September 21, 2021

Implementing the MoSCoW Technique in Personal Finance

Arijit Sen

SEBI Registered Investment Adviser

Friends and colleagues are supposedly enjoying their lives to the fullest – tripping frequently, buying expensive gadgets, booking properties, buying high-end cars, and what not! So many things are happening around, enough to distract us. Thanks to social media as well for fueling instant gratification every other second. On the contrary, we are guiding our clients to avoid having the herd mentality. We are always working with our clients so that they stick to their budgets most of the time, plan for their financial commitments, and seriously start thinking about their retirement days, etc. Our job is kind of against human evolution. How? To enable people to make rational decisions. This may involve short-term sacrifices due to delaying gratification for the better.

Connecting to our future self is challenging at times because it is unforeseeable. Even we struggle at times, although we are from a finance background. Isn’t it? And it’s okay. We are humans too! Just imagine how tough it is for our clients to stay future-oriented throughout their journey with us!

Real-life scenario

For the past several months, a newly married salaried couple has been talking about buying their first car. The car has become a necessity for them to help reduce the time and complexity of the daily commute. After a few discussions, they decided on the car they wanted to buy next year. We sat and figured out how much money they’ll need to save each month to make the purchase without a car loan (They are already having a home loan).

They were six months into their saving plan and guess what happened? Two of their family friends invited them for a group vacation at an island resort. Vacations? Who doesn’t love them? It was a decision-time for the couple. You can’t have your cake and eat it too. They can push back their short-term goal of replacing their car and go for the group vacation now, or they can turn down the enticement of vacationing (want) and stick with their next year’s car-purchase plan (need). As their personal finance professional, we did not influence them in a negative way towards any decision.

One of the various other financial planning tools and processes, we utilized with the couple was the MoSCoW Prioritization technique in our own way to draw conclusions.

What is the MoSCoW method all about?

Although you read the word “MoSCoW” in the headline, this technique is not taken from Russia, surely!

Generally, the MoSCoW method is a prioritization technique used in management, business analysis, project management, and software development to reach a common understanding with stakeholders on the importance they place on the delivery of each requirement.

As personal finance professionals, we make use of this tool in our own unique way. This acts as a prioritization technique for helping people to understand and manage priorities.

MoSCoW stands for:

• Must have this – to meet the basic needs…
• Should have this – if it is feasible…
• Could have this – if it’s not affecting other aspects…
• Would like to have this later -since it’s not practically feasible now…

The o’s in MoSCoW are added to make the acronym pronounceable.

In our view, the art of fruitfully utilizing this technique is actually intricate (complicated). The technical calculations are important, but, the expectations of the client and his/her family members are equally crucial. While using the above technique it’s very vital that we do not try to influence the client in any way.

What decision did the couple make?

Our discussions with the couple revolved around the various scenarios and their possible impacts. After a couple of long conversations, calculations, and calibrations, they decided not to take the vacation for now. Although the pandemic has been burning them out, they chose to delay their vacation plan. This is what future orientation is all about! They mutually decided to walk through the emotionally difficult path.

The rational conclusion they could draw as per the MoSCoW Prioritization is as follows:

• Car was a “Must have this – to meet the basic needs” for them.
• Vacation was a “Would like to have this later -since it’s not practically feasible now” for them.

I am sure, initially, they felt like – Our friends are going to enjoy it and we will not be able to do so!

At last, we are the only ones who know our priorities better than anyone else. To sacrifice is actually hard. They represented high future orientation which made them stick to their short-term plan to save and buy the car and did not succumb to the allure of instant gratification.

Our emotions can easily overpower any logic-deduction skills we have. As it is rightly said, “We think from our brains and but act according to our emotions.” The joy of going on a group vacation now (emotions) and sticking to the savings plan to replace the car (logic) constantly battled, trying to show why to choose one option and not the other.

How can you use the MoSCoW Technique in personal finance?

Since our resources are limited and our needs/wants are many, we have to learn to take time out and act for the better. Others’ expectations may influence our decisions. The MoSCoW Technique, when used sensibly with a client, gives him/her a reality check. It empowers him/her to figure out what really matters and which are the things that can wait. It is handy even when the client is trying to allocate his/her savings towards his different time-bound goals.

Do let me know your experiences while you implement this technique with your clients.