Sunday 24 February 2008

Why Bother? Part II

Why Bother? Part II

In continuation of part I on the same topic, this post will talk about the relevance of fiscal prudence and financial planning for each of the examples that were mentioned in my earlier post.

Original comment is mentioned in a smaller font. My rationale / reasoning is mentioned in a bigger font.

  • CHILDREN - "After all I'm a child - my parents, my elders will take care of such things - things are cool as long as I get my pocket money to buy all the stuff I want!".
    •  "Start teaching the child about the importance of savings, thrift. Train her that a piggy bank full of coins can fetch her surprising goodies! Teach him that money in a bank grows."
  • TEENS - "I've got enough of things to worry about - my education, my girl friends / boy friends, my looks, my future career, my weight, my wardrobe, my waistline - who has the time to worry about stuff like Finance?"
    •  "Talk about the power of compounding. By this stage they must have their own bank accounts and must be trained to save a percentage of their pocket money. They must also be able to differentiate between capital expenditure (like buying a mobile phone) and revenue expenditure (like buying an ice cream). Teens must be encouraged to bargain/negotiate in shops, to evaluate different brands objectively before deciding on which bike/car/TV to buy, etc. May even be encouraged to read a bit of financial journals/newspapers to get an awareness of different investment avenues available"
  • YOUNG ADULTS - "Have just got into my first job - these things are more relevant for middle-aged folk who need to plan for the future - Let me concentrate on increasing my pay packet
    •  "Power of compounding must be explained with practical examples. Must be encouraged / motivated to start saving a (significant) percentage of their income. Need to become fairly knowledgeable about various investment options. Must start investing in mutual funds (and, if possible, directly in shares)"
  • NEWLY WED ADULTS - "Have just got married - Got to establish a great relationship with my spouse - Am sure stuff like finance can wait"
    •  "Commitments are even greater - You've got a spouse to take care of - Your sense of fiscal prudence should increase even further. You must identify explicit financial goals, develp a financial plan and start executing the same. You must learn about the importance of Asset Allocation."
  • PARENTS OF A NEW-BORN BABY - "I'm earning enough and more - let me focus on enjoying life at the moment. My new-born baby should get the best of all the things that money can buy - So what if I splurge a bit (if required by taking loans). In fact, I'm being smart by borrowing money and living it up on credit cards - After all, my income is only growing day by day and the economy is booming"
    •  "Commitments are even greater - You have a full family to be concerned about - You must systematise the process of periodically reviewing your financial goals, financial plans. You must introduce appropriate mid-term course corrections, as required. You must become versatile with Asset Allocation and ensure that you decide the appropriate asset allocation for your family's unique requirements. Start looking at appropriate insurance policies - both life and general, if you haven't done so already."
  • MID-CAREER MIDDLE-AGED PROFESSIONALS - "As it is life is stressful - who has the time for stuff like finance? As long as I'm earning enough to take care of my expenses, my life style and my EMIs for my housing and car loans, why should I worry?"
    •  "Now is the time to focus on serious wealth-creation - You must ensure that you've bought your own house. You must have a serious portfolio of all kinds of assets. You must continue to review and modify your Asset Allocation"
  • WOMEN AT LARGE (Especially home-makers) - "There is enough and more for me to bother about - let my husband / father / son take care of such things - After all they don't have to take care of household chores like cooking, washing, cleaning, managing the servant maid, and all the 1000 other things that I need to do!"
    •  "All the above points are applicable equally well for you - if anything, even more so! What are you going to do in case of unforeseen (and undesirably negative) events like divorce, death of the husband, etc.? Even if he has left behind a lot of assets, you need to be able to maintain and grow them further so as to continue to maintain your life style."
  • LATE-CAREER PROFESSIONALS (Especially those due to retire in a couple of years) - "I guess that stuff like my PF and whatever that I've saved in things like PPF, Postal Savings, etc. should take care of things. Hopefully I can repay my housing loan before I retire - Even otherwise, I'm sure that my kids will take care of me - Probably it is too late for me to start stuff like financial planning. Any way, I don't know anything about things like Equity, Mutual Funds, etc. Also, at this age, I can't take undue risks!"
    •  "Start planning actively for retirement - Review your Asset Allocation carefully - Probably decrease equity and increase debt component. Hasten the repayment of loans wherever possible. Review number of credit cards & drop any unnecessary cards. Start shifting investments that will generate reasonably regular monthly cash flows from around your date of retirement. Consider preparing a will if you have not done so already. Educate your spouse about your financial position as well as ensure that she/he is involved in your financial plans fully if that's not currently happening. Re-check your investments to ensure that nominations are in place and current"
  • RETIRED FOLKS, JUST RETIRED SENIOR CITIZENS - "What financial planning? My money is barely enough to make both ends meet - As it is I've been forced to compromise on a lot of my earlier life-style expenses. Too late for me now!"
    •  "Review your Asset Allocation once more and make necessary corrections. Review your monthly cash flows and ensure adequacy. Re-confirm if you are fully prepared for contingencies, especially medical contingencies. Review your insurance policies and ensure that you don't continue unnecessary ones. Keep re-checking your will periodically to ensure that it is current and adequately appropriate. Do some rigourous tax planning to ensure that the "family income" is maximised"
  • 70+ SENIOR CITIZENS - "I wish I'd started out in my younger days - I've been telling all my children, my nephews, my nieces, my neighbours kids, etc. about the importance of stuff like Fiscal Prudence, Financial Planning, etc. - But who listens these days? Unfortunately, I never had anyone to tell me about all these things in my younger days!"
    •  "Review your Asset Allocation, cash flows, will, insurance policies, etc. periodically. Start fine-tuning an estate plan to bequeath all your assets. This is especially important for those who are in the middle class, vis-a-vis rich - because the rich have lots of things, which can be easy to divide. The middle class may have very little to bequeath, and hence difficult to divide (for instance, a single house to be bequeathed to the spouse, one or more children, etc. in an equitable manner)"

Hence, do take care of the entire process of financial planning quite seriously. The time to act is NOW.

A request to the more advanced readers who may find the above stuff too basic and not worth the bother:

 

If you have my identify and my email ID, send me direct contributions likely to be relevant for this blog by way of:

  • Articles
  • Tips on what shares to buy or sell
  • Inputs on choosing apt investment products for different risk profiles
  • Recommendations on forthcoming IPOs / Mutual Fund offers

and anything else that is likely to be of interest to the typical readers of this blog.

 

If you don't have my email ID, leave a comment with your mail ID and I'll directly get in touch with you seeking your valuable contributions to this blog.

 

Thanks in advance!

 

Regards,

N


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6 comments:

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Anonymous said...

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Anonymous said...

Good day, sun shines!
There have been times of troubles when I felt unhappy missing knowledge about opportunities of getting high yields on investments. I was a dump and downright stupid person.
I have never imagined that there weren't any need in large initial investment.
Now, I feel good, I started take up real money.
It gets down to select a correct partner who utilizes your funds in a right way - that is incorporate it in real deals, parts and divides the profit with me.

You may ask, if there are such firms? I have to tell the truth, YES, there are. Please get to know about one of them:
[url=http://theblogmoney.com] Online investment blog[/url]

Anonymous said...

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