Some Observations About Personal Finance

Of late, I have been observing people around and specifically trying to understand their attitude towards personal finance. And during several of several such observations, I have realized that there are a lot of things that people are probably not doing right. While everyone has his or her own priorities while planning for personal finance and chasing goals or things in life, here are some of my observations about some of the possible flaws and incorrect assumptions made by people. 

1. Assuming that stock markets give almost assured returns Personal Finance and Financial Planning

While historically markets have given good returns over long run & will probably continue to do so in future, the returns are not “assured” . So a person selling you mutual funds saying that it gives 15% annual returns is intentionally or unintentionally misleading. Markets may give you 15% annual returns. Or even 25%. Or even 10%. Or even no returns at all. Probably, the recent rally in markets has made people to assume and salespeople to sell the myth/ fact that stock market always gives good returns. And several people do take loan at say, 11% rate of interest, since they “know” that stock markets will give them 15% annualized returns!

2. Buying things on EMI

(I’ll leave home aside from this discussion since there are many facets to it & with good deal of positives.)

Buying a car on EMI makes you pay more than the price of the car.  And at the end of the loan period, the value of car would have reduced, probably to around half in 5 years. Things go even worse if you are buying a mobile phone or household appliances. And you gradually get drifted into the zone of debt trap. And the loan seller would try to give you a spin like – “this is only at 11% – better to take a loan. If you put this money in stock markets, it will give you 15% returns.” This loan pinches even more if your means are limited & there is finite money supply and you don’t really need the product that urgently. So, before buying anything on EMI, it becomes important to ask oneself – Do you really need this? 

3. Mixing various types to insurance and investments and buying a mishmash products 

Insurance is for risk management. If someone is offering you returns alongside, there would most probably be a better product (maybe by same company) somewhere. So, if a company offers X % returns (based upon historical trends, but doesn’t commit to a number) most probably a mutual fund will give better returns (but NOT assured as one is made to believe). If there is a fixed payout, then a insurance only plus fixed returns only plan may be better. So, for a life insurance product giving X% after Y years if everything is fine, there will probably be a better option where you just take a term cover & invest the difference amount in some fixed returns tool (e.g. liquid fund/ debt fund/ PPF etc.)

There are several more observations on personal finance, but for the sake of brevity I have restricted to 3. If this adds even an iota of value to someone, hopefully, I’ll share some more thoughts soon. 

(Disclaimer – I don’t claim to be an expert on this topic nor am any kind of financial planner. However, I have interest in the topic of personal finance, like to give unsolicited advice and have several observations about how people can manage personal finance better)


Originally published here


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