Nupur Shah, CFP, Author at UpperCrust Wealth

Know about financial planning

22 December 2022 3 min read

“Finance planning is the golden key to achieve your goals”

Every human here is after “Money”. And yes we have to, in order to live a lifestyle that we have imagined. There is never ending list of dreams to be fulfilled such as buying a luxurious car, a dream home, vacations and much more.

But, how many of you have dreamed to be financially independent by a certain age? Well, I assume very few of you.

Through this blog, my only motive is to let people know that how important financial literacy is for everyone.

What is financial planning and why is it important?

A financial plan creates a road-map for your money and helps you achieve your goals. It is a planning of your hard earned money. Financial planning includes budgeting your expenses, investing in right assets, setting smart goals, selecting right asset allocation, creating a retirement plan and much more.

Planning is a dynamic process. Financial planning is important because it guides and controls the financial decision making process. It helps you determine your short-term and long-term financial goals and create a balanced plan to meet those goals.

Right investment with proper planning helps to beat inflation which eats up your money and makes it undervalued over few years.

“Failing to plan is planning to fail”

Financial planning is for everyone

There’s disbelief that, finance planning is only for “Rich People” because they have money in abundance which need to planned and managed. But, that is not the case.

Financial planning is for everyone no matter if that individual is a student, salaried employee, middle class family, and individuals who are in their 30’s, 40’s or 50’s. Just like everyone needs to see a doctor at some point in life, the need is same here. Financial planning is important for every one of us and we should take it more seriously to better shape and safeguard our future.

Why planning for finance at early age is important?

When you start early, you can plan ahead of time for your future. Financial goals have the benefits of fulfilling your dreams when you desire. The reason being is that, you have longer time horizon to spread out your investments and manage your portfolio across time.

“The early you start saving and investing your money. The early you can plan your retirement.”

How a financial planner/advisor can help an individual?

If not early then definitely at a certain point in life every individual will have these questions.

What is the amount of life insurance that I need?
How much should I save for retirement?
What types of investments should I own?
Is there a way we can save on taxes?

If you have any of these questions on your mind then definitely a qualified financial planner/advisor can come to your rescue. A financial planner can help you determine how much you need to invest each month and make recommendations on the type of investments you should make to reach those goals. Choose your financial planner carefully who can understand your needs and devise a plan that will lead you throughout your professional life to retirement.

Financial planning- Rule of thumb (Tips for beginner’s)

Income – Savings = Expense

50-30-20 budgeting method offers a great framework. It breaks down like this:

50% of your income should go towards living essentials such as food, rent, utilities, bill, and transport.
30% towards wants like- dining out, shopping, membership, subscription, vacations.
20% should go towards savings i.e. short-term goals and long-term goals like retirement, children education and their marriage expense.

To sum it up it would be right to say that financial planning ensures that you are in complete control of your finances, income, liabilities and know exactly what you need to do if a certain situation comes up.

“Don’t just make money. Make your money work for you.”

The Decoy Effect – A marketing tactic

30 July 2022 3 min read

This blog will explore “The decoy effect” and examples that relate it to how companies determine their marketing strategy, as well as pricing strategy to control what we buy.

Let’s first understand the meaning of decoy –

Decoy means to trick somebody or something into what you want.

The Decoy Effect describes how price comparisons between products affect choice. It occurs when people tend to have a change in preference between two options when a third, asymmetrically dominated option is presented.

When there are only two options, and they’re priced “fairly,” people make decisions according to personal preference.

But, if there’s a third choice that’s overpriced compared to the first two options, it changes how people consider all of the options. The third option is a “decoy” choice.

The Decoy Pricing Strategy boosts sales of high profit products by creating another version of that product with an unreasonable price. The marketers price the new product just below the highest priced product. When the customers start comparing these products, the unreasonable price also known as decoy price will make the expensive one seem economical and reasonable. This leads to ‘decoy effect’.

Let’s understand with an example which we all must have experienced –

Who doesn’t like to watch a movie in the theater? Obviously, movie without popcorn is no fun. In the movie houses, you get popcorn of small, medium, and large at a price of rupees 250, 500, 600 respectively.

Option A (Small): Overpay for the popcorn
Option B (Medium): Extremely overpay for the popcorn
Option C (Large): Extreme overpay for the popcorn with a little extra popcorn.

Considering the above given options. The large size looks appealing, doesn’t it? While there is a Rs.350 difference between small and large size, there is only Rs.100 difference between medium and large. Through simply adding a third option (the decoy option), stores can convince you to go for the pricier item even though you don’t need it. As a buyer, when you’re presented with 3 options your thinking pattern changes.

The larger Rs. 600 option is suddenly a lot more appealing and the price point suddenly looks like a better deal altogether. But why? Well, the customer is not comparing the small popcorn against the large popcorn anymore. They’re now comparing the medium popcorn against the larger popcorn. Since the difference between the large and medium is significantly small, they’re now seeing the larger option as a lot more reasonable.

You are not alone in this decision, nor are you the first person to make this call. You have gone with the decision that many people are likely going to end up with.

“Humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.”

The Bottom Line:

A behavioral change, decoy, affects us subconsciously and may alter how we think and make decisions. The Decoy effect or the Attraction effect is a widely used tool by marketers around the world. While it is true that the decoy effect has its set of advantages, from the consumer’s perspective, it mostly works in the favor of companies employing the strategy.

So think well and think hard before heading to that store near you!

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