Make an Investing PLAN





Making a budget, sticking to it and framing goals are the essential components of formulating a plan.

"By failing to prepare, you are preparing to fail,' said Benjamin Franklin. Planning is clearly the unstated commonality among winners and the first step to formulating a successful strategy. Its two vital components are budgeting and framing goals. Unless you know your current location, you will never understand where you are headed. Writing down income and expenses will tell you how much you can save to build your future and the way you can increase this amount by cutting down on discretionary expenses.

Budgeting helped me undertake course correction in order to achieve my goals. It also enabled me to understand many things, such as the difference between investment and expense, and the necessity to reduce expenses if I was overshooting them. He began planning only in his 30s, but has caught up since. In fact, according to the Economictimes.com survey, as many as 49% of the respondents started planning in their 30s, but it may not be too bad a place to start if you stay on course subsequently.

The next critical stop is framing of goals. Don't just think about them without specifying the exact time frame and amount needed to accomplish each goal. This is exactly what 39% of the survey respondents do. Write down all your goals, splitting them into short-term (buying a car or taking a vacation), medium-term (purchasing a house) and long-term (saving for children's marriages). Then assign a value to each. My short-term goal was ensuring that by the time the month came to an end, my corpus didn't, and I wasn't forced to put off my purchases because of this.

The final step is to start saving for each goal by investing in the right instruments as per your risk appetite and time horizon.

If You Don't, You Suffer From Temporal Construal

You perceive distant and short-term events in a different way. The long-term goals are seen as abstract and with more optimism than the closer ones. So, you have a vague image of, say, retirement or children's marriage 20-30 years from now, while closer problems get more attention.

HOW TO OVERCOME IT:

Write down, not only your budget, but also the goals. Specify the exact time period for achieving these and the inflation-adjusted future value of goals. To stick to these, follow two rules:

a) Save first, spend later.

b) Automate your savings.