(The author is the Founder and CEO of Money Avenues, a Wealth Management firm based in Chennai. Feedback can be sent to mailfpc@ yahoo.com)
Having soup with a fork?...
Would you have soup using a fork? You won't, right? Our personal eating convenience demands a spoon and not a fork for having soup. The same logic holds good even for our personal financial planning. When you want to have a great financial future why would you have inappropriate financial planning? When we grow well in our jobs and incomes, we tend to overlook the money management aspect. And that's like having soup with a fork.
Let's look @ our life's "Soup with a fork" scenarios in personal finances:
## Inadequate life insurance:
Human life is precious and nothing in this world can value a precious human life. But for practical purposes, its always better to quantify one's life for the benefit of the financial future of the family. Life insurance is a fantastic financial tool to safeguard one's and one's family against future uncertainties and secure financial future. Life is not the same post 9/11 across the world. The mobility in our jobs have increased multi fold which has also increased our exposure to global security risks and threats. This necessitates the need for covering one's life adequately.
What cover is adequate cover?
One should ideally have life insurance cover of 10 times of the annual income @ at all points of time. For eg., if one's income is Rs 10 lacs PA, the cover should atleast be 1 crore. If the income goes up to Rs 15 lacs PA, the cover should also rise proportionately.
Insurance cover = Annual income * 10 times.
1. The rationale for this formula is that, if misfortune strikes one's life, the family will have a financial cover for the next 10 years equivalent of the current income.
2. If you have lesser cover, it means you have under estimated your own life's value.
3. It also means you have not fully secured your family's financial future.
So that's like having soup with a fork...
Risk can never be prevented; but can be safeguarded against it...
## Not investing based on thumb rule:
Investing thumb rule is "Invest based on your age and profile". Younger the age, higher the returns one must seek which means high risk/high reward through equities. Remember, inflation is galloping and to catch up with that, smart investing is the only way out to beat inflation. @ the age 30+ keeping most money in Banks and @ the age 50+ putting most money in equities will be like having soup with a fork. Invest according to your age and profile.
## Not starting to save and to invest early on:
Not starting to save and invest early on in life will be a big peril in one's life. Power of compounding is a very powerful tool which helps one to create long term wealth if started early. As one grows older, the probablity of creating wealth diminishes as the time span is very much limited. Remember, "Time is Money; Money is time"
## Not having sight on long term wealth creation:
Our major financial dreams are usually long term in nature. Children education, retirement, children future etc., And these events are quite certain to happen. In that case our vision for long term wealth creation should also be in place. But we postpone the planning thinking it has a long way to go. One cannot wait for that situation and then make arrangements for such goals. When a child is born, its certain that at the age of 17 it enters college, @ 21 it enters higher education and when we reach 58 years its certain that we retire.. Not creating wealth for these goals is like eating "soup with a fork"...
## Not having S.M.A.R.T financial goals:
This is the most classic case of having "soup with a fork". When one does not have S.M.A.R.T financial goals, that's when one is prone to uncertainty and risk without a proper financial cover. While we plan even the smallest of our activity, one cannot afford to loose sight on bigger things like personal financial planning. It's true that no one knows what would happen 15 years or 20 years later; but that very uncertainty factor necessitates a structured financial plan. Key is one should have a S.M.A.R.T financial plan and review it periodically.
If our personal financial life has the above discussed flaws, it's like having soup with a fork. So don't try to have soup with a fork; either change the dish or change the eating tool... That's when the meal becomes great. Have right approach to our financial future and it's like having soup with a spoon...
(The author is the Founder and CEO of Money Avenues, a Wealth Management firm based in Chennai. Feedback can be sent to mailfpc@ yahoo.com)
