Financial Planning Makes All the Difference

Gone are the days, when jobs were for life: once joined in a job, he or she enjoyed the benefit of certainty in earning a fixed sum every month with of course, intermittent raises in pay outs/statuses, till one is told, “You are retired”. Even after retirement, the erstwhile employer used to ensure that the ex-employee’s livelihood is guaranteed through pension payment.

During the last two-and-a-half decades of liberalized economic environment, the employment scenario in the technology-driven market has so drastically changed that no one is sure today how long the present job would continue, when one would be on the bench, and when one will be handed over a pink slip along with slim envelope. Even the very nature of jobs has changed drastically: they became highly amorphous, calling for knowledge from different disciplines and the ability to work simultaneously in different ways.

The cumulative effect of these two developments on the present crop of employable youth is: an all-around uncertainty, which is traumatizing to an individual both psychologically and financially. At times it is even reaching tragic proportions: “Harini, a junior software developer [from Hyderabad] committed suicide by hanging herself from a ceiling fan after her company announced lay-offs”, reported Hindu on November 21.  

This is soon going to be a story of the past, for the future is emerging still more threateningly. The technology-driven world of today is more frightening even to imagine: Cars that drive themselves, machines that read reports and even offer algorithm-driven responses, diagnosis and prescription of drugs by machines and all such manifestations of new forms of automation in the offing, though sure to increase productivity and improve our lives, are all set to displace human labor.

The emergence of these disruptive technologies is sure to alter the very nature of peoples’ occupations: there would be more jobs lost, more jobs changed and perhaps, new jobs created. This transition is going to be more challenging to the workforce than what it has hitherto faced. These disruptive changes will even challenge our current educational system and training methods too. And the most important demand would be: income support to the workforce caught in the cross-currents of Artificial Intelligence-driven automation. 

Simply put, the digital future that is in the offing can cause painful consequences for the workers, for the economy would certainly take time to come to terms with them. Secondly, although economists continue to argue that historically an equilibrium between the supply and demand of jobs in labor markets has always been reached, technology experts are arguing that this time things will be quite different, for they will affect multiple sectors of the economy simultaneously.

All this is going to challenge the stability and sustainability of the individual lives. Now the question is: how to protect the interests of workforce during this transition? And who has to manage it? No doubt, at the macro-level, policymakers will definitely work towards smoothening this transition by initiating necessary policy measures. But that would not suffice. Prima facie, it is the worker at the micro-level who has to brace himself—plan himself to weather the storm. There is yet another important development of the recent past that merits our attention: our average life expectancy has gone up appreciably warranting stretching of one’s monetary resources for many more years than in the past.

The good news is: individuals can manage this transition with a few positive changes in their life style. The starting point is to build confidence in oneself to plan for facing the AI-threat squarely. And the first tool that comes handy to weather the storm is: personal financial planning. For, it helps one in managing today’s cash flows to achieve one’s own economic satisfaction by affording a feeling of security for the future too. Importantly, such financial planning minimizes the stress in life.

The first rule of such planning is: define your life goals clearly, estimate the inflation-adjusted requirement to meet the set goals and then set aside the required amount regularly to fund the goals. This, of course, calls for questioning one’s current consumption pattern: Is it meant for material satisfaction? Or, for delivering ‘psychic gratification’? Incidentally, most of the new-age Indians are today found looking for more of pre-programmed ‘experiences’ than for material satisfaction. So, if one has to navigate through these conflicting demands safely, one must practice paying first for the accomplishment of set goals and use the balance income alone to meet the current expenses. It is always desirable to involve one’s spouse in the financial planning exercise.

All may not be good at investing the set aside sum to maximise the returns and also ensure safety and security of the principle and returns thereof. Such individuals can take professional guidance from wealth planners from banks and other financial services providers. Identifying a good financial adviser is, of course, a challenge by itself. Enquiries with friends may pave the way for selecting one, but once selected, you must take periodic performance review of the adviser. If such analysis warrants changing the adviser, you must exercise your right immediately.  Do not hesitate to put as many questions as you have to the adviser and be not satisfied until you feel you have been answered alright. And, in course of time, you may yourself become a wise investor. But all this involves cost.

Obviously, a man of modest savings cannot afford such luxury. But he need not lose heart. One safe way of investing for a man of modest savings is opting for SIPs of Mutual Funds, for they are professionally managed.  Even prior to that, whether one is a man of modest savings or of high worth, everyone need to take note of the uncertainties of life and secure it from the associated risk – the risk of premature death. One option that immediately strikes the mind is: insurance. Get insured for a sum that enables the family to maintain its present standard of living even in the absence of the bread-winner at a very early age on a long-term basis to encash the benefit of low premium payments to service the policy.      

Lastly, one must always remember the two underlying principles of financial planning: One, that execution of a plan is as important as planning itself; and two, that not planning means planning for a certain failure.

Good Luck!