Top 10 Financial Planning Mistakes
By: Unmesh Deshmukh
Tags: Finacial Services, Investing, Financial Planning, Financial Fails, Financial Freedom

The wrong way of financial planning

There is no reason for having a difference of opinion with the fact that all of us want to be exceptionally good at having great wealth, adequate investments, fair protection to the family. We work hard to make money for a bright future. At some point in time, we start systematically planning for the future. As a result, many of us think of preparing a financial plan; sometimes on our own and sometimes with the help of a financial planner. Before just moving on and hiring a financial planner or before preparing a plan for yourself, read these 10 mistakes usually people make, so that you can avoid them instead of repenting later.

1. Not keeping it simple

There is a (mis)conception that a big fat plan with 100 pages having lots and lots of analysis, complicated calculations arriving at presumably accurate figures, having lot many technical jargons be a great plan. Some also feel that this kind of plan means everything they plan about their life is almost certain to be achieved. Here is bad news for this creed. A big, complicated plan with so-called perfect figures may never be implemented as it usually is very hard to implement. Keep it simple. A simple plan with a clear understanding of executables can have far better results and terms of improving financial discipline.

2. Preparing the plan with insufficient or incorrect data

In a financial the conclusions are interdependent. No one conclusion can be exclusive of the other. As, in case of a medical consultation we are advised to inform the doctor about every truth regarding health, the same is equally true in the context of a financial plan. The numbers which you have included in a financial plan can be somewhat here and there, but they need to be there. Else, the plan may not give the desired result.

3. Giving overdue importance to numbers

There are many numbers that are involved in a financial plan. The numbers about Asset Allocation, about the future value of financial goals, about the amount required during retirement, about the exact amount of insurance required etc. We tend to arrive at a final and exact number on these parameters. Believe me, these numbers are based on a certain assumption. And the number may vary to a large extent when the actual time arrives. Don’t be a number geek here. Assume the numbers as a guideline. They will help you in giving an understanding of the actions you need to take right away. Since the numbers can change based on various factors such as inflation, earnings and returns it important to revisit and review the numbers at regular interval.

4. Not implementing the plan

We usually have a certain expectation from any new purchase. At some point in time, we may feel that the plan is not something which I was expecting. Hence we may tend not to implement the plan. This is like going to a doctor and not taking the medicines he prescribed. However, the reality is that the plan is just a reflection of the data, issues, challenges, goals and priorities you provided to the planner. In some cases, The plan may bring faster results in some case it may be delayed a bit. Not implementing is never a solution.

5. Not regularly revisiting and reviewing the plan

Any financial plan is a guideline for the next 15–20 years. When the plan is initially prepared, we are very enthusiastic about every aspect of the plan, but as it gets older, we tend to ignore it. This way the plan just serves as a piece of document and does not bring further results. It is very important to revisit the plan periodically, say every 3 months and review it thoroughly. Here the role of your financial planner is also very important as he may be instrumental in giving you the follow-up. Of course, you need to respond back.

6. Trying to do all at once

When a planner prepares a plan he includes all modules of financial planning in the plan. Since the planner is appointed to deliver a complete plan, he/she tend to include everything all at once. However, when it comes to implementation of the plan, executing all at ones may be a tedious job. Moreover, it is not necessary that you implement everything all in a single breathe. Always ask for the priority implementations to your planner. Do the urgent and important tasks to start with. Other can follow later

7. Ignoring small things in the plan

I am not referring to numbers. When a plan is prepared, the planner mentions certain things which we may find trivial and ignore implementing the same. Imagine ignoring a small part as a good battery in a car may bring Starting trouble and the very purpose of having the car goes for a toss. Certain essentials in the plan are complementary to achieve the overall objective of the plan. It may be like buying a Top UP cover for a Health Insurance policy in the case suggested by the planner and not bought buy you may eat up all your investments in case of an emergency.

8. Choosing the right Financial planner

A good mentor/coach can take you to the goal. A planner should act as a coach or mentor. He is expected to guide you through the journey to your goals and discussed the objectives of the plan. A financial plan is not a one time task, it’s a journey. You need to have someone who can be with you for the years to come. He may not just be number master, but one who logically understand your objective and provides solutions. A planner should be one who is willing to disclose all the conflict of interests while designing and implementing the plan.

9. Considering a Financial Plan just as an investment advice

A financial plan has much more than just investment advice. Rather investment planning is one small, though important module of the overall financial plan. In reality, all of us think directly about investing decisions. It is like participating in Marathon without building basic strength towards it. Financial Planning is a process which guides you through Financial Discipline which in turn help achieve Financial Fitness which finally takes you to Financial Freedom.

10. Giving overdue importance to a plan

Life is all about being logical. Sometimes simple logic works better than a perfect plan. Life is about enjoying it. The plan is for you, you are not for the plan. Live your life easily. Do not compromise small things in life only because of Investment Guru’s advice about saving before spending. Understand the bottom line. Avoid bigger mistakes in terms of spending, borrowing etc.

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