TAKE CARE OF YOUR FINANCIALHEALTH

In the pursuit of physical health benefits, you should not ignore planning adequately for your personal finances...

 In today's society, it is found that all too often a large number of people are very conscious about their physical well-being, but at the same time fail miserably in any test of their financial health to meet future financial goals. People have personal trainers, jog and go to the gym regularly, eat healthy food and some also go for preventive health check-ups at regular intervals. These same people are seen to be very confident about taking financial decisions on their own and have never spoken to a financial planner or advisor, ending up making serious mistakes with their hardearned money. 

    One of the reasons for this dichotomy is the nature of the two healths, according to veterans from the financial industry. "Physical health is very tangible. You can feel it, see it, sense it. It is very much in the present," says Raghvendra Nath, MD, Ladderup Wealth Advisors. "But financial health is intangible. It is so much in the future that we fail to take note of it in time. And usually, when we get serious about it, it is already late," Nath adds. 
    It is seen if someone is unwell, he/she consults a doctor, goes to a pharmacy and takes the medicines the physician prescribes. But the approach is quite different when it comes to a person's financial health. While investing for the future, usually they don't want to seek any professional help, e.g. from a financial planner or an advisor. They would often go by hearsay and invest in those assets in which someone else had made some good money, without realising that, like in the case of physical health, the same medicine may not be the cure for everyone's illness. 
    Industry veterans also point out that, to some extent, financial product distributors are also responsible for such a practice. There are a number of distributors who have all the products to give to investors, but they actually give what the person asks for. "It's like a pharmacy where every medicine is available over the counter…without any prescription from a qualified doctor," said an industry official. 
    What all financial planners and advisors should do is conduct a thorough test of a person's future financial needs, weigh his/her risk-taking capabilities and then prescribe the financial products he/she should buy or invest in. 
    The other problem with the people in general is that, given that financial needs are so much in the future, they usually keep on postponing their decisions and plans for putting in place a financial roadmap. "Usually, a young person would not plan for his retirement early in his working life, while a person in his 50s is aware of his retirement needs and worried too if he would be able to meet the same at the time of retirement," Nath of Ladderup, an financial advisory and planning firm, says. "They don't foresee the needs, so they start late, and often very late." 
    This needs to change. If people are willing to put in place a financial plan early in their life and follow it in a disciplined manner, like they are often found to in matters of their physical health, a lot of their future financial goals would be met without much of a stress in their latter years. 
    Another issue that financial planners and advisors often face is a lack of k n ow l e d g e among young people about the future value of money. They point out that if one asks a young man or a woman about the size of his/her retirement corpus when he/she retires in, say, about 30 years from now, the answer would probably be Rs 1 crore or something. But the fact remains that in 30 years from now, the value of Rs 1 crore today, at purchasing power 30 years hence, would be very less. For example, if your monthly expenses today are Rs 25,000, assuming an 8% rate of inflation, after 30 years, your monthly expenses would be about 10 times the current amount. Going by the same logic, if you think a retirement corpus of Rs 1 crore is sufficient for you today, after 30 years, the corpus size should be Rs 10 crore. And so you need to put in place a plan and start work today to have a Rs 10-crore retirement corpus to have a stress-free retired life. 
    Like in the case of physical health, in financial health too one needs to keep in mind the adage 'prevention is better than cure' and work accordingly. 
NEXT WEEK 
    Often it is found that investors are not careful about their rights and duties as an investor which, after a point of time, not only leads to mental agony, but could also lead to some loss in investments or lower returns. Next week, we will look at investors' rights and duties.