Financial Planning · ServeTM

Plans Fail But Planning is Worthwhile

I had planned for the group run on the Kharghar hills last Sunday. I was looking forward to the challenge of running up the hills and meeting fellow runners. All energy drinks were bought, practice was on track. But on Saturday, I got an assignment where I had to travel immediately and return on Monday. So, the plan collapsed! šŸ™

As they say, in life, nothing happens according to the plan. In fact, much of life happens while we are busy planning.

But this doesnā€™t mean that thereā€™s no point in planning. The energy drinks and the practice would not go waste!

As Eisenhower would say eloquently,

Plans are worthless, but planning is everything. There is a very great distinction because when you are planning for an emergency, you must start with this one thing: the very definition of emergency is that it is unexpected, therefore it is not going to happen the way you are planning!

So, itā€™s worthwhile to have a roadmap or a compass when you take this journey of life.

Letā€™s look at financial planning in a similar way: AĀ financial planĀ is a road map to help you achieve yourĀ lifeā€™s financial goals.

At RupeeManager, we have looked at the jigsaw pieces of financial planning separately. The pieces are asset allocation, risk analysis questionnaire, 3 principles of money, the mathematics of money, the psychology of money, etc. Itā€™s time we bring the pieces together to create our financial plan.

Here are three basic questions that you will answer during financial planning:

  • Where are you today? What is your current financial situation?
  • Where do you want to get to? What is your vision of your future financial situation?
  • Will you be able to get there? How do you plan to achieve your vision?

During theĀ financial planning processĀ you analyze what your financial needs and goals are. Then, you quantify in money terms what resources you need to meet those goals, and quantify the time period during which you want to achieve these goals.

The Process

TheĀ personal financial planning processĀ is a six-step process as followed by the CFPs (Certified Financial Planners):

Step 1: Setting goals with the client.

This step (that is usually performed in conjunction with Step 2) is meant to identify where the client wants to go in terms of his finances and life.

Step 2: Gathering relevant information on the client.

This would include the qualitative and quantitative aspects of the client’s financial and relevant non-financial situation.

Step 3: Analyzing the information

The information gathered is analyzed so that the client’s situation is properly understood. This includes determining whether there are sufficient resources to reach the client’s goals and what those resources are.

Step 4: Constructing a financial plan.

Based on the understanding of what the client wants in the future and his current financial status, a roadmap to the client goals is drawn to facilitate the achievements of those goals.

Step 5: Implementing the strategies in the plan.

Guided by the financial plan, the strategies outlined in the plan are implemented using the resources allocated for the purpose.

Step 6: Monitoring implementation and reviewing the plan.

The implementation process is closely monitored to ensure it stays in alignment to the client’s goals. Periodic reviews are undertaken to check for misalignment and changes in the client’s situation.

Before we conclude and go on to build the financial plan for ourselves, here is a red flag

Letā€™s take a plan for your childā€™s education. The normal template of the financial plan would identify the projected cost of the childā€™s education based on inflation assumption and will calculate how much to invest so as to reach that goal. However, in reality, no one knows what would happen after 15-20 years and what the career opportunities & your childā€™s preferences would be. Could anyone predict 20 years back as to the career opportunities that are available today!

But then remember Eisenhower who said, plans are worthless, planning is everything!

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