Why you need a financial plan and how to make one

When we ask clients whether they believe in planning, they say they love spontaneity rather than planning, especially the young ones.

During my early work days, when we used to travel with friends on yearly week-long trips, we often discussed planning for the trip in advance, and I hated making plans and used to say that I love spontaneity.

But after a few random trips, I started making concise rough plans and it started making a difference in our travelling experience positively. 

We could never stick to a precise plan, but we realised that the plan gave us direction and a timeline.

Though we could not cover everything, we could cover more than 75%, which was way better than what we did without the plan.

It helped us better use our resources

• It helped us stick to the timeline.
• Book better places at a lesser price.
• Avoid multiple de-routing.
• Have better-priced regional food.
• It helped us realise the goals/destinations that were out of our reach because of unexpected situations.

The same thing happens with a financial plan with identified purpose and marked goals; when the uncertainties come, you have the option to prioritise goals and filter out those which are out of reach.

The point of financial planning is not to cling to a false sense of security that you’ll know where you’ll be in the next ten years because you won’t. Plans change, and the unexpected occurs.

Rather than sticking to the point-by-point plan, you’d probably do better with a plan that leaves room for the unexpected: that way, you can choose to take a walk on the sunny goa beach, and you’ll have time to have a piece of cake at the small bakery you couldn’t have found in any of your travel vlogs.

Accepting that we don’t know exactly how things will turn out allows us to let go of any anxiety around the idea that we should be able to predict the future or at least find someone who can.

Financial planning boils down to making the best guesses about what goals will help us live the life we want. Don’t worry about getting it “right.” course-correct your guess when you notice yourself going off track.

Spontaneity spices up your life but having no plan is a recipe for mediocrity. Most great feats are achieved when people know what they want and why. This is true in sports, politics, science, education and finance.

Significant accomplishments in all these fields require planning. Creating the financial future you desire is no different.

Most of the clients whom I meet remind me of this Conversation between Alice and the Cheshire Cat from Alice in Wonderland:

“Alice: Would you please tell me which way I should go from here?

The Cheshire Cat: That depends greatly on where you want to get to.

Alice: I don’t much care where.

The Cheshire Cat: Then it doesn’t much matter which way you go.

Alice: …So long as I get somewhere.

The Cheshire Cat: Oh, you can do that if only you walk long enough.”

Like Alice, we all want to end up somewhere, but we increase our chances of getting to a place we actually want to be by making a choice.

Most people in India buy a little insurance here, a few mutual funds there, and some insurance-linked retirement plans, which creates a hodge-podge of financial products purchased one by one over the years from various salespeople and companies.

Instead, it would be best if you had a financial plan based on things most important to you and then make investments and insurance work in harmony to achieve your goals and meet your purpose.

Make good guesses about where you like to go.

Don’t be committed to the guess, be committed to the process of guessing.

The only mistake you can make when it comes to financial planning is doing nothing.