Failing to plan is planning to fail

Updated: Monday, August 19, 2013, 10:13 [IST]

The quote "fail to plan, plan to fail" can be applied to various aspects of our lives. Here though, we are using it in the context of ones financial life. So what really is planning? Planning can be defined as thinking about and organizing all activities required to achieve a particular desired outcome. You cannot plan unless you know what objective or goal are you planning for. Hence, the desired objective is pertinent to the planning process.

For a lot of things in life, planning is often done mentally and hardly ever with facts and figures in black and white. And this is especially true when it comes to the important decisions in our financial life. For example, you want to set aside something towards your child's higher education. You take a child plan and assume that the goal is taken care of. Similarly, you may take a pension plan for retirement and think that you have done enough. Although you have an outcome in mind such as child education and retirement, you have not taken the effort to define the outcome, set a timeframe for it and evaluate what you will really need in order to fulfil that objective or outcome. This would not qualify as planning and infact is nothing but a random action which may or may not help you achieve your objective.

We all have certain goals or milestones in life. These may be professional and personal. And a lot of these goals would require require money, especially the personal ones. Hence achieving some of the major goals in your life would depend upon how well you have planned your finances. Think about it- personal goals such as buying your dream house, owning your dream car, getting best education for your children, going on vacations, retiring when you want to are all financial goals because they require money. What they also require is planning. And this is what financial planning is all about.
Financial Planning is the process of meeting life's goals through proper management of finances. It is an exercise aimed at identifying all the financial needs and wants of an individual/family, translating them into monetarily measurable goals and planning the financial investments in a way that will help the individual/family in meeting all the future goals on time. A financial plan acts as a roadmap to your future goals.

Its help you answer 3 important questions -
• What are my financial goals?

• What is it I have done so far towards my goals?

• What is it I need to do from hereon to achieve my goals?

Answering these questions gives a lot of clarity about what you wish to do in life and how should you go about doing it. Financial Planning makes the big picture of your life very clear and helps you understand the impact of your financial decisions at any point in time.
Let us taken an analogy to understand the concept better. Let say there are 2 couples Mr and Mrs A and Mr and Mrs B. Both the couples decide to go on a road trip to reach destination Z which is famous tourist spot. Although the place is famous, Mr and Mrs A want to sure that they make it on time without any diificulty. Mr A gets his car checked, fills fuel and air and keeps a first aid kit in the car. Mrs A prints a route map to the destination marking the important deviations. She also ensures that there is enough stock of food to last them through the journey. They set out on their trip and have a comfortable and enjoyable journey. The reach destination Z as planned and enjoy their stay while waiting for the other couple to arrive.

Mr and Mrs B decide to pack a few things at the last moment and head out on their journey. They are running late and soon after they head out, they realise that the fuel is not enough and after much difficultly find a petrol station to tank up. They are not carrying a route map hence they need to stop every now and then to check with the locals if they are on the right track. They often lose their way and hence have to take several detours. Mr A is hungry but they are not able to find any place to eat. His head starts to hurt and they have to stop until he feels better to drive again. After a lot of brawls over their unpreparedness and blaming each other, they finally reach destination Z irritated and exhausted.
What is the difference in the two couples? They both had the same destination and both made it and yet there was a huge difference in the quality of their journey. Mr and Mrs A planned their trip in advance and didn't leave anything to chance whereas Mr and Mrs B were casual and totally unprepared for the trip. One was a success and other was a failure.

How we plan our journey towards our goals can make a huge difference. Financial planning helps to eliminate uncertainties in your life and as far as possible leaves nothing to chance. How?

• It ensures that you have covered your risks to life, health and property

• It ensures that you have set something aside for the rainy day in the form of a contingency corpus

• It ensures that your investments are planned keeping your goals in mind and eliminates the adhocism from investing.

• It ensures that your debt levels are not high and brings about a balance in the spending and saving pattern such as you can enjoy immediate gratification as well as secure your future.

• It ensures that you are planning your taxes efficiently

• It ensures that in your absence, your estate will be passed on to your family without any hassle as far as possible.

• It helps to recalibrate the future financial actions and decisions to the changed circumstances or goals.

• It aims towards providing a happy, peaceful, focussed and comfortable financial life.

It is not that you cannot achieve your goals without financial planning. The question really is that how do you want your financial journey to be? You want to be in control of your journey like Mr and Mrs A or let situations and circumstances control you like Mr and Mrs B? The choice is yours.

Courtesy:Perfios Money Manager