Friday, October 05, 2007
7 deadly sins of financial planning
Founder of Transcend Consulting, a private wealth management firm, Kartik helps you understand your money, better, and guides you on how to lasting create wealth in a rational, planned manner.
FACT: If you seek financial control, and want to create wealth, financial planning is a must. Despite that, a lot of us just trudge along and hope that all will be fine one day. We want more money, but don’t pay much attention to the money we are actually earning. Most of us don’t even bother to think about having an additional income stream.
So what keeps us from going proactive? Each time we think about creating wealth, we are imprisoned by these seven deadly sins of financial planning:
We are taught, right from school, to believe in our own abilities. Well, if you act with the adequate knowledge, that is fine. But if you invest when you only have a fuzzy idea about what you're in for, your 'I know how this works' attitude is a planning sin.
You've just seen someone make a killing in the stock market. Of course, you want to do the same as well, paying scant attention to the fact that this may not be the best time to enter the market. You have heard the old adage 'Don't break your hut in anticipation of a palace'. Then why do you want to change our asset allocation and bet on something that has worked for someone else?
Incurred credit card debt? That's a sin right there. Taken a loan for a depreciating asset? There is an example of financial gluttony. But then, if you're able to manage the instalments of that depreciating asset from your investment returns you're a smarty.
A desire for money propels all your actions. You don't hesitate to move to another job, so long as it offers you a 20% raise, never mind the new company's credentials or your job profile. A smart person would have stopped to think about the stock options your present company might offer, or that you just might have created a niche and growth there too, if over a period of time.
That look on your face when your broker didn't sell, even when the markets were falling. Never mind the fact that you had issued clear instructions that no action be taken without your specification. In financial management, you have two choices – either take all the decisions yourself, or let your advisor do that for you. Given of course, that you trust his skills and knowledge.
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.
This is the one I love to talk about. The bible says, "Everything we do in life requires effort". So simply gathering some tips and acting on them is a sure fire recipe for disaster. Either make the effort to do all the research needed before investing, or make the effort to search for a good advisor.
Sins that were spoken of centuries ago are still so relevant. Needless to say, it is up to us how much we wish to be cleansed of them.
Disclaimer: The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.
Do not procrastinate saving. Whether you are old or young, save while you continue to spend.