It was payday! I was excited to get my first salary. I thought of all the things I wanted to buy- all the gifts that would make my friends and family happy.
That night, I went home and proudly presented my father a shirt I had picked out for him. I was sure it would make him happy. But when he received my gift, my father just smiled and said, “You know what I would have liked better? A trip to see your sister in New York, even if it were five years from now.”
I said, “But Dad! I don’t have enough money to pay for an overseas trip!” He wisely replied, “You only think you don’t have that much money. If you plan your finances right and give your money a chance to multiply, anything is possible.”
And so, began my journey to becoming a financial planning expert. Along the way, here are some lessons I learned, which could help you make your dreams come true, just like they did mine:
Lesson 1 – Understand the true value of financial planning
Like my father explained, financial planning is a process wherein you plan your current expenditure and investments in such a way that you can achieve your life goals.
Financial planning is a way of life that demands self-regulation, discipline, and a broad perspective. You must understand that a little bit of self-control today- even if it’s just the act of setting aside 20% of your salary every month and putting it into a monthly investment- can turn into something substantial in the future.
Lesson 2 - Inculcate a habit of saving now and spending later
Before my father taught me otherwise, I used to think that I should plan how much I would need to spend, and set aside the rest to save. But it’s the other way around. I needed to set aside money to save first, and then spend the rest.
Once you have clarity on exactly how much you can spend in a month, it is easier to control and track your expenditure, which is essential because every rupee counts. But when we start earning we all like to spend and indulge in some retail therapy. Like my father said, it could be something as simple as controlling impulsive buys in the month. Do you really need that wearable? Or that new smartphone? He introduced to me the concept of ‘delayed gratification’ which means that resisting immediate and smaller rewards will get you a larger and longer-lasting reward in the future. For instance, if I inculcate the habit of saving 20% of my salary each month (which is a lot easier than it sounds, no matter what you’re earning), in five short years I could save enough to sponsor an overseas trip for me and my family!
Lesson 3– Stop thinking and start doing!
The greatest lesson my father ever taught me was that nothing happens unless you make it happen. Thinking and planning for my future was great, but I needed to take action. Here is how I started my financial planning journey.
For me, short-term goals are those I want to achieve within 5 years- being able to buy a car or travel abroad. These kinds of goals can be achieved with some smart saving and short-term investments through the power of compounding which states that it’s not about how much you invest, but for how long and how early!
So, is the delay worth it?
Long-term goals, however, are more like milestones- educating my child abroad or buying a home for my family or having a golden retirement with my spouse. These types of goals require early and timely investment in long-term plans such as child plans, retirement plans, growth plans, Fixed Deposits, Public Provident Fund etc etc.
My father was right when he said that without Plan B, there was no point of Plan A. Life comes associated with all sorts of risks so it’s important to plan for an unexpected rainy day, and that’s what an emergency fund is for. Your emergency fund should ideally be equivalent to 3-6 months of your monthly income, and the amount set aside should be separate from your other investments.
As the average lifespan increases, we need more money to live a comfortable life. Retirement plans or pension plans are designed to help you save regularly and invest smartly so that you are prepared for life’s uncertainties and can fulfil your post-retirement aspirations. Investing in pension plans helps you to inculcate the habit of saving, it is a flexible and scalable investment over time and it safeguards the interests of your family.
Term insurance plans are types of life insurance products that help your family meet their financial needs in the case of unforeseen events like death, disease and disability. When you consider buying a term plan, the cover should help your family maintain their lifestyle, the effects of inflation should be borne in mind and lastly, it should take care of your existing liabilities, such as EMIs and other loan repayments so that they do not have any financial burden on them, in your absence.
Lesson 4 - Monitor savings and investments regularly
After spending time, effort and money in planning my goals and investments, I thought that would be it. I am set for the future. Bring it on! But my father once again taught me a valuable lesson.
“Just as your job requires you to monitor, re-evaluate, measure and change strategies,” he said, “your financial planning must also be fine-tuned from time-to-time to make sure you remain on track.” By evaluating your savings and investments, you too can adapt to changes in your life such as a career switch, a different lifestyle or a change in retirement plans.
I hope these lessons will be as invaluable to you as they were to me. My father’s wisdom helped ensure that I could maximise the power of my hard-earned money. To get started with your own financial planning journey, click here and let today be the first day of the rest of your life!