Financial planning may sound like a complicated exercise to most of us, complicated enough for us to postpone it for another day when there is more time and inclination. But, as we all know, that day rarely arrives.
Thus our financial issues keep piling up, our investments continue to be in disarray and financial nirvana is just a dream that we chase everyday.
The good news is that turning this dream into reality isn't as imposing as it seems. You can crack it in just five simple steps!
Thus our financial issues keep piling up, our investments continue to be in disarray and financial nirvana is just a dream that we chase everyday.
The good news is that turning this dream into reality isn't as imposing as it seems. You can crack it in just five simple steps!
Step 1: Set yourself an investment objective
If you can take some time out from the daily grind to set yourself some key investment objectives, then you will have taken an important step towards achieving financial nirvana. When you actually get down to it you will notice that the investment objectives that you have set for yourself are actually quite simple.
For example, your child wants to pursue MBA/engineering/medicine? That's a good thing, but education is very expensive nowadays. Where is the money going to come from? You don't know; so add it to your financial plan.
Your child needs to get married some day and that marriage will cost you. So where is the money going to come from? You don't know that either; another objective for your financial plan. Slowly but surely, your investment objectives keep building up.
If you can take some time out from the daily grind to set yourself some key investment objectives, then you will have taken an important step towards achieving financial nirvana. When you actually get down to it you will notice that the investment objectives that you have set for yourself are actually quite simple.
For example, your child wants to pursue MBA/engineering/medicine? That's a good thing, but education is very expensive nowadays. Where is the money going to come from? You don't know; so add it to your financial plan.
Your child needs to get married some day and that marriage will cost you. So where is the money going to come from? You don't know that either; another objective for your financial plan. Slowly but surely, your investment objectives keep building up.
Step 2: Do your homework
Once you have short-listed the important investment objectives, you are already on the path to financial nirvana. You now have to find a way to achieve these objectives. This sounds like a monumental task, but it isn't.
Not when you actually get down to doing your 'homework'. Your homework will simply entail reading business dailies and personal finance magazines and visiting personal finance Web sites. Also meeting up with various financial planners and investment advisors will help.
Take notes of your discussions with them and study the advice from various quarters. The idea is to be well-informed at all times as to what is happening around you, so you don't get taken for a ride by an unscrupulous investment advisor who is looking for easy bait.
Once you have short-listed the important investment objectives, you are already on the path to financial nirvana. You now have to find a way to achieve these objectives. This sounds like a monumental task, but it isn't.
Not when you actually get down to doing your 'homework'. Your homework will simply entail reading business dailies and personal finance magazines and visiting personal finance Web sites. Also meeting up with various financial planners and investment advisors will help.
Take notes of your discussions with them and study the advice from various quarters. The idea is to be well-informed at all times as to what is happening around you, so you don't get taken for a ride by an unscrupulous investment advisor who is looking for easy bait.
Step 3: Avoid the 'noise'
If you have been doing your homework religiously, you will find discussions on some trends/investments cropping up more often than that on others. For some time now it's about gold; earlier it was about mid caps, ULIPs (unit-linked insurance plans) and infrastructure stocks among others.
Investing only according to the latest trend can often be a surefire recipe for disaster as investors found out in 2000; then technology/media/telecom (TMT) proved to be the undoing for many an investor.
Typically investments tend to polarise around such noise. That's not such a good idea, because by the time these trends get written/spoken about, the opportunity to make money is often gone. You run the risk of investing in the 'idea' at the peak.
If you have done your homework well, then you will be a in a position to avoid such pitfalls and catch the trend earlier on. Even if you don't catch the trend soon enough to make money, at least you will avoid investing in it when it's too late.
If you have been doing your homework religiously, you will find discussions on some trends/investments cropping up more often than that on others. For some time now it's about gold; earlier it was about mid caps, ULIPs (unit-linked insurance plans) and infrastructure stocks among others.
Investing only according to the latest trend can often be a surefire recipe for disaster as investors found out in 2000; then technology/media/telecom (TMT) proved to be the undoing for many an investor.
Typically investments tend to polarise around such noise. That's not such a good idea, because by the time these trends get written/spoken about, the opportunity to make money is often gone. You run the risk of investing in the 'idea' at the peak.
If you have done your homework well, then you will be a in a position to avoid such pitfalls and catch the trend earlier on. Even if you don't catch the trend soon enough to make money, at least you will avoid investing in it when it's too late.
Step 4: Select the right financial planner
One reason why financial planning isn't quite as difficult as it seems is because your role in it is relatively limited. Apart from basic reading up on financial matters and keeping yourself updated on investment-related news, there is very little that can be expected from a lay investor.
The reason why you need to be relaxed about financial planning is because your partner needs to take all the heat on him. Your partner over here is your financial planner. He is the one who needs to sit down with you, draw up an achievable investment plan after considering your investment objectives, age and risk profile.
It is for him to recommend you at regular intervals what you need to do with your money and give you an update on your investments.
One reason why financial planning isn't quite as difficult as it seems is because your role in it is relatively limited. Apart from basic reading up on financial matters and keeping yourself updated on investment-related news, there is very little that can be expected from a lay investor.
The reason why you need to be relaxed about financial planning is because your partner needs to take all the heat on him. Your partner over here is your financial planner. He is the one who needs to sit down with you, draw up an achievable investment plan after considering your investment objectives, age and risk profile.
It is for him to recommend you at regular intervals what you need to do with your money and give you an update on your investments.
Step 5: Don't get attached to investments
As an investor it helps if you are 'cool and calculated' about your investments; so don't get attached to them. If an investment you made is not working out like you thought it would and an evaluation (in consultation with your financial planner) suggests that it's best you get rid of it, then go ahead and do it.
Let it not become an 'ego' issue. We make mistakes with a lot of things and investments are no exceptions. So just like we rectify the other mistakes we make, we should resolve the wrong call we have made on an investment.
Remember the investment itself is not the objective; it's only a way to achieve your objective.
As an investor it helps if you are 'cool and calculated' about your investments; so don't get attached to them. If an investment you made is not working out like you thought it would and an evaluation (in consultation with your financial planner) suggests that it's best you get rid of it, then go ahead and do it.
Let it not become an 'ego' issue. We make mistakes with a lot of things and investments are no exceptions. So just like we rectify the other mistakes we make, we should resolve the wrong call we have made on an investment.
Remember the investment itself is not the objective; it's only a way to achieve your objective.
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