Default Financial Living Design:
By default design of living we tend to remain in our comfort zones. This reflects in each and every area of our life. Those who break open the comfort zone are able to accomplish extraordinary feats in their lives. There are many authors/poets, economists, scientists and social scientists but few Nobel laureates, many cricketers but only one each of Sachin, Bradman, Richards, Sobers or Lara, etc. So ordinarily most of us are in our comfort zones most of the times and hence, are living an ordinary life.
In the domain of personal financial management this living style manifests as Financial Disability. With reference to financial management, we tend to operate in different spaces depending on how much we tend to remain in our comfort zones:
1. Majority of us do not save.
2. Majority of us who save, do not invest.
3. Majority of us who invest, do not invest with a purpose.
4. Minority of us invests with a purpose.
a. Majority of us who invest with a purpose, do not stick to the purpose.
b. Minority of us who invest with a purpose and also stick to the purpose.
Category 1 and 2 persons are in plenty and suffer the most severe Financial Disability. As you go from space 1 to 4 you minimize the financial disability.
Category 1 people earn, spend and splurge.
Category 2 persons keep the entire surplus in a bank savings account earning taxable 4% pa (some banks offering more up to 7%) with inflation hovering at around 7 - 12% and food inflation in double digits.
Category 3 people invest in bank Fixed Deposits or other similar debt instruments in the name of risk free investments, but in fact, are not aware that they are in their comfort zones. Such investments also earn a negative return when taxation and inflation are taken into consideration. Moreover as no purpose has been assigned to these “so-called” investments, whenever such investments mature the immediate want is taken care of like TV, Refrigerator (or other consumer durables), Clothes, spending in Marriage in family or relatives, etc etc. These people also buy gold or silver jewelry telling themselves that they are investing for a rainy day. But in fact, they are not (I shall explain it some other time). Here it is enough to mention that if you invest in Gold it should not be more than 10 – 20% of your entire portfolio and that too in the form of Gold Funds or bars never jewelry.
Category 4 people are very few, who foresee their financial goals, and invest for such goals. But again, majority (Category 4a) does not stick to the purpose of investment. Highly prevalent example is withdrawing money from provident fund savings (meant for post retirement life) for spending on kids’ marriage and spending quite beyond their means in an attempt to “look good” in the society. Quite often they spend beyond their means in relative’s marriage in the name of “social obligations” like marriage of sister’s or daughter’s kids. Thus digging deeper into their retirement savings.
Only minority in Category 4b tend to avoid financial disability in life, who provide for specific investments for all specific financial goals in life, like owning a house, educating and settling kids, taking care of post retirement days, etc. If some expenditure comes up that had not been planned for, then that is taken care off without tweaking the other investments, tagged to specific purposes.
You must have noticed transitioning from category 1 to 4b requires a great deal of commitment and gradually increasing degree of being in action. That, in other words, means being out of your comfort zone. Of course, one may have created many reasons to remain in one’s comfort zone: like market place is risky, I’m quite young and it’s too early to save and invest, let me enjoy my life, life will take care of itself, what is destined for me will come to me, etc.
These are basic people types that suffer varying degrees of Financial Disability and also many other deficits in other areas of their lives depending on which category they belong to.
In my subsequent posts I will be discussing about what other factors or blocks come in the way of financial planning and wealth creation.
Disclaimer:
Whatever I am sharing or going to share is/will be in the nature of general guidance only to give an overview of basic concepts of Total Rehabilitation. It is aimed at sensitizing the reader to healthy lifestyle habits or basic concepts of financial planning. It should NEVER be treated as substitute for professional advice, which can only be given by your physician/ investment advisor after personally assessing your specific condition/ financial status.
