FINANCIAL PLANNING: Have a plan in place before investing

Suresh (40), a non-resident investors working in the Gulf, left his job for good and came back to India with the hope of starting something on his own. He came back with his spouse (38) and daughter (11) and started living in a rented accommodation in Mumbai. As his NRE account was flush with money, he started getting incessant calls from bankers willing to help him invest his money. Relatives and friends came and offered their bit of sage advice on where he should invest and multiply his money.
At the end of three months of his stay in Mumbai, he had purchased a Unit Linked Insurance Plan (Ulip) plan with Rs 6 lakh as annual premium to be paid over five years and ten years to maturity. Rs 40 lakh were invested with a well-known jewellery brand at an interest of 15%, which was being paid to him monthly to take care of his monthly expenses. He invested Rs 10 lakh with an equity broker who promised to pay him 20% returns by trading on his behalf.
All that he was now left with were his NRE fixed deposits worth Rs 25 lakh. Without a financial plan in place Suresh kept looking around for avenues to invest. He went about investing his money without any clarity on what business he intends to start here and how much capital he needs to set aside.
Yogendra (38) earns a good salary, but bulk of his income goes towards paying his home loan Equated Monthly Installments (EMIs). He is already saddled with credit card outstanding, which is slowly ballooning into a bigger debt as he is just doing part payments each month resulting in heavy interest costs. Slowly and slowly he is moving into a debt trap. He needs help before the situation gets out of hand.
There are many such cases across the country where people still take advice from their friends, colleagues and family members on matters related to personal finance. Health and personal finance are the two important areas of a person’s life and both need utmost attention and proper guidance. A financial plan helps a person identity his cashflow situation, insurance gaps and requirements. But most importantly it helps a person set financial goals. Financial goals give clarity and focus which allows allocation of financial resources in the optimum manner possible towards achievement of those goals. Sir Henry Ford once famously said, “If you don’t know where you want to go, any road will do”.
Financial plan also provides direction on how the monies are to be invested and in which assets rather than just follow the trend and invest. Many investors frequently keep asking this question: “Where should one invest now”? Your financial plan has answers to this question, as your investments need to be in line with your financial goal requirements and time horizon.
Many investors get trapped in wrong investments which can set them back by a few years. The earlier one realises this the better. The famous painter Pablo Picasso once said many years ago, “Our goals can only be reached through a vehicle of a plan in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”