Tuesday, October 16, 2012

Shake up your dreams and Wake up for reality checks!

You can also read this article on personal finance website 'MyIris'. http://www.myiris.com/financial/storyShow.php?fileR=20121018090239715&secID=finan&secTitle=Financial&dir=2012/10/18

Ever saw an accident victim or met with someone who has lost his job? You may have felt sad for them. At the same time how much you wished and believed that this will not and can’t happen to you! More often than not you would wish to live in dreams where every wish of yours is successful and everyone around you is in good health. Life, however, is full of both pleasant and unpleasant surprises. In your dreamland, you may choose to deny and run away from the unfortunate incidents but in the real world they may catch you sooner than you think of. Surprises can’t be avoided but you can definitely prepare yourselves to face them when they happen. The best way is to do regular Reality checks.
Reality checks “question”everything what you believe will come true. They compel you to deliberate upon possible favorable and unfavorable outcomes of the developments happening in all aspects of your life i.e. be it personal, professional, medical or financial.
Here are some of the dreams and their financial aspects that need reality check!
1. Fortune of good health
When was the last time you went for a health check up?
Some people avoid it because they believe that nothing shall go wrong with their health. Some avoid them as they are too afraid of the results and wouldn’t want to face the doomsday. Both type of people are in state of constant denials. Doctors are concerned about how stress alone is causing to worsening health reports every year. Regular checkups can help you track your health and take corrective measures before small problems turn into bigger issues.  The amount of money you will spend on them will be much smaller than what you will be required to spend should they become large problems.
If you are in a corporate job, you can join the regular health camps covered inyour HR policies. You will be motivated by seeing your colleagues around and your family will be motivated to see you doing it. You can buy an insurance plan that reimburses preventive checkups at least once a year. Also allocate some part of your monthly budget for medical purposes. If it is not used, it will accumulateto build towards medical emergency fund. Always renew your medical insurance. Critical Illness like heart attack or cancer can completely drain you financially.Buy exclusive insurance policy covering critical illness. Try to get maximum coverage possible depending on your age and premium paying capacity. After all “Health is Wealth”.
2. Bliss of double income
As professionally qualified working couples do you think none of you will ever take a career break?
Women often take career breaks when they want to bring up children. Even men take sabbaticals to reflect upon their career progress or to deliberate upon possible career shifts. Some may be willing to take a break for pursuing entrepreneurial instincts. In all of these cases some part of family income gets discontinued. Obviously your lifestyle gets a jolt if one source of income dries up. This has a strain on personal finances, makes you anxious and compels you to mull over your decision again and again. By carefully planning your finances you can save a lot of trouble.
The important point to note is…’Plan your finances before you take the decision of career break’. Be able to visualize your life after the break has happened. Now write down all sources of income and expenditure both before and after the break. Differentiate between discretionary and non-discretionary expenses. Expenses like house rent, loan EMIs, school fees, regular household expenditure can’t be avoided. Also insurance premiums like life insurance, medical insurance, home insurance are unavoidable. You must prepare everyone in the family for some lifestyle modifications like reducing the number of outings and vacations, restriction on gifts, postponing purchase of high value items. The circumstances may force you to cut down on your yearly investments. In such cases allocate your investments as per your reduced risk taking ability. Also, your cash flow should include forthcoming expenditure in case of new additions in the family.
3. Ladder of continuous promotions
Are you sure of getting regular raises, bonuses and promotions in your career?
Tough economic conditions are making it difficult for the companies to match thebonuses and raises they used to give in the past. Promotions are slow and even deserving candidates are being left out. It becomes even more difficult when you climb up the corporate ladder. There are a too few positions for too many. It will be wise to keep a backup plan ready to handle disappointments.
The most important aspect of your financial back up plan is to avoid extrapolating your income on the basis of the highest raise you ever got. Rather take a conservative approach and make assumptions as per the industry average. Keep in touch with the job market to evaluate your financial worth. Even the entrepreneurs and freelancers should do it in case their venture does not turn out to be as profitable as expected by them. Examine if you will be able to amass enough wealth to take care of your retirement or children’s education and settlement. If not, then you should be mentally prepared to postpone your retirement or think of a way to generate secondary income.
4. Magic of affectionate relationships
Do you wonder why family court and relationship counselors exist?
Cases in family courts are rising every year and money is the major reason for it. A lot of married couples have disagreements about spending habits. Some even hide their full income and investments from each other because theybelieve their spouse to be unreasonably extravagant. There are some who assumes full responsibility of home finances and do not share issues like debt or financial losses. Such actions jeopardize the very foundation of the relationship i.e. Trust! It eventually leads to increasing number of arguments and fights. They land up with counselors and in extreme cases with the family courts. An open all inclusive communication on money matters can save a lot of troubles.
The key is to take all family members in confidence, which includes even your children! Everyone should be encouraged to participate in the budget planning every month. It will give them a chance to understand the financial situation of the family and adjust their expenses accordingly. Financial health checkups every year are the best way to avoid surprises. Such checkups are comprehensive in nature and detail out everything from your assets to liabilities, sources of income to reasons of expenditure, investments and insurances. Also regular ‘Financial Get together’ can simplify matters like inheritance as everyone will know ‘what to expect’ in advance.
5. Heaven of ever growing investments
Would you be shocked to see the actual monetary value that you can realize from your investments?
As an investor some people are firm believer of ‘long term investments’ and hardly revise their investments till the long term arrives! Some feel ‘magic of compounding’ will keep working for them and they will be rewarded with a huge sum of money for keeping patience. Patience is virtue but it alone cannot help you when it comes to finances. A carefully planned strategy is important to achieve your goals through your investments.
Always define the purpose, time horizon and return expectations of your investments. Revisit them at least once every three months. It is imperative to align your investments with your goals like kids college admission fees, down payment for buying house, vacations, retirement and the like. Purpose will help you formulate the entry and exit strategy and timing for your investments. Since everyone has unique situation and money psychology, invest only in those avenues which can give you a good night’s sleep. Stay away from becoming victim of fashion in personal finance.
Reality checks will keep your dreams real!
Comprehensive Financial Planning exercise can help you inquire and investigate your dreams. It is a reality check which encompasses all of the above suggestions and much more. It is in-depth study of your overall situation. You will be required to write down your dreams and convert them into quantifiable goals. The action plans thus prepared will take you closer to your goals and hence to your dreams. Let all your dreams come true!


  1. Its a really nice article - may shake up some of the dreamers

  2. As financial resources are available to a family are limited, while the claims on them for spending are diverse and endless leading to different outcomes..so financial management plays a vital role. Shilpi your approach is very practical

    1. Thank you Uttam!

      Financial Planning can give a lot of practical answers to various life situations.

  3. This is indeed a perfect way to bring the importance of comprehensive financial planning to the notice of ignorant & carefree citizens. Very nicely written, Shilpi!

  4. Hi Shilpi, Nice Article. well written...