Home / Finance / Personal Finance should not make you Lose your Mind (Part II)

Personal Finance should not make you Lose your Mind (Part II)

(This is a part of a Series. Part I of this post can be seen here)

In the first part of this series, we established why taking care of your Personal Finance is such a tall order – far more complex, and deeply intertwined with our daily decisions than buying an iPod or watching a movie.

Another huge problem with personal Money management quickly turns into an act of Mental masturbation, which is defined as The act of engaging in useless yet intellectually stimulating conversation, usually as an excuse to avoid taking constructive action in your life.” The key is the last line “To avoid taking construction action in your life”. That is a problem – the tools out there are simply making us play around with the physics of our money ( the long run rate at which you deplete your funds, where you spend, the rate of interest, etc). It becomes a futile exercise because of the following reasons

  1. There are very limited investment options available now
  2. Looking at the physics of your money doesn’t make behavioral changes to control it
  3. It’s a Finite amount, and there is so much you can do differently.

Why this is, depends on our understanding of the concept of “Money”.

By definition, money is “a current medium of exchange in the form of coins and banknotes; coins and banknotes collectively.” But the rabbit hole goes deeper than that. I’ll divide the concept of money into 4 characters, which are also considered to be the 4 hands of the Hindu Goddess of Wealth and Prosperity – Lakshmi:
  1. Dharma (duties, rights, laws, conduct, or virtues)
  2. Kama (desire, wish, longing)
  3. Artha (meaning, sense, goal, purpose or essence)
  4. Moksha (various forms of emancipation, liberation, or realization)

Don’t worry, I’m not propagating Hinduism here. I’m a devout atheist. But what is interesting is that these 4 essential qualities are so strongly tied up with the concept of money.

It’s simple really – Duties (Dharma) are part of our life. We enact them every day and depending on the stage of our life, we engulf some more recurring duties and responsibilities. As we perform our Duties, we also grow desires (Kama) for a fancy iPhone or a vacation. A desire can a long-term investment such as retirement planning, etc. With that in mind, we create a goal (Artha) to fulfill our desire. We work towards it until we realize (Moksha) it.

Ravi_Varma-Lakshmi.jpg

 One End Goal One big Goal comprising of smaller Goals
Dharma (duties, rights, laws, conduct, or virtues)
Kama (desire, wish, longing)
Artha (meaning, sense, goal, purpose or essence)
Moksha (various forms of emancipation, liberation, or realization)  ✓

Most financial instruments sold to the general public target one large end goal, eg Child Education, Retirement, etc. But as they say, the devil is in the details. A long term Financial goal cannot be reached without knocking your smaller goals out of the park.

So that is the first great feature of a good Personal Financial Advisor – it should be goal oriented.

The goal doesn’t need to be the large end goal, but the smaller goals first.

In an earlier post, I wrote about how you can determine your self-worth. This is an activity which is important but cannot be done on a recurring basis. I’d like to argue that in today’s day and age, anticipation is the key and very few financial instruments really hit the core of this problem.

(Click to see a larger image)

So the complexity of Finance is not because of the large pool of information which is required to be maintained. It is because the Goal Posts keep changing, as per our

  1. Stage of Life (Age, Marital Status, Health Status, etc)
  2. Earning Capacity (How much your skill set, experience & competency earns you)
  3. Recurring Goals (Monthly Bills, Birthdays and Anniversary expense, etc)
  4. Aspiration Goals (Accessorize yourself with an expensive phone, watch, etc)
  5. Lifetime Goals (Bucket list items mostly)
  6. Retirement Goals (Retirement, Child’s education, etc)

The best way to complete the marathon of your Financial Plan is to reach smaller goals and make sure you keep hitting your short term targets. Only then you’ll be able to win the Marathon.

india-mumbai-marathon-2010-1-17-6-23-35.jpg

So that is the second great feature of a good Personal Financial Advisor – it should concentrate of behavioral moderation.

If you do not see the benefits forfeiting certain expenses that are your WANTS, and not NEEDS, and see them on a daily basis – you’ll lose the Marathon of reaching your end goal. They require behavior moderation, and that is such an important part of Financial Management.

We’ll explore more in the coming blog posts in this series.

(This is a part of a Series. Part I of this post can be seen here)

About Shobhit Dixit

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11 comments

  1. Ich bin mit Ihnen nicht einverstanden
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    • Hi.

      Thank you for your feedback. I had to go to Google Translate to see what you are saying.

      Can you tell me what part you don’t agree with? I’m trying to build a product around Personal Finance so this is how I was thinking. If you have any reservations, please do let me know.

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    • Hello,

      And thank you for your very kind comments :). Gives me the boost to keep at it. I’ll see how I can work with Internet Explorer regarding the issue you pointed to.

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