6 financial planning myths you shouldn't believe

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Personal financial planning appears to be a long-drawn process, something only meant for those who have a lot of money and for those who can afford to take professional help for doing this activity.

6 financial planning myths you shouldn't believe
Personal financial planning appears to be a long-drawn process, something only meant for those who have a lot of money and for those who can afford to take professional help for doing this activity. Well, these are the myths for starters! To keep it simple, financial planning is about meeting one’s life goals through proper management of one’s financial affairs.
To a majority, such knowledge would come in bits and pieces from elders, family members, friends and other literature leaving the scope of some myths and gaps creeping in. Let us try to demystify!
Myth 1: Doing is planning, planning is doing.
Imagine a child making a nice structure using building blocks. Little does the child realise that her/his focus is only on the building and not about making a foundation. Children are expected to create, dismantle, create again, with such toys. However, imagine yourself doing that with your hard-earned money! It is clearly not the wisest thing to do!
Many investors think that doing it by themselves is the best way forward. However, the fact is – you can segregate between taking guidance (knowing what to do and why should you do it) and implementing the guidance (how to do it). The guidance is what I call a personal financial plan made by a professional who is qualified to write it and is regulated under the law.
The implementation of the action items in your personal financial plan can be done by yourself, or by taking professional help. Doing things without a plan is akin to making a building without a proper foundation. It is only a matter of time before it crumbles. Doing is not planning. Planning is not doing. Plan first, do next!
Myth 2: Financial planning is all about saving and investing.
Mental health (including spiritual health), physical health and financial health – ending up with issues in either or all the three could cause substantial difficulties in your life. Dispassionately assessing risks to each of them and having adequate covers for each one of them is the true foundation.
The risks to life, assets (vehicle/home), health, etc. are pure risks. Insurance is our alternative financial backup against such risks at a reasonable cost. Savings and investments will not be able to address the gap as effectively as appropriate insurance. Staying with this myth can destabilize your financial affairs.
Myth 3: Cashflow is for accountants and not for me. It is rocket science.
How much comes in, how much goes out, and when? Why does it come in, why does it go out? Is it necessary, is it avoidable? Is it sufficient for the present, or would it also take care of the future?
Just meeting day-to-day finances is no indicator of control over cash flows.
Plan to pay yourself first from your pay cheque, by saving and investing a portion of your income before a spending plan. It busts the popular myth that you should have enough money in the first place before you begin investing.
Myth 4: I know my risk profile. It is obtained by answering three or four questions.
Do I really know my risk profile? How amenable I can be when prompted to partake in an investment product or plan? Do I have a yardstick in place that measures my financial and behavioural readiness toward such offers to invest? Will I flip flop if I read about bad times for the economy?
What you may want to tolerate (risk tolerance) is different from what you can take in (risk capacity)! Another important point is both can vary with time! Your own life journey will keep making changes to both. The question is, are you keeping up with these changes?
Myth 5: Making good returns, saving taxes is all that I need.
Ever wondered, what is the point of making good returns and saving taxes if you have not planned for how would this money be put to use if something happens to you?
Besides movies and dramas, in real life, we get to see the heirs fighting for the assets of those who departed. We always think that it will not happen in our case. What is put on the wayside is the future peace of your legal successors! Would you like to leave that as a parting gift from you? A succession plan is required at all life stages. For a few situations such as special needs and long-term care, it is necessary to have the right instruments like the power of attorney and suitable trusts in place. The time you wrote your will. The best time is few minutes before one dies. The next best time is now.
Myth 6: Taking help is bad; people are out there to cheat.
The best way to understand what one does not know is to converse with people who know the subject better. This helps us realize what we did not know! However, given the fact that many stories in the media show how gullible are retail investors, one gets into a classic situation of “I want to trust someone with this, but I don’t know whom to trust”.
This also shows in the exploding number of do-it-yourself netizens when it comes to matters of personal finance. Find the person you can trust – best is word of mouth – a recommendation from your most trusted friend. If they have not found one, seek one from their most trusted friend. I am sure you will find one along the long chain of trusted friends!
The author, Rajesh Krishnamoorthy is Country Head – India Liaison Office at FPSB Ltd. The views expressed are personal

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