How does one make old beliefs go away when making new plans for your future, lets say retirement planning, asked Mr. Rajesh Kumar, when he met me as his Financial Planner. What should be the points to keep in mind while the foundations of a well-planned financial life, he asked me.
How do I break my old limiting factors which have stopped me from making any investment decisions, sometimes due to fear of unknown, asked Suresh R, a young entrepreneur, when he met me on being appointed as his financial planner.
Over my years of client interactions, I have come across so many situations where old thoughts about investing became the limiting factor, which had now become ingrained in my client’s mind so deep that new ideas didn’t have any place and my main task became to educate, to remove unnecessary beliefs so that right ideas could germinate and a well planned financial life could start.
I came across 6 basic principles of Money which I learnt are important to understand when one looks for starting personal financial planning for individuals and families for all age groups. These are:
- YOU: Your relationship with Money starts with you only. Starting with your beliefs about money, leads to your thoughts, resulting in actions or investments that you make, to the results you get this is a cycle. Lets understand how this works in details here.
Your financial goals, resources, skills, beliefs, values determine how you align all of these goals eventually into actions. Goals, which are very personal, may change over your lifetime. But Goals should be SMART ( Specific, Measurable, Achievable, Realistic and time bound). Goals can be plans in action. From Dreams to ideas to a wish list, you have to then identify your priorities and then decide the tradeoffs, which you are willing to achieve these top prioritize goals. Only you can decide these goals and do not copy from what your friend may have as his goals as you decide your goals also based on your values and what values you stand for! Values can then be linked to your happiness.
- PRESUPPOSITIONS: What factors have to be taken for granted and what are your own beliefs. Call it assumptions. If taken for granted, then decide to right action too.
Your understanding of the basic principles of how much money would work best for you. To build a relationship with your financial planner, to bring result in mutual trust and thus response expected too.
You gain rapport or get a grip with your own money by increasing your deeper understanding of your income expense, pains and gains, goals and dreams, savings investments. It is like speaking the language of Money.
This rapport with your money is essential for good growth of your investment, over your defined time horizon and hence a balance on your risk profile too.
If you have rapport with your money, your financial planner will feel acknowledged and be thus more responsive.
It is thus possible to build a rapport as many levels of your financial planning by paying close attention to this relationship and by respecting your financial planner’s suggestions.
Rapport, thus built over time evolves into trust.
- OUTCOME: Know, what you want! The basic idea of financial planning is being clear about what you want and being able to elicit response on what you want from your money and hence, being able to also communicate the same to your financial planner. Over the years, my processes are based around always thinking of the actual outcome first, in the beginning and always, so that one is always remembering it. An outcome is thus, what you want with your own money, so that what you want with your own money, is always, dynamically and systematically, aligning itself with the outcome. Remember, not the result (what my clients sometimes call good or bad “return” in relative terms to define their definition of outcome). Thus all your investment decision are achieving the outcome decided in advance and there is no regret or so-called bad decisions. Outcome depends on the following elements:
- Present State (PS): where are you now and what is the value of all your investments as of today.
- Desired State (DS): Where do you want your money to be, depends on many factors like your personal risk profile, time horizon for each goal.
- The HOW Strategy: how to get from your PS to DS, making the best use of your given and defined resources, that you have or depends if you would endeavor on creating new resources.
- Resources: can be your savings possible, investments strategy, your skills on managing your money, your psychology, beliefs, values)
- The WHY Strategy:this would rationalise your goals and their priority and hence help you to do away with just dreams (not perhaps possible to achieve in the given resources) and give you more confidence with your financial planner’s suggestions on the top priorities too.
Moving from the current state: is from familiar, comfortable, controlled and roles understood through a transition state where you let go of the old, old money beliefs, take on the new ideas from your financial planner, understand and take up changes in investment strategies, take up the expected feeling of potential loss or potential gains to finally the outcome or the Desired state – which may look risky state which may be unfamiliar, unknown environment where you may yet not understand the controls possible but should accept all new such roles. Welcome to the new beginning and to your new world of financial investment where your financial planner may continue to be your guide but now you are in control (should be) and it also marks the beginning of a new money values Happiness relationship, call by me as the The Advantage Money Happiness Index.(TAMOHI, in short).
- FEEDBACK: To know, how will you know that you are getting what you want to achieve and are you getting what you want, you start paying more attention to systems and mechanisms developed by your financial planner customized perhaps for you, to know what to do next.
With systems in place, and feedback coming to you, you would get more interested in getting relevant information coming to you in the most desirable and convenient method like sms, email updates, newsletters and online forums like apps. Information that, is relevant for your to keep you updated and abreast on what matters to you and what you can control, rest all information is be filtered out and your financial planner can help you a lot in this regards. He should be able to send you all important, critical and updated information on regular manner so that you don’t get surprises from your friends on matters that may be important for you.
- FLEXIBILITY: The flexibility to enter and exit any investments, or rather having prior information, is a good contribution possible from your financial planner. Flexibility of entering and exit cost, also on taxes to be paid or which can be deferred or avoided, are part of the best strategy here.
- CIRCLE OF TRUST: Thus having understood, that building relationship, based on trust and what service you get, and influence (to you and from you)- from your Financial planner, you develop your own Circle of Trust. This can mark the new beginning of the trustworthy, reliable, creditworthy relationship between yourself-your money and your financial planner. Happy Investing!
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