Investing is different in so many ways. Everywhere else, we learn first and then go ahead and use that knowledge or skill. For instance, we learn to drive first and then start driving. Same when we want to play an instrument.

The only place where we probably dont first learn but start doing almost from the start, is Investing! How do we do that? We base our actions on a few articles we may have read, watch some TV and listen to some money podcasts and then start investing! Surprisingly, many people consider themselves well informed with respect to personal finances based on such information.

Investing is different in so many ways. Everywhere else, we learn first and then go ahead and usethat knowledge or skill. For instance, we learn to drive first and then start driving. Same when we want to play an instrument.

The only place where we probably dont first learn but start doing almost from the start, is Investing! How do we do that? We base our actions on a few articles we may have read, watch some TV and listen to some money podcasts and then start investing! Surprisingly, many people consider themselves well informed with respect to personal finances based on such information.

Some people even dont do that they find out what their friends and colleagues are doing; theyjust replicate that, even though their situation can be quite different! Others allow their parent, spouse or someone close to take care of the finances even easier!

In all this, there is not much thought given to overall life situation, proper money management, risk inherent in investments, overall goal fulfilment throughout life, proper diversification, liquidity and money availability at the right point for the goals, etc.

Most people look at the returns that ../asset is giving and go ahead with their investment. That is why, we see waves of investment flowing into products that are doing well at a particular moment. For instance, if gold is doing well at that point, money will flow into Gold until the point something else starts to do well. Then the money will go into that ../asset class.

Such a return focussed approach brings with it a whole lot of problems. Since returns are the only focus, the approach to investments is adhoc. Such people do not carefully assess what investment needs to be in their portfolio, considering their personal situation, their goals, liquidity tenure needs etc. What they fail to realise is that the wealth they are creating should help them meet their goals comfortably and on time. Wealth accumulation is not an end in itself!

There is a better way to build wealth, meet all the goals and live happily. We need to start with a plan.

When we buy a piece of land and want to construct a home, we do not call an excavator and dig up the place. We first go to an architect and state the requirements in terms of how many people will be there, area required, a bit about the people who would stay in that house, what kind of home we want, etc. Then the architect comes up with the blueprint, which takes into account all that their client had stated. The building that is constructed will be based on that blueprint and hence will be truly suited to the familys needs.

We need a blueprint or a plan everywhere. We plan birthday parties and outings. Yet we ignore planning our finances, for which we spend a good part of our lives!

In financial planning, investments come at the end of the financial planning process not at the start. Starting with investments is like putting the cart before the horse!

In financial planning process, we need to start by understanding what is that they want to achieve when they are engaging a financial planner. There should not be an expectation mismatch. For instance, if the client is focussed on returns and the planner is geared to help the family to meet all the goals on time, manage the risk and deliver a happy life, there is a clear mismatch. While the planner would be doing a great job, the client may not be happy at all, as the planner is not focussing on maximising returns and is not taking tactical calls when some opportunities arise.

Hence, it is very important to check and align on the expectations from the exercise. That is when both the planner and the client would be working in concert, to achieve agreed goals.

In financial planning, ensuring that the agreed, important goals are achieved is sacrosanct. Checking the feasibility of achieving the goals, including long-term goals like retirement is very important. The next important decision for the financial planner is the portfolio composition what ../assets should be there, in what percentage is critical to arrive at. This is a factor of the risk profile of the person(s), life situation, number of years to retirement, goals and when they are coming up etc.

The financial planner would have to assess the level of overall financial risk to the family and suggest appropriate risk mitigation tools like insurances.

The financial planner will need to look at existing investments, insurances, loans etc. and suggest appropriate recalibration as part of their overall portfolio construction. It is after all this work, will the investments be decided as an outcome of the entire planning process.

The entire action plan for the next 12 months is then made known to the clients who can then start implementing the recommendations. Many times, the client chooses to stay with the financial planner and continues to receive appropriate advice and access help in implementing the plan recommendations.

To drive home the importance of financial planning and how a financial advisor helps clients in various situations, I have written a book titled If God was your Financial Planner in an easy-to-read story format. Here, one will learn about the advisory thought process, how an advisor would be able to assist clients and the different circumstances of clients that a financial planner handles.

Planning is important in everything we do. Without a plan, there will be no structure and chaos will ensue. A plan once created may need to be relooked and course corrections may be needed, at regular intervals. That will ensure that the financial planning exercise always takes everything into account, including any changed circumstances.

Planning is the activity that focuses our efforts towards a desirable outcome and helps in achieving them through well thought methodologies and strategies. Like they say, we plan to fail, when we fail to plan. It is a clich yet absolutely on-the-button!

Suresh Sadagopan is the MD Principal Officer at Ladder7 Wealth Planners and is the author of the book If God was your Financial Planner