“Humans live through their myths and only endure their realities..”
WHAT IS MYTH..?
A traditional story, especially one concerning the early history of a people or explaining a natural or social phenomenon, and typically involving supernatural beings or events (This is what Dictionary speaks)
In short MYTH means a widely held but false Belief or Idea..
Many MYTHS prevail in society and the topic of “Personal Finance” is no exception.
Below are a few MYTHS on Personal Finance and the REALITY..
Myth 1 :
Financial Planning or investment planning means less spending i.e. becoming miser and hence less enjoying our life.
Following a financial plan or investment plan means making ‘guilt free spending‘ and hence enjoying our life more.
[ When we first make necessary investments and then spend… then that is called ‘guilt free spending’.]
Myth 2 :
Paying premium for term insurance (a life insurance policy where if nothing happens to policy holder, nominee gets nothing) is a wasteful spending.
If we live up to the age of 65 years, then Investment [MF, Shares etc] will take care of our family’s financial future. And if not, then TERM PLAN will.
Insurance is not an investment product; it is a protection instrument.
Buying a Term Insurance is like buying a Fire Extinguisher.
1. You wish that you will Never have to use it.
2. You don’t ask for a refund when it expires.
3. If need be it will save you and your family in time of difficulty.
Myth 3 :
There are many investment products available in the market – some are good and some are bad. We should always invest in good products.
An investment product can never be good or bad, it can only be suitable or not.
Some investment products can be suitable for short-term goals, but not for long term. The opposite is also true – a product which is perfectly suitable for long term goals, can be a horrible choice for short term goals.
Hence we must always look for ‘suitability match’ when deciding on a product.
Myth 4 :
Like shares, fixed deposit, property or gold – mutual fund is also an asset class.
Mutual fund is not a separate asset class as such. It is actually a ‘well-managed container’ which can contain different asset classes in it.
There are mutual funds which only invests into certificates of deposit. Then there are funds which are known as real estate fund or gold fund. And of course there are equity funds as well and mix of Equity and debt i.e Balanced Fund.
So, mutual fund gives you the facility to invest into different asset classes through it.
Myth 5 :
If I want to secure my retirement, I should invest in a Retirement Plan or Pension Scheme. Similarly if I want to secure my child’s future, I should invest in a Child Plan.
While investing for a goal,
name of the goal is never important. Instead nature of the goal is important – like after how many years the goal is due etc. This is because – mathematics only understand numbers, not names.
Never go for attractively named investment products. Instead always go for simple, generic, all-purpose products and tag it or link it to a goal by yourself.
Packaged investment products are often found costly, illiquid and restrictive..
Myth 6 :
If I come to know of someone who has earned good return by investing in a particular product – my job becomes easier. I should simply invest in that product.
Unfortunately it is not that simple. Many things (in regards to finance) of the other person may not be same as yours. Such as – financial background, current assets and liabilities, dependents and their age, income – expense, nature of job / business, liquidity needs, insurance and so on. It is almost impossible that your situation will be exactly same as of the other person.
Investment should always be made keeping every aspects in mind. It should never be made in isolation or adhoc. Personal finance is after all – ‘personal’.
Myth 7 :
I have made investments as required. Taken adequate insurance also. I have done my part. Now I am feeling happy and relaxed.
Congratulations for whatever you have done so far! But sorry to say – that is not enough. If your answers to all the below 3 questions are not ‘Yes’, then you have reasons to worry:
1) Have you kept all your policy documents, statements, certificates – physical or digital – systematically in one place so that your spouse or children can find those quickly without your help?
2) Have you kept right holding patterns in all your investments, made nominations or prepared a Will?
3) Are you reviewing your investments and insurance at regular interval..?
Compiled and Edited by
CA Nitesh Buddhadev – NB
Nimit Wealth Management