6 Lethal Impediments To Your Financial Independence
The words “Personal Finance”, by their mere appearance should tell us that they refer to a crucial aspect of one’s life, and should be in at least the top 3 priorities of any individual who dreams to be “financially independent” (and as we know, that’s pretty much everyone).
Yet, we observe that the time and attention that is devoted to planning one’s personal finance is abysmal, relative to the lofty dreams of financial independence that we all hope to achieve!
Here are the 6 most common “push-backs”, and my counter argument for each of them:
1) Pre-Occupation In Work, Profession, Business, Or Personal Commitments:
Basically, I am busy, I’ll think about it later.
Being committed to our work is great, but if the calamity were to strike someone who does not have an adequate financial plan in place, he would be firefighting the calamity while simultaneously trying to figure out how to finance the said firefighting effort. Needless to say, the emotional and mental capital that would be wasted in sorting the financial part of it would have been much better spent in dealing with the calamity itself. So, don’t be the guy that starts digging a well when his house catches fire. Be the guy who has a fire-fighting mechanism ready to unleash on any fire that dare erupt in his house!
2) A Fat Pay-Check, Or A Boom Phase In Business Or Profession:
I’m rich and getting richer, what could possibly go wrong?!
Is your present income, and growth of income cast in stone? Can you with 100% certainty say that you will NOT receive that projected figure every week/month/year? If your answer to these questions is yes, you may stop reading this article right here. If not, you are in the right place. Read on.
3) Consider Protection Solutions As A “Waste Of Money”:
I’m fit as a horse, and not going to die or fall critically ill anytime soon. Why should I pay an insurance premium that I will never see again, I’d rather enjoy the money NOW!
Few instances where this kind of thought process could be a flying spin-kick to the face:
Walking down the street and getting run over by a truck, dying in an air-crash, being grievously injured in a car accident, the onset of a deadly disease that has no cure (ahem-covid19-ahem), going into an indefinite coma and being unable to provide for dependents, the unfortunate death of the bread-earner of the family who is indebted and the burden to repay that debt is now on the dependent family, dispute and litigation that can prevent the family of the deceased from gaining access to the deceased’s wealth and possessions and forcing them to alter their lifestyle…..
…….and the list is truly endless.
Frightening these may sound, but as luck would have it, all of these are transferable risks (financially speaking).
It is common practice to belittle and guffaw at the importance of protection solutions while the sun shines, only to realize their importance, and seek the same solutions AFTER misfortune knocks at our door to claim its dues. Needless to say, that protection providers (mainly insurance companies) will now either refuse to provide the protection (as the risk is highly elevated), or price the premium much higher than pre-calamity levels. Either way, you stand to lose by being complacent.
4) Protection Is Expensive!:
DID YOU SAY Rs. xx LAKHS? Man, I’d rather spend that much on a vacation!
I believe that when it comes to securing our future by way of transferring financial risk to another entity, cost should be one of the lower weighted factors while deciding on an ideal plan, and factors like Adequacy, Features, and trusted providers should be at the top of the list! Nonetheless, let’s discuss the cost of protection in India relative to advanced nations:
Thanks to our large population advantage, (which is, in essence, the size of the market for the insurance companies), it allows protection providers to offer much higher covers for the same absolute premium amount, as compared to advanced nations (economies of scale, if you may). Stats and some bro-tips to follow when we discuss Protection in detail.
5) Believe That We Are “Financially Sorted” Because Our Banker Sold Us A “Very Lucrative Plan That Serves The Purpose Of Both Investment And Insurance”:
Yeah, my banker keeps calling when such interesting products come out, God bless that bloke.
Enter: Bancassurance, the model which has led to the great success of insurance companies in India. It means banks and insurance companies co-market one another’s services to customers and share the fees. It’s great for them, but not so much for you.
Why? This is a product PUSH model. Your banker/RM is going to sweet talk you into buying the product that benefits HIM the most, not the one which is IDEAL FOR YOU. These bankers have deadlines and targets to fulfill, and hence your wellbeing will not be at the forefront of their selling decision, as it ideally should be.
6) Victim Of Mis-Selling, Hence Harbours Mistrust Towards Financial Products In General:
That crooked fellow got me stuck in a terrible plan, now I can’t take my money out for another 12 years!
Do remember there is no such thing as good or bad PRODUCT, only good or bad ADVISOR. Consulting someone who can independently assess the scores of products offered by the Protection Providers in an unbiased and intelligent manner, and match them with your profile and needs, would be vastly more beneficial to you in every manner imaginable.
Such professionals would want you to understand what you are getting into, and empower you to make an educated long-term decision for yourself. This nature of their service makes them client-centric, and not self-centric.
Ideal Financial Plan!
Now that we’ve touched upon a few of the hundreds of “wrongs” in the thinking process of financial planning, let’s talk about an “Ideal Financial Plan”
To be honest: There is no singular “Ideal Plan” that meets everyone’s needs
What makes a financial plan ideal for an individual?
i. How effortlessly it carries him towards his dream of being financially independent.
ii. It must take into consideration his income, expenses, assets, liabilities, and cash flows, both present and future.
iii. It must consider his aspirational goals.
iv. It must afford him adequate financial protection in the face of any unfortunate event. (be death, disability or major illness)
v. It must also encompass his legacy planning – i.e. what happens to his wealth and possessions once he is no more! The absence of this often-ignored facet can turn a robust financial plan to dust, by inviting dispute and litigation upon a person’s unfortunate demise, thereby hindering the smooth transition of assets to his survivors.
Mankind’s Biggest Enemy!
Lastly, I’d like to touch upon the biggest disease that prevents mankind from achieving greatness: The Inertia of Inaction! It is this inertia that prevents us from taking the leap necessary for us to achieve our (very lofty) dreams, and the same inertia prevents us from planning our financial future and becoming financially independent.
Naturally, the thousands of complicated terminologies and products may not be entirely decipherable to the financially uninformed, which is why consulting an independent professional is always advisable.
Think of it this way: Your life is the Mahabharata, and you are Arjun, busy battling your way through the job, profession, business, relationship, marriage, and/or many other responsibilities. Your financial situation is your chariot, and its strength largely determines your success in the “battle”. Your financial advisor is Lord Krishna, maneuvering your “chariot” in an agile and efficient manner so that YOU CAN FOCUS ON THE BATTLE! And I believe we’d all agree that with “Krishna’s” blessing and guidance, it would be pretty difficult to lose the battle.
Remember, it’s never too late to start. Break the inertia and grab the reins of your financial future.