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Start taking your Personal Finance seriously…

People are least bothered about their personal finance. Here is what can happen if you don't take it seriously

Hello Folks,
Being a Certified Financial Planner (CFP) and a CA finalist, I have been fortunate enough to see both, personal as well as corporate part of the finance world very closely in short span of time. And, it actually made me realize that everything what we assume on face value is not true.

While pursuing CA, I always used to think that how difficult it will be to run or manage a company? OR How difficult it is to decide on which projects to invest and in which projects not to? OR Which is the best way to save tax? OR How will we interpret and apply hundreds of sections provided in the laws in the best and effective manner?

But, after I started working as a CFP, I realized, that the ball game here is no different. In fact, at times, it’s more difficult to convince a layman for his personal investment as compared to convincing a CEO for investing in a business. Its more difficult to make a layman understand a simple investment plan than making a layman understand the financial statements of a company.

The reason why I say this is because, in the corporate finance, decisions are taken from brains but in personal finance decisions are often taken from heart and emotions. In corporate finance, there are a lot of technical ways and algorithms to arrive at a particular decision but in personal finance, the sentiments hold an upper hand.

During my stint as a CFP assistant in 2017, I had come across many HNI and Ultra HNI clients who were successfully managing their businesses worth millions and billions but they were equally awful when it came to managing their personal wealth. It is, exactly, like a successful surgeon who has performed thousands of surgeries often hesitates to perform one when it is to be done on his own family member. It is equally similar to a situation where everybody becomes a good advisor when it comes to advising others but when it comes to applying the same principles onto themselves, we have lot of ifs and buts to think of. This happens because, sentiments have the upper hand over all the technicalities and calculations.

As per an article in Forbes.com dated 15th Nov 2019, only 29% of the Americans consider themselves financially healthy in spite of the booming economy and low unemployment. Why is that? It’s because people have no plans for using their wealth effectively and accumulating it over a period of time. They just believe in, “Earn today and Spend Today” attitude. And when suddenly something like recession and pandemic (COVID) hits the economy, they have no clue how to survive through this prolonged period of unemployment. It’s because they never saw it coming as they were busy enjoying today as if they are going to die tomorrow.

It is because of the major lapse in planning personal finance by the Americans that could have lead the Citi Bank file for Bankruptcy in 2008 as one of the major reason for it was their high Mortgage Backed Securities (meaning the loans that made up the mortgages were leant to people who would have difficulty repaying). Had that happened, the depositors of the then 3rd largest Bank of America (Citi Bank) would have lost all their money. A major thanks to the then CEO of Citigroup Mr. Vikram Pandit who brought the bank out the mess by merely charging only $ 1 as salary (and no bonuses) for the period until the bank returned to profitability again.

As per U.S. Bureau of Public Debt, in 2017, the United States had Debt-to-GDP ratio of 105.4% which means if a country is unable to pay its debt, there would be a huge financial collapse of the economy. As per the World Bank reports, if the ideal Debt to GDP ratio exceeds 75% then the economy slows down.
Moral of the story is start taking your personal finances seriously otherwise it has the potential to bring an entire economy down, the way it happened with America in 2008.
Thank You!!!

Bhupesh P Chaudhri