Take control of your financial journey

My wife and I love to travel. In the last 15 years, we have travelled to many destinations in different continents and here in India. Let me share some learning from the experience we had and try to relate to today’s blog topic. Choosing a travel destination is the easiest part of travel for us because I leave that decision completely to my wife.

How to reach the destination is also fairly simple decision. If it is long distance travel, we go to a travel website and select the lowest fare flights (unless it is at a very inconvenient time, in which case we select the lowest fare option convenient for us). For shorter distances, sometimes we have to decide whether to drive or take a train. Again it is not a difficult decision; since I do most of the driving in my family, I decide whether to drive or take a train.

The one decision, which takes most of the time and effort in travel planning, is deciding where to stay. Again, I try to leave that decision to my wife, but very often I need to get involved (actually my wife forces me to get involved) because she gets confused and needs help in deciding. There are various factors involved in deciding where to stay. For us cost is an important factor, but there are a several other factors also need to considered like, if we are travelling with the family or just the two of us, the location, local transportation, amenities, experience etc.

When we travel for pleasure, it is not just about going to a destination, staying there and sight-seeing. The main objective of travelling is for it to be a pleasurable experience, but it requires some amount of planning to make travel a nice experience for everyone in the family. Similarly, we all have some financial aspirations (stated or unstated) in life and financial planning is required to meet our aspirations.

Why is planning important?

When I was a student, my friends and I would often travel without any kind of planning. Sometimes, we would simply pick a destination the night before we are travelling; we would travel in general compartment, stay in any hotel which had rooms available and suited our shoestring budgets. It seemed fun back then, but with a family, it was no longer possible to travel like how I did in my student days.

I see many people trying to go through their working lives without any kind of financial planning. Our financial journeys are very long and lasts our entire adult life. Since it is a long journey, the effects of bad planning or lack of planning, unlike travel, is not immediately felt, but it surely will be felt once we reach various milestones in different life stages.

Imagine reaching your travel destination with your family and then the hotel, where you planned to stay, tells you that there are no rooms available because you did not have reservation. You drag your family and luggage to another hotel and find that rooms are available, but the tariffs are too high. Now you have two choices, either burn a hole in your pocket or put your family to further stress as you go hotel hunting. Not having a financial plan is a lot like the situation I just described. It is not a situation that you would like to put yourself or your family in.

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What is financial planning?

We all have aspirations or goals in life. The goal can be building a retirement nest egg, saving for your children’s college education or wedding, saving for a down-payment for property purchase, protecting your family from financial distress due to unforeseen risks, protecting your family from health risks, protecting your home or business from fire or other hazards etc, but unless you have an objective, you will not be able to make the right decision. Financial planning, whether formal or informal, is a process where you define your goals and then, formulate a plan which will help you meet all the different goals.

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For this post, I chose travel as a supporting theme because most people love to travel and I will try to relate travel planning to financial planning. I must admit that travel planning is more exciting than financial planning; we all like to do things which excite us, but sometimes the boring things are more important in life. I have seen people spending more time on their travel planning (like a trip to Goa) than on their financial planning (like investing for retirement). I am not saying that, you should not spend time doing travel planning, but you should also devote time to more serious objectives in life.

Point of Arrival in planning

The destination of travel is like our financial goal; it is based on our personal desires. It is the most important step but it can also be the most subjective one. Without this step, you cannot even start planning, let alone embark upon the journey. Goal planning is both an objective and subjective exercise. It is objective because you should have a quantifiable goal for your financial plan to be objective. The goal should be achievable and based on your financial capabilities.

Objectivity makes your goal sharper and more actionable to work on. It is like planning your travel destination. When planning your travel plan, you do not just say that, I want to go to the mountains; even saying I want to go to Himachal Pradesh or Uttarakhand is not good enough for travel planning. You actually decide where specifically you want to go amongst various destinations like Shimla, Manali, Lahaul, Spiti, Kangra etc; you want a specific destination in Himachal or a combination of destinations. Likewise for Uttarakhand, there are a large number of destinations to choose from Rishikesh, Mussoorie, Nainital, Almora, Gangotri, Valley of Flowers etc, but you need to choose a specific destination or destinations that fits in your budget (both financially and time-wise); otherwise, you cannot plan.

Similarly, in financial planning, you need to have a specific, actionable goal. Simply saying that, I want to save for retirement, will not help you develop an actionable plan to meet the goal. You have to determine how much retirement corpus you will need based on your income, lifestyle and projected inflation. While objectivity is extremely important in financial planning, personal aspirations and desires are also important.

Importance of personal aspirations

Many a times, I see financial planners trying to make goal planning a science. There was this financial planner, I had in the US when I was working there; he made a financial plan for me on his tablet, just by asking a few questions like my current income and expenses, my assets and liabilities, my family situation etc. Even here in India, there was this life insurance agent, who decided what pension plan I needed to buy, simply by asking my age and income. Though I am all for objectivity, I have seen that, objectivity based on standard assumptions, which do not take personal aspirations into account, are not very useful.

For example, the financial planner in the US assumed that, I will spend the rest of my life in New York, where I was working at that point of time. Similarly, this insurance agent in India assumed that, I will continue in my current job and retire at the age of 60. From the viewpoints of the two advisors, I alluded to, their assumptions were not unreasonable. However, life may not always follow a predictable trajectory; sometimes, we ourselves may not want to follow a predictable trajectory in our careers. What I realized in course of interactions with different financial advisors was that,I do not want a cookie cutter approach; I decide my own future and therefore, I need to be involved in my own financial planning. You need to decide your own destination.

Related read – Why should you get serious now about your retirement planning

Taking control

Let us now talk about the journey. Your financial planning is a lot like travel planning. Do you prefer to go on a conducted tour or prefer the flexibility of doing what you want and when you want in your travel? I am not saying that, one approach is better than another. Obviously, a lot of headaches like how to travel, where to stay, local transportation etc are taken care of when you go on a conducted tour. On the other hand, many travellers may want for flexibility instead of following a rigid schedule.

Based on the current business trends in the travel industry, I can say that, people, empowered by technology relying on DIY (do it yourself), because it gives them flexibility and customize their travel plans, as per their own needs and conveniences. The same thing applies to your personal finances. There are many web resources and online tools that enable you to get information regarding investments and help you manage your own personal finance. There are many research and product content related online resources (including advisorkhoj.com) which can provide a lot of information about different investment products. There are online tools offered by Asset Management Companies (AMC), Registrar and Transfer Agents (RTA), mutual fund distributors etc that can help you execute different investment transactions. These technology tools empower you to take investment decisions and execute them.

Does this mean that there is no need for conducted tours?

Last winter, my wife and I decided to go the Sundarban Tiger Reserve in the southern tip of West Bengal. It is a beautiful landscape, where the river Ganges meets with the sea. The delta, dotted with islands and rivulets, is the home to the magnificent Royal Bengal Tiger, the saltwater crocodile, sharks, chital deer, wild boars, variety of birds and other wildlife. However, beauty aside, Sundarban is a hostile landscape; the only mode of transportation for tourists in Sundarban are privately operated motorized boats. We realized that, we need the help of a specialist, to plan our travel because, we did not have sufficient knowledge to do it all by ourselves.

The same logic applies to our personal finance as well. Investors may not have sufficient knowledge about different products and may need help in their financial journey; this is where financial advisors play a very important role. In our Sundarban trip, even though we went on a conducted tour package, my wife and I did a lot of research ourselves and we asked a lot of questions to the tour operator, so that we had a lot of information about our travel beforehand. Similarly, even if you have a financial advisor, you need to get personally involved and ask the right questions, before making investment decisions.

Conclusion of this part

People spend a lot of time researching different travel destinations, how to travel, where to stay etc. It is not just about travel; people also spend a lot of time researching what movie they want to see over the weekend, which restaurant to dine in, which electronic gadget to buy etc. Do you spend as much time meticulously planning your financial goals? Based on the traffic we get on our website (advisorkhoj.com), it clearly shows that, lot more people are now involved in their personal financial planning than before. But it could be much more, given the still low levels of equity penetration in household savings in our country. Our objective in Advisorkhoj.com is that, people are empowered with the knowledge to take their own financial decisions. In the next part of this post, we will discuss about making investment decisions. Please stay tuned......