"Fear is the enemy
of rationality"-
In life situations it can be said that fear gives us that nervous energy to do better it can also serve as a deterrent but when it comes to personal Finance of financial planning it may actually serve different ends.
From time immemorial in independent India LIC had sold expensive and rather useless policies based on fear.
In fact even today most of the insurance is sold packaged in a cloak of fear rather than as a risk mitigating tool.
Another aspect of fear in personal Finance is keeping too much savings in liquid form or cash waiting for something to happen which may never happen.
A substantial amount of one's savings remains in cash at home, saving bank account and even low yielding fixed deposits just for this eventuality which could actually be mitigated by some astute specific insurances.
However in the Indian context we do not really believe in in those plans and insist on financing them with our own money.This leads to do some serious opportunity cost.
Opportunity cost of an investment is something which can never be calculated unless looking in the rear view mirror and driving forward.
Nonetheless since so much has already been written about the importance of investing in equity it is important to understand that amount to be invested in equity formats must be substantial part of one's savings.
In the garb of looking at high rate of interest on Savings and fixed deposits we forget a large amount of our money need not be put there at all.
The liquid cash whether at home in savings bank , FDs or even liquid funds must be kept in such a way and balanced at such levels that it takes care of your daily expenses for a few weeks as long as you are working and maybe a few months when you stop working.
But despite the best of advising for consulting this cannot happen unless one overcomes the fear.
This fear also prevents a person from making the best of a bear situation in the stock market. In fact it puts brakes on the investing cycle of a person when he sees the market dropped by 10% and heads straight for the sell button, effectively and undoing the hard work of the previous few years.
Of course the fact that this fear also affects a person in a professional life intervention from taking decisions appropriately...
.... But that's a story for another day.
In life situations it can be said that fear gives us that nervous energy to do better it can also serve as a deterrent but when it comes to personal Finance of financial planning it may actually serve different ends.
From time immemorial in independent India LIC had sold expensive and rather useless policies based on fear.
In fact even today most of the insurance is sold packaged in a cloak of fear rather than as a risk mitigating tool.
Another aspect of fear in personal Finance is keeping too much savings in liquid form or cash waiting for something to happen which may never happen.
A substantial amount of one's savings remains in cash at home, saving bank account and even low yielding fixed deposits just for this eventuality which could actually be mitigated by some astute specific insurances.
However in the Indian context we do not really believe in in those plans and insist on financing them with our own money.This leads to do some serious opportunity cost.
Opportunity cost of an investment is something which can never be calculated unless looking in the rear view mirror and driving forward.
Nonetheless since so much has already been written about the importance of investing in equity it is important to understand that amount to be invested in equity formats must be substantial part of one's savings.
In the garb of looking at high rate of interest on Savings and fixed deposits we forget a large amount of our money need not be put there at all.
The liquid cash whether at home in savings bank , FDs or even liquid funds must be kept in such a way and balanced at such levels that it takes care of your daily expenses for a few weeks as long as you are working and maybe a few months when you stop working.
But despite the best of advising for consulting this cannot happen unless one overcomes the fear.
This fear also prevents a person from making the best of a bear situation in the stock market. In fact it puts brakes on the investing cycle of a person when he sees the market dropped by 10% and heads straight for the sell button, effectively and undoing the hard work of the previous few years.
Of course the fact that this fear also affects a person in a professional life intervention from taking decisions appropriately...
.... But that's a story for another day.
Posts
