Shanil Mohan, 29, doesn't have a financial plan. It is not a fun thing to do. Too many numbers, calculations and product evaluations are reasons enough to put off anybody. But none of these is the reason Mohan hasn't planned yet. He simply hasn't found the time to sit with a cup of coffee and crunch numbers. Hence, the task has been in suspension for almost five years.
Everyone is prone to procrastination. It is usually a harmless indulgence because however much you wish things away, you end up doing them eventually. The problem is that some people keep things on hold for too long. They are too lazy, too indifferent or too unwilling to change the status quo. In finance, this can prove very expensive.
Consider Mohan's case. His household cash flow, after including his wife's income, generates a surplus of Rs 43,000 a month. Of this, he socks away only Rs 12,500, while the balance sits in his bank account. The randomness of his investment strategy is evident in the couple's slim portfolio, which is about Rs 3 lakh in value. Had Mohan regularly invested just Rs 5,000 a month, in five years, the portfolio would have swelled by Rs 4.08 lakh (assuming a 12 per cent annualised growth).
Swot analysis
Strengths: Unemotional about money. Innovative about ways to minimise effort.
Weaknesses: Unnecessary procrastination of decisions. Lack self-discipline. Strong affinity for comfort zones.
Opportunities: Can manage money efficiently, provided the first step is taken.
Threats: Can lose out on the power of compounding. Can be too late in identifying problems.
Procrastinators pay a high price for evading monetary issues. To begin with, they do not make a budget, forget about following one. Minor bills are left unpaid, while the late fee piles up. They have no idea about their goals and save in spurts. As they are unable to discipline investments, any foray in direct equities is doomed. They postpone tasks to such an extent that they are forced to take last-minute decisions, with no time to scrutinise the fine print or conduct adequate research about a financial product. So there may be time bombs ticking away in their portfolios but they are blithely unaware of these.
If you are a dodger, the challenge is to make a plan that can be executed and maintained with minimum effort. Also, the plan must help catch up with all the time lost due to your procrastination.
The first step is perhaps the biggest hurdle. It is called budgeting. No one likes to track expenses, least of all the lazy investor. The good news is that there is a shortcut to this process. Collect all the bills from your department store, utilities and credit cards in a month (it is way easier than maintaining a diary). Consolidate all the information under broad heads like groceries, household products, etc, and what you get is a monthly budget complete with actual expenses. Figuring out your surplus is just mental math, something the dodgers are good at.
Next comes the step Mohan dreads—identifying financial goals. Actually, this should be the easiest part because all you need to do is dream about yourself, say, 30 years later. Do you see yourself lounging in the verandah of your house, sipping tea, while your spouse chats on the phone with children who are settled abroad? Here are your goals: a house, corpus for children's education and a tension-free retirement.
As dodgers cannot be bothered much with money, the problem of overspending or overleveraging is very rare. Once you discover your surplus and goals, all that is left is to invest the right amount in the right asset class.
To do this the easy way, trawl the Net for investment calculators that tell you how much to invest to build a target corpus. There is a possibility of error ranging from 5-15 per cent, but the calculators give a reasonably good idea of how much you should stow away.
Obviously, you can't be trusted to invest regularly, so let banks and brokerages do your job. Rajnish Kumar, head of product and marketing at Fullerton Securities, suggests, "SIPs are a powerful tool for such investors. An even better option is to invest via value investment plans, which define a range of investment every month. For example, you could give instructions to a brokerage to invest between Rs 5,000-10,000 a month depending on market movements."
If you are a stocks buff, an option that requires minimum effort is investing in the model portfolios of brokerages. Your money is distributed among a pre-selected set of stocks according to their weightages in the portfolio. In this way you transfer the onus of research to the brokerage. Two caveats: carry out thorough background checks before entrusting your money with a brokerage. Secondly, don't give them a completely free run and review the portfolio once in a while. It is your money, after all.
Though you may fervently wish that it were so, not every rupee can be automatically invested from your bank account. What about keeping some handy cash for exigencies? There is a shortcut for building an emergency fund too—park cash in sweep-in accounts. These accounts transfer the money that exceeds a pre-set limit into a fixed deposit. The money is less accessible than cash in a vanilla savings account, but more than in other investments. As a bonus, you will earn higher interest than from savings accounts.
Finally, take maximum help from technology. Set alarms to pay your bills on time. Use electronic transfers to pay the insurance premiums, which you usually forget. Some softwares allow users to fix triggers for changes in scrip values, asset allocation, etc. These are a must-buy tool for procrastinators. Roping in a financial adviser also makes sense because professionals can take care of the nitty-gritty, such as selection of financial products and reinvestment of dividends, which is beyond the scope of technology. Remember, the aim is to put your finances on autopilot. In this way you get a lot of time to procrastinate other things.
