So ? Had Budget 2014 lived up to your expectations? In the past 20 days before budget every newspaper, TV channels was full of discussion and columns on what they expect from Modi government’s first budget. Every second person, corporate was expecting tax rationalization, reduction in interest rates and also growth oriented vision of the government. This is what happened; Mr. Jaitely announced something for everyone and also kept on reiterating his government’s clear vision of “Less government and more governance“.
But budget is just a statement and unless it is actually implemented the way it is, these announcements will remain a hollow promise. Implementation will give us the real picture of the ministerial capability of this government. As they have promised a lot during election campaigns and thus created huge expectations, every one of us is actually looking forward to “Ache and saste din”…aren’t we?
Expectation is fine, but along with that you also have to be in touch with the reality. The economic condition of our country is not in good shape. We are in the middle of problems like high fiscal and Current account deficit, unemployment, Inflation etc. and it may not be practically possible for any government to do away with all these issues in one shot. It will surely take time. So we should know what and how much to expect, to avoid disappointment later.
In our personal lives too we all are victim of expectations. We expect our investments to work the way we want otherwise it’s not a good investment. We expect our kids to have good future and for which we even compromise the retirement planning. We expect insurance companies to honor our claims even if we’ve not disclosed preexisting problem to them while buying policy. We expect government to announce tax sops in every budget…and what not.
With these uncalled for expectation we move so much away from reality that sometimes we end up in huge disappointment which is also very distressing. Expectation is always future oriented and Reality is what is experienced in present. If we set our expectations in line with the real picture in mind then it becomes easy to manage the variations and achieve what we want.
I face many of such instances in financial planning profession too. More than financial planning I have to work on expectation management of the client. When I ask them to write their goals, they come up with a long list with so many zeroes into it. Many times they were expecting that financial plan will grant them everything they wish for, even if their finances do not allow this. People expect a lot from financial plan but fails in financial planning.
Though financial planning is all about achieving your life and financial goals, but one should not move away from reality while working on it. This is as important for financial planner as for client, as in this exercise both are targeting towards a common goal. The 3 steps below will keep you abreast with the reality by managing the expectations.
- Setting SMART Goals:
There are 2 sides of expectations – one which we expect from others and the second which we expect from ourselves. Its natural to expect more from others and for self we have limitations and excuses.
Setting goals is always the first step in financial planning. You should set goals by assuming that this is you who have to achieve these goals and financial planner is just a supporting hand or is your guide in the whole journey. As the SMART acronym goes, your goals should be Specific, Measurable, Attainable, Realistic and Time bound, and you could be able to set SMART Goals only when you are in touch with the reality. You know your finances, your limitations etc. The goals should be yours not your Peers or relatives. Don’t set you expectations based on what others expect.
As the famous quote goes – “When you stop chasing the wrong things, you give the right things a chance to catch you”
- Making genuine assumptions:
Financial planning is future oriented which is based on certain assumptions, assumptions regarding long term returns of your investments, how inflation will behave going forward, growth in income etc. Sometimes assumptions also reflect our expectations. Assuming equity to always generate 20% return or real estate to be safe and growing investment asset can be lethal to your finances. Understand how different asset classes work and set your assumptions based on facts. If you are “do it yourself” investor then do a proper research before setting assumptions or if you are in touch with a financial planner then tell him to provide you with proper data that support the assumptions.
- Do regular reviews for reality check:
Change is the only constant. So to verify if your assumptions are correct and your financial planning is moving in line with your expectations you need to keep on reviewing it at regular intervals. Regular reviews will give you a reality check so you can make changes in your strategy as and when required.
The mantra to lead a happy and stress free life is always expect the unexpected and be willing to change track whenever reality calls. This applies to your financial planning too. When you expect less and get more you will surely be delighted, but expecting more and getting less is painful.