Plan your finances

Wealth being the destination, financial planning helps you chart the roadmap.

Woman writing bank documentsFailing to plan is planning to fail. Managing one’s finances is no exception. All of us know that we have to retire some day. In spite of this, how many of us really prepare for this eventuality? Preparation does not mean arbitrarily salting something away for that rainy day. Even if you have been saving, along comes that foreign holiday you wanted to take or the car you yearned to possess, and there goes your piggy bank. You can always start saving from next month, right?

An early start

Actually, we are introduced to the concept and process of financial planning at a very young age—in fact, since our pocket money begins. I have fond memories of my week starting with pizzas, movies and soft drinks. As the weekend neared, vada pav substituted the pizza; one hung out outside the movie theatre instead of inside and the cola was swapped for a cutting chai. Of course, I felt a special thrill on the rare occasions where I actually managed to save some money.

In fact, it was with these savings that I made my first investment in a Recurring Deposit [RD] at a bank opposite my home. Bullying my parents, I managed to add two hundred rupees to my princely capital of INR 800 and was a delighted owner of a INR 1,000 bank deposit. It gave me a thrill to periodically visit the bank to add to the corpus and act grown up.

Looking back, the RD, proved to be great investment. Though the capital wouldn’t have made a Donald Trump look over his shoulders, the entire process instilled a discipline of savings at an early age. Not to mention the fact that I used the money to make my first foray into the stock market—100 shares of a company and my first investment as a professional. Thinking about this subject brings tears to my eyes, not on account of the nostalgia but because as a novice investor, I made the mistake of getting out of the stock way too early, just as soon as I had made a few bucks. Had I held on, perhaps Trump would have really had to look over his shoulders.

Why plan

You need to plan your investments simply so you get rich before becoming old rather than getting old before becoming rich. Planning your investments carefully is the difference between building up capital and accumulating wealth. The difference between capital and wealth? Wealth is when your capital brings a smile to your face.

The good news, however, is that there is nothing esoteric about the financial planning process. There are no intricate spreadsheets that will tell you how much money you will have, up to the second decimal, on your 65th birthday. So, it’s so much better to have an objective blueprint in front of you.

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Sandeep Shanbhag
Sandeep Shanbhag, a Mumbai-based Chartered Accountant and Director of Wonderland Consultants, a tax and investment advisory firm in the business for over 20 years. He writes regular columns on investment and tax planning in newspapers and websites such as DNA, moneycontrol.com and rediff.com

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