Financial advice is not a subject of casual conversation, points out a columnist in a Sunday newspaper today. I fully agree.
It is like health and fitness advice. No two individuals have the same constitution, but some people love pouring wisdom on others.
Financial goals and levels of income can both differ.
The commonest question on platforms like Quora go like
“Which is the best plan/method or whatever to make — money in — years?”
It irks me the most, as there is no universally applicable ‘single best’ and I cannot answer a one-liner question without more details.
If you have the patience to scroll down further, you will find answers like
If you want a bank balance of Rs 1 crore in 10 years you will need to invest Rs 50,000 per month. However, if you seek to make the same amount in half the time (5 years), the monthly SIP amount will triple to Rs 1.30 lakh per month.
What’s wrong with the answer? The writer has taken trouble to do mathematical calculations, and give you free financial advice.
But this is where financial advice stops speaking to me, and many others.
TO WHOM DOES FINANCIAL ADVICE APPLY?
Financial advice needs to be customized to the goals and financial statements of a person.
The above advice will apply to only those with a monthly income above Rs. 1 lakh or Rs. 2 lakhs respectively.
Then, we don’t know what are the other financial commitments of the person. Maybe they are paying EMIs, taking care of extended family, managing a double establishment or insurance premiums.
Does it mean the person can never build a corpus of Rs.1 crore? We are not talking about career progression, increase in income or other positive developments which can take place.
WHAT EXACTLY IS A FINANCIAL PLAN?
A financial plan is a plan of action based on present or assumed income, for a certain period for certain predetermined financial goals.
Let us face the facts. Despite the humongous effort it takes to create a sound financial plan, none of the above factors are cast in stone.
Goals are only guesses, as Carl Richards says.
- What happens if you retire before you reach the age of 60 – voluntarily or otherwise?
- Can your child not choose a career stream different from what you planned for?
- I know couples whose children opt for singlehood or a live-in arrangement, when the parents saved for years for a grand wedding celebration?
- Is it really catastrophic to buy a house 7 years later, instead of the 5 you planned?
- Are you sure you will never need medical treatment which is not covered under health insurance?
- Expenses on bringing up a child or housing or transport can be vastly different from what a thumb rule tells us.
- And what about personal taste and preferences? You may want to have the best in a certain sphere of life. And life is meant to be lived, not just planned.
ARE THUMB RULES ALWAYS GOOD FINANCIAL ADVICE?
Thumb rules are only guidelines to keep you on a track. You may not do anything in absence of those rules. Not having a financial plan is worse than the inability to stick to one.
So, you need not beat yourself on failing to achieve something on a shaky parameter.
Goalposts do move, and so do our chosen paths and destinations.
If change is the only constant, flexibility is the only route to success.
WHAT IS THE WAY OUT THEN?
I hear the question loud and clear as you read these lines.
And here are my five bits – not thumb rules or financial advice.
1. A FLEXIBLE FUND
This is different from an emergency fund. It needs to be larger than maintenance expenses for 6-12 months.
The beauty of this fund is that it can be diverted in line with your changing goals. One needs to balance risk, returns and liquidity here. You might need help from a financial advisor here.
2. DEFER TIMELINES IF NEEDED
If you are really passionate about something not aligned to your financial plan, just defer it for some time.
3. PICK AND CHOOSE
You may have to give up or defer something else, to fulfil an immediate need. Be mentally prepared to do so.
4. BUILD A SUCCESS MINDSET
Never beat yourself up or berate others for failure to stick to a certain plan. Life is bigger than watertight plans. It can overflow and overwhelm.
Accept what comes. Review, reset and restart.
5. FOCUS ON INCREASING INCOME
If your career is progressing well, it happens in normal course. Yet, it makes sense to leverage assets, learn new skills and let all adult family members chip in with their effort.
It enlarges the kitty and gives more options.