FINANCIAL PLANNING: What they don't teach you at Harvard Business School

Mark McCormack the author of "What they don't teach you at Harvard Business School" conducted a study on Harvard Business School MBA program, 1979 batch.

The students were asked a simple question –"Have you set clear, written goals for your future and made plans to accomplish them?"

The question split the class into three categories:

Out of 100 students, 84 students did not have any clear goals nor did they have any plans.

There were 13% students who had set goals, but did not have any written plans of accomplishing them

Only 3% of the students had clear goals and had written plans on how they wished to achieve their goals.

Ten years later the members were interviewed again. The outcome was almost predictable, but the actual results were really astonishing.

The 13% students (Group B) who just had goals and no written plans of achieving their goals, earned twice compared to students who did not have any goals (Group A). The 3% (Group C) who had set clear goals and had written plans on how to achieve earned almost 10 times the 97% of the people put together.

Current Challenges:

Ad-hoc investments: Most of us do ad-hoc investments based on recommendations/suggestions from friends and family. Interestingly in a training sessions, one participant working with a Public-Sector Company asked a pertinent question: "My father did not do any financial planning, yet he provided us with good quality education, he is now living a good retired life with all his goals met".

India won the 1983 World Cup beating West Indies in the final. India scored 183 runs in 60 overs and won the match. Now in the current scenario any team scoring 183 runs will most likely lose nine out of 10 times (if not all ten times). Times have changed: the mushrooming of malls, the e-commerce era and easy access to finances have led to a consumption outburst. Increased and better lifestyles, inflation levels and the insatiable aspirations makes financial planning imperative.

Blurred forecast – Many a time, factoring inflation and assigning the right value to the goal acts as a hindrance. The biggest nightmare of this challenge is realising that the amount is short of the actual money required for funding the goal.

Benefits of financial planning:

Achieve more with less–Financial planning adds direction to the way we save and invest our money. It is the money blue-print that helps one achieve much more with the same amount of money.

Appropriate investments –Ibuprofen works well for fever and severe body-ache. A patient having dengue has similar symptoms. But a patient with dengue if administered with Ibuprofen will most likely die. Though the symptoms and medicine are same, the outcome is very different. Most often it is the ill use of products that causes more destruction than the product itself. Having goals defines time horizons and enables one to pick the right product best suited for the goal.

Methodical– It not only adds direction to investment, but also tells you to redeem investments allocated to the respective goals. Emergency goal funds all emergency needs; investment allocated to child's education funds the child education goal. Further it is essential to shift from riskier to less riskier investments as the goal is closer to maturity.

Someone who has the means of fulfilling all the goals in his/her life may not be the right candidate for financial planning. However, it is certainly imperative for people who want to achieve more with limited resources. This can only happen via planned investments. Many a times we tend to underestimate the power of financial planning.

The writer is founder and CEO, FINCART