When we talk about personal finance planning, we need to understand the clear difference between the terms "Savings" and "Investment". Even though these two terms are used interchangeably in financial discussions there are certain difference with which we can distinguish these two.
When you say "I am Investing" it means that you are expecting the capital to grow and you are taking a risk but when you say that "I am Saving" it means that you are more conservative and you are looking for your capital protection.
So what should we do? Save or Invest? What I say is forget about these jargon's and get yourself into reality. It gives us a false prestige when we say that we are investing in stocks rather than PPF, it gives you a geeky image.
Even if we don't understand the risks, even if we don't understand the stock market we will put our money into it and expect a 200% returns in a year. When we question their motive the simple answer is I want to be rich. Well everyone's ambition is to be rich but how rich is rich? XYZ invest in stocks and wants to be rich so as Warren Buffet invest in stocks and wants to be rich. The only difference is Warren Buffet has goals.
Is Finanical Goal important, yes definitely.
Goal->Plan->Action-> Excitement->Achievement ->Satisfaction
Without goal we are clueless, goal will lead us to plan for it. Some one might keep investing in some assets without any goal and become super rich but i don't travel that way. I need a goal to get motivated to get excited. Otherwise it is like watching Sachin playing in Australia without 100th century in mind. That milestone motivates Sachin, excites him and when he achieve it gives enormous satisfaction.
Investing is not about putting your money continuously in some asset and watch it grow, it is all about booking profit at right time and reaping the benefits. To achieve it you should know when to stop, to know when to stop you need to set goal.
You can set a goal by answering these questions
- Why do you want to save money?
- How much money you need?
- When you need that money?
Some of the goals you can set are
- Children's education - Need 10,000,00 in 2021
- Marriage of your Son/Daughter - Need 15,000,00 in 2030
- Retirement planning
- Down payment for buying house
- Down payment for buying car
- Foreign trip
Next post we will see how should we plan and track for achieving the goal.
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In the absence of proper financial planning, no individuals would save money to invest. If there is no investments, then we would face a liquidity problem.As compared to past few years, as the trend is observed, savings have already reduced which is a serious concern for the economy. Hence, Financial planning is a Must!
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