Guest Column: Expert-Speak
Balaji is working for an MNC. Today he has a deadline for a particular assignment. His day is fully packed. First thing in the morning, he receives a mail from his HR Dept stating that today is the last date for producing proofs for tax saving investments; otherwise a huge amount will be deducted from his salary as tax. He wanted to do some tax saving investments urgently and submit the proof by or before end of the day.
Mahesh is an NRI, working for a software company in US. He has a couple of crores in his overseas fixed deposits giving a return of 1.50% p.a. Returns are taxable. At times, he thinks that the return what he getting is very low. He wanted to check up with a professional financial planner in India. He thinks he will contact as soon as his present project gets completed. Just like this he has not contacted any financial consultant for the last 3 years because of some reason or the other.
Most of the investment decisions are either taken because of some compulsion or urgency or postponed because of compulsion or urgency in some other area of life. This is because we want to complete the urgent thing first not the most important thing. Many important things that contribute to our overall financial objectives and add wealth don’t tend to give any “pressure”. Though they may not be urgent, they are the things that we must give importance and carry out immediately.
We act upon things like pressing problems, deadline-driven projects, and official meetings. We don’t give importance to:
- prepare for a meeting with a financial planner; appraising a financial planner before making investments;
- planning activities like budgeting, children’s future planning, retirement planning;
- protective activities like taking a term insurance, house holder policy, health insurance;
- empowering ourselves by upgrading our knowledge about investments.
Why we are not able to spend time on important things and spend most of our time on urgent things? Because, we are following a way that focuses on how fast or efficiently we are getting things done. We are not following a way that focuses on why we are doing things.
Take the case of Balaji. Why didn’t he do his tax planning at the beginning of the financial year itself? Why is he chasing at the last-minute? Balaji is more worried about his deadline for assignment than tax planning. As he is making investment urgently, it is difficult for him to choose the right financial advisor and to judge which one would be the best tax saving option for him at the same time. He will be investing with an advisor who can get him the investment proof on the same day.
Is this the basis on which we select an investment advisor? Will the relationship of Mahesh and this advisor be long-term? Will this investment be of any help to Balaji in meeting the higher education expenses of his son after 15 years?
Coming to the case of Mahesh, he had a couple of crores invested at 1.5% pre-tax return. He could have tripled his returns by investing in an Indian liquid fund which is very safe. There are far better investment options available for him to choose. But he has settled for 1.5%.
If he could have spent a day or two in carefully choosing the right financial advisor and investment product he could have earned more. The earning opportunity which he missed with his investments might equal to 6 months to a year worth of his salary.
He could have generated that passive income equivalent to 6 month to a year worth of his salary without any pressure from the top management; without meeting any deadlines by just spending a day or two. We are all working hard for money. Is our hard-earned money working for us or lying in our Saving Bank a/c?
We find a ladder and see there are so many people trying to reach the top of the ladder faster. Then we also follow the group, deadlines to be met at every step; focusing more on reaching the top and finally reach the top. Only after reaching the top, we realize that we have come to a very wrong place or a place which is not worth missing so many things and opportunities in life. This is how the today’s world is.
Nothing wrong in working harder or focusing more on completing the assignment or spending more time on finishing the project for a deadline. These are all good thing to do. But always remember, there are better things to do. We keep too many good things ahead of a few best things.
Setting up financial goals; working out a plan for achieving those goals; and implementing those plans are all best things to do in life. You know in advance where you want to reach exactly, by doing this exercise. As we progress, we enjoy the journey. As we reach the place, we really feel happy and we have not missed any important thing on the way.
Procrastination and not giving priority to financial goals and investment plans are costliest mistake one can take. So let us stop procrastinating and give priority to our financial goal setting and investment planning. Then life will be really beautiful.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at firstname.lastname@example.org.