Why Do Financial Plans Fail?

 Note: Some content of this article has been taken from the book 11 principles to achieve financial freedom - by Nandish Desai  and You were born rich - By Bob Proctor

To achieve any goal in life the following three things are a MUST 

1.Meticulous Planning detailing what to do, when to do , how to do , who will do what while taking into consideration various scenarios, constraints, available resources ets 
2.Super Execution of the plan so as to achieve the planned impact in planned areas within the planned time, with the available resources AND 
3.Continuous monitoring of the plan so as to know where have we reached , what is changed, what needs to be changed and so on.

Same thing is applicable to financial plan also. Now a days every now and then we keep on reading and hearing in television, Youtube, newspaper, magazines about why financial plan is a need of the day and not a luxury. So, at some point in our life we create our own financial plan either by oneself or by getting a advisor for same. Once the financial plan is being made we are super exited about our financial future as now we have more clarity on same. But as the time passes financial plan goes to back burner.
- Why does it happens ?
- Why does the financial plan Fail ?

So in this post I am going to discuss some of the reasons about the failure of the financial plan.

1. Lack of action: The first step to make a financial plan come to life is ACTION. Let’s see the number of actions required to be taken by a investor

• Buying of different financial instrument which could be Direct Equity , ETF's InVits's, Bonds, Structured Products , Life Insurance Policy, Health Insurance Policy , Mutual funds, real estate etc.
• Opening of a new savings account 
• Attending some seminar ( be very cautious and selective while you chose a youtube video ) on personal finance or reading of books related to personal finance.
• Maintaining budget may be once in a month or quarter.

Most of the investors keep on postponing their action by saying that we will do it ASAP now this word if said in Armed Forces may attract a "court martial"

2. Always looking for perfection: To execute a  financial plan, one has to channelize his/her money into different financial instrument like Direct Equity , ETF's InVits's, Bonds, Structured Products , Life Insurance Policy, Health Insurance Policy , Mutual funds, real estate etc. When investor goes to shop for these financial products, they look for a perfect product without realising that there is nothing called “perfect financial product”. One has to aim for "optimising" and not "perfecting" .So even if you don't get  a perfect Life Cover that you wish, you should start with a available product which is nearest to the "Perfect" product that you were looking for .

3. Non supportive money habits:  The word habit means “those action which you take unconsciously on a daily basis”.

People fall into three categories with respect to finances:

A. Deficit position (in debt): In the habit of spending more money than they earn.

B. Break even position: In the habit of spending everything they earn.

C. Surplus position: In the habit of spending less money than they earn.

The normal equation in finance is Income Less Expense = Savings, while the equation that is required to plan for finances is Income Less Savings = Expense .
 

I have explained the mentality of debt in detail in my following post .

https://veerconsultancyservices.blogspot.com/2021/07/debt-trap-how-to-get-out.html

if you want to be in a surplus position, you have to maintain your budget on a monthly basis and stick to it come what may. You need to stop buying things just for immediate gratification and start buying things out of genuine need only. Also to come out from your deficit position, you need to shift from the mindset of a SHOPAHOLIC to a SHOPPER. A shopper go into a store to buy something when such a thing is required whereas a shopaholics go to a store to see if there is anything to buy.

4. No clear understanding of “Power of One” concept: Let us understand the concept pf “power with the help of an example. Say, in a dark night with no street light and with a torch in my hand, I have to cross 50 KM . How will I do it ? What I do is the torch in my hand will help me to see a distance of few meter. So i just walk that few meter. Again after crossing that few meter, my torch  will help me to see another few meter. Thus slowly , I will be able to reach my destination of 50 KM. But at any given point of time, I was not able to see the destination with the help of my lamp. What I did was without worrying about my destination I just took one step at a time. This is what is “Power of one” concept.

Similarly to achieve your financial goal, you need to take a list of actions. But just don’t worry and start taking one step at a time. With each step you will be nearer to your financial goals.

5. Lack of proper financial process : 

f(x) = Financial Process that one follows , where f(x) = How much wealth you create in your life .

And it is not a function of how much income you earn A process keeps the things in moving position even in our absence. For example: most of the companies are spending crores of rupees in designing a SOP's , flow charts etc to be a process driven business rather than being a individual driven company . If an employee of such companies remains absent for few days, that doesn’t mean that the company stops working. But it is the process being created which is taking care of the company.

In case of financial investment, many people operate depending upon their moods and feelings. If they feel good, they invest or else vice-versa. So to avoid such situation you need to have a process  which helps to distribute your salary/income as soon as it is credited into your account.
For example:

• 20% of your income will go as a long term investment through SIP in mutual funds, 
• 5% of your income will go as a premium for your different insurance policy, 
• 40% will go as an EMI etc.
• 35% will take care of your domestic expenses 

Just make sure that you have such process in place and keep on refining it depending on your requirement.

6. Missing wealth environment: "If you want to be an eagle you have to be with the eagles" similarly if you want to be wealthy you have to constantly provide yourself with such an environment .It can be reading articles on finance, watching good videos , talking with such people etc Your attitude towards your life depends a lot on the kind of environment you have been living. So to achieve your financial goals and to create wealth you need to be in a “wealth environment”. To be in a wealth environment, following few things can be done.

• You can participate in various blogs and websites of personal finance.
• Have a library at your home.
• Take short but good courses 
• You can form a group of your friends/colleagues and discuss about one personal finance topic may be every 15 days or every month.
• Try to read concalls of analysts and so on