We tend to see lakhs and crores worth of assets owned by our employers and companies whose shares we hold. But when it comes to our own assets, leave aside crores, most of us don't even see a few lakhs worth of assets and we have already reached middle age.
Wondered why?
Life is such that most of us are driven by our financial circumstances. Normally we tend to think -- this is all that I can obtain from what I have. One never really thinks in terms of -- this is what I want to have, so how can I afford it?
It is not that we don't know about this doctrine or that this is some new age-thought. We practice this philosophy in our lives practically each day. Say, we take a particular road each day to work, we think -- how can I reach faster? Say, we feel we are overweight, we think -- how can I reduce my weight? So on and so forth.
We go for many training programmes: from anger management to art of living to possibility thinking. We all use this 'How can I' principle practically every now and then in our life.
Strangely enough, when it comes to money and when we wish to buy something, which we know we cannot afford, we tend to get cold feet and label the event as destiny. Never do we think of using the 'How can I' principle.
This is why most people end up with barely 10% of what is possible during a lifetime.
What I am talking about here is how you can drive your financial circumstances rather then letting your circumstances drive you.
Let's understand this with a real life example:
Say, you want to take a personal loan. You would normally take a loan based on your income papers and start repaying via EMIs (equated monthly installment).
The question to ask is how can I have the loan without the stress of repayment? Well, how about taking a loan against some appreciating asset that you have? You get your loan and in terms of your cash outflow it is all the same.
The difference is not in your cashflow, but in your net worth. With a direct loan, there is no change in net worth. With a loan against an asset, your net worth also keeps improving. Further, if you make good gains you could also use the gains to prepay your loan.
The underlying statement here is -- first build assets. The golden rule if that the more assets you have, the more liabilities you can afford to have. But first build assets.
There are many reasons why we have been pre-conditioned not to think in terms of 'How can I' in money matters. The problem is not with you; it's with our financial services industry, which is totally product-centric, instead of being advice-centric.
What makes things worse is that products are sold based on history. As a result, the advice available is rather shallow and what you may hear is 'This product has been the best performer,' 'This is the best product right now -- but the scenario may change in 2 months,' 'Take it or leave it,' 'Take it before its off the shelf, before it is too late,' etc. As a result, people tend to buy tactics of the past hoping the future to repeat the past.
Being stuck in time is another grave error. Yes, history will repeat itself, but the characters will be different. You don't really need a financial guru or a financial astrologer, you simply need a friendly pathfinder to guide you. All you need to do is to change your approach.
Always ask yourself -- how can I. . .? Think hard and you will always find a way in finance that is the beauty of finance -- there is always a way. Never think in terms of breaking or selling assets, increasing liability without an increase in inflow. Always try to keep what you have and get into the mode of preserving what you have and building more over it.
Yes, in financial management, you can have your cake and eat it too. All you have to do is ask yourself 'How can I have everything?'
The author, an expert at Financial Planning is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik@transcend-india.com.
Disclaimer: The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.