Everyone has a dream. We all want to be wealthy when we hang up our boots. Reality strikes when we are reminded of our responsibilities. In the financial world, we need to be financially responsible before we realize our dreams. Some key differences that need to be kept in mind while planning your finances.
Financial dreams represent a future event e.g. buying a car or a property. On the other hand, responsibilities are regular commitments in life that need to be met. However, responsibilities can also arise suddenly like a medical emergency or be a future event like providing for child’s education. In short, one has to be financially prepared to meet life’s needs at all points of time.
Financial activities are usually inter-dependent on each other. One decision could affect the others. Unless financial responsibilities are met effectively, it is very difficult to achieve financial dreams. At the same time, taking the right steps to achieve financial dreams is an important way to ensure that financial responsibilities are also managed effectively
Financial responsibilities are continuous in nature. They arise virtually every day. Financial dreams are not so. One can prepare over a period of time short-term, medium- term or long-term to achieve dreams. So, there is likely to be lesser daily pressure.
Financial dreams require systematic planning that will take into consideration various financial details. It also includes ensuring regularly that the effort is moving in the right direction. While planning, financial responsibilities have higher priority. For example, you earn Rs 10,000 per month. The first priority is to keep Rs 7,000 aside for your expenses. It is only after this that you invest Rs 3,000 to buy a car in the future.
Financial dreams can be of different magnitudes and hence they could also be big ticket in nature. This could mean something like retiring with a corpus of Rs 2 crore. Financial responsibilities are usually smaller in size and are completed in short time periods. So, while they are greater in number, they may not be financially costly
INVESTMENT THOUGHT: Be fearful when others are greedy. Be greedy when others are fearful.
Article Source : Reliance Mutual Fund (Newsletter)