Monday, November 3, 2008

Plan for your financial future, NOW!

In the last couple of years, all we have seen in the media, at parties and at meetings are discussions and predictions about the future course of the stock market. It is always easy to make predictions, as you do not have to really press hard to ‘guesstimate’. However, we also know that predictions are like illusions. They have no resemblance to actual facts of life. Ideally, people should have been preparing rather than predicting.

My neighbour always believed in the saying, “Dream big dreams, they have a funny way of coming true.” Then one day, when he was scolding his younger daughter for not studying for her exams, she responded, “I’ve got a ‘big dream’ - of becoming a doctor and am waiting for some ‘funny way’ of becoming one – without studying!” My neighbour was dumbstruck. Yet, he has done nothing constructive (like planning) in order to achieve his dreams.

We all dream of a great future. In fact, every time we are alone, we have one predominant thought – that of a brighter future. Unfortunately, just like we cannot become a doctor by dreaming alone, similarly, we cannot create a brighter future by just dreaming it up.

There is another anecdote to this entire activity. We all have our respective professions. Unfortunately, many of us do not know what we are working on. Our dreams are not clearly defined. It’s like buying tickets at the railway station but not knowing where to go.

Like all other activities, if you want to achieve a great future, you need to plan. The first step is to clearly define “your” bright future. Secondly, quantify it. For example, it is not enough to say ‘I need a holiday home’. A proper approach is to state that I want to own a holiday home of about 4,000 square feet in a hill station and costing approximately Rs 35 lakh. Next, give yourself a time frame like, ‘I need that house in the next five years’.

Having quantified this dream, start working at it. Save regularly for it. While you are saving, give a name to that investment of your dream, something like ‘Holiday home fund’. Let me highlight the significance of this.

Assume you have Rs 28,000 lying idle in your savings bank account. You may have earned this additional money by way of dividend, sales incentive, etc. Your mobile phone has become old. You remember that newspaper advertisement of the latest mobile phone with swanky features, special introductory offer and to top it all, they will buy back your old phone. What are the chances that you will opt for the offer? In all probability, you will jump at the offer!

Now assume you have named that Rs 28,000 in your head. For instance, you have decided that this Rs 28,000 will go towards an ‘Annual family vacation fund’. What are the chances of you spending that money on the mobile now? Even if the family vacation is six months away and you are likely to earn additional income, you will not touch the Rs 28,000.

In all probability, you will use the future income for a mobile phone, but not the current savings. That’s why naming an investment helps you in staying focused.

Lastly, keep reviewing your dream and investments। Every three-four months, spend some time focusing on your dream and its investments. After all, as the Japanese say, “Vision without action is a daydream. Action without vision is a nightmare!”

- Gaurav Mashruwala

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