Financial literacy is hampered by this extreme application orientation. Can One Simplify Personal Finance? in one column length? Without complicating the principles of age, life cycle, preference and wealth level? I keep trying in the hope of the kindness of the readers. Everyone associates assets with assets. We could just as easily be there and weave most of the theories around that idea. In our everyday lives, our ability to spend on basics and luxuries determines our sense of financial well-being and comfort. need Income To spend and our wealth should contribute to that need and be useful in our daily life.
Too many of us fail to make that connection about property. I meet many NRI friends who have multiple properties in India. Neither they nor their children are likely to return or use these assets. The rental yield is poor or nil if relatives take possession of them. They argue that they do not need income, but need to remain like an asset. Like neem trees they grow indoors in their homes in America: never cut or cut, remain untouched by the cold, and only have a symbolic connection to their past.
The choice of property should follow the basic principle of value. Without having a store of value that can be drawn up and used, an asset is wasted. Of all the assets, human wealth is the most precious. Not everyone has an inheritance. We use our skills, knowledge and attitude to generate income. As long as that income covers the expenses we do regularly, we are able to create more wealth with the surplus.
we retire When human wealth loses productivity and other assets created from savings can take its place.
Readers regularly ask if there is a formula for determining how much someone needs for retirement. Estimating future expenses is not a science; Only rules of thumb prevail. Many believe that keeping assets untouched and compromising on lifestyle are the two principles of retirement.
Instead, gather your wealth, I’d say. Whatever you have built up from your savings during your working life should come in handy in your retirement. Until recently, only children were property. Now we know those properties will generate income for the second home, not yours. Retirement is about using your assets, for yourself. Whatever is left, devise it.
The value of the asset should not be diminished, we argue. fair point. In a world where rivers dry up and homes flood our cities with rain, it seems that we have not acquired the wisdom for lasting value. Nothing we make up displays the predictable discipline and resilience of natural wonders like the sun. Most assets do not display lasting value, not even humans. We have no choice but to manage this risk.
Therefore, we insure human property. We try to protect the risk to our wealth should something happen to us even if we create it. As far as physical and financial assets are concerned, we seek to be risk free, and pursue gold and assets; We try to hoard and hide; We stack and preserve. But all assets gain and lose value. Even bank deposits lose value to inflation.
As creators of wealth our wisdom points us to asset allocation and diversification: core strategies in wealth management. Not all assets lose all the time, and averaging them out is a sensible strategy. It protects our assets from unknown and unforeseen risks and protects us from our mistakes in choosing assets.
That’s all there is to personal finance: building wealth to generate income to spend and save; Diversify your investments to make this process last for a lifetime.
There are many mistakes we make before mastering this basic idea in our financial lives. We spend carelessly and fail to save; We spend beyond our means and get credit card debt; We rebalance income and assets with loans; We choose assets carelessly; We combine assets with the expectation that they will outperform; We lock up our money in assets we don’t use; We liquidate our assets in denial; We succumb to fears about the future, compromising on important comforts; And we live in the hope that everything will be alright.
Not everything is wrong all the time. Like a diversified portfolio, it averages out. Columnists like me make a living by repeating some of the same ideas over and over because there’s always someone they resonate with every time.
We have no choice but to learn how to manage our personal assets. The problem with teaching this skill is that no one cares about concepts or principles; People just want action points. What should I do now, they demand.
Backs an army of personal finance service providers who know these questions and try to answer them every time, keeping their own incentives and keeping an eye on their balance sheet. wealth creation, One man’s problem is another man’s opportunity.
Someone like me who is sitting on a perch and watching this play is just astonished and curious. My fellow traveler who can’t get his bag out of sight will ask me the name of the stock in a 30-minute conversation. Can’t trust anyone in a few thousands; But can invest lakhs based on rumours. My aunt wears diamonds in her ears and looks at the price tag to change her mind about the saree she likes. cannot indulge in simple pleasures; But holds on to expensive assets.
My friends who accuse me of being a mutual fund puppet can’t think beyond the stock bets they took and lost money. Can’t stop to consider diversification even though they consider equity as a growth asset. I make no progress with those elderly uncles who believe that the whole world is ready to have them and that every financial institution is run by incompetent and dishonest people.
They side with the statement that property is the best asset. They cannot see fraud and fraud in the market they participate in, even if they blame another market they know little about.
Thus we keep rolling, unnecessarily complicating a simple exercise of building and using assets that everyone must master.
(The author is chairperson of the Center for Investment Education and Learning)