Paradigm Shift-Think Goals, Not products
The most common way of investing is to look out for new products in the market and buy what everyone else is buying. When there is a new product which is heavily advertised or aggressively pushed by intermediaries, people get curious about it. If their friends are investing in it, they want to do the same. Isn’t it time you pause to think about what you really need.
There has to be paradigm shift in your approach to your finances. There has to be a move from product-centric approach to goal-centric approach. Most people find it difficult to articulate their financial goals. When asked about what are they saving for, most are unsure about it. If you think of finances not as a drab bunch of numbers, but as a map for your happy life, you will be able to relate better to it. Goals need to be looked as not huge unachievable numbers, but something that you look forward to. A goal to accumulate Rs.20lacs looks daunting, but if you imagine a picture of your daughter graduating from one of the premier educational institutions, it becomes much more than just a number.
Look at your financial plan as your life plan. Think how you want your life to be. Would you rather be tending to your farms than be stuck in a routine city job? Do you see your children going abroad for pursuing higher studies? Do you want to send your parents for a world tour? All these are dreams, and they can be converted into goals. That is how you define your goals. On the realistic side, not all goals can be fulfilled as desired. They will have to be prioritized and dealt with according to availability of funds. You want to buy an SUV and also take your son to visit NASA, as he aims to be an astronaut. If the funds are not currently sufficient for both, you will have to sacrifice one goal for the other. The trip to NASA probably means more to your young child now, than it will any time in future. Then, maybe your SUV can wait! But both these goals can be met only if there is sufficient corpus available for the primary goals of education for your children and your own retirement. There could also be other goals which would take priority over these; they could be things like buying your own house, supporting dependent parents and siblings etc.
There would be times when you have sudden inflow of funds, like when you receive extraordinary bonus, or an inheritance. In normal circumstances, you would either end up spending the money or investing it in the ‘flavour of the season products’. If you are clear about your goals, these funds can support you in achieving those goals. Thus, either your goals can be achieved in a shorter time frame or the regular outflow in funding these goals can be brought down. The regular saving can then be redirected towards goals on a lower priority, which till then were probably ignored due to paucity of funds.
In a financial plan, building up a contingency fund is one of the goals. At a glance it would look like a huge amount of idle money. But, imagine a situation when you have been made redundant at your workplace, or your spouse has to take a career break to bring up the children. Your whole cash flow will be in a mess. The expenses would still continue. The EMI’s still have to be paid. It is now that this contingency fund will come into play. If you have met your goal of keeping at least three to six months expenses in easy to access products, you will tide over the difficult phase without much trouble. Instead, if you have tied up all your funds in long duration products or illiquid products like insurance, real estate or PPF, you will find it difficult to find money to fund your routine expenses.
Once you have decided and prioritized your goals, it will be easier to put numbers to them. Based on these numbers, a planner can design a strategy to help you achieve your goals. You will be motivated to save and invest wisely as you now know that these goals will lead you to the life that you really want to live. This motivation will keep you on track and keep life simple.