Is it enough to just save money?
At WMU, we have been involved very closely with our clients in helping to manage their finances. As we complete 10 years of our journey, we look forward to strengthening our existing relationships further; as well as forging new bonds and creating new associations. To mark this milestone, we will be sharing our musings and experiences in a series of blogs, which we hope you will like.
Most New Year resolutions revolve around starting a new exercise regimen to look good and stay fit. We are prepared to hire personal trainers in our endeavour to look fit and fab, but does this extend to engaging a personal financial planner to make our financial portfolio look fit and healthy? How many of us make resolutions around how to make our financial portfolio flourish? Just like it’s never too late to start your fitness journey, it’s never too late to start introspecting on financial fitness. Start asking yourself this question-“How do I manage my financial journey? And the answer to this question is relevant –whether you happen to be starting out on your financial management journey or you have already embarked on it.
You can compare managing your finances to being on a journey to a prefixed destination-you could choose any of the options that Google maps readily suggests-walk, run, drive or fly to your destination.
Whatever mode you select, there are three factors associated-the cost, the duration of the journey and the risk involved. You have to evaluate these three factors and choose the mode that works best for you. Similarly, there are several modes to plan your journey to meet your financial goals. Once you have identified your financial goals, you will need to evaluate the same three factors and decide on the journey you will choose to achieve your financial goals
Since every individual’s financial position, goals and activities are unique, there is not a ‘one size fits all’ solution. Every individual differs in their outlook and approach to money and finances. We commonly come across the following approaches:
The ‘here and now’ approach: The focus is on instant gratification of present needs, leverages credit card and loan products to meet extra needs. This approach is typical of young professionals who indulge their spending habits in the initial years of gainful employment. With maturity and experience, they soon develop saving and financial planning habits
The ‘Make future secure’ approach: Here we observe that there is a tendency to focus so hard on securing the future that the living and enjoying in the present is overseen or ignored.
The balanced approach: There is a section of gainfully employed young people who start focusing on their financial goals quite early in life and cultivate the habit of saving.
Needless to say, the third approach is recommended –saving a portion of your earnings is recommended and this habit needs to become as natural as brushing your teeth. Cliched as it may sound, this IS the way to wealth and this is something Warren Buffett discovered very early in life and made his first investment at the age of 14.
Is it enough to just save money? What is the best way to make your savings work for you? The terms ‘saving’ and ‘investment’ have overlapping connotations- savings loosely refers to putting money aside to tide over unexpected crises or a long term goal. Investing refers to parking your money in different assets with the expectation of potential gains in your corpus funds. Saving money is a discipline and financial planning is the strategy that will make this discipline create dividends for you.
A very essential part of this discipline is to dedicate time to personal finance or financial ‘hygiene ’(we will delve into this topic in our upcoming blogs). I’m sure most of you make excuses that work pressure prevents you from allocating any time to personal finance management. The money that you make by working so hard, can itself help reduce these long hours, by working for you. The returns that you can make by a dedicated personal financial plan will soon outweigh the money that you are earning by working 16-18 hours a day and provide you with the luxury to follow your passion and leisure pursuits.
If you are unsure or hesitant about going to a Financial Planner, we urge you to explore the Personal Financial Management apps available easily and freely which can guide you and provide a perspective on the saving and investment journey.
Embark on your financial journey today. You can always do a course correction along the way to stay on track to achieve your financial goals. We hope that our blog series will help you on your journey.