1 Finance - Creating Financial Roadmap v2

More than 80% of people do not set goals according to research. Of the 20% who do set goals, 70% fail to achieve them. There are two types of goals: be goals, which are about who you want to become, and do goals, which are about what you want to accomplish. Many people struggle to achieve their goals due to overconfidence, lack of specificity, and setting too many goals. A sailor named Tanuj Mehta successfully achieved his financial goals through diligent planning and realistic budgeting. Seeking guidance from a financial advisor can help individuals achieve their unique financial goals. Let me share a shocking statistic with you. More than 80 percent of people do not set goals according to reliable plans research on goal setting. This means that only 20 out of every 100 people actively set goals for themselves. What's even more astonishing according to the research is that 70 percent of these goal setters ultimately fall short of achieving their objectives. When we talk about goals there are two main kinds, be goals and do goals. Be goals are about who you want to become like you want to be rich or be an entrepreneur or a better parent and so and do goals are about what you want to accomplish like buy a house or go on that vacation save a certain amount of money. Within each one of us there exist dreams and ambitions that lighter in a fire. Well I have a dream to like have a big house. I really like shopping a lot. It could be anything from taking a few days off sabbatical or vacation. Basically want to save as much as I can for my baby so I just want to give him a very very happy and a good life. Definitely investment would be on my list for sure so that I can grow my finances and make myself a secure future. To be able to get to where I can give freely to people in need. Goals are the heartbeat of our ambitions. The fuel that fills our determination and the compass that guides us towards a life of fulfillment and purpose. Welcome to another episode of Temperament by One Finance. I'm your host Ashish Chawla. In this show we explore emotions and biases and their effect on the way we handle our money. Our aim is to help you avoid costly mistakes by giving you practical financial knowledge that helps you make smarter financial decisions. Today we talk about financial goals. Let me share another startling statistic with you. Despite this being common knowledge that mutual funds reap returns of up to 12 percent or more in the long run, in financial year 2022-23, 70 percent of those who started investing in them stopped after just one year and a whopping 97 percent gave up within five years. This shows that most of us find it hard to stick to our money goals. In this episode my endeavor is to get answers to some important questions. What are financial goals and why they matter? How we can create a financial roadmap to achieve such goals and how we can overcome our psychological and emotional barriers in order to remain on track? All this and more coming up on the other side. My first guest on the show is Dr. Sana Balsari Palsale. So I'm a behavioral scientist by training and you know I have a background in social psychology but particularly my focus has always been behavior change. How do we change our behavior to achieve our goals? It's a pleasure to have you on the show Dr. Sana. I think intuitively we all know that setting goals is important but I'm curious to know what does the research tell us about goals? A goal is all the research points to the fact that goals are so intrinsic to our kind of well-being and our happiness. There are some caveats here but what's really interesting about research on goals is it's not just achieving goals that is so important to our well-being but it's also the pursuit of goals. So just the act of pursuing goals can lead to better kind of psychological adjustment, happiness and well-being. The caveat here is that it's not the pursuit of goals generally. It's only when we pursue goals that are what we call kind of intrinsically aligned with our values. Psychologist Jerry Eric Nermy conducted an integrated study in 1992 aimed to understand how goal setting and goal pursuit contribute to well-being. The participants of the study were followed longitudinally over several years allowing researchers to examine changes in goal setting and well-being over time. The study found that individuals who were more committed to their goals meaning they actively pursued and invested effort in them reported higher levels of well-being. I found this research fascinating however it has left me confused at the same time. If setting and working towards goals can make us happier why do so many people find it hard to achieve their goals? There's no silver bullet when it comes to achieving goals. One of the most kind of common mistakes that we make when it comes to setting goals is that we don't bridge what we call the intention-action gap. So we have the intentions, we formulate a goal that we want to achieve so for example to save more but then when it comes to actually achieving that goal we have these kind of stumbling blocks and they tend to be the same kind of stumbling box again and again. So for example you know we tend to be overconfident and we have this kind of optimism bias that creeps in when we set our goals. We think we're going to be able to achieve a lot more than we actually can and we overestimate as well you know our ability to exercise self-control. So you know our self-control is actually a lot lower than we think it is and then another kind of common mistake that we make when setting kind of life goals is that we set too many. Year's resolutions are a good you know example of this where you start the year with about 10 different resolutions and then as time goes by they end up kind of all kind of falling by the wayside because they're just too many. So they kind of crowd each other out and then I think another common mistake is that we don't our goals aren't specific enough like they're a little bit too abstract, too general. So in the case of kind of saving more as a goal because there is a lack of kind of specificity in that particular example it can actually make it much harder to achieve than if we set a goal saying I'm going to save X amount by the end of the year or by the end of the month. Interesting. We set too many unspecific goals quite optimistically without really creating a detailed roadmap that highlights various obstacles that can stop us from achieving them. Understanding such psychological barriers is crucial as it allows us to become aware of our blind spots and mental traps. However, before Dr. Sana shares the valuable practical strategies to overcome these mental barriers, I thought of delving into a real-life success story. We have Tanuj Mehta with us today, a sailor by profession and a captain in Merchant Navy. Despite having no job for close to a year during COVID, Tanuj not only set ambitious financial goals, but also successfully managed to meet them. In our conversation with him, he candidly shared some very interesting insights. I've been working for 21 years, but I more or less got into saving and doing finances probably 10 years back, 10 to 12 years back. I would have liked to start doing it 20 years back, would have got it much better, but better late than never. So people just concentrate on the goal too much and forget about how you, what you need to do to get this. How I do it is I write down everything in a notebook. So I plan for two years in advance. So how, so you have a broader goal where you want to reach and you have a day-to-day life to run. So you have your household expenditures, you have your bills to pay, insurances, PMIs, a lot of stuff. So basically if you have everything written down every month, so now I can tell you how much money I would have in my bank account, that after a year and the figure would be pretty pure. So you have to have everything written down properly and basically be very realistic. Say a new iPhone would come, I would buy a new iPhone, I would go on a vacation. Probably I might buy a car, my car is getting old. So you have to be pretty realistic when you are doing the budgeting and that's how I do it. And of course, you have to keep something for unforeseen expenses. I am a little old school in that, if you write it down, you invested your personal time in it and you've written it down by hand, I believe you stick to it and you're more involved. So basically you have to be in between and just have a balance. So saving is basically like a diet. So you do too much of it, you get tired of it, you do test too less of it and then also you have a problem. So it's basically have a balance, that's it. And watch people around you, there's plenty to learn. When it comes to setting goals, conscientious individuals excel at formulating clear and realistic objectives, breaking them down into manageable tasks and adhering to structured plans. This personality trait equips them with the discipline and perseverance required to overcome obstacles and setbacks, making them more likely to achieve their goals. It was Tanuja's conscientiousness that kept him focused during time when he faced the major income disruption during COVID. You just have to be strong in your mind and you have to be confident enough that, okay, you've set these goals. There will be a few hiccups, but you'll manage to get through it. I still remember I joined the ship again after COVID on September 2021. The most expensive purchase which I did was in June 2021, when I was already home for more than a year. That's a house we bought. I had the confidence that, okay, I am working for another 10 years and not going anywhere. So we pay for it and it will be done. So basically, you have to be confident enough and strong in your mind that, okay, whatever the case, you will get it done. Well, Tanuja's journey serves as an inspiring proof to what can be achieved through diligent financial planning and disciplined execution. It's essential to recognize that each individual's financial circumstances are unique. Hence, seeking practical advice from a financial advisor is a crucial step on the path to achieving our financial goals. If you're seeking professional financial guidance, consider reaching out to OneFinance's qualified financial advisors, who specialize in helping individuals like you and me turn our financial dreams into reality. We can receive personalized guidance from them, tailored to our specific needs, of course, as each one of us is unique. So in order to better understand the practical strategies of building a robust financial roadmap, I thought of speaking with Charmy Shah, an experienced qualified financial advisor. I wanted to know the steps we should take to get closer to our financial goals. The day you are born in this world, from that day till you die, you have n number of goals in your mind, you want to achieve everything in life, maybe in your personal life, maybe in your professional life, everything revolves around you and your goals. But there is some bifurcation that we need to do, can just draw a line for hard goals or soft goals, or maybe goals and dreams and wants. So that thin line or thin bifurcation has to be there, that even if you're not there, those goals are going to come for sure. It can be, you know, planning for an emergency, an emergency can be sudden job loss or a major health setback or any natural calamity for that matter. So we won't come with any kind of invitation that, yeah, I'm coming, emergency. So we have to be prepared. And in the COVID batch, we say that post COVID, everyone has this learning that life is very uncertain, anything can happen. So for clients also, for their financial planning also, we always say that there has to be an emergency fund for sure. It can be an emergency fund, it can be a contingency fund where only in the time of panic, you should press that button. Okay, panic situation, otherwise, stay away from that fund. That belongs to a hard goal, or, you know, there is actually a need, it's not a want, it's a need that you should have. With those similar lines, insurance is also one of the portion of hard goals, where we come, as I said, life is so uncertain, we don't know even if we are walking on a footpath, some bike will come and take your income will be on loss or, you know, take you for a loss. So in that case, also your personal accident, your health insurance, your life insurance for that matter has to be in place. Right? So these are also education loan, or education fund that you should have it for your children. Even if you are not there, your children would be there and their education will have to be taken care of. Right? So for that also, you have to be prepared. Apart from those hard goals, there are few soft goals, like the goals which you can actually postpone, even if that doesn't happen at that point in time, that's okay. Like purchasing a latest gadget, people nowadays are very, you know, frequently, every two to three years, the technology changes like upside down, and they want to update their lifestyle plus their gadgets also. So in that case, even if you miss that iPhone 14, that's okay. Please chill. That's okay. You don't have to be with the, you know, with that trend. So that goal you can postpone. Then purchasing a bigger car, like my friend has taken a new SUV. So now even I want to take it. So that comparative goal is what soft goals are. And that you can, I'll not say you can avoid, but you can just delay, you know, not to fall in that instant gratification mode. A journey to 1000 steps is just one baby step. You take one baby step, you know, small, small steps towards that journey. This perspective offers a unique approach to goal setting. Instead of categorizing goals strictly into short term and long term, a more effective method involves identifying two distinct types of goals, essential non negotiable hard goals, and flexible, non time bound soft goals. Hard goals encompass those fundamental objectives necessary for your well being, such as building an emergency fund, investing in education, or financing values deeply meaningful to you. On the other hand, soft goals pertain to aspirations that lack rigid time constraints, and are desirable, but not imperative for your physical and emotional survival. This framework provides a strategic means of defining life's priorities, allowing you to allocate your efforts accordingly. With this new found clarity, you can devise a more proactive financial plan that aligns with your core objectives and values. So, financial planning is not a new trend or new thing that our ancestors have been doing it since ages now. The words they use were different. They used to say money in a bullock, right? Whatever it is. So, the concept is same. Financial planning is art and science. Science, nobody can deny. It's just numbers. 2 plus 2 is 4 only. But the art is how you plan in such a way that all your goals are accomplished, or at least you can, you know, prioritize which ones are the hard goals and which ones are the soft goals, which one needs more attention, more funds, and which ones doesn't need more importance or, you know, more funds. So, that's how the entire planning goes around. Previously also it was equally important. Today is also equally important. Tomorrow or going forward also financial planning is compulsory. It's a part of your life. Creating a financial roadmap is a crucial step in securing your financial future, and it can be compared to planning for a road trip really. First step is to set the GPS for financial success. Think of your financial goals as destinations on your GPS. They give you direction and purpose in your financial roadmap, guiding you to your desired financial destinations. Then, you need to assess your current financial situations. Before a long road trip, you need to check the condition of your car, the mileage it gives, and the current level of fuel tanked. You need to know what you've got to work with. Then, like every successful road trip needs a budget, every successful financial plan needs one too. This will give you a clear picture of where your money should go. Make sure it includes all the important pit stops, like the funds you would need in case you hit unexpected bumps on the road. So, keep a corpus aside for emergencies. Then, it is time to smoothen out the financial potholes. High interest debts are like potholes in your financial journey. Fill them in as you go, so they don't slow you down. Also, you must regularly fill up the tank. To keep your financial engine running smoothly, regularly fill up your savings and investment tanks along the way. And to make the journey a delight, make sure you choose scenic routes. So, diversify your investments thoughtfully. It keeps things interesting and helps you navigate any unexpected twists and turns. And then, like you need to keep checking your car's mileage and performance, you must monitor your financial progress. Adjust your roadmap as needed to stay on course. Financial planning isn't a one-time exercise using standard generic calculators and formulae. As our circumstances shift and our perspectives grow, our goals and plans should evolve too. Make sure you stay in your lane. Stay disciplined and patient with your financial plans. Rome wasn't built in a day and neither are financial fortunes. Keep an eye on financial road signs, such as account statements and investment returns. They guide you to your destination and help you celebrate milestones along the way. Also, keep educating yourself. Learning about personal finance is like getting your driver's license for the financial highway. The more you know, the smoother the ride. But most importantly, hire a GPS guide in my opinion. Financial advisors are like your personal GPS for wealth building. They help you navigate the financial landscape and avoid wrong turns. One such reliable source of qualified financial advisors is OneFinance. Now, one absolutely critical thing to understand is that each one of us has a unique journey of our own. We have our own set of goals and our own personal behavioral patterns that define the road we can and should take towards our financial destinations. One super way of finding what is right for us is to get a OneFinance financial behavior score. So, each person has a different lifestyle. Each person has a different risk-taking appetite. Each person is different from one another, okay? There is no thumb rule. There is no nothing which says, if you do this, you are absolutely right. As per the latest research in behavioral finance and neurofinance, our financial decisions are influenced less by logic and rationale and more by our personalities and learned behaviors. Assessing your own financial behavior that you yourself might not be fully aware of will give you a holistic picture of your financial situation and overall well-being. OneFinance's behavioral finance experts have developed an advanced scoring mechanism called the Financial Behavior Score. Think of FBS as a GPS system for your financial journey. Just like a GPS combines various inputs like your current location, destination, real-time traffic conditions, and roadmaps to guide you to your desired location, FBS combines multiple aspects of your financial life to provide guidance on your financial well-being and goals. It is a numerical representation calculated after combining three important aspects. First is your financial choices in the form of spending patterns, saving habits, borrowing behaviors, and financial planning efforts. This is like inputting your preferred route into the GPS. If you spend recklessly or don't save enough, it's like taking detours or not planning your route effectively. The second parameter that FBS takes into account is your personality, demography, family generation, and life constraints. These are like the specific details about you and your trip and are similar to providing information about who's traveling with you, what kind of vehicle you are using, and any constraints or preferences you have. The third parameter is the macroeconomic environment such as inflation, recession, geopolitical considerations, etc. This is akin to real-time traffic and weather conditions. Just as your GPS system considers traffic jams, road closures, and weather conditions to provide the fastest and safest route, FBS takes into account macroeconomic factors that can impact your financial journey. This holistic financial behavior score then acts like the GPS's output, telling you whether you're on track to reach your financial goals or if you need to make adjustments. If your FBS score is high, it means you're following a good financial path, much like the GPS saying you are on the fastest route. If it's low, it suggests that you might need to change your financial behavior or strategy, just as GPS might suggest a different route to avoid traffic. To get your financial behavior score, visit OneFinance's website. Now, considering that a significant portion of our financial well-being depends on our behaviors, I believe it would be a good idea to seek advice from Dr. Sana on how to stay focused and disciplined towards our goals. I think the first tool is one that is known as mental contrasting, something that was developed by psychologist Gabrielle Altigan. So, what the process of mental contrasting kind of looks like is that when you're setting a goal, you're allowing yourself to kind of fantasize about the future, about what achieving that goal looks like. There is an element of that positive visualization. But as you're doing that, you're also imagining with equal measure, you're also imagining all the obstacles that are going to stand in your way. And that's the contrasting element. So, you're contrasting that positive kind of future, that optimism that we all have, with the very real obstacles that may come in the way of attaining that in terms of kind of life events that might derail you. And that's really important in tempering that optimism and making goals just a lot more kind of achievable. When it comes to financial goal setting and kind of timeliness, a strategy that could be quite useful is leveraging something called the fresh start effect. This is a theory developed by Katie Milkman at Morton. And the idea here is that when we have these kind of milestone moments, these temporal kind of landmarks, such as the first day of the week, the first day of the year, moving to a new house or starting a new job, these are kind of very kind of fertile time periods to introduce new behaviors, to introduce new goals, because our routines are already kind of disrupted. And then finally, I think another nudge that is quite effective, and especially around kind of financial behaviors, would be commitment devices. So, the idea that we know our self-control is a lot, we overestimate our self-control, and we're much more compulsive. But what a commitment device does is, it's a binding strategy that helps us to stay on course. It reduces those kind of self-control lapse. So, one example of a commitment device, when it comes to saving, for example, would be to make your goals kind of accountable to someone else. So, by telling another person that you have XYZ financial goals, you're creating an accountability, you're creating a commitment device to kind of keep you on track. Money isn't just about paying bills and buying stuff. It's like the key to unlocking our dreams and staying true to what really matters to us. With a solid financial plan, we can actually make those dreams happen. It's like having a GPS for life, guiding us through all the twists and turns as we chase our passions and make a difference in the world. Imagine wanting to travel, learn, and give back to the community. All of that becomes so much more achievable when you've got a clear financial roadmap. It's your trusty friend that says, hey, let's make these dreams happen. If you found this valuable, then help us spread the message. And until next time, stay financially empowered. This is Temperament by One Finance produced by Wine Studio, and I'm your host, Ashish Chawla.