As a child, I never heard my dad talk about Financial Planning.
He used to earn a reasonable salary to take care of our living expenses but had little to save hence had less motivation to create a financial plan. Whatever he could save would typically get invested in simple investment products including Savings Bank Account, Bank Fixed Deposits and Post Office deposit schemes. The automated contribution to PF ensured that he had some accumulation for retirement. As his salary grew, he contributed to VPF to aid the retirement corpus. The investment options were few, simple and less risky.
We were part of a joint family. While there was no goal-based financial plan, none of our goals remained unfulfilled for the want of money. One of the advantages of the joint family was the willingness of the family members to contribute and help each other in time of need. The family structure provided mitigation in absence of a formal financial plan.
We had a good life but never had enough money to spend on bells and whistles. The staples such as rice, flour, potato and onions were typically purchased in bulk to save cost. Clothing purchases were always timed with the arrival of the festivals. It was not unusual to encourage youngsters to wear the used clothes of elder siblings to save money. While we would have a variety of food at home, eat-outs were rare. The occasional purchase of Kwality ice cream was a bonus and since it was occasional we would enjoy every bit of it. The financials of the family were optimized to perfection. Within limited means, this was a master display of money management by parents.
Our expenses on sports activities were minimal. If we could not find a table tennis board in the vicinity, we would make one using a wooden bed for the board and two bricks, an iron rod and a cloth towel for the Net. In those days, invariably we used to have enough open ground space in front of our house. At the onset of every winter, we would make badminton court ourselves using bamboo sticks for the poles and using the chalk powder or flour to create the badminton court lines. Scarcity is the mother of invention and while our inventions were small, they served our purpose. The lack of amenities never deterred us from celebrating whatever came our way.
The culture, the social setup, the environment and the investment options were all wired for a successful happy life for all even in the absence of a formal financial plan.
Fast forward 30 years into the future and things are different.
The joint family is converted into nuclear family. It is not possible to rely on a relative to bail us out with our financial needs. We are on our own to fund all our financial goals and hence having a financial plan has become very important for a family.
Our purchasing power has gone up. We are earning more and spending more. Our wants of yesterday have become the needs of today. The baseline of our lifestyle has gone up. By and large, there has never been a need to say NO to any ask of our kids. There are no expectation settings for the family as we can afford our wants. We are not prepared for failures. Any setback in securing money now for our financial goals can amplify our pains.
Earlier, we used to take a loan as a last resort as there was general discomfort in spending beyond our means. Now it is not uncommon to take leverage to grow money faster. Whether that is a smart move or a dud action, only time will tell but we have surely added an element of risk in our investment plan. We have become more aggressive and our risk appetite has gone up.
Earlier, the government retirement and pension schemes used to address the bulk of our retirement needs, the most important financial goal of our life. With the increase in the cost of offering those schemes, the government is discouraging investments in these schemes and moving people from defined benefit to defined contribution through products such as NPS. The majority of our people do not know how to navigate through this transition.
There are a plethora of sophisticated investment options available for investment in local and global markets. We have added Debt Mutual Funds, Bonds and Equity in the mix of our portfolio and that means all of a sudden we are exposed to various types of risks including credit risk, interest rate risk and market risks. While these investments can give higher returns, they are complex and risky. It is very difficult for the common man to use it effectively to their advantage.
It is debatable whether our earlier days with joint family structure, limited means and appreciation of what we had in our hands made us more financially secured compared to a new setup of higher earnings and availability of sophisticated invested options. But one thing is clear that not having a Financial Plan today is not an option.
The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services.
He has advised many clients in India, the US, Europe, Middle East, South East Asia and Australia.
To know more about him, click on https://finmyn.com/about/.