If you have answers to these, you need not worry about Britain’s exit from the European Union, Raghuram Rajan’s exit from the Reserve Bank of India or Narendra Modi’s chances of re-election in 2019; your financial future will be safe, says P V Subramanyam
When I started investing I always thought that one should understand macro economics to know how to make money in the market. Then somewhere in the 1980s I read Peter Lynch’s books and was convinced that macro is not as important as micro. That was the time when I was dealing with clients and had a lot of marketing talks around the country.
I used to remember Peter Lynch’s famous quote: ‘If you spent 10 minutes looking at the macros of the economy, you have wasted 7 minutes’. This is very true.
I am now willing to go to the extent that if you cannot answer some of the basic things about your own life, AND you spent 10 minutes looking at the macros of the economy, you have wasted 10 minutes.
When I meet people to talk about investing, they are happy talking about Raghuram Rajan, Brexit, NaMo in 2019, monsoon… and what have you! My take to them is simple ‘Forget those long lessons on Brexit, fiscal deficit, government's budget... can you answer these basic questions about yourself?’
I mean how accurately can you answer these questions without referring to any piece of paper?
Assuming that you are about 30-35 years of age and have some financial footprints... here are the questions:
1. How much do you earn per month?
2. What is your gross annual salary and what is your take home pay?
3. What is the amount accumulated in your Provident Fund account?
4. What is your net worth?
5. How much debt are you carrying on yourself today?
6. In how many mutual funds have you invested?
7. Can you list the mutual fund schemes?
8. Do you know why you choose each of those schemes?
9. How much is your monthly expense?
9. Can you break it up into: food, clothing, travel, entertainment, and others?
10. Do you know what is the rate of inflation, as applicable to you? Did you realise that it is much higher than 9 per cent which you read in the papers?
11. How much are you investing for a particular goal (I do not invest at all is a correct answer too)?
12. How much is your monthly payment of debt?
13. When do you become debt free?
14. When did the two of you (your spouse and you) ever try to write down a decent budget for your expenses and incomes?
15. How much are you investing for your retirement?
16. How much of medical insurance, disability insurance, and term insurance do you have?
17. Do you know then when is your annual premium due?
18. Do you have appropriate nominations for your assets?
19. Have you made a will?
20. If you are young, have your parents made a will? Where is the copy?
I am not trying to find out how much of finance you know. The question is how much of personal finance you know about YOURSELF.
You will be amazed to know that less than one per cent of the population will be able o answer the questions above, but that does not stop people from talking Brexit.
Sounds too simple? Get the simple things right. Brexit will take care of itself.
Illustration: Uttam Ghosh/Rediff.com
