How important it is to be financially well-planned?
My friend Angelina likes life throwing surprises at her …obviously the pleasant ones. Planning for eventualities was never there on her radar.
A chance meeting with her in nearby Coffee Shop and I could guess her life was all about shopping, dinning and enjoying. In her scheme of things, there was no room for planning of any sort, forget financial planning.
Just out of curiosity, I asked her, “How are you prepared for your daughter’s higher education?” On this she shot back, “What is there to be prepared about?” It will happen and it is good two years away. I knew this coming from her, so I wasted no time in apprising her that how important it is to be well planned with your expenses, savings and investments so that you remain worry free when the time comes.
After giving me a patient hearing , she was ready with her volley of questions. Sample this: What will happen to my weekly ‘Mall’ ing sojourns? What will happen to my gifting sprees? What will happen to my annual vacation? What will happen to my occasional outings? How will I fulfill wants of my ‘fashionista in the making” teenage daughter? And What not.
I could sense that she will find it difficult to scrutinize her earning, micromanage her expenses, maintain the account of where and on whom she has spent during the month, which was the first step towards financial planning.
Oh! Yes all these sacrifices and that too at a cost. Quite too much for ladies like Angelina, employed with a Media Company.
But this is not true!
I planned to meet her again as I wanted her to put her money to better use say for her daughter’s higher education or good retired life. Luckily we met over dinner at the Sports club in the vicinity. I had come prepared to put her on the track of financial planning …
I would like to share with you what transpired between two friends over the sumptuous dinner. Here it goes…
Angelina questioned, “OK will you help me with that?”
To this I replied that I am not a Financial Planner and only a Financial Planner can help you given your financial state of affairs. She was quite surprised at that. She quipped, “Till now I have known Media Planners, Town Planners, Wedding Planners or even Travel Planners but how will a Financial Planner help?
I apprised her that they are professional practitioners who work on your financial plans by taking your risk profile and investible income into account. They also map your earning with your goals so that you are well aligned to reach them. Now her question was – How he will know how much I want to spend on my daughter’s higher education? Or how much am I going to spend on my next vacation to Vegas?
To this I replied that a financial planner will plan your investments according to your goals in various asset classes so that your short-term goals like Vegas vacation and long – term goals like daughter’s marriage are met comfortably. Ok taken. But will he not put all stops to my ‘mindless’ expenses? “Yes, to a certain extent but you yourself know that these are ‘mindless’ expenses,” my reply to her question.
Financial Planner will look at your spending, investments, insurance, small savings, debt investments and draw a blue-print of aligning your investments in such a way that they grow at a desired speed and your journey towards your goal is smooth. Not only this, he will also address situations when financial needs exceed available cash from income (a cash-flow deficit) which can be supplemented by withdrawing savings from your plan. This might be a limited term need such as paying for say your daughter’s college education, or a lifetime need such as partial or full retirement.
He will ask you to think in terms of both want and need so that he can work accordingly on some goals which lean towards the “want” side, while others can be closer to the “need” side. For example, you may choose to work and save for a longer period of time so you can lower your savings rate to take nicer vacations now, or you might plan on spending less in the future so that you can lower your investment risk now. This is interesting! She was amazed at the role of a financial planner.
So how do I proceed? Angelina questioned. Probably I was waiting for this opportunity. I informed her that Financial Planner will give you a data sheet in excel which you will have to fill spelling out all your assets, liabilities, income, insurance and investments. “Oh! This is quite a task,” Said as “ I have never done this before”.
“Do it now, it will change your life (financial) for ever,” I quipped.
How can it be a life altering activity? She questioned.
To this my answer was, “Having a financial plan will give you a sense of safety and security. It eases your mind from many worries like when the stock market tends to look like a roller coaster.” I added, “ People with a financial have a positive outlook on their financial situations moreover their belief is strengthened that will be able to make substantial savings.”
“Great…so I will have more money to splurge!”
This was Angelina – My incorrigible shopaholic friend.
Till the time dinner was over, she had made up her mind to go in for a Financial Plan. I convinced her that her sacrifices will be miniscule as compared to the direct financial benefits like remaining fool proof from stock market maneuverings, investing in investments giving reasonable returns, be adequately insured, better priced loan etc. which she will be able to enjoy. Not to forget fringe benefits like peace of mind, guilt-free spending and smooth sail towards her goals.
But there was another glitch… that she will have to follow his financial planners recommendations life time to remain in the sound financial health. I silenced her with my argument, “ It is like your morning jog which you do to remain physically healthy for lifetime”.
“Not bad. Anything for health, be it financial or physical,” Angelina was convinced.
She is all set to follow the dictum - Better late than never!
Hope my other friends are listening.
The writer is Chief Editor