Do you spend hours crunching figures before making a big financial decision? Do you let spread-sheets define your route to financial success? Are you using a set of guidelines for navigating your personal finances?
Or do you let sentiments and other non-financial factors influence your financial decisions? If you’re looking for a unique way to express yourself, then this blog article is definitely for you to give a read through. Financial strategies may appear excellent on paper and in online calculators, but there are several elements that may not be accurate.
Why do we think math may be tricky?
This article is not intended to demonstrate the insignificance of numbers and computations. Indeed, a well-calculated financial strategy provides a firm basis. It takes into account the flow of money, liabilities, present assets, and willingness to take risks, converting them into exact numbers that you may use to achieve crucial financial goals. However, don’t let maths rule your personal money. It is a common misperception that financial planning is simply dealing with numbers. Financial planning does not have to be a complicated Excel spread-sheet activity or a 30-page financial guide.
There are several drawbacks if you are depending too much on numbers. Assume you wish to send your four-year-old kid overseas for post-graduation in 18 years from now. A goal calculator online will inform you that if inflation is 6%, a course that costs Rs. 80 lakh today would cost approximately Rs. 2.25 crore in 18 years. To accumulate this corpus, you need to invest Rs. 28,000 every month in an investment option that gives a 12% CAGR over the next 18 years. This math can make your goals look out of reach, causing you to abandon the investment plan or possibly give up on your financial goals entirely.
If we see on the other end of the spectrum, if the amount the financial calculator produces is within your limits, it gives you a sense of control over your future. But, a protracted sickness, job loss, or company failure, might leave you without money for a prolonged stretch of time. This is owing to the unfortunate truth that one’s personal situations change as actual life unfolds.
One such example is when the stock market behaves badly closer to your target redemption deadline. Even your personal demands may vary as your family expands or your way of living evolves. As a result, you may begin with an imprecise grasp of your goals, but they may evolve over time. Whatever the stats say, there are inevitably some risk factors that are beyond your ability to prevent.
A financial plan is only valuable if it can withstand the realities of life. And every individual’s reality is a future full of unknowns. Real life has aspects that an excel sheet cannot represent. It is also about accepting one’s emotions, sentiments, and satisfaction.
There are numerous instances where money takes a second seat to other considerations. For example, when it comes to children’s educational goals, there is the most pushback. This is a space that puts all prudent financial decision-making criteria to the test. When it comes to children, the emotional component is really powerful. Indian parents frequently prioritise their children’s academic ambitions at the expense of all other objectives.
It is not uncommon for parents to compromise on their retirement, allocating the nest money to support the child’s pricey international higher education. The financial strategy will propose that a couple prioritise their retirement above their children’s education, but some parents do not stop there. They also wish to leave an inheritance for their descendants. That is, creating assets that can be transmitted down to their future generations to come, even if it involves sacrificing some of one’s personal interests.
Another crucial choice in which feelings and other subjective considerations are paramount is while purchasing a home. The debate about renting vs purchasing a home is lengthy, yet a similar theme runs across most discussions, that the numbers take a back seat and emotions or sentiments take precedence. In many places, the math plainly advantages renting over buying. However, the convenience and safety of owning a tangible asset entices many people to take this plunge.
Though the stats support renting a property, there are practical issues to consider, especially if you have children. Moving the entire family every few years can be unpleasant for children, making any financial reason appear minor. People are sick of constantly relocating and instead, want to provide their families a place which they can consider as their own home.
Changing careers or leaving a job to start a business are also moves that may not make practical sense. But we could find individuals taking an extended hiatus from employment to explore their possibilities, which is not peculiar these days. They may not have enough funds, but the urge to disconnect and rejuvenate is strong. Any such step will almost certainly require tough trade-offs and bitter lifestyle modifications. However, it may provide something more significant to individuals – joy and serenity of mind. No mathematical procedure has room for such ventures.
Play a Balancing act:
Finally, financial management is about making decisions that lead to happiness. Even while emotions and desires play a role in your financial path, you must be aware of the entire consequences of your actions.
For example, when addressing your children’s foreign education, you should look into scholarships or taking out an education loan. Aside from money, your child’s safety, exposure to new cultures, and capacity to deal with it are all significant factors to keep in mind.
This also applies to the emotionally laden decision of purchasing a home. Buying a property early in your career may not always be a good decision when relocation brings you new chances. At first, it is frequently more cost effective to rent closer to the workplace. Later, when you’re stable in your job and your family requires stability, buy a house.
Even if you have massive objectives, your other life goals should not be jeopardised. You can’t afford to devote all of your financial resources to a single aim. The key is to look at investments with a goal-oriented mind-set. Having clarity on numerous goals will help you to keep your sentiments in check. Goals must also be prioritised. If your top goals are established, you will be able to commit funds to each objective correctly well in time. It will prevent you from squandering funds intended for important causes. Take those you care about with you as you navigate this delicate bog of hopes, sentiments, and financial reality. Handling relationships with other people in the home is an important aspect of financial planning. A family’s approach to money and goals may be very different from a single person’s approach. One partner’s abroad vacation may take primacy over the other’s desire for a larger car. Sit down together to define common goals and, when feasible, make room for distinct goals.
You may wonder what the conclusion that we may arrive from this article on the financial planning and numbers. Do not get confused! It is very simple. Consider your family situations and take your financial actions accordingly and don’t just rely on math fully or on the other side, don’t just blindly follow your personal interest and ambitions (on the expense of your family’s interests). Have a balanced act of both numbers and emotions.
