You are young and think retirement is far away in the horizon. You have a credit card and you merrily swipe it to buy everything that tempts you. You think EMIs are the best thing to have happened to a middle-class man. You smirked at the unpredictability of life and forgot all about life insurance. You thought putting all eggs in one basket is a smart – and easy – way to get richer. Do you do all this? Then, you are a fool of a financial planner. Pull those socks up. Remember, any day could be a rainy day.
1. Too Early to Begin?
“Have you given a thought to financial planning? Isn’t it time to begin?” One fine morning the wise dad broached the topic. “But Dad, I am 24, this is my first job. I am too young to get into financial planning. These plans can wait till I reach 40,” came the reply. The wise dad’s stupid son splurged all his money on gizmos and night-outs, he saved not a penny. Sure, Dad did not want him to stash away the entire salary in SIPs (Systematic Investment Plan) and savings; he just wanted a little set aside every month. For he knew that the little bundle of savings could go a long way. At 40, the foolish son was burdened with debt, had no savings. Finally, he realised he was wrong. If only he had initiated financial planning when he was 24…
2. Where’s the life cover?
He had a good job, a beautiful wife, a cute little daughter, a salary the envy of many. He was not so old either; he had enough working years ahead. His life seemed picture perfect. But there was a glitch – he had no life insurance. He often poked fun at his colleagues for taking to life insurance as a religion. “If I die, what would I do with the money?” he often quipped in jest. Well, he is right, dead men need no money. But what about the family? And can anyone vouch for life’s certainty? Life is unpredictable. Take a life cover. It would be there for the family, when you are not.
3. All eggs in one basket:
Have you heard the story of the smart man who saved religiously? He started young and by year 5, he had enough in his savings kitty. He was happy with his diligence and the equity market was getting bullish by the day. He was tempted by stories of how A made 50% in one day and B got richer by a million when a midcap stock he had invested in shot up in trade like a bazooka. The temptation was too hard to resist and the smart man poured all his savings into the equity market. Without any research, without any consultation from market experts. The next week, the market crashed. The smart man was broke. His hard-saved money turned to zilch in one day. For he had put all eggs in one basket, he did not believe in diversification and allocation of funds.
4. Flowing with the trend:
Everyone in office, everyone in the neighbourhood was investing in the chit fund that promised unbelievable returns. He was always cautious in his money moves; he had never made a false money move. But this time he did. He followed the crowd; he assumed that if thousands were investing in a fund, it could be trusted. He did not verify credentials, he did not read between the lines. One day, the chit fund closed shop and vanished with all the money. His money. And everyone else’s too. They all believed in money growing miraculously. Someone tell them that money is not a beanstalk.
5. Copied the best friend’s financial plan?
His is a one-income family with a non-earning wife, two kids, dependent parents, a home loan, a car loan and a future that certainly does not look rosy. His best friend has a better job, a wife who brings home a fat salary, no dependents, no loans and a future that looks rosy. The best friend also was a smart financial planner, he knew his goals and put his money where it would grow, yet be safe. Their resources were different, their needs were not identical, neither were their goals. But the former blindly copied his best friend’s financial plans. It obviously did not work for him. First, figure out your resources. Then, jot down your goals. Finally, tailor your financial plans accordingly.
6. Too much debt on the credit card:
He thought the credit card was like a blank cheque, he could use it as much as he could. He merrily swiped his card at every shopping spree. At the end of the month, he paid only the ‘minimum payable’ off the bill. The next month, he repeated the same mistake. By the end of the year, he had piled up a whopping Rs 10 lakhs on his credit card bill. No, he had not spent so much. The high interest payable on every month’s balance had accrued to the mind-blowing 10 lakhs. He stretched his needs beyond his means. Now, he is trapped in a vicious debt circle. Moral of the story: if you cannot control your expenditure, shred the credit card. Else, the debt would kill you.
7. Too many EMIs:
His idea of money management is a four-letter word: LOAN. He believes that loans are the most convenient way of buying things, everything. Not just big purchases like house and car, he even took the refrigerator, air-conditioner and laptop on easy EMIs. He chuckled about the stupidity of down payment and gloated that his EMIs were not so burdensome. What his stupid mathematics did not tell him was that small EMIs coupled with large EMIs for house and car can be gargantuan. With so many loans on his head, his budget went haywire. After the EMIs were debited, only a few farthings were left in his salary account. EMIs look convenient. In the long run, they got bigger with higher interest rates and he ended up paying so much more for the product. The EMIs – and bad mathematics – proved fatal.
8. Thought you’d never retire:
Retirement. The word retirement often conjures images of an old wrinkled man, frail and ill, dependent on his children for every need. Like everyone else, even he thought retirement was too far away in the horizon. He is 35; he still had at least 30 more working years. Retirement planning could wait, he thought. Perhaps he never consulted a financial expert. They always say: Start retirement planning on the first day of your first job. Set how much you would need every month to live the life you want even when you retire (please, do not ignore inflation!). Start putting away tiny bits in the retirement basket. Your retirement would be happier than you’d imagine.
Preeti Verma Lal
Visual Courtesy: http://www.flickr.com/photos/alancleaver