Five Reasons Why Goal Based Financial Plans Fail

As well intentioned as they are, it's a fact that very few Financial Plans go on to achieve their intended end objectives in the long run. Particularly with the rise of Mutual Fund SIP's in recent years, a number of thriving businesses have emerged that help investors delineate their future goals, and align their savings to them - essentially turning regular-interval investments into 'goal-based savings'. However, anecdotal evidence would suggest that the impact of most of these plans tend to be more ephemeral than anything else. Here are five reasons why so many goal-based financial plans tend wind up biting the dust over time!

Hyperbolic Discounting
The fancy sounding term actually describes the human tendency to attach exponentially higher significance to rewards that aren't located far away. In other words - the magnetizing effect of immediacy upturns many a goal based financial plan! You may have intended to save up Rs. X for your child's education which is 15 years away, but the allurement of the newly launched car is so hard to resist that you end up drawing upon your corpus - fully or partially - midway to the goal.

Unrealism
Goal Based Financial Plans that are not firmly rooted in reality are non-starters right from the word go. The planning process itself is notorious for eliciting overexuberance from clients, and in their overenthusiasm, they often end up ignoring reality. For this reason, a goal based financial plan that is to succeed, must be realistic in nature, and not carry demands that cannot be fulfilled sustainably. For example, saving 25% of your monthly post-tax income is realistic, but 50% is going to be very difficult to actually sustain for an extended period.

Lack of Discipline
Lack of discipline and focus are the chief reasons why many goal based financial plans flounder. It's extremely critical to be as committed to your financial plan, as you would be to say, a lifestyle change that your doctor has advised you to make. Letting your SIP's bounce, not carrying through with planned annual step-ups, or being lazy with respect to getting your plan reviewed at regular intervals, are all examples of how indiscipline and a lack of focus affect your goal based financial plan.

Lack of Emergency Provisioning
Provisioning for emergencies is actually a worthy financial goal in itself, and the impact of not having one in place can be spiralling and far-reaching. Consider a situation where you've been planning for an important financial goal for two years, but a medical emergency wipes comes up for which you've got no liquid money provisioned. You may have to draw upon this corpus to tide over the emergency. This often sets off a vicious cycle wherein you'll likely delay (sometimes indefinitely!) starting to save for that same goal from scratch (attributable to something known as the 'sisyphus effect').

Lack of Support
You may think its just dandy to self-manage your financial plan, or an automated robo platform that will help you align your savings to your goals and leave it at that - but this often sets savers up for failure in the long run. After all - financial planning may be simple, but its not easy (just like dieting!) - and the support of a well-meaning, unbiased financial advisor can prove invaluable in your journey. Make sure you'll well-supported in your journey to financial freedom, meaning that you actually have someone you can pick up the phone and call, if the need so arises!