Top 5 Financial Planning tips to follow this Festive Season of Diwali 2019

Here are five key financial planning tips to make Diwali 2019 a festival of future prosperity and your first step to wealth management.

Oct 21, 2019 08:10 IST India Infoline News Service

Diwali as the festival of lights has many interpretations. The most obvious interpretation is, of course, about using the power of light to drive the darkness of ignorance out of our lives. But the more important significance of Diwali is to usher in prosperity and get rid of the financial hurdles in your life. For that you need financial planning. Financial planning is considered the most basic building block for wealth management as it offers a disciplined and organized approach to creating wealth. Let us hope that Diwali 2019 ushers in financial prosperity into your lives. Here are five key financial planning tips to make Diwali 2019 a festival of future prosperity and your first step to wealth management.

You need the help of a professional and Diwali is the time to start
Financial planning, often, looks like a simple and logical process, and that is what it is! But the actual modus operandi is a lot more complex. That is where a professional financial planner can add value. It is not just about setting ambitious goals, they must also be grounded in reality. The financial planner can act as your sounding board for the full activity cycle. Before you welcome Diwali 2019, make it a point to welcome the financial planner into your home. She is going to be your wealth doctor after all!

Define realistic goals and then make the plan
This is an important step wherein you separate the dreams from the goals. There are two interpretations to this. Firstly, goals need to be realistic. If you want to create a corpus of Rs25cr in 25 years by saving Rs10,000 per month, then that is impractical even with a lot of aggression. Secondly, goals have to be flexible and meaningful. That means, these goals must be prioritized. For example, a home must take precedence over a car and planning your retirement and your child’s future must be your key long term goals.

Squeeze the maximum out of your savings
Wealth management begins with savings and that is not what is left after your spending. Make savings a target and work your budget accordingly. If your saving target dictates that you spend frugally for the first few years, so be it. The target savings are worked backward based on your medium term and long goals and that must be a religious discipline for you. If you wait to earn enough to save, it is never going to happen. Turn the process upside down.

Adopt a systematic approach to wealth management
What do you mean by a systematic approach? We can give different names to it like phased investing, SIP investing, etc. The bottom-line is that you don’t try to invest in lump sum but phase out into monthly savings. This has a number of advantages. Firstly, it matches your inflows to your outflows so that the saving for goals does not pose a burden on your financial equations. Secondly, leverage the power of equities. Even if you save in liquid funds for the next 30 years, you will not be able to make much of an impact. Liquid funds give 4% net of tax and costs. That means, you will need 18 years to just double your money. Equity is the best answer and also offers a low risk method of wealth management. Lastly, your approach has got to be disciplined. If you abandon your plan mid-way, you are unlikely to make a difference. Similarly, if you opt for dividend plans and strip part of the wealth, your plan is not going to be effective. Make it systematic, make it regular and make it a determined approach.

Let each Diwali be an occasion to review your journey
Creating a financial plan is just part of the process. There are a lot of things that will change along the way. Your investments may underperform, market conditions may change and your own financial needs and challenges may change along the way. All this calls for constant review of your goals and your financial plans. An annual review is a must although portfolio shifts can be done only when necessary.

This Diwali 2019, make a positive start towards wealth management. Let the Diwali really light up your lives and your future.

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