Having secured the fundamentals it is time to ensure that the hard work you put in to earn your money does not go wasted and you make your money work as hard as well.

When Rubber meets the Road – Execution

It’s often said “Failing to plan is planning to fail “in life in general and specifically with respect to finances.  Have you ever heard of anyone buying furniture before doing the architectural drawing of the house but that is what we end up doing? The reasons are quite evident because for once we have attempted to articulate our desire in black and white thereby giving it a higher chance to succeed, having said that we can also monitor the progress, make course corrections as we go, modify according to life circumstances , take decisions around money and be more in control of  financial wellbeing . A financial plan is like the architectural drawing of our house, all our goals and desires are reflected by the size of the rooms, the furniture is the products which we buy to make your dreams come true. Therefore, we must draw up a plan. 

I ended up buying whole lot of financial furniture without realizing what was it for and what purpose it was serving. This tied up the money

Let me do away with a myth to start off with – Financial planning is not for the wealthy alone. A start by yourself can be supplemented with professional help as you go along 

Often this is preceded by a lot of anxiety and seems like a onerous task. But very simply one must start by simply tracking where does our money go. Which means not get worrying about our expenses but tracking them and being able to answer questions like – how much we spend on an average on entertainment, how much do we spend on food and groceries, what are the fuel bills, how much goes for utility bills. 

The next stage is to determine your net worth. It means that you will need to total your present liabilities and subtract them from the value of your total present assets. Assets are simply what you own that has value. These include: cash and cash equivalents, such as physical cash on hand, checking accounts, or savings accounts; personal property, such as equity in a home, other real estate owned, or a car; and invested assets, such as stocks, bonds, or pensions. Liabilities include value of what you owe including current bills and outstanding debt. 

We all have desires and aspirations. It would be nice to articulate short term, midterm and long-term goals. “I want to be rich in 15 years” is not a SMART goal.  When you think of backpacking around Europe after graduation for 3 weeks it might not seem like a financial goal but when you put the costs for it then it might help to add this goal to your financial plan to realise this. Similarly wanting to buy a personal computer in 2 years’ time, or owning a home with 50% mortgage paid off in 20 years’ time are all examples of goals which you need to articulate 

I would probably break them into short term goals (0-2 years), intermediate goals (2- 10 years) and long-term Goals (10 years and beyond). If one can make a list of all the goals in order or priority so that it helps differentiate between needs and wants.

Identifying courses of action is the next logical step. If for a goal say a vacation to South Asia in 18 months’ time require some money you can start putting aside Rs x per month to meet that. This can happen in two ways – identifying new sources of revenue or reallocating existing resources i.e cutting down on some of the expenses which you were tracking and pushing them to savings. One weekend of eating out sacrificed to meet this goal. Identifying new resources would normally mean looking for a better paying job, investing more aggressively or looking for ways to supplement your income. 

Implementing your Plan requires you to identify the evaluated products, strategies and execute them. Set up your emergency fund, get your term insurance, get your KYC done and start your investment journey by setting up SIP (systematic investment plans) in mutual funds. This can be done by marrying your risk profile to the funds and the duration available to reach that goal.

The last step is to review, and course correct the plan every year.   Are you keeping pace with your milestones? Has there been a change in your income? Did you make any big money mistakes in this period? How have the investments performed in this period? One should not overreact for the short term or intermediate goals returns but adjust plans accordingly. 

What’s important is that now your decision making can rely on data and facts rather than gut and you will be on your course to realize your dreams.

Disclaimer: The views and opinions expressed in this blog- article are those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer or company.

If you have missed reading  “Notes to my younger self -1”  or  “Notes to my younger self -2” click on the link  "Notes to my younger self -1 / Notes to my younger self -2"