Theory of Financial Planning Behaviour
A Behaviour Theory Framework to Help you Make a New Financial Year Plan.
Financial success is not a hard science. It’s a soft skill where how you behave is more important than what you know. — MORGAN HOUSEL (The psychology of Money)
April 1st is the beginning of the financial year in many countries including India, Canada, UK and Japan. This is the time when individuals, businesses and even governments reset their financial plan.
Your phone must be buzzing with all the tips and strategies for a financial new year plan. While you may be ready with your plan and are set to follow through it religiously, here’s the most important element.
We’re all humans. And humans have behaviours; that can either elevate or demote our lives.
Having said that here’s a behaviour theory framework to help you making a new financial year plan.
(Tip: Hierarchy of needs; Basic needs must be satisfied before one can pursue higher-level needs.)
Theory of financial planning behaviour:
Serves as a multi-dimensional behavioural guideline that involves planning, developing, and assessing the operation of:-
Cash Flow: Ability to meet short-term and long-term financial goals while managing income and expenses to ensure financial stability.
Tax Efficiency: Look for tax-saving opportunities such as timely ITR filings, optimising deductions. Structuring finances in a way that minimises tax liabilities (capital gains) while staying compliant with the regulations.
Investment Planning: Allocating resources to a variety of assets to grow wealth, balance risk and return, and achieve your financial goals over a period of time.
Risk Management: Identifying potential financial risks (such as economic downturns, health emergencies, or market fluctuations) and coming up with strategies to mitigate it wisely (such as insurance or diversification)(don’t put all eggs in one basket)
Estate Planning: Arranging the transference of assets to ensure smooth continuity and alignment towards organisational goals.
Retirement Planning: Preparing for financial security for long-term sustainability by arranging sufficient savings, alt income streams, and financial abundance strategies.
This framework helps individuals, businesses, or broader institutions to make wise financial decisions. Although, it’s not the awareness of these elements that can transform your plan, but the ability to catch behaviours that don't align with your financial goals.
All subjects have defined rules - be it physics, chemistry, mathematics, or any other. Finance, however, is driven by emotions and the psychology and behaviour of people.
