How abrupt new goals can wreck long-term financial plans

Make a financial blueprint that will help one to achieve the goals on time, and largely stick with it.

“Money seems to slip away from my hands like sand… I can’t seem to hold anything at all.” That was Harish (name changed to protect identity) when he first engaged us as an advisor.

At that time, we did not understand why he said so. Harish had been doing well in his corporate job and making handsome incomes. He had also been investing regularly as we were suggesting. The problem with him was unplanned expenses and sudden emergence of new problems to be addressed.

Four years back, he was fascinated by a wonderful house where he stayed in the middle of a coconut grove on a holiday trip to Konkan. The long walks on the beautiful beaches, the cool breeze of the Arabian Sea, and the pristine surrounding unfolded to the city-slicker a whole-new world of peace.

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Harish met some people on his walks. When he came to know about some condominiums coming up in the vicinity, he smelt an exciting opportunity in it.

He went to the site and fell in love with it at the first visit only. It didn't call for a sales genius to sign him up. The security guard handed over an application form to him and gave him a number to check the availability. Harish called the number and checked a few things about the project and got to know that “there were only two units available”.

A decision driven by impulse 

A seasoned salesperson called on Harish soon and asked him to pay a token Rs 5 lakh to confirm one of the units on the spot or take the chance later on. He told Harish that if he could not secure a unit in that project, he could wait for the next one coming up within a year. The ace salesman knew the words would catch Harish amidships. Rs 5 lakh was transferred without any delay. Harish was so deeply in love with the place that it never crossed his mind that the cost of the condo was Rs 1.75 crore, a stratospheric sum for a project in the wilderness.

When he was back from his trip, Harish was all-praise for it to us, in fact, went into a hyperbole to declare that he had made the booking. When someone questioned, he tried to justify the price citing the reputation of the builder, amenities on offer, and the fact that it would be a project for the gated community.

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No wonder such an unplanned outflow strained his finances. Money indeed slips from him like sand held in a fist!

The project came up in 30 months. The property was indeed beautiful but it was a seven-hour drive from the city. They enjoyed the holiday a lot. Considering the distance, they were not able to go to their holiday home in Konkan too often.

In between, they went to a hill destination along with their friend Soni. They stayed in an Air B&B accommodation. It was fabulous and they had paid precious little for that holiday. Their next holiday was in the North East, where they had spent eight days, which the family absolutely loved.

They were going to their Konkan holiday home about three-four times a year. While they enjoyed it, the allure of going to the same place dampened the ardour after the first few visits. Their holiday home was a flat which was kept under lock and key. Hence, they had to get the home cleaned, air it and get some maintenance work every time. All these made it look less like a holiday and more like a normal home, with lots of work to do!

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Their visits to the Konkan property turned rarer by the day. This year, they visited the house just once. Harish does not talk about the holiday home anymore. He is even open to sell it off. But there are no buyers as more projects are coming up in the region and the availability of housing units is high.

Unplanned goals and major dents

Ideas, no matter how impractical they are, never cease to haunt Harish. The latest is plans to send his kids abroad for graduation. He has two children and the planning should be done with both of them in mind. Sending them abroad would cost him Rs 50-60 lakh for each child every year. This will translate into Rs 2-2.4 crore for each child for graduation alone. If post-graduation too has to be funded, that will be extra.

Harish heard out everything patiently. But, he finally told us that the decision to send the children abroad has been taken and is non-negotiable! He told us that he was willing to scale down other expenses, as required.

This was a real big one. If he were to send his two sons abroad for graduation, he would be spending Rs 4.5-5 crore. We pointed this out to him. Harish did not say anything. We told him that this would mean that we need to go back to the drawing board now and see if it is even feasible. He just nodded.

Changing goalposts midway or piling on new expenses out of the blue, makes a carefully designed blueprint, null and void. Redoing the plan again and again disturbs the rhythm, brings in uncertainty, and sometimes may not even be workable. One cannot and should not change the blueprint, again and again.

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Shifting financial goals without warning is like rerouting a ship mid-sea - the journey changes as the route, the time taken to reach destination and everything else changes.

That is as true for a financial plan. It is only right to clarify the goals first, make a financial blueprint that will help one to achieve the goals on time, and largely stick with it.

The author is the MD & Principal Officer at Ladder7 Wealth Planners and the author of the book 'If God Was Your Financial Planner'.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.