Financial planning involves visualising the future. In what ways will the world change in 30 years? How much should you save for retirement? In which city should you buy a house? It’s important to keep seeking answers to these questions. The future’s an unpredictable place. You don’t want an unexpected turn of events to take you by surprise and catch you financially unprepared. You must, therefore, guard against complacency. The going may be smooth for you now, but it may not be so forever. Complacency can hurt you financially. Let’s look at some ways in which you can get complacent with your money.
NOT SETTING FINANCIAL GOALS
Financial goals help you find focus in your financial life. These goals tell you how much and by when you would require money at any life stage. For example, you have calculated that if you retire in 30 years’ time, you’ll require a retirement fund of `5 crore to maintain your current lifestyle. Similarly, you may be able to calculate that you need `30 lakh in 10 years to put your child through college. Without goals, you wouldn’t be able to find financial direction, save taxes, make profitable investments, or be able to find funds right when you need them. So go ahead — set the goals that will define your life.
LIVING WITHOUT A BUDGET
Financial goals are ends. Your income provides the means. But without a budget, you can’t use the means to get to the ends. Budgets help you map what you earn, spend, save, and invest. They also tells you much you need to borrow or where you need to cut back. Your domestic budget is the 30,000-feet perspective of your financial life you must have in order to manage your money better. Without the perspective, the goals, or the discipline, you will struggle to manage your money well.
NOT KEEPING A TAB ON YOUR BILLS
The budget provides you a big picture view of your financial life. But it’s also important to keep track of the tinier details. Your bill payments must ideally be automated so that they’re settled before the due date, freeing you up from the hassles of bill tracking. However, this doesn’t mean that you should forgo looking at your bills altogether. Always read through your utility bills, credit card and bank statements, and any other statements to ascertain that what you’re paying is as per your expectations, and no charges have been slipped in without your consent. Complacency about your bills would mean you may end up being exploited by your service provider in some way.
STICKING TO THE SAME JOB WITHOUT ANY GROWTH
Sticking to a job that is financially rewarding is a good idea. However, not seeking opportunities to learn and not seeking growth is not a great idea. In a world where technological leaps happen every few months, it is absolutely important to keep updating your knowledge and skillset to remain competitive in the workforce. Not doing so would lead to stagnation and eventually when your skills become outdated, your finances would be impacted.
NOT REVIEWING YOUR INVESTMENTS
Investments should be reviewed periodically — at least once a quarter. Every year, as your income increases, you must step up your investment contributions. This will help you accelerate towards your financial goals and also avoid spending the additional income. You must track your investments for their rate of return, various risks from stock markets, inflation, interest rate fluctuations, currency volatility and so on. Whenever there is a problem and your investment isn't performing as per expectations, you must step in to take corrective actions. Continuing on a bad investment plan could have several, terrible consequences such as losing your money, getting a poor rate of return, and not being able to redeem the investment in your time of need.
Last but not least, it is sheer financial complacency when you know that insurance is important to protect your loved ones from future eventualities, but you still don't buy coverage. Having health insurance is among your financial priorities, and so is owning term insurance if you have dependents. You can keep financial complacency away by being aware of your financial priorities, acknowledging your risks, and working towards overcoming them.
— The writer is CEO, BankBazaar.com