How many of us raise our hands to the fact that despite earning hand/pocket/account full of income are surrounded and overpowered by financial insecurities? Majority of us would answer this in a yes without a doubt. Have you ever stopped for a moment in your super busy life and gave it a thought that why is it so?
Let us take an example of a moderately earning person whose monthly salary in hand in Rs. 75,000 wherein Rs. 10,000 have been deducted for PPF. Now, these 75,000 are so well distributed in the fixed expenses of his household that it is natural for insecurities to creep in. Dividing the amount, lest say Rs. 20,000 goes as rent, Rs. 5000 electricity bills, Rs. 7000 to the maid, Rs. 10,000 as household expenses (groceries, vegetables, milk, etc). the remaining amount is Rs. 75,000 – (42,000) = Rs. 33,000. A total of Rs. 10,000 goes to investments and insurance, leaving Rs. 23,000 at disposal. The person is an active shopper and keeps gifting the family on occasions like birthdays and anniversaries which keeps an active bill of around Rs. 15,000 on his credit card on an average. This leaves behind Rs. 8,000 still at hand for disposal. These Rs. 8,000 are spent on food and drinks as he enjoys a healthy social life leaving behind a near-empty account by 15th or 20th of the month.
Now this is where the actual game starts, this guy earns a decent salary, has taken care of savings, invests his money, funds the household and parties every alternate weekend, yet he is under the grip of insecurities. Why?
If you explore this question through the mirror of behavioral investing, the answer lies somewhere between the concept of Life Planning and Financial Planning.
There are a lot of times when planners and advisors use these terms synonymously but it is not so. In fact, financial planning is a part of the broader concept of Life Planning. If you are a manager or planner or advisor, it is very important that you not only focus on the finances of your client but also on their life goals of which finances are only one part. This will not only build trust amongst your client but also will establish a strong connection between you two.
How does life planning help?
From a planner’s point of view, the first and foremost thing which needs to be considered is the fact that money is not the ultimate goal rather it is one of the means to reach the ultimate goal. Money is basically a resource which aids realize a bigger picture. When asked, most of answer that the goal of my life is to maximize the returns from investments (both financial and life investments). But seldom do we realize how vague this statement is. This reflects the uncertainty and vagueness in our mind regarding our finances as well as life. Life Planning helps one understand what he or she actually wants from life and how to put money to work to achieve it. Once you understand what your client needs and more importantly, they understand what they want from their life, the probability of hitting the aim in the eye becomes much higher.
From a client’s point of view, Life Planning is understanding what is it they are earning and saving for? What gives them stress? What relaxes them? Rather than where do they see themselves 10 years down the lane, it is more about how do they see themselves now and throughout life.
Life Planning is mental conditioning that every person every investor needs to get done or exercise. This may not give your answers in the first go but will definitely help you build up a vision towards which you will have to work. Once you have a defined goal, a defined vision, you will feel a sense of accomplishment in every step you take further. This is not because that step has a direct reward associated with it but because you know that it will lead to a reward one day and this is when the insecurities and stress and dissatisfaction from your life will start melting away.
Planning life is entirely different from planning finances but none can be completed in isolation. In order to have a well-funded life with maximized returns, you need to define what actually well-funded means and what is extent which signals that the returns are now maximized. Clarity is the key to satisfied living and mindful thinking.