FINANCIAL PLANNING - MYTHS AND FACTS

Financial Planning, per se, should be the same world-wide, but it is not so. Local beliefs, traditional practices and the level of economic development determines the type of financial planning a society would adopt. This is very similar to religious beliefs – the goal is the same, only the paths to achieve them differ.

Functions relating to MONEY were divided between genders on an arbitrary basis:
Males are good at earning and managing money; females will spend and save money [gold and jewelry]. The compulsions of urban living have broken these artificial barriers to a great extent. Now females have entered the work place, started to earn money [though all of them are still not very comfortable in managing it] and males are spending and ‘saving’ money.

Elders in India always said one has to work hard to earn money, which is true. But beyond a point one cannot work harder, while the need for more money still remains. At this point the boys get separated from the men. One has to learn how to make money work for you, rather than you work to earn money. Like in a car, maximum effort is required to make the car move. Once it starts moving, the effort gets gradually reduced-as momentum takes over. Gears exist in the financial world also, only one has to recognize them and use them appropriately.

Myth #1
Money/wealth is important only initially. Once you have it, the importance is reduced till it reaches zero. Nothing would be a bigger myth.

The fact is more you have, the harder you have to work. The second richest person on earth is close behind the RICHEST PERSON ON EARTH and so on, down the ladder. Even independent islands of Dubai and elsewhere are becoming cramped. Mukesh Ambani requires a 15 plus storey building to house his family. Importance of money can never be zero.

Myth#2
Popular saying goes ‘make hay while the sun shines’. This is not true in financial matters. The hay made while the sun was shining can go up in smoke, even before one can blink. This actually happened during the global economic meltdown of 2008. Wealth has to be created slowly under all types of conditions, with proper safety nets put in place. Whenever the time to blink comes, the safety nets can be trusted to take care of one's interests.

Myth #3
We have been conditioned, right from the time we fed on mothers milk, that owning PROPERTY must be our first priority. Buying a house was like achieving a major milestone in life and respect in society went up accordingly. Gold and property were considered as saviors in bad times. This was true in the past but today we have better instruments to take care of the bad times. First of all it is cheaper and financially beneficial to stay in a rented premise. Your capital gets blocked in property till the time you sell it, which is like putting all eggs in one basket. Secondly if one has to relocate for employment reasons, the property becomes an avoidable concern.

Buy first property just few years before retirement-- that is when requirements change. Whilst working, one prefer to stay close to work place-it cuts down on commuting time. Bigger accommodation may be needed when children are staying together, but not post retirement. Safety becomes a concern after retirement, but not so when young. The ideal property, even at compelling rates, when you are 30 may become a liability at 60. Property prices are neutralised as one would like to stay in smaller units in a residential areas with better security arrangements, even if they are in the suburbs (far from work zones).

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These are some of the myths and facts, others will follow soon. If you do not agree with me please feel free to let me know. The debate will only help us all learn better...


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