What is a financial quotient? Haven’t we heard enough of Intelligence Quotient, Emotional Quotient, Social Quotient and Adversity Quotient?
All the above are needed to build a strong financial quotient.
Financial quotient is the ability to earn and manage money, by understanding how the financial system works.
If you think, financial planning and money management is all about knowing different financial products and the rate of return on each, well you are …. Wrong.
It is only about taking the right decisions and be willing to revise those if needed.
Let us see how a mental system works to attain financial wellness.
1. KNOW YOURSELF
What is important to you in life? Financial independence, family, health, career, status, wealth, friends, satisfaction from work or leisure… give a rating to each factor and list them in order of priority.
You can use this tool to help you in the exercise.
2. SET A TIME FRAME FOR GOALS
What is the time you will give yourself to fulfil a certain goal? Anything less than 10 years is short-term.
3. HOW CERTAIN IS A LONG-TERM GOAL?
A long-term goal is a projection of your present mindset in the future. Both circumstances and your mindset can change.
It should not matter, as long as you have a Plan B for everything.
4. WHAT IS THE BEST FINANCIAL GOAL?
The best financial goal is to have liquidity when you need it. Liquidity is the ability to convert your financial assets to cash in 3-7 days.
5. IS THE SHORT-TERM MORE IMPORTANT?
Freeze a few long-term goals like retirement, and don’t touch that kitty.
Other than that, the immediate need is more important. It is because you have time to plan for others. But, remember that these are needs and not wants. Giving in to wants too often can deflect from money goals that really matter.
6. DO I SURVIVE ONLY ON NEEDS?
No. Nobody can do it. Just get your priorities right.
7. TAKE THE RIGHT DECISIONS
Viktor Frankl left the world with a thought.
Between every impulse and response, there is a space – for a decision. The decisions you take determine the course of your life.
8. HOW DO I KNOW IF IT IS THE RIGHT DECISION?
Any act that fulfils your personal and financial goals without hurting any one else, or compromising on ethics is the right decision.
Ethics helps to retain the benefits in the long run. Unethical acts can boomerang at any time.
9. REFRAIN FROM COMPARISONS
We often feel that decision is wrong in posterity. Maybe an investment did not yield expected returns, or that your friend has done better.
The decision is right if it served the goal you had in mind at that point of time.
10. HOW IMPORTANT IS RISK APPETITE?
It is important, but your risk-bearing capacity is more important than that. By all means take a risk for higher returns, but invest only a small percentage of your net worth in it.
11. Start saving as soon as you start earning.
12. Know that power of compounding is effective only if the money is not touched.
13. Cover possible risk with insurance, but do not go overboard.
14. Learn everything you can about functioning of financial instruments that someone recommends.
15. Ask a lot of questions.
16. Invest only in the instruments you understand.
17. Past history is a tool to help decision-making. There is no guarantee that trends will continue.
18. Make provisions for the unexpected – war, pandemics, market fluctuations, new investment fads or new methodologies.
19. Start learning afresh when the unexpected happens. Web3 is an example.
20. Neither follow blind nor reject a new idea outright.
21. Watch trends. Try it out on a small scale. But learn.
22. A budget is a tool to save the required amount for your financial goals, if you can’t do it otherwise. It is not essential to the system.
23. A system that works for someone else may not always work for you.
24. Global trends do influence, but binding decisions are taken by local governments. Do not bet high on something that may be declared illegal.
25. If you find yourself in a trap, look for quick exit routes with minimum loss.
26. Make a new financial plan with available resources, instead of brooding over what is lost.
27. Real estate is a preferred investment, because it is a visible form of wealth. Do not block too much capital due to social pressure.
28. Gold is considered to be a hedge against inflation. If you think selling family gold is sacrilege, invest in digital gold which can be encashed.
29. Re-learn the art of gifting. Gift something that grows in value, rather than something that is consumed immediately.
30. Manage family relationships well to maximize financial gains. You need them to implement decisions and stay on the path to prosperity.
31. Talk about money in the family. Don’t let the subject be taboo.
32. It is good to know what will you inherit. Talk to your parents about it.
33. Leaving a legacy is not more important than leading a financially independent life. Give your parents the leeway, and let your children understand that.
34. Making your children capable of earning good money is more important than leaving a legacy.
35. Nevertheless, estate planning should be on your to-do list, to ensure peace and wellness after your exit.
36. Do not stand guarantor to someone, unless it is absolutely unavoidable.
37. Use debt to fuel growth, not for consumption.
38. Automate savings with the auto-debit option for Systematic Investment Plans, recurring deposits or any other saving plan.
39. You can start small savings with digital apps to inculcate the habit. They are the digital equivalents of a piggy bank, so don’t expect high returns.
40. Habits contribute to success, more than ideas and plans. Inculcate the right ones.
This is continued in Part 2.
Check your financial quotient here.