MINDSET TOWARDS Financial Goals :
We Live In A Society Where The Mindset Of The People Is Dependent On How Much Income A Person Possesses Rather Than The Wealth A Person Generates.
Here We Will Guide You To Start Your Financial Security And Be Dependent Upon Yourself In The Long Term Of Life, Even If You Are A Beginner This Will Help You Get A Blueprint For Your Upcoming Life.Read More: Why Financial Goals are important and How to be financially secure during a Recession 2023
HOW TO PROCEED WITH FINANCIAL PLANNING?
People In India, Have A Very Low Percentage Of People Who Are Actually Interested In Their Financial Planning.
The Majority Of People Are Just Dependent On The Lottery And Special Jackpots And Their Wired Luck System Thinking About When Will They Have Freedom And Unlimited Cash.
Since The Majority Of Thinking Does Not Go Into Generating Wealth.
As They Are Income-Oriented And Just Get In Dilemma That When And From Where They Will Get A Bulk Amount Of Cash Flow And A Certain Amount Of Money Will Be Generated.
The Concept Of Financial Planning Aims At Ensuring That A Household Has Adequate Income Or Resources To Meet Current And Future Expenses And Needs.
The Regular Income For A Household May Come From Sources Such As Profession, Salary, Or Business.
The Normal Activities Of A Household And The Routine Expenses Are Continued Around Their Regular Income.
The Current Income Of The Household Must Also Provide For A Time When There Will Be No Or Low Income Being Generated, Such As In The Investment Period.
There May Be Some Unexpected Expenses That Are Not Budgeted.
Such As A Large Medical Expense, Or There May Be A Need For A Large Sum Of Money.
Such As The Education Of Children Or Buying A Home, Since All These Items Require Adequate Funds To Be Made Available At Right Time.
A Portion Of Their Income Is Cut And Made To Invest In Assets With The Help Of Which They Meet Their Requirements.
Financial Planning Refers To The Process Of Streaming The Income, Expense Assets, And Liabilities Of The Household Care Of Both Current And Future Needs For Funds.
GENERAL QUESTIONS THAT COME TO AN AVERAGE PERSON EARNING FOR THEIR FAMILY:
We Will Take An Example, To Visualize The Situation Of A Normal Person(Employed ) Who Is Earning For Their Family And Planning To Meet Its Financial Security.
Suresh Is 40 Years Old Person And Earns Approximately 40-50k A Month. He Is Able To Save About 10-15k A Month After Meeting The Routine Expenses For His Family And Paying The Loan For His House, Car, And Other Needs.
His Investments Include Those For Tax Savings, Savings, Bank Deposits, Bonds, And Some Mutual Funds. He Also Pays Life Insurance For Himself And His Wife.
Suresh Is The Sole Earner Of His Family And He Believes He Takes Care Of Finances Adequately To Take Care Of His Current And Future Needs.
Considering All These Conditions What Are The Major Questions He Has To Answer For Financial Security For His Family?
The Basic Questions Are As Follows:-
- SINCE HE IS THE SOLE EARNER OF THE FAMILY, WHAT ARE THE SECURED CONDITIONS HE MUST KEEP IF HIS INCOME IS INTERRUPTED DUE TO CERTAIN REASONS?
- DOES HE HAVE ADEQUATE INSURANCE COVER WHICH WILL TAKE CARE OF HIS FAMILY’S REQUIREMENTS IN THE EVENT OF HIS UNTIMELY DEMISE?
- IF SURESH, HAS TO CREATE A CORPUS TO FUND LARGE EXPENSES IN THE FUTURE, WHAT IS THE SIZE OF THE INVESTMENT CORPUS HE SHOULD BUILD?
- GIVEN HIS CURRENT INCOME AND EXPENSE IS HE SAVING ENOUGH TO CREATE THE CORPUS REQUIRED?
- WHAT IS THE WEALTH SURESH HAS BUILT SO FAR FROM HIS SAVINGS AND HOW CAN HE BEST USE IT TO MEET HIS NEEDS?
- WHAT AMOUNT OF INVESTMENT HAS BEEN MADE BY HIM IN ORDER TO MAKE HIS ASSET EARN FOR HIMSELF?
IDENTIFYING FINANCIAL GOALS:
Now Moving On To Terms Of Finance, We Must Identify The Valuation And Importance Of Our Goal, The Earlier You Compete Understand Your Financial Condition, And Start Acting Towards It The Better And More Competitive It Becomes.
Financial Goals Is The Term Used To Describe The Future Needs Of An Individual That Require Funding. It Specifies The Sum Of Money Required To Meet The Needs And When It Is Required. Identifying Financial Goals Is Very Much Required Even For A Beginner As Early As Possible To Generate More Discipline Within Themselves As Compared To Others.
Goals Actually Help Us To Put A Spending And Saving Plan So That Current And Future Demands On Income Are Met Efficiently.
Goals Described In Terms Of The Money Required To Meet Them At A Point Time In The Future Are Called Financial Goals.[ For Example, Rs.3lakh Is Required After Five Years Of College Admission For A Child Is A Financial Goal.]
The Goal Value That Is Relevant To A Financial Plan Is Not The Current Cost Of The Goal But The Amount Of Money Required For The Goal At The Time When It Has To Be Met. The Current Cost Of The Goal Has To Be Converted To A Value In The Future. The Amount Of Money Required Is A Function Of
- CURRENT VALUE OF THE GOAL OR EXPENSE
- TIME PERIOD AFTER WHICH THE GOAL WILL BE ACHIEVED.
- RATE OF INFLATION AT WHICH THE COST OF THE EXPENSE IS EXPECTED TO GO UP.
The Current Cost Of College Admission May Be Rs.2 Lakhs But After 5 Years, The Cost Would Typically Be Higher. This Increase In The Cost Of Goods And Services Is Called Inflation. While Saving For A Goal, Therefore It Is Important To Estimate The Future Value Of The Goal Because That Is The Amount That Has To Be Accumulated.
|THE FUTURE VALUE OF GOAL= CURRENT VALUE*(1+RATE OF INFLATION)^(YEARS TO GOAL)
THE ABOVE FORMULA WILL HELP US TO DETECT THE IDENTITY.
Let Us Understand With The Help Of An Example If The Rate At Which The Cost Increases Is Taken At 10% Then The Cost Of College Admission After 5 Years Would Be:
Mike Is A Person Who Needs To Accumulate Fees For His Son’s College Admission After 5 Years Of Rs. 800000 Currently But After Five Years That Too After The Rate Of Inflation ( Cost Of Rising Products) Being 10%, After 5 Years What Is The Expected Amount That Needs To Be Funded By Mike?
800000*(1+10%)^(5) = 1288408.
1288408 Is The Future Approximated Value Of The Goal That Needs To Be Funded By Mike For His Son’s College Admission.
TIME REQUIRED TO SET UP GOAL OR INVESTMENT HORIZON
Financial Goals May Be Short-Term, Medium-Term, Or Long-Term. The Term Goal Refers To The Time Remaining For The Funds To Be Made Available To Meet The Goals. The Investment Horizon Will Determine The Type Of Investment That Will Be Selected For Investing Funds For The Goals.
If The Goal Is Short-Term, The Low-Risk Investment Will Be Preferred Even Though The Returns Will Be Low Since The Investor Would Not Like To Take A Chance Of Losing The Principle And Return On The Amount Invested.
As The Time Available For The Investment Increases, The Investor Will Be Able To Take Higher Risks For Better Returns.
From All These Questions, We Do Get A General Relevant Direction That What Should Be Done To Generate Wealth, To Read More On Mindset Visit Our Website Bridgenile.in
We Hope That This Article Provided You With General Relevant Information Regarding Your Financing Planning.
STOCK EXCHANGE-ROLE OF PARTICIPANTS IN FINANCIAL MARKET
We do invest in our own following country or other nation around the globe, and one thing we know that if you are staying in INDIA and you want to invest in the US or you want to buy some share of a certain company in the US from INDIA than its very common that you will not go to the US to invest your fund, will you??
Now the point arises, about the basic factors of investing or trading or dealing with some securities how is it done? Do we buy shares while moving to the company and depositing the money there, no that’s not how it’s done and everyone knows it.
So the next question arises how do we invest in our nation or other nation by residing in our own native land?
The answer is very simple we do invest but we don’t go and transfer the money physically, we do have some intermediaries in the financial market which are responsible for coordinating between the investor and the borrower just by transferring the funds between them, and now we know that without the services of intermediaries it would be very difficult to locate each other and carry out the further transaction.
So, in this blog we will go through the intermediaries and understand the brief function of each of them :
PARTICIPANTS IN FINANCIAL MARKETS
- STOCK EXCHANGES: The stock exchange provides us the facility to trade as per our requirements, and the existence of exchanges energizes investors to participate in investments that support funding. In INDIA we have the BSE, NSE, and the MCX (MCX-SX) exchange, which provides national wide brokers with efficient networks.
In today’s day trading happens on electronic platforms and with the help of these broker participants, it becomes easier for us to trade and invest easily.
- DEPOSITORY PARTICIPANTS: Investors with verified documentation are eligible for transaction security in dematerialized form. Demat securities are held by securities that work on a basic charge of fee, the broker and banks offer DP’s services to the investor. The main function of DP is to execute the transaction of securities between them.
- CUSTODIANS: These intermediaries work for an institutional investor, holding security and bank account on their behalf, they maintain the brokerage, accountancy, and transaction of securities for the institutional investor ( for example reliance capital asset management, HDFC asset management, etc)
- STOCK BROKERS: They are registered trading members of stock exchanges. Their function is to complete the buy and sell transaction between investors on the stock exchange, all secondary market transaction in stock exchanges has to be carried out through registered brokers and sub-brokers helping the services of reaching a large number of brokers to a large number of investors.
They help the investors by providing research analysis and recommendations about securities to buy and sell to other investors, they the entire transaction via an electronic screen-based medium ( with a certain amount of brokerage and commission ). In INDIA we have stock brokers such as ( ZERODHA, UPSTOX, GROW, and many other sectors ).
- INVESTMENT BANKS: These intermediaries provide strategic advice to companies, governments, and other capital requirements and investment decisions and arrange decisions arrange to raise funds on terms that are most valuable to the company.
- COMMERCIAL BANKS: These intermediaries provide banking services by taking deposits and providing credits and activating payment services. They provide efficient cash management to businesses and meet their short-term requirement needs.
- ASSET MANAGEMENT AND PORTFOLIO MANAGER S: These intermediaries provide services and manage a portfolio of securities or a portfolio that holds multiple securities. The function of asset management companies is to offer securities Called ” UNITS” which determines the participation of a pool of money, just like creating a portfolio of a mutual fund, both an asset and portfolio managers get engaged in other securities market management such as brokers, registrar, and custodian conducting their individual function.
LOSS IN THE STOCK MARKET :
Generally, We Observe The Mistakes Made By An Investor While Investing In The Stock Market, So How Can A Beginner Who Has Learned To Invest In The Market Avoid These Major Mistakes And Avoid Them From Executing? You Can Get An Overview That How Can A Beginner Or A Mediative Investor Avoid Losses In Their Investment.
“THE INVESTOR’S CHEIF PROBLEM- AND EVEN HIS WORST ENEMY- IS LIKELY TO BE HIMSELF ”
THE ENEMY IS WITHIN YOURSELF –
For Any Investor, It’s Their Fundamental Knowledge To Acknowledge The Fact That They Cannot Avoid Corrections And Crashes, And The Majority Are Fully Aware Of Fees, And The Expense Ratios, They Know That The Single Biggest Threat To Your Financial Well-Being Is Your Own Brain(No -Offense).
We Can Generally See That The Human Brain Is Designed To Make Dumb Decisions When It Comes To Investing. An Investor Can Make All Other Decisions Correct( Starting By Investing In Low-Cost Index Funds, Minimizing Fees And Taxes, And Diversifying Intelligently.). But If Investor Fails To Master Their Own Psychology, We May Ultimately Become The Victim Of A Costly Form Of Financial Self-Sabotage(Damage).
Not Just Only In Investing, It’s Our Natural Tendency To Become Enemies Of Our Own In Every Field Of Our Lives Starting From ( Fitness, Education, Workplace, And Anything Else).
The Major Problem That Arises When Our Brain Seeks To Avoid Pain And Pursue Pleasure. Our Natural Tendency Is To Get The Desired Results Immediately Which Isn’t The Best Recipe For Smart Decision-Making Always.
WHY IS THE ENEMY WITHIN US –
In Fact, Our Brains Are Particularly Prone To Bad Decisions When Dealing With Money. There Is An Array Of Mental Biases Or We Can Suggest It Become The Blind Spot. Makes It Surprisingly Difficult To Invest Rationally. It’s Not Our Fault, It’s Part Of Human Nature. It’s A Bug That’s Been Fitted Into The Human Head Which Behaves As A Faulty Code In A Normal Computer Program.
Well, “Neuroscientists Have Found That The Parts Of The Brain That Process Financial Losses Are The Same Parts That Respond To Mortal Threats”.
Now Let Us Understand The Above Concept With The Help Of An Example, Suppose We Are Present In The Forest For A Hunter-Gatherer Searching For Dinner And Suddenly We Meet Up With A Danger-Toothed Tiger, Then There We Observe A Serious Problem And The Brain Goes Into High Alert, Sending Urgent Messages To Fight Or Freeze Or Run For Your Life. (Which Is A Mortal Threat)
The Same Thing Happens When It Comes To The Financial Situation, Now Imagine That It’s 2008 And You Are An Investor With All The Knowledge Of Fundamentals Ready To Invest All Of Your Savings Into The Stock Market. The Very Next Thing That Happens Is The Big Market Recession Comes In Which Makes All Of Your Investments Tumble, And Your Brain Begins To Process The Reality That You Are About To Lose A Huge Amount Of Your Money.
Neuroscientists Have Found That This Financial Loss And The Danger Of Facing The Toothed Tiger In Front Of Your Face Are Equivalent. The Situation Of Red Alert Gets Generated! The Ancient Survival Mechanism Inside The Brain Starts Sending You Messages That You Are In Mortal Danger.
Let’s Try To Think About It Logically, We May Know The Smartest Move In A Market Crash Is To Buy More Stocks While They Are On Sale. But The Brain Function Suggests Selling Everything And Grabbing The Cash And Nothing Can Be Done To This Natural Side Effect Present In The Human Survival Mechanism.
We Do Have A Tendency To Freak Out Because Our Brains Believe Our Financial Downfall Is Certain Death. And The Worst Part Of It Is That It Counts What’s Not The Reality But The Belief About It.
These Are Perfect Examples That What We Should Do And What We Should Not Do In A Market Crashing Moment.
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