Science subjects like Physics, Chemistry, Medicine, Technology, Astronomy, etc. are quite complex and unless you have formal education in these subjects, they are difficult to comprehend. However, the same is not true for financial topics and with some interests and efforts, Doctors, Engineers, Architects, and even Housewives can take charge of their money matters and lead a financially confident life.
Most Indians remain obsessed with three popular topics, namely, Politics, Bollywood and Cricket. A lot of valuable time is consumed in reading articles/blogs/news items on these three topics and an equal amount of time is spent in discussing/gossiping the same with family and friends. However, even if a fraction of this time is spent upon brushing up your knowledge on money/financial matters, it can work wonders towards improving your lifestyle as well as the quality of life.
By going through financial news items and by watching business TV Channels, you can constantly update yourself with important developments and crucial financial concepts like rate of inflation, GDP growth rate, interest rate movements and other ups and downs in Equity markets together with returns being generated by Stock Market over one, three, five years and on a long term basis. However, please remember that “half-knowledge” is even more dangerous than “no knowledge” at all. Therefore, develop a habit of getting into meaningful conversations on financial developments with your spouse, friends, colleagues and most importantly with your expert investment adviser.
We share below a few simple strategies for adopting in your life to be financially prudent.
- Choose a Family Financial Doctor
All of us ensure that we have an experienced, trustworthy professional family doctor who is available at short notice to take care of any health-related issues for all family members. It is equally important to choose a finance/investment expert who will understand your needs and goals and help you take appropriate investment decisions from time to time to ensure that you remain worry-free on money matters. Your financial doctor must have a long and credible track record with requisite qualifications like Certified Financial Planner (CFP) or a Registered Mutual Fund Adviser or IRDA certified insurance professional etc.
It is preferable to deal with trustworthy organizations that specialize in rendering professional investment advice rather than depending upon one individual who may or may not be well equipped to take care of your variety of financial needs. You must take references from your family members and friends before availing the services of a financial planner or a financial services organization.
- Be Transparent with Your Adviser
Once you have carefully selected your financial adviser, you must be totally transparent with him/her by sharing all relevant information on your current investments, various sources of income, your monthly saving potential and details of your future financial goals. You must also be ready to share the exact year in which your future goal will arise and also approximate amount required to fulfill that goal/ responsibility. Your financial planner will also seek other important details like risk-taking appetite, details of dependent family members, income tax bracket and already running insurance policies, etc. through a detailed questionnaire which you must answer accurately and honestly. Your transparency will help your financial planner to serve you better and then you can even hold him/her accountable for the outcomes.
- Have Regular Meetings with Your Adviser
Your interaction with your adviser should not be transactional only. You must meet your adviser face to face at least 4 times in a year and understand how your investments are performing and whether any changes need to be made. These meetings will give you a good opportunity to update your own knowledge about developments in the financial markets. Also, if your financial condition has undergone any change like a promotion or an increment or change of job or childbirth etc., you must share the same with your adviser to enable him to reconstruct/revise your investment strategy accordingly.
- Involve Your Family Members in financial Matters
Many working husbands make the mistake of not involving their wives into financial matters particularly if they are housewives. It is not a prudent habit at all. Both spouses must take equal participation in discussions with the family financial doctor and even adult children should be consulted/informed about investment strategies being implemented by the family for their own bright future.
- Don’t Hesitate to Ask Questions
During your conversations with your professional investment adviser, you may hear some technical-sounding concepts which you may not understand immediately. Please don’t hesitate to ask questions as not only it will remove your ignorance but also make you more confident about the decisions being made about your own financial future. Make sure that you understand the true meaning of investment terminologies like Asset Allocation, Risk-Adjusted Returns, Exit Loads, Balance Funds, Capital Gains, Risk Appetite and Appropriate Time Horizon, etc. These are easy to understand concepts and will greatly help you in taking informed decisions to brighten your future. Please remember an old saying: “Those who ask questions look ignorant but those who don’t ask questions remain ignorant”.
- Think of the Worst and Prepare for the Best
Every investment must be held jointly with your spouse or any other family member of your choice. Similarly, wherever a nomination facility is available, it must be used by carefully selecting the family member or any other person that you wish to nominate in case of occurrence of any unfortunate event. If this aspect of joint holder or nominee is not taken care of, the same may lead to extremely complicated procedures for legal heirs to claim the investment amounts. Also, written “will” must be made clearly indicating the distribution of financial and other assets amongst children and successors.
- Preserve Important Documents Carefully
You must insist that your financial doctor must provide you with a written document called “Financial Plan”. This document must be referred by you from time to time to ensure that all decisions are being implemented as per the plan. Also, periodic portfolio statements as handed over to you by your advisor must be preserved either physically or digitally to monitor the financial progress. Proper documentation will help you in filing your income tax returns accurately every year.
By following the above steps, you can attain financial nirvana. In a modern-day world which is full of tensions and worries, if you can keep a good control on your financial matters, it will make your life much less complicated and enable you to lead and enjoy financial freedom. It will also give you a tag of a financially prudent and successful person.
Anil Chopra
Director, Bajaj Capital Limited
