Financial Planning

Financial planning is a critical necessity for each one of us who seeks financial control of our affairs and wish to create wealth. Then why is it that most of us do not have a Financial Plan or have not even given a thought to it?

Why is it that we keep trudging along and feel that all will become right one day? Why is it that we always think of how to earn more but hardly give a thought to what our earned money is earning for us? Most of us have not even thought of having a dual income stream – one from our work and the other from our investments.

Whether we accept or not, each day or each time we think about creating wealth we are imprisoned by what I call – the seven deadly sins.

Pride: Caused by excessive belief in one’s own abilities, Pride happens because in school we were taught to believe in ourselves. But that belief was with knowledge. This sin is committed when we believe in ourselves and choose to act without adequate knowledge. All we want to have is only some idea of what is the best investment. And believing it to be the best for us, we commit that sin forever under the pretext of “I know how this works.”

Envy: You’ve just seen someone make a killing. And you think, that is reason enough for you to take the plunge as well! But then what if you have taken the plunge at the wrong time. We all know the old age wisdom, “Do not break your own hut by seeing someone else’s palace.” Then why is it that we change our asset allocation and bet on something that has worked for another?

Gluttony: Have you incurred credit card debt? Well…in that case know for sure that you are committing a sin each day. Have you taken a loan for a depreciating asset? Now that’s an example of financial gluttony. But then, if you’re able to manage the installments of that depreciating asset from your investment returns you’re a smarty.

Lust: Whatever you do you are driven by money only. And if you’re prepared to move from one job to another for a 20 per cent rise without considering the credentials of the company and the nature of job, you’re far from being smart. What if you’ve just missed on the stock options there. Besides you could have always had the opportunity to create a niche for yourself no matter how large the organisation.

Anger: This is widely seen when you are dealing with an agent to who comes to make a sales call and objects to your knowledge or when your broker did not sell when the markets were falling. In both the cases, you were to take the decision. You recall that with anger and/or arrogance you commanded that nothing be done without your consent. Know that in financial management there are two choices – either you take all decisions yourself or let your advisor take that for you. Of course given that you trust his skills and knowledge.

Greed: I hardly need to say anything here. Most people rush to invest in the stock markets when they touch an all time high. Others think markets will go up forever. Surely you cannot time the market but when the goal is achieved why not sell? After all, that’s precisely the reason why you invested in the first place. Now if there is no goal and no plan to manage that goal, it is quite likely that this sin will keep revisiting you from time to time.

Sloth: This is the one that I love to talk about. The bible says, “Whatever we do in life requires effort” so if we wish to ask for tips and then act, it is a sure way to disaster. Either we must take effort to do all the hardwork ourselves or take the effort to search for a trusted advisor and outsource our efforts. Finding a trusted, knowledgeable and skilled advisor is not a very easy task to do.

Sins that were spoken of centuries ago are still so relevant. Needless to say, it is up to us how much we wish to cleanse.

Kartik Jhaveri, an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager.