can guide you.
- Have you made any financial mistakes?
It could be anything like a delay in filing the tax returns or forgetting to pay a bill (that may lead to a small penalty). If you have a financial planner, you can avoid these mistakes.
- Can you reach your financial goals?
Have you calculated the amount required to save for your retirement?
Have you ensured that in case of your death or disability your financial goals will be reached (your child’s education goal, marriage goals, etc)?
Have you enough funds for an emergency?
Do you know which instruments to invest in so that the post-tax returns can help you gather the required amount?
- If you answered Yes for all the above questions, it’s good, if not you can get the help of a professional financial planner.Do any of the below mentioned financial personalities resemble you?
The 7 reasons why financial plans fail can also be one’s financial personalities. What are those financial personalities?
1) The Habit of Postponement
The postponement of beginning the financial plan is the first of the reasons for financial planning failure. Are you a procrastinator?
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.
We can all save more with a raise, but there’s no surety of getting one! (Out of our control). Alternatively, just cutting out the bits you wouldn’t miss can work out well (In our control).
So, the first step to getting more, later in life, is not a severe tightening of the belt. It’s just identifying which bits can get the chop. The good news is that most of us find quite a few bits we would never miss!
Broadly speaking, all expenses can be classified into non-discretionary and discretionary expenses:
Include rent, school fees, food bills, utility bills, etc – spending on ‘basic needs’ – so you cannot wish them away. (You could save a bit by switching off the fan when you leave a room, but you cannot decide to stop paying your electricity bill!)
On the other hand, satisfy our ‘wants’. They are life’s little joys – eating out, going to the movies, vacations, club memberships, etc. The trick is recognising which expense is worth it and which one is needless.
Financial Planning Solutions to Control Spending
Whoops – here’s the moment of truth! You’ve decided to set up your monthly budget, but you don’t know where to start! Just follow our simple steps!
Step 1: Record
Over a month or so, record all your expenses – every thing you spend money on. And don’t worry; this is not a precision exercise: if some expenses vary, approximate the amounts. Next, record all your income sources – salary, any regular dividend that keeps coming in from an investment you made (or from a legacy set up for you), or if you and your spouse are earning, add your significant other’s income as well.
Step 2: Match
Now, match the money that comes in every month (all the income) with what goes out (all the expenses). This will tell you if you’re living comfortably within your means or beyond your means. (Remember, all credit cards come with bills attached!)
Step 3: Reduce
Try to reduce some discretionary expenses to create extra savings. Perhaps, give up a membership you never use, go out to a local multiplex thrice a month and see the fourth movie on a DVD, ask yourself if you really need your fourth pair of sneakers! This is where you and you alone are totally in control…
Step 4: Invest
Use your hidden monthly saving to Invest for a financial goal.
Proven and Practical Financial Planning Solutions for Workable Budgeting
Many who set up home budgets have found the following points useful:
Be positive. Focus on the big idea – what you cut out today can make a difference to your tomorrow.
Be realistic. Avoid drastic measures such as putting a full stop to eating out. If you alter your family’s lifestyle completely, you’ll have to live with discontentment all around!
Be a team. Get the buy-in and support of your family. Budgeting can even become a game you play with your kids. For instance, getting them to keep a record of where they spend their pocket money can teach them financial discipline, the value of money and can become a lesson in budgeting for their own future.
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.
Lack of Financial Planning and Financial Problems:
How to overcome your financial problems? The first step is to Write down Your Financial Goals.
Have you ever written your financial goals on a piece of paper?
Do you agree with me that, you should write down your financial goals on paper?
If yes, then why don’t you follow? This is a thing of Common sense…. Very Easy to Understand but Very much Difficult to Apply.
A few decades ago, some economist had done research…. he had taken a sample of 100 students. Out of which only 3% had written financial goal… rest of the 97% had never written a financial goal on paper…
After 20 years, this 3% of students were more financially sound than the rest of the 97%. The rest of the 97% were financially struggling.
So the Moral is that you should write down your various financial goals on a piece of paper…
Be very specific with figures and time horizons.
Your Short -Term Goals (less than 5 years) should be like this,
– Buying a Car for around Rs. 10 Lacs within the next 3 years…
– Buying a Home worth Rs. 80 Lacs after 5 years …. etc.
Your Long-Term Goals should be like this,
– Having a Retirement Fund of Rs. 5 Crore after 25 years
– Child’s Education Expense – Rs. 1 Crore….after 15 years …etc…
Be very specific.
Count your Future needs by taking into account Inflation also. Say for example, if today’s child higher education expense to go to the USA is around Rs. 30 Lacs then after 20 years at the inflation rate of 7% you will need Rs. 1.25 Crore. So, calculate accordingly.
So, if you haven’t written down your financial goals then right now write it down…!!!!
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.
Also, watch the video here!
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 financial stability and security, to understand our unique Holistic Financial Planning Process we offer