Thursday, May 27, 2010
Saturday, May 1, 2010
How to Find What You Love to Do
How to Find What You Love to Do
By: Brian Kim - July 17, 2006
If you're a first time visitor, I highly encourage you to click here to learn more about this site in order for you to get the VERY BEST VALUE out of it. Thank you for visiting!
This article was inspired by Steve Jobs’ commencement speech at Stanford University. In it, he says the advice we’ve all heard a thousand times:
“You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.”
- Steve Jobs
Well then, the question naturally arises:
How do you find what you love to do? It’s such a big question.
What absolutely boils my blood is that we hear we should be doing what we love to do all the time, but there’s not any step by step advice out there on how to find what you love to do. The advice that is out there helps to a certain degree, but it’s just a bunch of pieces thrown together with no coherent logical structure or order.
A perfect example is this. In order to find your passion, we are told to ask ourselves:
“What would you do if you had a million dollars (tax free)?”
The typical answer ensues: “Well gee, I would put it in an account that yields high interest and live off the interest each year. Then I would move to Hawaii, buy a house, sip margaritas all day, play video games, go to the beach, swim, travel around the world, taste all the cuisines, read the books, play the sports, and on and on and on.”
Does this really help? Not really. Sure, you figured out what your lazy butt likes to do, but it doesn’t really answer the question that’s hidden, which is “How do I make money doing what I love to do?
What’s the result? People working in jobs they hate, feeling trapped because they can’t quit as they rely on that sole source of income to finance a lifestyle tailored to escape their grim reality, drifting aimlessly in life, in short, leading lives of quiet desperation, as so eloquently put by Henry David Thoreau.
Why don’t they just quit their jobs and pursue what they love to do you ask?
Two Reasons.
Reason #1: They don’t know what they love to do.
Reason #2: Fear. They’ve got a lifestyle to uphold, bills to pay for, families to take care of, fear of no steady source of income, fear of what other people might think or say about them, etc. Fear.
Conquer indecision in Reason #1 and ACT, and you will most definitely conquer all fear in Reason #2.
The very fact that you are seeking to find what you love to do (by the very fact you came across this article and started reading it) is a BIG step believe it or not. Many people in their lifetime avoid or do not even seek to find the answer to that question. They hear the question in their head but have become extremely adept at silencing it.
It is extremely important to answer the question on how to find what you love to do.
You must decide what destination to steer your life in. Otherwise, you leave yourself wide open for others to direct your life, as well as at the mercy of the winds and storms of life. If you know where your destination is, the rest is easy.
You will find once you know what you want to do, all uncertainty and burden will be lifted off your shoulders and you will have clear vision as to what your journey is and that journey will truly be joyful.
By the time you finish reading this article, I sincerely hope you experience that.
What about how to make money doing what you love?
The question of how to monetize doing what you love is certainly a valid one. There are bills to pay, stomachs to feed, families to support, etc.
Don’t worry about that for now. That will be covered later in this article.
First things first, you’ve got to find what you love to do.
Why is it so hard to find what you love to do?
The answer is: It’s not hard at all.
You read right.
It’s not hard at all.
Then why are so many people having difficulty finding what they love to do?
Because they’ve never truly asked themselves.
What amazes me is that there seems to be a stigma attached to spending time with oneself. You have to constantly be doing something, whether it’s going to the game, drinking beer with the buddies, going to that hot party or club downtown, etc. Don’t get me wrong, there’s nothing wrong with doing all that, but I suspect the vast majority of people who engage in this “I have to be doing something every minute because I can’t be by myself” mentality are just putting up a front to show people how satisfying and fulfilling their life is, when in reality, it’s just the opposite. The irony here is that spending time with oneself is EXACTLY what you should be doing to lead a satisfying and fulfilling life.
People think you have to travel around the world, experience new things, etc to find what you love to do. No. You just have to sit down and decide. The answer is already within you. You just have to dig it up and avoid procrastinating. Your brain has absorbed all sorts of information and experiences and it has the answer ready to be unraveled.
Just let it out.
Be honest. Have you actually sat down by yourself with no distractions, with your sole focus on asking yourself what you love to do without picking up your cell phone, surfing the net, watching TV, chatting on AIM, listening to your favorite song, playing solitaire or minesweeper, checking your email, returning a call, getting a drink of water, going to the bathroom, looking at the clock, reading a magazine article, I could go on and on but you get the point. I’m going to go out on a limb and say you haven’t for the sole purpose of you reading this article. Why is that?
Fear of what the answer will be if you ask yourself what you love to do.
The answer is: I don’t know.
But that is exactly why you MUST find out. You’re avoiding the question because you know the answer is you don’t know, but that’s ok. Admitting you don’t know is perfectly fine. There’s nothing wrong with it. You’re way ahead of a ton of other people who learn to quiet the voice within that asks the question of “What do I love to do?”
And let’s say you’re one of the few people who actually specifically know what they love to do. The
next thought that pops in their head is “Oh, I can’t make any money off of that.” The seed that was
planted never grew.
I hate vague answers. I want clear, logical, definitive answers to questions.
So let’s do this.
Step 1: You WILL find the answer. No doubt.
You will find the answer. You will find it. No doubt.
Approach the question with this mentality and you are sure to find it. How long will it take? It doesn’t matter. Bottom line, you will find the answer.
By doing this, you automatically instill an anti quitting mechanism within yourself, because you know you will find the answer. If you know what you want to do, then you will do it.
For example, if you know you want to arrive in New York, you’ll find ways to get there. You’ll hop a train, bus, or plane going to New York and will arrive in New York.
If you don’t have the cash, you’ll borrow it, or get a job and save up, or get a job as a flight attendant to get there for free. It doesn’t matter how long it will take or what you need to do because you know you’re going to New York.
All your actions onward from the decision that you want to arrive in New York will revolve around getting to New York.
Read that last sentence again.
All your actions onward from the decision that you want to arrive in New York will revolve around getting to New York.
Finding what you love to do = Deciding to arrive in New York.
Step 2: Make a list of your skills and interests in two columns and WRITE THEM DOWN (I’ll explain why you must write things down later):
I’ve taken the liberty of creating a document you can print so you can easily fill in the blanks. You can download it here. KEY is to WRITE THESE DOWN!! I cannot emphasize this enough. Don’t think you can do it all in your head. WRITE IT DOWN.
When I mean by skills is any skill. It could be an intangible skill. Empty your clip here, list EVERY skill you have. It could be programming, making web pages, talking, listening, persuading people, typing, flirting, analyzing, giving speeches, making things easy to understand, whistling, blowing bubbles with your spit, it could be anything. Don’t be bashful. List everything you perceive your skills to be.
On your other column, lists your interests and don’t be shy here as well. List EVERY interest you could possibly think of. Spiders, shoes, hair, makeup, basketball, tennis, thinking of ideas, babysiseashells, seaweed, can openers, anything goes. Yes, I did say can openers. Your interests can also include subjects you are knowledgeable about as well. Computers, economics, biology,
baskebtall plays, football plays, magic tricks, etc.
To help you write down more interests, think of what you were interested in at your previous jobs
and write them down. Also, think of what you were NOT interested in your previous jobs and write
the exact opposite.
Asking yourself the following questions may shed light as to what skills and interests you possess. If you went in a bookstore, which section do you naturally gravitate toward?
Ask friends for any skills and interests they see in you. You’ll be surprised at how much insight they have on you that you’ve never thought of before.
What do you spend most of your time doing? What do you look forward to doing?
Go back and think of your accomplishments as a child. What kind of skills and interests revolved around your accomplishments?
What did people praise you on doing?
What did your teachers or parents say you had a skill or knack of doing?
Why am I emphasizing skills and interests here?
Skills: Because you’ve got to leverage what you’re strong with. And don’t say you don’t have any. Everybody has skills. You’ve just never sat down and thought about it and wrote it down. By using your skills, you’ve got a head start, a catalyst.
Interests: Simply because you’ve got to love what you do. By including interests, you include another form of an anti quitting mechanism.
Focus on generating as many skills and interests you can possibly think of and WRITE IT DOWN! You may find that your skills are gravitating toward one or two particular skills. The same may hold true for interests. Keep that in mind for step 3.
Step 3: Set aside some TRUE alone time with no distractions to focus and figure out what you love to do by asking yourself the right questions. It amazes me how people set aside time for taxes, cooking, watching movies, reading, but when it comes to their own personal future, they NEVER set aside any time. How much MORE time should you set aside to figure out the path that will make you happy?
Ok, you’ve set some private alone time with no distractions; now what?
You must ask yourself an extremely clear question. Clarity is key here. The clearer the question, the easier the answer will be.
For example, if I ask you what 12 times 12 is, the answer comes easily, 144.
However, if I ask, what is some even two digit number times some other even two digit number?
Guess how long it’ll take you to answer that question?
Clear questions lead to clear answers.
Another key thing is to WRITE it down. I know you’ve heard it a billion times and it’s so cliché but there’s a reason. Writing things down allows you to easily make connections you’ve never thought of before because you see it on paper. It also allows you to “free room” in your brain for other thoughts because they are put in another container so to speak.tting, walking, hiking, fireworks, helping people, making fun of people, fishing, tai chi, karate,
If I ask you, what’s 257 times 852, try doing that in your head vs. writing it down. When you write it down, the answer comes out easier, not to mention more accurate.
If you haven’t already wrote down your skills and interests in the previous step, STOP and DO IT NOW. It won’t do you any good having them in your head.
So, let’s use your alone time to ask yourself a clear question in writing. What is the question you should ask yourself? Is it: “What do I love to do?”
That question is a bit broad, so let’s narrow it down a little. Try asking yourself:
What would I love to do on a daily basis utilizing both my skills and interests that will add
significant value to people?
See the difference here? The more detailed and clearer the question, the easier it is to answer it. Why did I add the add value part? Because that will lead you to find a way to make money doing what you love.
By incorporating the question of how to add significant value by utilizing your skills, you automatically filter out all the “common answers” that people come up with when asked what they love to do. Common answers such as: “I love to watch TV.” Or “I love to play video games.”
Answers such as that discourage people because they see no way of making money from it. Adding to that, many people tend to make the mistake of focusing on how to make money. A lot of people fail to realize that money is just a byproduct of adding value in the form of a product or service to people.
When you know how you can add value to people, you’ll know how to get money.
Open up Word or get out a blank sheet of paper and write that question up at the top. Here it is again in case you don’t want to scroll up.
What would I love to do on a daily basis utilizing both my skills and interests that will add significant value to people?
The KEY is to WRITE YOUR ANSWERS DOWN!! I cannot emphasize this enough. Don’t think you can do it all in your head. WRITE IT DOWN.
Looking at the two column list you made in the previous step, start writing down a list of answers.
Just write. It doesn’t have to be perfect and it doesn’t have to make sense because sooner or later, you will connect the dots. Here’s a story to illustrate what I’m talking about.
There was a story about a small town with a ski resort which attracted a lot of tourists, which in turn helped the town’s economy. However, when it snowed, the snowfall collected on the power cables, until the weight was enough to collapse the cables, resulting in several power outages. Slowly but surely, tourists stopped coming, so the town held a meeting to discuss how to solve the problem of having snow collect on the power cables. Solutions were tossed out for quite some time.
Then somebody shouted in a loud voice from the back of the room and said “Let’s hang pots of honey on the power cables to make the bears climb up. When the bears climb up and get the honey, their movement will shake the snow off the power cables.”
The audience laughed and somebody else deciding to play along said “How will we refill the pots of honey?” “We’ll use a helicopter”, another person said.
Then the answer dawned upon them. By having a helicopter fly by the power lines, the wind from the propellers would shake the snow off.
The main point here is that answers, no matter how ridiculous they may seem, should not be feared because more often than not, they lead to results. It’s all part of the process.
Even if an answer seems ludicrous, write it down. Write down all your answers. Do it until you have 20 answers and look them over. You will find that as you write down answers and look at them, it will in turn propel you to think of new creative answers that you would not have come up with before. You will be amazed at all the things you wrote and the different solid creative ideas that come about.
Now the time comes for focus.
I’m sure you’ve heard of the sun and magnifying glass analogy pertaining to focus but I’m going to say it again. If you try to do a bunch of things at once, nothing will get done. If you wave a magnifying glass around on the hottest day, you won’t burn anything. You’ll dissipate all your energy among the trivial many.
By focusing and harnessing all your power, energy, time, focus, thinking, etc. on one goal, you will be amazed at how deep and quickly you can accomplish that. Just as you steady a magnifying glass on a single object, with the hot burning sun rays analogous to your desire, focus, power, energy, time, etc, you will make an impact.
The notion of focus is so important that I’m going to use another analogy. Imagine you’re a cheetah and you see two juicy gazelles grazing in the grass. Spending your time chasing both = no food = death. Hunt one down. It might take time to catch it and kill it, but when you do, you’ll be recharged. You will soon start collecting information on how the gazelles run, which direction they run, where they like to graze, etc, which will help you catch more gazelles in the future, thereby putting you in a favorable cycle. Case in point, focus on one.
So look over your list you just made and choose one idea that seems the most appealing to you. You may find you can combine a few ideas into one idea. Nevertheless, choose one idea that you will garner the greatest satisfaction not just for yourself, but to other people.
You might want to zero in on the ideas that combine your skills and interests that you’ve listed in the beginning. The reason being, psychologically speaking, you’ve probably listed your greatest skills and interests first and then as you started listing them downward, so did your degree of skill and interest. This might not be true. You might have 20 different but equal skills and interests, which if you do, I congratulate you. Just a tip I thought I would throw out.
How Will You Know You’ve Found What You Love To Do?
Does it make you feel good? If you feel it in your gut that you’ve hit the jackpot, you’re right. If your friend were to bring up the idea you picked, would you be all over it talking about it?
You have to have no reservations about it. If you feel the slightest doubt that it’s not your passion, then it’s not. You must hunger to overcome any obstacles to pursue your passion.
By: Brian Kim - July 17, 2006
If you're a first time visitor, I highly encourage you to click here to learn more about this site in order for you to get the VERY BEST VALUE out of it. Thank you for visiting!
This article was inspired by Steve Jobs’ commencement speech at Stanford University. In it, he says the advice we’ve all heard a thousand times:
“You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.”
- Steve Jobs
Well then, the question naturally arises:
How do you find what you love to do? It’s such a big question.
What absolutely boils my blood is that we hear we should be doing what we love to do all the time, but there’s not any step by step advice out there on how to find what you love to do. The advice that is out there helps to a certain degree, but it’s just a bunch of pieces thrown together with no coherent logical structure or order.
A perfect example is this. In order to find your passion, we are told to ask ourselves:
“What would you do if you had a million dollars (tax free)?”
The typical answer ensues: “Well gee, I would put it in an account that yields high interest and live off the interest each year. Then I would move to Hawaii, buy a house, sip margaritas all day, play video games, go to the beach, swim, travel around the world, taste all the cuisines, read the books, play the sports, and on and on and on.”
Does this really help? Not really. Sure, you figured out what your lazy butt likes to do, but it doesn’t really answer the question that’s hidden, which is “How do I make money doing what I love to do?
What’s the result? People working in jobs they hate, feeling trapped because they can’t quit as they rely on that sole source of income to finance a lifestyle tailored to escape their grim reality, drifting aimlessly in life, in short, leading lives of quiet desperation, as so eloquently put by Henry David Thoreau.
Why don’t they just quit their jobs and pursue what they love to do you ask?
Two Reasons.
Reason #1: They don’t know what they love to do.
Reason #2: Fear. They’ve got a lifestyle to uphold, bills to pay for, families to take care of, fear of no steady source of income, fear of what other people might think or say about them, etc. Fear.
Conquer indecision in Reason #1 and ACT, and you will most definitely conquer all fear in Reason #2.
The very fact that you are seeking to find what you love to do (by the very fact you came across this article and started reading it) is a BIG step believe it or not. Many people in their lifetime avoid or do not even seek to find the answer to that question. They hear the question in their head but have become extremely adept at silencing it.
It is extremely important to answer the question on how to find what you love to do.
You must decide what destination to steer your life in. Otherwise, you leave yourself wide open for others to direct your life, as well as at the mercy of the winds and storms of life. If you know where your destination is, the rest is easy.
You will find once you know what you want to do, all uncertainty and burden will be lifted off your shoulders and you will have clear vision as to what your journey is and that journey will truly be joyful.
By the time you finish reading this article, I sincerely hope you experience that.
What about how to make money doing what you love?
The question of how to monetize doing what you love is certainly a valid one. There are bills to pay, stomachs to feed, families to support, etc.
Don’t worry about that for now. That will be covered later in this article.
First things first, you’ve got to find what you love to do.
Why is it so hard to find what you love to do?
The answer is: It’s not hard at all.
You read right.
It’s not hard at all.
Then why are so many people having difficulty finding what they love to do?
Because they’ve never truly asked themselves.
What amazes me is that there seems to be a stigma attached to spending time with oneself. You have to constantly be doing something, whether it’s going to the game, drinking beer with the buddies, going to that hot party or club downtown, etc. Don’t get me wrong, there’s nothing wrong with doing all that, but I suspect the vast majority of people who engage in this “I have to be doing something every minute because I can’t be by myself” mentality are just putting up a front to show people how satisfying and fulfilling their life is, when in reality, it’s just the opposite. The irony here is that spending time with oneself is EXACTLY what you should be doing to lead a satisfying and fulfilling life.
People think you have to travel around the world, experience new things, etc to find what you love to do. No. You just have to sit down and decide. The answer is already within you. You just have to dig it up and avoid procrastinating. Your brain has absorbed all sorts of information and experiences and it has the answer ready to be unraveled.
Just let it out.
Be honest. Have you actually sat down by yourself with no distractions, with your sole focus on asking yourself what you love to do without picking up your cell phone, surfing the net, watching TV, chatting on AIM, listening to your favorite song, playing solitaire or minesweeper, checking your email, returning a call, getting a drink of water, going to the bathroom, looking at the clock, reading a magazine article, I could go on and on but you get the point. I’m going to go out on a limb and say you haven’t for the sole purpose of you reading this article. Why is that?
Fear of what the answer will be if you ask yourself what you love to do.
The answer is: I don’t know.
But that is exactly why you MUST find out. You’re avoiding the question because you know the answer is you don’t know, but that’s ok. Admitting you don’t know is perfectly fine. There’s nothing wrong with it. You’re way ahead of a ton of other people who learn to quiet the voice within that asks the question of “What do I love to do?”
And let’s say you’re one of the few people who actually specifically know what they love to do. The
next thought that pops in their head is “Oh, I can’t make any money off of that.” The seed that was
planted never grew.
I hate vague answers. I want clear, logical, definitive answers to questions.
So let’s do this.
Step 1: You WILL find the answer. No doubt.
You will find the answer. You will find it. No doubt.
Approach the question with this mentality and you are sure to find it. How long will it take? It doesn’t matter. Bottom line, you will find the answer.
By doing this, you automatically instill an anti quitting mechanism within yourself, because you know you will find the answer. If you know what you want to do, then you will do it.
For example, if you know you want to arrive in New York, you’ll find ways to get there. You’ll hop a train, bus, or plane going to New York and will arrive in New York.
If you don’t have the cash, you’ll borrow it, or get a job and save up, or get a job as a flight attendant to get there for free. It doesn’t matter how long it will take or what you need to do because you know you’re going to New York.
All your actions onward from the decision that you want to arrive in New York will revolve around getting to New York.
Read that last sentence again.
All your actions onward from the decision that you want to arrive in New York will revolve around getting to New York.
Finding what you love to do = Deciding to arrive in New York.
Step 2: Make a list of your skills and interests in two columns and WRITE THEM DOWN (I’ll explain why you must write things down later):
I’ve taken the liberty of creating a document you can print so you can easily fill in the blanks. You can download it here. KEY is to WRITE THESE DOWN!! I cannot emphasize this enough. Don’t think you can do it all in your head. WRITE IT DOWN.
When I mean by skills is any skill. It could be an intangible skill. Empty your clip here, list EVERY skill you have. It could be programming, making web pages, talking, listening, persuading people, typing, flirting, analyzing, giving speeches, making things easy to understand, whistling, blowing bubbles with your spit, it could be anything. Don’t be bashful. List everything you perceive your skills to be.
On your other column, lists your interests and don’t be shy here as well. List EVERY interest you could possibly think of. Spiders, shoes, hair, makeup, basketball, tennis, thinking of ideas, babysiseashells, seaweed, can openers, anything goes. Yes, I did say can openers. Your interests can also include subjects you are knowledgeable about as well. Computers, economics, biology,
baskebtall plays, football plays, magic tricks, etc.
To help you write down more interests, think of what you were interested in at your previous jobs
and write them down. Also, think of what you were NOT interested in your previous jobs and write
the exact opposite.
Asking yourself the following questions may shed light as to what skills and interests you possess. If you went in a bookstore, which section do you naturally gravitate toward?
Ask friends for any skills and interests they see in you. You’ll be surprised at how much insight they have on you that you’ve never thought of before.
What do you spend most of your time doing? What do you look forward to doing?
Go back and think of your accomplishments as a child. What kind of skills and interests revolved around your accomplishments?
What did people praise you on doing?
What did your teachers or parents say you had a skill or knack of doing?
Why am I emphasizing skills and interests here?
Skills: Because you’ve got to leverage what you’re strong with. And don’t say you don’t have any. Everybody has skills. You’ve just never sat down and thought about it and wrote it down. By using your skills, you’ve got a head start, a catalyst.
Interests: Simply because you’ve got to love what you do. By including interests, you include another form of an anti quitting mechanism.
Focus on generating as many skills and interests you can possibly think of and WRITE IT DOWN! You may find that your skills are gravitating toward one or two particular skills. The same may hold true for interests. Keep that in mind for step 3.
Step 3: Set aside some TRUE alone time with no distractions to focus and figure out what you love to do by asking yourself the right questions. It amazes me how people set aside time for taxes, cooking, watching movies, reading, but when it comes to their own personal future, they NEVER set aside any time. How much MORE time should you set aside to figure out the path that will make you happy?
Ok, you’ve set some private alone time with no distractions; now what?
You must ask yourself an extremely clear question. Clarity is key here. The clearer the question, the easier the answer will be.
For example, if I ask you what 12 times 12 is, the answer comes easily, 144.
However, if I ask, what is some even two digit number times some other even two digit number?
Guess how long it’ll take you to answer that question?
Clear questions lead to clear answers.
Another key thing is to WRITE it down. I know you’ve heard it a billion times and it’s so cliché but there’s a reason. Writing things down allows you to easily make connections you’ve never thought of before because you see it on paper. It also allows you to “free room” in your brain for other thoughts because they are put in another container so to speak.tting, walking, hiking, fireworks, helping people, making fun of people, fishing, tai chi, karate,
If I ask you, what’s 257 times 852, try doing that in your head vs. writing it down. When you write it down, the answer comes out easier, not to mention more accurate.
If you haven’t already wrote down your skills and interests in the previous step, STOP and DO IT NOW. It won’t do you any good having them in your head.
So, let’s use your alone time to ask yourself a clear question in writing. What is the question you should ask yourself? Is it: “What do I love to do?”
That question is a bit broad, so let’s narrow it down a little. Try asking yourself:
What would I love to do on a daily basis utilizing both my skills and interests that will add
significant value to people?
See the difference here? The more detailed and clearer the question, the easier it is to answer it. Why did I add the add value part? Because that will lead you to find a way to make money doing what you love.
By incorporating the question of how to add significant value by utilizing your skills, you automatically filter out all the “common answers” that people come up with when asked what they love to do. Common answers such as: “I love to watch TV.” Or “I love to play video games.”
Answers such as that discourage people because they see no way of making money from it. Adding to that, many people tend to make the mistake of focusing on how to make money. A lot of people fail to realize that money is just a byproduct of adding value in the form of a product or service to people.
When you know how you can add value to people, you’ll know how to get money.
Open up Word or get out a blank sheet of paper and write that question up at the top. Here it is again in case you don’t want to scroll up.
What would I love to do on a daily basis utilizing both my skills and interests that will add significant value to people?
The KEY is to WRITE YOUR ANSWERS DOWN!! I cannot emphasize this enough. Don’t think you can do it all in your head. WRITE IT DOWN.
Looking at the two column list you made in the previous step, start writing down a list of answers.
Just write. It doesn’t have to be perfect and it doesn’t have to make sense because sooner or later, you will connect the dots. Here’s a story to illustrate what I’m talking about.
There was a story about a small town with a ski resort which attracted a lot of tourists, which in turn helped the town’s economy. However, when it snowed, the snowfall collected on the power cables, until the weight was enough to collapse the cables, resulting in several power outages. Slowly but surely, tourists stopped coming, so the town held a meeting to discuss how to solve the problem of having snow collect on the power cables. Solutions were tossed out for quite some time.
Then somebody shouted in a loud voice from the back of the room and said “Let’s hang pots of honey on the power cables to make the bears climb up. When the bears climb up and get the honey, their movement will shake the snow off the power cables.”
The audience laughed and somebody else deciding to play along said “How will we refill the pots of honey?” “We’ll use a helicopter”, another person said.
Then the answer dawned upon them. By having a helicopter fly by the power lines, the wind from the propellers would shake the snow off.
The main point here is that answers, no matter how ridiculous they may seem, should not be feared because more often than not, they lead to results. It’s all part of the process.
Even if an answer seems ludicrous, write it down. Write down all your answers. Do it until you have 20 answers and look them over. You will find that as you write down answers and look at them, it will in turn propel you to think of new creative answers that you would not have come up with before. You will be amazed at all the things you wrote and the different solid creative ideas that come about.
Now the time comes for focus.
I’m sure you’ve heard of the sun and magnifying glass analogy pertaining to focus but I’m going to say it again. If you try to do a bunch of things at once, nothing will get done. If you wave a magnifying glass around on the hottest day, you won’t burn anything. You’ll dissipate all your energy among the trivial many.
By focusing and harnessing all your power, energy, time, focus, thinking, etc. on one goal, you will be amazed at how deep and quickly you can accomplish that. Just as you steady a magnifying glass on a single object, with the hot burning sun rays analogous to your desire, focus, power, energy, time, etc, you will make an impact.
The notion of focus is so important that I’m going to use another analogy. Imagine you’re a cheetah and you see two juicy gazelles grazing in the grass. Spending your time chasing both = no food = death. Hunt one down. It might take time to catch it and kill it, but when you do, you’ll be recharged. You will soon start collecting information on how the gazelles run, which direction they run, where they like to graze, etc, which will help you catch more gazelles in the future, thereby putting you in a favorable cycle. Case in point, focus on one.
So look over your list you just made and choose one idea that seems the most appealing to you. You may find you can combine a few ideas into one idea. Nevertheless, choose one idea that you will garner the greatest satisfaction not just for yourself, but to other people.
You might want to zero in on the ideas that combine your skills and interests that you’ve listed in the beginning. The reason being, psychologically speaking, you’ve probably listed your greatest skills and interests first and then as you started listing them downward, so did your degree of skill and interest. This might not be true. You might have 20 different but equal skills and interests, which if you do, I congratulate you. Just a tip I thought I would throw out.
How Will You Know You’ve Found What You Love To Do?
Does it make you feel good? If you feel it in your gut that you’ve hit the jackpot, you’re right. If your friend were to bring up the idea you picked, would you be all over it talking about it?
You have to have no reservations about it. If you feel the slightest doubt that it’s not your passion, then it’s not. You must hunger to overcome any obstacles to pursue your passion.
Wednesday, April 28, 2010
Just a Thought
“Yesterday, I was driving with some one and the FM radio went off for few seconds. I thought, I should have an iPod. Then suddenly I realized that I have not used my iPod in last 6 months. And then… more things, Handy cam in last 2 years, Digital Camera in last 2 months, DVD player in last 1 month and many more. Now I can say that I bought that Handy cam just out of impulse, I have used it twice only in last 4 years.
So, whats wrong and where? When I look at myself or my friends I can see it everywhere. We are not happy with what we have but all are stressed and not happy for the things we don’t have. You have a Santro, but you want City… You have a City, but you want Skoda. Just after buying a new phone, we need another one. Better laptop, bigger TV, faster car, bigger house, more money… .I mean, these examples are endless. The point is, does it actually worth? Do we ever think if we actually need those things before we want them?
After this, I was forced to think what I need and what I don’t. May be I didn’t need this Handy cam or the iPod or that DVD player. When I see an senior person back at neighborhood. He has a simple BPL colour TV, he doesn’t need 32″ Sony LCD wall mount. He has a cell phone worth Rs 2,500. Whenever I ask him to change the phone, since his son is earning well, he always says… “Its a phone, I need this just for calls.” And believe me; he is much happier in life than me with those limited resources and simple gadgets. The very basic reason why he is happy with so little is that he doesn’t want things in life to make it luxurious, but he wants only those things which are making his life easier. It’s a very fine line between these two, but after looking my father’s life style closely, I got the point. He needs a cell phone but not the iPhone. He needs a TV but not the 32″ plasma. He needs a car but not an expensive one.
Initially I had lot of questions.
I am earning good, still I am not happy…...why ?
I have all luxuries, still I am stressed.... ....... why ?
I had a great weekend, still I am feeling tired...... why?
I met lot of people, I thought over it again and again, I still don’t know if I got the answers, but certainly figured out few things. I realize that one thing which is keeping me stressed is the “stay connected”syndrome. I realized that, at home also I am logged in on messengers, checking mails, using social networks, and on the top of that, the windows mobile is not letting me disconnected. On the weekend itself, trying to avoid unwanted calls… and that is keeping my mind always full of stress. I realized that I am spending far lesser money than what I earn, even then I am always worried about money and more money. I realized that I am saving enough money I would ever need, whenever needed. Still I am stressed about job and salary and spends.
May be, many people will call this approach “not progressive attitude“, but I want my life back. Ultimately it’s a single life, a day gone is a day gone. I believe if I am not happy tonight, I’ll never be happy tomorrow morning. I finally realized that meeting friends, spending quality time with your loved one’s; spending time with yourself is the most important thing. If on Sunday you are alone and you don’t have anybody to talk with, then all that luxuries life, all that money is wasted. May be cutting down your requirements, re-calculating your future goal in the light of today’s happiness is a worthwhile thing to do. May be selling off your Santro and buying Honda City on EMIs is not a good idea. I believe putting your happiness ahead of money is the choice we need to make.
I think, a lot can be said and done but what we need the most is re-evaluation of the value of happiness and time we are giving to our life and people associate with it.”
So, whats wrong and where? When I look at myself or my friends I can see it everywhere. We are not happy with what we have but all are stressed and not happy for the things we don’t have. You have a Santro, but you want City… You have a City, but you want Skoda. Just after buying a new phone, we need another one. Better laptop, bigger TV, faster car, bigger house, more money… .I mean, these examples are endless. The point is, does it actually worth? Do we ever think if we actually need those things before we want them?
After this, I was forced to think what I need and what I don’t. May be I didn’t need this Handy cam or the iPod or that DVD player. When I see an senior person back at neighborhood. He has a simple BPL colour TV, he doesn’t need 32″ Sony LCD wall mount. He has a cell phone worth Rs 2,500. Whenever I ask him to change the phone, since his son is earning well, he always says… “Its a phone, I need this just for calls.” And believe me; he is much happier in life than me with those limited resources and simple gadgets. The very basic reason why he is happy with so little is that he doesn’t want things in life to make it luxurious, but he wants only those things which are making his life easier. It’s a very fine line between these two, but after looking my father’s life style closely, I got the point. He needs a cell phone but not the iPhone. He needs a TV but not the 32″ plasma. He needs a car but not an expensive one.
Initially I had lot of questions.
I am earning good, still I am not happy…...why ?
I have all luxuries, still I am stressed.... ....... why ?
I had a great weekend, still I am feeling tired...... why?
I met lot of people, I thought over it again and again, I still don’t know if I got the answers, but certainly figured out few things. I realize that one thing which is keeping me stressed is the “stay connected”syndrome. I realized that, at home also I am logged in on messengers, checking mails, using social networks, and on the top of that, the windows mobile is not letting me disconnected. On the weekend itself, trying to avoid unwanted calls… and that is keeping my mind always full of stress. I realized that I am spending far lesser money than what I earn, even then I am always worried about money and more money. I realized that I am saving enough money I would ever need, whenever needed. Still I am stressed about job and salary and spends.
May be, many people will call this approach “not progressive attitude“, but I want my life back. Ultimately it’s a single life, a day gone is a day gone. I believe if I am not happy tonight, I’ll never be happy tomorrow morning. I finally realized that meeting friends, spending quality time with your loved one’s; spending time with yourself is the most important thing. If on Sunday you are alone and you don’t have anybody to talk with, then all that luxuries life, all that money is wasted. May be cutting down your requirements, re-calculating your future goal in the light of today’s happiness is a worthwhile thing to do. May be selling off your Santro and buying Honda City on EMIs is not a good idea. I believe putting your happiness ahead of money is the choice we need to make.
I think, a lot can be said and done but what we need the most is re-evaluation of the value of happiness and time we are giving to our life and people associate with it.”
Your Financial Diet
As a race, we are renowned foodies. At any gathering, you can be sure that the talk will ultimately end up in food, whether it’s cooking techniques or ingredients or taste. Sadly, as a nation, we are equally known for our lack of understanding of family finances.
Over the ages, we might have produced ministers who could balance the budgets of large kingdoms, but when it comes to our own earnings, we are quite happy to stash the cash under the bed — or in a savings account, its modern equivalent.
EQUITIES: Like proteins build muscle, they add strength to your portfolio
FIXED INCOME: As healthy as fibre, these are the best option for secure returns
REAL ESTATE: These carbohydrates lay the foundation for your finances
INSURANCE: Misjudged by many, but for financial security don’t ignore fats
ALTERNATIVE: An occasional sweet indulgence can give spectacular returns
This was possibly the only thing to do till a few decades ago. But now, with a zillion investment opportunities available, it’s criminal to let money rot away. Frankly, it’s time we became as knowledgeable about personal finance as we are about food. It’s amazing how much we can learn about financial management — especially the core of it, asset allocation — from food.
Imagine that your portfolio is a living creature. Just as the body needs its daily allowance of proteins, carbohydrates, fats, fibres, vitamins and the like, so too does your portfolio need its regular quota of nutrients to stay healthy. As you grow older, your appetite changes.
You might, for instance, find that your palate does not any longer crave for fried food, or your doctor has warned you off it. It’s like your appetite for risk. You start off ready to bet your shirt on any tip. As your responsibilities grow, you are less ready to risk your finances.
From the financial perspective, there are five ages of man — the 20s, 30s, 40s, 50s, and the 60s and after. No matter what your age group, it’s good to know what you can expect or what mistakes you might have made in the past. What we have tried to draw up is basically your ideal financial diet across ages.
Before we get there, let’s take a look at the major food groups and their financial equivalents. Proteins, which literally means “of prime importance”, are the food equivalent of equities. Sufficient protein in your diet helps the body grow. That is what equities — direct or through equity mutual funds — provide to your portfolio. Then, there’s energy, which largely comes from carbohydrates. The asset we chose to represent carbohydrates is real estate, the biggest component of most Indian’s networth.
Real estate is necessary to give shape and structure to your portfolio, as well as add value to it. It’s like your staple grain — wheat or rice, depending on which part of the country you come from.
Debt is the closest financial equivalent to fibre, which aids digestion. Like fibre, you tend to need more debt instruments as you age.
Every diet needs its quota of fat. Before the diet conscious begin ranting, let us hasten to add that fat per se is not bad. You need it to provide energy. Also, the fat that’s not burned serves as a cushion when you fall. That’s exactly what insurance does to your portfolio. Insurance, with pension plans and annuities, acts as your cushion in times of need and as you grow older.
Loans that aid in asset creation — as home loans, for instance — or which help further your career (car loans might do that) are more assets than liabilities over the long term. Like trace minerals or vitamin supplements, they are good for you in small amounts. Too much could lead to unpleasant repercussions.
We all need to indulge our craving for desserts or fine wines sometimes. You know the risks of over-indulging, but the occasional binge is fine. It’s like investing in art or jewellery. They are good add-ons but can never be the main course.
No matter how right you eat, exercise is vital. In fact, if you’re physically active, you can play around with your diet and get away with eating food suited to someone half your age. Exercise your portfolio too — review it at specific intervals, re-balance it, rebuild it if you see fit. And if you think your risk appetite is that of a younger person, there’s no real reason for you to stick to the safe path.
All of what we’ve said and all that we will be saying is merely to be used as a tool. These are broad guidelines and should not take the place of specific, individualised financial planning.
Equity binge in your 20s
Your ideal diet: Small and systematic
If you start investing Rs 2,000 every month in equities when you are 25, your corpus will be Rs 1.7 crore when you turn 60 (assuming an annualised return of 15%). Start 10 years later, when you’re 35, and even if you double the investment amount to Rs 4,000 a month, you will end up with only Rs 1.09 crore. The power of compounding works best when you are young. Its multiplier effect reduces with age.
For fitness' sake, don’t...
• Buy insurance when you don’t have dependents
• Choose fixed deposits and NSCs over ELSS for tax savings
• Significantly reduce your savings potential by making too many impulse buys
Diet Tip
Plan expenses according to basic salary. Include reimbursements in investment planning. You will always meet targets.
You’re young, you’ve just started earning. Eating right really doesn’t bother you; you’re more involved in eating well. Of course diet charts figure large in your scheme of things, but more as a fad. Don’t let us stop you. If you can’t be footloose in your 20s, there’s no age you can. But always remember that indiscriminate bingeing now can have disastrous consequences later.
But that does not mean you must live a Spartan life. This is the age when you can really go heavy on proteins — in the form of steaks or baked beans. Financially, this means equities. Load your portfolio with equities of all types — blue chips, large-caps, small- or mid-caps — that give you at least 15% annualised returns.
The BSE Sensex has given almost 20% annualised returns since its inception in 1986. Invest directly in the stock market for better returns and an added rush. Otherwise take the equity mutual funds route. But invest in equities with a very long-term perspective of at least 15-20 years for maximum benefit.
You know that fats can be good. And you need some in your diet to give you energy. In financial terms, you need the protection that only insurance can provide. But, and this is the major qualifier, don’t just take insurance as a tax-saving tool.
Insurance is, first and foremost, meant to provide for your financial dependents in the case of your death. If you anticipate a future with no dependents, do not take insurance. If you do take it simply because an agent has been persistent, it’s the food equivalent of loading up on “bad” fats. (For more on how much and what insurance to take, read our Insurance Special, dated 18 October. Also available on http://www.moneytoday.in/) Like fats, insurance is easier to take when you’re young. The older you get, the more expensive it gets.
Akshdeep Singh, 28, Mumbai
Income: Rs 28,000 a month
What's on his plate:
Equities 90%
Debt 3%
Real estate 0%
Cash and near-cash 7%
Diet diagnosis:• Saves more than 30% of post-tax income
• Combines tax and financial planning by investing in ELSS funds
• Hasn't bought insurance because he has no dependents
Recommended changes:
• Should consider adding real estate to his investment portfolio
• Should consider buying a Ulip, which combines investment and insurance
"I am considering buying a house. I am now studying the market to understand what's available"
Though retirement seems years away, it is a good idea to have a rough estimate of your retirement corpus. This helps focus your investments and you can make the best use of the power of compounding to build a sizeable nest egg.
Fibre is not just the isabgol that your grand-uncle takes every night. Raw vegetables are a rich source of fibre, which is necessary for the digestive process. Like fibre, you do need some fixed-income options to keep your portfolio healthy.
Not much, but there’s no reason to ignore these entirely despite the low returns they give. In fact, these instruments are your best bet to meet short-term goals when you cannot afford the risk of losing your capital to a dip in the markets, however temporary.
And finally, a word of wisdom from your grandmother: never let food lie on your plate. It’s doing no good and once it gets cold and unappetising, there’s little you can do but junk it. It’s almost the same with a savings bank account.
Keep some cash in such an account. At the same time, it’s a good idea to invest around three months’ expenses in cash and near cash instruments, including liquid plus funds.
Balancing act in your 30s
Your ideal diet: Invest long, borrow short
If you take a home loan of Rs 35 lakh for 20 years at 12%, the EMI would be Rs 38,538 and you will pay Rs 57.5 lakh in interest. If the loan was for 10 years, the EMI would be Rs 50,214 and the interest outgo would be less than half at Rs 25.3 lakh. Keep home loan tenure to the shortest you can afford.
For fitness' sake, don’t...
• Invest in balanced funds when you can afford risks
• Buy endowment or money-back plans
• Extend loan tenures to make EMIs easy
Diet Tip
Ready to invest in a house but can’t find the right property? Till you do, be a pretend buyer. Put aside a fixed amount as if it is a home loan EMI. The savings will help when you make the down payment.
In several ways, turning 30 is seen as the beginning of a more responsible life. The carefree 20s must give way to a slightly more sober reflection of where you’re going and where you want to be. Marriage, kids, dependent parents…you’ll have to provide for all or any of these. It’s also that time of your life when you start taking a little more care of your health — you don’t want to end up as a statistic.
Colleagues your age might already be victims of lifestyle-related ailments. And so you begin to take a little more care about what goes into you. Are you doing the same with your portfolio?
Proteins (equities) are, of course, still necessary, particularly since you’ll need your portfolio to continue growing at some speed. But your risk appetite might have changed somewhat. You might find that investing directly in equities no longer gives you such a high; instead, an element of fear could creep in. And that’s why there are equity mutual funds. Your portfolio gets the protein it needs and you get some respite from the risks posed by market volatility.
If, however, your appetite for risk remains large, by all means continue investing directly in equities. Like in the 20s, don’t let its bad press put you off fats completely. Just as you would monitor your fat intake more closely now, take careful stock of your insurance requirements.
Sukanta Sahoo, 32, Noida
Income: Rs 68,000 a month
What's on his plate:
Equities 55%
Debt 38%
Real estate 0%
Gold/cash 7%
Diet diagnosis:
• Invests in equities directly, and through funds and Ulip
• Life cover of Rs 1.2 crore through term, Ulip and whole life plans
• Doesn’t own a house
Recommended changes:
• Invest in a house
• Can increase exposure to equities
• Could combine tax and financial planning by investing in ELSS
"I realise that retirement planning is the weakest part of my investment strategy"
Make sure that you aren’t under- or over-insured. It’s not quite as essential in your 30s as in, say, your 60s, but fibre must occupy a larger space on your plate than earlier, and not just for short-term goals. Start looking at fixedincome instruments to build a small safe haven in your portfolio.
This is necessary to give your finances some balance. Consider investing in near-cash options such as liquid funds instead of letting your money lie idle in a regular savings account.
This is the age when you should start thinking about taking loans, at least those that help in asset creation. For instance, consider taking a home loan. An investment in real estate will act as a solid base for the rest of your finances. Even a car loan is good if the acquisition of a vehicle helps build your job or business.
It might still be too early for you to get into alternative investments. However, if you find that you have surplus cash after accounting for all your savings and investments, you could consider a few unconventional avenues.
Make a small start by investing in art, for instance. Just be prepared for the risks associated with this; it’s pretty much the same as when you indulge in vintage wines. The point is to be aware that this is an occasional indulgence and cannot be your main diet or financial plan.
You must also begin planning for your retirement if you haven’t already started. It’s not too late to give compounding the chance to work its magic on your money. This is also the time to take stock of your overall health. If you lead a sedentary life, you must begin to exercise. Similarly, begin a regular review of your finances to see where you are. Making course corrections at this stage is far easier than realising your mistakes decades later.
Cut the risks in your 40s
Your ideal diet: Covering liabilities
Most Indians have the wrong or inadequate insurance cover. One way to overcome that in the 40s is to take a term plan for the maximum period. A plan that terminates in your 50s will not help. At that age, few insurers will sell you a new policy. Even if they do, it will cost a bomb. A pure term plan is the cheapest form of insurance.
For fitness' sake, don’t...
• Assume that insurance will cover all your liabilities
• Stack up a big balance in your bank account
• Borrow to invest in risky options such as stocks
Diet Tip
Invest in gold through exchange traded funds. They are easy to buy, pricing is transparent, there are no purity and security issues and the tax on profits is low.
The kids are in high school, college fees loom large on the horizon. But those years of slogging are showing up on your visiting card and in your bank account. Money is not the constraint it was 20 years ago, but expenses have more or less kept pace with your income. Hopefully, your investments have grown too.
As you grow older, chances are that your palate is changing. You prefer single malts to the beer you guzzled some years ago. You consciously eat healthy and avoid the more artery-clogging foods. And it’s more than likely that you’re treating your money with the same care you’re giving your body. So, you opt for relatively low risk instruments instead of the riskier direct equity route.
It’s true that at this age, most investors are averse to risk. But that does not mean you should eliminate proteins (equities) entirely from your diet. They are essential to keep your portfolio growing. But go light on direct equities. Instead, invest more in equity-diversified mutual funds. Balanced funds should enter your portfolio now, as they have a smaller exposure to equities.
At the same time, your need for fibre will go up. Savings avenues such as fixed deposits and NSCs, near-cash instruments like liquid funds and the like might hold more attraction than pure equities.
Om Beer, 45, Noida
Income: Rs 65,000 a month
What's on his plate:
Equities 3.5%
Debt 14.7%
Real estate 79%
Near cash 2.8%
Diet diagnosis:
• Small equity exposure
• Rs 40-lakh insurance not enough to cover Rs 17-lakh home loan and other liabilities
• Assured pension from employer on retirement
Recommended changes:
• Increase investments in equity mutual funds to up to 20% of portfolio
• Use ELSS funds for tax planning
• Take additional term insurance to cover home loan
"I buy stocks of companies whose business I understand. No blind guesses"
This is also the age when you see the need for a complete health checkup. Give your portfolio the same treatment.
Either get a professional financial planner to review it or do it yourself. This will tell you whether you’re investing right for your retirement and other long-term goals or whether you need to change direction.
It’s human nature: you get morbidly concerned about your fat intake immediately after a health check-up. In the case of your finances, take a look at your existing pension plans and annuity plans, and study your insurance needs as well.
If you find that you’re still under-insured, this is about the last chance you’ll have to take insurance at a premium that’s not ridiculously expensive. Also, if you don’t have it, it is a good idea to buy a health insurance cover now. This will ensure that medical costs are covered as you grow older.
Once you have a reasonably clear picture of where you’re headed, you can afford to indulge a little. Holidays abroad, a new car...whatever takes your fancy. But if you’ve got that little extra and don’t want to end up feeling guilty for having blown it all up on fripperies, take a look at alternative investment avenues. Just make sure you know the risks involved. If you’re able to stomach them, go for it.
Reset to restart in your 50s
Your ideal diet: FMP over FD
Fixed maturity plans of mutual funds offer higher liquidity and better returns than fixed deposits. Fixed deposit income is clubbed with your income and taxed at the applicable rate whereas after a year, FMP profits are taxed at 10% flat or at 20% after indexation. Debt funds are more tax efficient than FDs.
For fitness' sake, don’t...
• Ignore health insurance. It is vital because you can’t get it later
• Allocate too much to equities to boost your retirement corpus
• Not factor in inflation while assessing retirement needs
Diet Tip
Assuming that your retirement corpus is earning 8% returns when inflation is 5%, a withdrawal of about 6% a year would completely deplete it in 24 years
You’re coming to the end of your working life and retirement beckons, whether you want it or not. Getting this close to retirement is what really makes you feel your age, isn’t it? Your expenses on dependents might have come down a bit if your kids have left home, but health-care costs need to be factored in from now on.
And then there is the big question: will you be able to sustain your current lifestyle even when you are not earning your current salary? Or will you have to curtail some of the expenses you take for granted?
This is the age when health begins to assume critical importance. You start obsessively counting the calories that enter your lunch plate and wonder if you have been eating right so far.
Ideally, subject your portfolio to the same scrutiny. Most people in this age group turn almost entirely into conservative investors, unwilling to stomach any risk. Of course your portfolio still needs equities.
In food terms, can you imagine a halfdecent meal without dal, meat or dairy products? But you shouldn’t overdo it or you could end up with indigestion. Stick to easy-to-digest options within equities.
This means that instead of direct equities, increase the portion of balanced mutual funds. But ensure that the total number of funds in your portfolio isn’t too high. Too many funds will make managing them difficult and that’s the last thing you want to worry about now.
Raghunath Chouhan, 51, Mumbai
Income: Rs 12 lakh a month
What's on his plate:
Equities 25%
Debt 27%
Real estate 45%
Cash/near cash 3%
Diet diagnosis:
• Has 25 mutual funds in portfolio
• No life insurance
• Invests in equities directly and through MFs
Recommended changes:
• Prune number of funds in portfolio to a handful of best performers
• Consider health insurance, particularly critical illness cover
"My portfolio has shaped up exactly the way I wanted"
Fats are no longer so essential in your diet. Your insurance needs ought to have been taken care of by now, and you will soon be burning up some of the fat that you had accumulated in the form of pension funds and annuities for your retirement.
Just make sure you have adequate health insurance; it may already prove next to impossible to get and even if you can get cover, it’s likely to cost you a packet.
It’s more than likely that what will substantially increase in your diet now is fibre. Debt and fixed-income investments, nearcash options...these are what will keep your portfolio healthy regardless of what the markets do.
This is also time for you to close your home loan and any other loans you had taken. This is definitely not the stage when you should be creating or building assets; this is when you should be making preparations to live off those assets you have already created.
Your palate may crave desserts, but your doctor has quite possibly warned you off them. Of course, the occasional binge is not likely to kill you, and might even do some good. Similarly, indulge in alternative investments only if you’re absolutely positive you have enough put away to take care of your retirement expenses, including health costs and any other emergency that might crop up.
One thing you must finalise now is your potential retirement corpus. Put pen to paper and figure out the exact value of your nest egg, factoring in all the investments you are likely to make till you retire. Figure out how much interest-income your investments will generate. If you had taken a pension plan or have a rental income source, make sure you include that in your calculations. In case you are falling short, this is your last chance to add some meat to your corpus.
Also, make sure you draw up a will and that all your nominations are up-to-date. After all, none of us is immortal, and why leave your heirs with a financial mess to sort out?
In your 60s and beyond
Your ideal diet: Risk-free and tax-free
Consider putting money in arbitrage funds, which invest in equities and derivatives in a way that you gain 8-9% a year irrespective of which way the market moves. Held for over a year, profits from these funds are tax free.
For fitness' sake, don’t...
• Believe a small nest egg can last your lifetime
• Invest directly in equities instead of through mutual funds
• Lock up money in illiquid or very long-term debt instruments
Diet Tip
A mix of short-, medium- and longterm bonds and fixed deposits can help to guard against interest rate risk. They will also optimise returns.
Allow us to share a rosy, albeit cliched, vision with you. Morning walks on the beach with the dogs, pottering around in the garden pruning the roses, lazy afternoons tinkering with your hi-fi, long convivial evenings spent raising a glass with your spouse and other friends....
And now, snap out of it. None of this will be possible if you haven’t already planned and saved for it. It’s as Utopian as expecting to be perfectly healthy after spending a lifetime stuffing yourself with junk food and cheap beer.
That’s why we’ve spent so long telling you that it’s as important to eat healthy as it is to maintain a healthy portfolio. If your nest egg is small, there’s no way you can hope to maintain your current lifestyle on it alone. But always remember, even if you have a healthy corpus stashed away, it’s important to maintain some healthy practices.
Just as you won’t spend your sunset years gorging on burgers and fries and slurping down sugary sodas, don’t be profligate with your money. You really don’t know how long you will live and whether your savings will stretch that long. Also, increasing health-care costs could eat into a large chunk of your savings.
For the large majority of retirees, investing in direct equity is definitely a bad idea. Of course, there are some investors in this age group who are able and willing to bet heavily on decades of experience in buying stocks. But if you are even a little shaky, stay away.
Ashok Upadhyay, 62, Jamshedpur
What's on his plate:
Equities 60%
Debt 10%
Real estate 28%
Near cash 2%
Diet diagnosis:
• High equity component and low diversification
• No life insurance premium payments
• Incremental investments in high-risk direct equity
Recommended changes:
• Prune exposure to equities by exiting some direct stocks
• Invest proceeds in a mix of diversified funds, balanced funds or monthly income plans
"Even at this age, I prefer investing in stocks because they give the best returns"
Instead, invest in monthly income plans that have an 80:20 debt to equity ratio. This combines fibre (fixed income) with proteins (equities), ensuring a balanced diet. In fact, this is when you might prefer to go heavy on fibre; you are likely to be far more comfortable with fixed-income instruments than with anything flavoured with equity. Security of returns should be your primary concern now.
This is also when all those EMIs you made to repay your home loan will begin to pay off. Real estate, now that it’s yours free and clear, is no longer a dammed up investment. In fact, with the recently launched reverse mortgage scheme, you can own your house and still generate a monthly income from it.
It’s a case of having your cake and being able to eat it too. All those regular investments in insurance plans, pension plans and annuities should start yielding fruit now. If you had invested in a pension plan or were a government employee, you ought to have enough coming in to meet day-to-day expenses.
Just don’t let the prospect of getting a regular income go to your head. Even if your monthly cash flow generates a surplus, be as prudent with your money as you are with your diet.
But all this does not mean you have to lead a life of obvious austerity. A little care is all that we are recommending. After all, you’ve spent the past half-a-century or so saving and investing just so you can relax during your sunset years. It would be a shame to waste all those years of restraint for the want of a little control, wouldn’t it?
Article by : Kamya Jaiswal and Babar Zaidi - Outlook Money Nov 28th 2007
Over the ages, we might have produced ministers who could balance the budgets of large kingdoms, but when it comes to our own earnings, we are quite happy to stash the cash under the bed — or in a savings account, its modern equivalent.
EQUITIES: Like proteins build muscle, they add strength to your portfolio
FIXED INCOME: As healthy as fibre, these are the best option for secure returns
REAL ESTATE: These carbohydrates lay the foundation for your finances
INSURANCE: Misjudged by many, but for financial security don’t ignore fats
ALTERNATIVE: An occasional sweet indulgence can give spectacular returns
This was possibly the only thing to do till a few decades ago. But now, with a zillion investment opportunities available, it’s criminal to let money rot away. Frankly, it’s time we became as knowledgeable about personal finance as we are about food. It’s amazing how much we can learn about financial management — especially the core of it, asset allocation — from food.
Imagine that your portfolio is a living creature. Just as the body needs its daily allowance of proteins, carbohydrates, fats, fibres, vitamins and the like, so too does your portfolio need its regular quota of nutrients to stay healthy. As you grow older, your appetite changes.
You might, for instance, find that your palate does not any longer crave for fried food, or your doctor has warned you off it. It’s like your appetite for risk. You start off ready to bet your shirt on any tip. As your responsibilities grow, you are less ready to risk your finances.
From the financial perspective, there are five ages of man — the 20s, 30s, 40s, 50s, and the 60s and after. No matter what your age group, it’s good to know what you can expect or what mistakes you might have made in the past. What we have tried to draw up is basically your ideal financial diet across ages.
Before we get there, let’s take a look at the major food groups and their financial equivalents. Proteins, which literally means “of prime importance”, are the food equivalent of equities. Sufficient protein in your diet helps the body grow. That is what equities — direct or through equity mutual funds — provide to your portfolio. Then, there’s energy, which largely comes from carbohydrates. The asset we chose to represent carbohydrates is real estate, the biggest component of most Indian’s networth.
Real estate is necessary to give shape and structure to your portfolio, as well as add value to it. It’s like your staple grain — wheat or rice, depending on which part of the country you come from.
Debt is the closest financial equivalent to fibre, which aids digestion. Like fibre, you tend to need more debt instruments as you age.
Every diet needs its quota of fat. Before the diet conscious begin ranting, let us hasten to add that fat per se is not bad. You need it to provide energy. Also, the fat that’s not burned serves as a cushion when you fall. That’s exactly what insurance does to your portfolio. Insurance, with pension plans and annuities, acts as your cushion in times of need and as you grow older.
Loans that aid in asset creation — as home loans, for instance — or which help further your career (car loans might do that) are more assets than liabilities over the long term. Like trace minerals or vitamin supplements, they are good for you in small amounts. Too much could lead to unpleasant repercussions.
We all need to indulge our craving for desserts or fine wines sometimes. You know the risks of over-indulging, but the occasional binge is fine. It’s like investing in art or jewellery. They are good add-ons but can never be the main course.
No matter how right you eat, exercise is vital. In fact, if you’re physically active, you can play around with your diet and get away with eating food suited to someone half your age. Exercise your portfolio too — review it at specific intervals, re-balance it, rebuild it if you see fit. And if you think your risk appetite is that of a younger person, there’s no real reason for you to stick to the safe path.
All of what we’ve said and all that we will be saying is merely to be used as a tool. These are broad guidelines and should not take the place of specific, individualised financial planning.
Equity binge in your 20s
Your ideal diet: Small and systematic
If you start investing Rs 2,000 every month in equities when you are 25, your corpus will be Rs 1.7 crore when you turn 60 (assuming an annualised return of 15%). Start 10 years later, when you’re 35, and even if you double the investment amount to Rs 4,000 a month, you will end up with only Rs 1.09 crore. The power of compounding works best when you are young. Its multiplier effect reduces with age.
For fitness' sake, don’t...
• Buy insurance when you don’t have dependents
• Choose fixed deposits and NSCs over ELSS for tax savings
• Significantly reduce your savings potential by making too many impulse buys
Diet Tip
Plan expenses according to basic salary. Include reimbursements in investment planning. You will always meet targets.
You’re young, you’ve just started earning. Eating right really doesn’t bother you; you’re more involved in eating well. Of course diet charts figure large in your scheme of things, but more as a fad. Don’t let us stop you. If you can’t be footloose in your 20s, there’s no age you can. But always remember that indiscriminate bingeing now can have disastrous consequences later.
But that does not mean you must live a Spartan life. This is the age when you can really go heavy on proteins — in the form of steaks or baked beans. Financially, this means equities. Load your portfolio with equities of all types — blue chips, large-caps, small- or mid-caps — that give you at least 15% annualised returns.
The BSE Sensex has given almost 20% annualised returns since its inception in 1986. Invest directly in the stock market for better returns and an added rush. Otherwise take the equity mutual funds route. But invest in equities with a very long-term perspective of at least 15-20 years for maximum benefit.
You know that fats can be good. And you need some in your diet to give you energy. In financial terms, you need the protection that only insurance can provide. But, and this is the major qualifier, don’t just take insurance as a tax-saving tool.
Insurance is, first and foremost, meant to provide for your financial dependents in the case of your death. If you anticipate a future with no dependents, do not take insurance. If you do take it simply because an agent has been persistent, it’s the food equivalent of loading up on “bad” fats. (For more on how much and what insurance to take, read our Insurance Special, dated 18 October. Also available on http://www.moneytoday.in/) Like fats, insurance is easier to take when you’re young. The older you get, the more expensive it gets.
Akshdeep Singh, 28, Mumbai
Income: Rs 28,000 a month
What's on his plate:
Equities 90%
Debt 3%
Real estate 0%
Cash and near-cash 7%
Diet diagnosis:• Saves more than 30% of post-tax income
• Combines tax and financial planning by investing in ELSS funds
• Hasn't bought insurance because he has no dependents
Recommended changes:
• Should consider adding real estate to his investment portfolio
• Should consider buying a Ulip, which combines investment and insurance
"I am considering buying a house. I am now studying the market to understand what's available"
Though retirement seems years away, it is a good idea to have a rough estimate of your retirement corpus. This helps focus your investments and you can make the best use of the power of compounding to build a sizeable nest egg.
Fibre is not just the isabgol that your grand-uncle takes every night. Raw vegetables are a rich source of fibre, which is necessary for the digestive process. Like fibre, you do need some fixed-income options to keep your portfolio healthy.
Not much, but there’s no reason to ignore these entirely despite the low returns they give. In fact, these instruments are your best bet to meet short-term goals when you cannot afford the risk of losing your capital to a dip in the markets, however temporary.
And finally, a word of wisdom from your grandmother: never let food lie on your plate. It’s doing no good and once it gets cold and unappetising, there’s little you can do but junk it. It’s almost the same with a savings bank account.
Keep some cash in such an account. At the same time, it’s a good idea to invest around three months’ expenses in cash and near cash instruments, including liquid plus funds.
Balancing act in your 30s
Your ideal diet: Invest long, borrow short
If you take a home loan of Rs 35 lakh for 20 years at 12%, the EMI would be Rs 38,538 and you will pay Rs 57.5 lakh in interest. If the loan was for 10 years, the EMI would be Rs 50,214 and the interest outgo would be less than half at Rs 25.3 lakh. Keep home loan tenure to the shortest you can afford.
For fitness' sake, don’t...
• Invest in balanced funds when you can afford risks
• Buy endowment or money-back plans
• Extend loan tenures to make EMIs easy
Diet Tip
Ready to invest in a house but can’t find the right property? Till you do, be a pretend buyer. Put aside a fixed amount as if it is a home loan EMI. The savings will help when you make the down payment.
In several ways, turning 30 is seen as the beginning of a more responsible life. The carefree 20s must give way to a slightly more sober reflection of where you’re going and where you want to be. Marriage, kids, dependent parents…you’ll have to provide for all or any of these. It’s also that time of your life when you start taking a little more care of your health — you don’t want to end up as a statistic.
Colleagues your age might already be victims of lifestyle-related ailments. And so you begin to take a little more care about what goes into you. Are you doing the same with your portfolio?
Proteins (equities) are, of course, still necessary, particularly since you’ll need your portfolio to continue growing at some speed. But your risk appetite might have changed somewhat. You might find that investing directly in equities no longer gives you such a high; instead, an element of fear could creep in. And that’s why there are equity mutual funds. Your portfolio gets the protein it needs and you get some respite from the risks posed by market volatility.
If, however, your appetite for risk remains large, by all means continue investing directly in equities. Like in the 20s, don’t let its bad press put you off fats completely. Just as you would monitor your fat intake more closely now, take careful stock of your insurance requirements.
Sukanta Sahoo, 32, Noida
Income: Rs 68,000 a month
What's on his plate:
Equities 55%
Debt 38%
Real estate 0%
Gold/cash 7%
Diet diagnosis:
• Invests in equities directly, and through funds and Ulip
• Life cover of Rs 1.2 crore through term, Ulip and whole life plans
• Doesn’t own a house
Recommended changes:
• Invest in a house
• Can increase exposure to equities
• Could combine tax and financial planning by investing in ELSS
"I realise that retirement planning is the weakest part of my investment strategy"
Make sure that you aren’t under- or over-insured. It’s not quite as essential in your 30s as in, say, your 60s, but fibre must occupy a larger space on your plate than earlier, and not just for short-term goals. Start looking at fixedincome instruments to build a small safe haven in your portfolio.
This is necessary to give your finances some balance. Consider investing in near-cash options such as liquid funds instead of letting your money lie idle in a regular savings account.
This is the age when you should start thinking about taking loans, at least those that help in asset creation. For instance, consider taking a home loan. An investment in real estate will act as a solid base for the rest of your finances. Even a car loan is good if the acquisition of a vehicle helps build your job or business.
It might still be too early for you to get into alternative investments. However, if you find that you have surplus cash after accounting for all your savings and investments, you could consider a few unconventional avenues.
Make a small start by investing in art, for instance. Just be prepared for the risks associated with this; it’s pretty much the same as when you indulge in vintage wines. The point is to be aware that this is an occasional indulgence and cannot be your main diet or financial plan.
You must also begin planning for your retirement if you haven’t already started. It’s not too late to give compounding the chance to work its magic on your money. This is also the time to take stock of your overall health. If you lead a sedentary life, you must begin to exercise. Similarly, begin a regular review of your finances to see where you are. Making course corrections at this stage is far easier than realising your mistakes decades later.
Cut the risks in your 40s
Your ideal diet: Covering liabilities
Most Indians have the wrong or inadequate insurance cover. One way to overcome that in the 40s is to take a term plan for the maximum period. A plan that terminates in your 50s will not help. At that age, few insurers will sell you a new policy. Even if they do, it will cost a bomb. A pure term plan is the cheapest form of insurance.
For fitness' sake, don’t...
• Assume that insurance will cover all your liabilities
• Stack up a big balance in your bank account
• Borrow to invest in risky options such as stocks
Diet Tip
Invest in gold through exchange traded funds. They are easy to buy, pricing is transparent, there are no purity and security issues and the tax on profits is low.
The kids are in high school, college fees loom large on the horizon. But those years of slogging are showing up on your visiting card and in your bank account. Money is not the constraint it was 20 years ago, but expenses have more or less kept pace with your income. Hopefully, your investments have grown too.
As you grow older, chances are that your palate is changing. You prefer single malts to the beer you guzzled some years ago. You consciously eat healthy and avoid the more artery-clogging foods. And it’s more than likely that you’re treating your money with the same care you’re giving your body. So, you opt for relatively low risk instruments instead of the riskier direct equity route.
It’s true that at this age, most investors are averse to risk. But that does not mean you should eliminate proteins (equities) entirely from your diet. They are essential to keep your portfolio growing. But go light on direct equities. Instead, invest more in equity-diversified mutual funds. Balanced funds should enter your portfolio now, as they have a smaller exposure to equities.
At the same time, your need for fibre will go up. Savings avenues such as fixed deposits and NSCs, near-cash instruments like liquid funds and the like might hold more attraction than pure equities.
Om Beer, 45, Noida
Income: Rs 65,000 a month
What's on his plate:
Equities 3.5%
Debt 14.7%
Real estate 79%
Near cash 2.8%
Diet diagnosis:
• Small equity exposure
• Rs 40-lakh insurance not enough to cover Rs 17-lakh home loan and other liabilities
• Assured pension from employer on retirement
Recommended changes:
• Increase investments in equity mutual funds to up to 20% of portfolio
• Use ELSS funds for tax planning
• Take additional term insurance to cover home loan
"I buy stocks of companies whose business I understand. No blind guesses"
This is also the age when you see the need for a complete health checkup. Give your portfolio the same treatment.
Either get a professional financial planner to review it or do it yourself. This will tell you whether you’re investing right for your retirement and other long-term goals or whether you need to change direction.
It’s human nature: you get morbidly concerned about your fat intake immediately after a health check-up. In the case of your finances, take a look at your existing pension plans and annuity plans, and study your insurance needs as well.
If you find that you’re still under-insured, this is about the last chance you’ll have to take insurance at a premium that’s not ridiculously expensive. Also, if you don’t have it, it is a good idea to buy a health insurance cover now. This will ensure that medical costs are covered as you grow older.
Once you have a reasonably clear picture of where you’re headed, you can afford to indulge a little. Holidays abroad, a new car...whatever takes your fancy. But if you’ve got that little extra and don’t want to end up feeling guilty for having blown it all up on fripperies, take a look at alternative investment avenues. Just make sure you know the risks involved. If you’re able to stomach them, go for it.
Reset to restart in your 50s
Your ideal diet: FMP over FD
Fixed maturity plans of mutual funds offer higher liquidity and better returns than fixed deposits. Fixed deposit income is clubbed with your income and taxed at the applicable rate whereas after a year, FMP profits are taxed at 10% flat or at 20% after indexation. Debt funds are more tax efficient than FDs.
For fitness' sake, don’t...
• Ignore health insurance. It is vital because you can’t get it later
• Allocate too much to equities to boost your retirement corpus
• Not factor in inflation while assessing retirement needs
Diet Tip
Assuming that your retirement corpus is earning 8% returns when inflation is 5%, a withdrawal of about 6% a year would completely deplete it in 24 years
You’re coming to the end of your working life and retirement beckons, whether you want it or not. Getting this close to retirement is what really makes you feel your age, isn’t it? Your expenses on dependents might have come down a bit if your kids have left home, but health-care costs need to be factored in from now on.
And then there is the big question: will you be able to sustain your current lifestyle even when you are not earning your current salary? Or will you have to curtail some of the expenses you take for granted?
This is the age when health begins to assume critical importance. You start obsessively counting the calories that enter your lunch plate and wonder if you have been eating right so far.
Ideally, subject your portfolio to the same scrutiny. Most people in this age group turn almost entirely into conservative investors, unwilling to stomach any risk. Of course your portfolio still needs equities.
In food terms, can you imagine a halfdecent meal without dal, meat or dairy products? But you shouldn’t overdo it or you could end up with indigestion. Stick to easy-to-digest options within equities.
This means that instead of direct equities, increase the portion of balanced mutual funds. But ensure that the total number of funds in your portfolio isn’t too high. Too many funds will make managing them difficult and that’s the last thing you want to worry about now.
Raghunath Chouhan, 51, Mumbai
Income: Rs 12 lakh a month
What's on his plate:
Equities 25%
Debt 27%
Real estate 45%
Cash/near cash 3%
Diet diagnosis:
• Has 25 mutual funds in portfolio
• No life insurance
• Invests in equities directly and through MFs
Recommended changes:
• Prune number of funds in portfolio to a handful of best performers
• Consider health insurance, particularly critical illness cover
"My portfolio has shaped up exactly the way I wanted"
Fats are no longer so essential in your diet. Your insurance needs ought to have been taken care of by now, and you will soon be burning up some of the fat that you had accumulated in the form of pension funds and annuities for your retirement.
Just make sure you have adequate health insurance; it may already prove next to impossible to get and even if you can get cover, it’s likely to cost you a packet.
It’s more than likely that what will substantially increase in your diet now is fibre. Debt and fixed-income investments, nearcash options...these are what will keep your portfolio healthy regardless of what the markets do.
This is also time for you to close your home loan and any other loans you had taken. This is definitely not the stage when you should be creating or building assets; this is when you should be making preparations to live off those assets you have already created.
Your palate may crave desserts, but your doctor has quite possibly warned you off them. Of course, the occasional binge is not likely to kill you, and might even do some good. Similarly, indulge in alternative investments only if you’re absolutely positive you have enough put away to take care of your retirement expenses, including health costs and any other emergency that might crop up.
One thing you must finalise now is your potential retirement corpus. Put pen to paper and figure out the exact value of your nest egg, factoring in all the investments you are likely to make till you retire. Figure out how much interest-income your investments will generate. If you had taken a pension plan or have a rental income source, make sure you include that in your calculations. In case you are falling short, this is your last chance to add some meat to your corpus.
Also, make sure you draw up a will and that all your nominations are up-to-date. After all, none of us is immortal, and why leave your heirs with a financial mess to sort out?
In your 60s and beyond
Your ideal diet: Risk-free and tax-free
Consider putting money in arbitrage funds, which invest in equities and derivatives in a way that you gain 8-9% a year irrespective of which way the market moves. Held for over a year, profits from these funds are tax free.
For fitness' sake, don’t...
• Believe a small nest egg can last your lifetime
• Invest directly in equities instead of through mutual funds
• Lock up money in illiquid or very long-term debt instruments
Diet Tip
A mix of short-, medium- and longterm bonds and fixed deposits can help to guard against interest rate risk. They will also optimise returns.
Allow us to share a rosy, albeit cliched, vision with you. Morning walks on the beach with the dogs, pottering around in the garden pruning the roses, lazy afternoons tinkering with your hi-fi, long convivial evenings spent raising a glass with your spouse and other friends....
And now, snap out of it. None of this will be possible if you haven’t already planned and saved for it. It’s as Utopian as expecting to be perfectly healthy after spending a lifetime stuffing yourself with junk food and cheap beer.
That’s why we’ve spent so long telling you that it’s as important to eat healthy as it is to maintain a healthy portfolio. If your nest egg is small, there’s no way you can hope to maintain your current lifestyle on it alone. But always remember, even if you have a healthy corpus stashed away, it’s important to maintain some healthy practices.
Just as you won’t spend your sunset years gorging on burgers and fries and slurping down sugary sodas, don’t be profligate with your money. You really don’t know how long you will live and whether your savings will stretch that long. Also, increasing health-care costs could eat into a large chunk of your savings.
For the large majority of retirees, investing in direct equity is definitely a bad idea. Of course, there are some investors in this age group who are able and willing to bet heavily on decades of experience in buying stocks. But if you are even a little shaky, stay away.
Ashok Upadhyay, 62, Jamshedpur
What's on his plate:
Equities 60%
Debt 10%
Real estate 28%
Near cash 2%
Diet diagnosis:
• High equity component and low diversification
• No life insurance premium payments
• Incremental investments in high-risk direct equity
Recommended changes:
• Prune exposure to equities by exiting some direct stocks
• Invest proceeds in a mix of diversified funds, balanced funds or monthly income plans
"Even at this age, I prefer investing in stocks because they give the best returns"
Instead, invest in monthly income plans that have an 80:20 debt to equity ratio. This combines fibre (fixed income) with proteins (equities), ensuring a balanced diet. In fact, this is when you might prefer to go heavy on fibre; you are likely to be far more comfortable with fixed-income instruments than with anything flavoured with equity. Security of returns should be your primary concern now.
This is also when all those EMIs you made to repay your home loan will begin to pay off. Real estate, now that it’s yours free and clear, is no longer a dammed up investment. In fact, with the recently launched reverse mortgage scheme, you can own your house and still generate a monthly income from it.
It’s a case of having your cake and being able to eat it too. All those regular investments in insurance plans, pension plans and annuities should start yielding fruit now. If you had invested in a pension plan or were a government employee, you ought to have enough coming in to meet day-to-day expenses.
Just don’t let the prospect of getting a regular income go to your head. Even if your monthly cash flow generates a surplus, be as prudent with your money as you are with your diet.
But all this does not mean you have to lead a life of obvious austerity. A little care is all that we are recommending. After all, you’ve spent the past half-a-century or so saving and investing just so you can relax during your sunset years. It would be a shame to waste all those years of restraint for the want of a little control, wouldn’t it?
Article by : Kamya Jaiswal and Babar Zaidi - Outlook Money Nov 28th 2007
Tuesday, April 27, 2010
15 Signs You’re in Financial Denial
Financial disaster rarely comes about overnight. Even for those devastated by a sudden, tragic event, the foundation of their collapse lies in their daily habits and assumptions, and has been brewing for many years.
Whether overcome by an unexpected experience, or living in a state of horrible financial neglect, many people are in full-blown denial about their contributions to the event. ‘How can this possibly be my fault?,’ they ask.
My friends, you have more power than you think.
Defining Financial Denial :
My definition of financial denial is simple, although the effects are far from that:
Having a money problem and not being able to admit it.
Without getting past acceptance, the problem never exists in the first place, and you can’t begin to work at the root of the issue. Without diligence and a sound plan of action, a solution is impossible.
The form of denial most familiar to many of us is associated with substance abuse – alcoholism and drugs. In fact, financial denial is very similar, and you’ll likely recognize some of the symptoms on the list.
The Symptoms :
Denying financial problems is as much a disease as substance abuse, and the effects can be damaging and long-lasting. Money affects every other area of life – including relationships, careers, and personal health.
Let’s look at some of the signs you or someone you know is in denial:
1. Using Lack of Failure as Evidence of Success : Many people without any visible or major money problems use their high success rate as an excuse to avoid saving or making other smart money moves. Unfortunately, getting lucky is not evidence that you’ve done all the right things, just that you haven’t been caught by Murphy yet.
2. Getting a Thrill From Living on the Edge : For many people, living paycheck to paycheck is a psychological thrill. They get a short-lived high figuring out how to pay their bills and successfully making it through another month. It may be fun for a while, but the likeliness of disaster looms.
3. Hiding Money Problems from Friends & Family : If you’re not willing to share your financial habits with your loved ones, you’re probably embarrassed about something. Hiding can extend the problem, because others it affects are often unaware that it’s even happening.
4. Making ‘Someday’ Statements Frequently : People who play the lottery, overspend regularly, or are living in a perpetual state of ‘it will be better tomorrow’ are victims of this symptom. When did we stop being happy with what we have today, and instead look for a quick fix in the future to fix our current problems?
5. Having a Rationalization for Everything. Excuses, excuses : The highest-level deniers can come up with a logical, thoughtful explanation for almost any expense or silly money move. These folks are particularly hard to break because they usually think that their logic equates to being correct in their assumptions.
6. Getting Angry When Confronted : One of the classical denial symptoms is using anger or blame to shift attention from the issue and onto something else. It’s often the most hurtful to those around you.
7. Believing You’re a Unique Exception : While we’re all unique in some way, it’s hard to say we are exceptions to the rule. Dealing with money follows a set of principles that, when violated, boomerang back and hit you in the face harder than you expect.
8. Thinking Emergencies Won’t Happen to You : I hate to break it to you, but none of us are God. Believing that you’re invincible doesn’t decrease the probability of a financial emergency striking at any minute.
9. Creatively Making the Problem Look Smaller : People in denial have the uncanny ability to disguise and downplay money issues in a way that makes them seem insignificant.
10. Being Scared of ‘Normal’ : Many people have the genuine psychological need to stay away from ‘normal.’ They believe that life without debt, without money problems, and with adequate income and savings – would simply be too boring. See #2.
11. Not Having Hard Data to Back Your Claims : It’s great that you think you’re on your way to a comfortable retirement, but do the numbers speak the same truth? You may get a lot of psychological mileage by making generalized and inflated statements, but be careful of actually believing what you say! Do what you say.
12. Refusing Genuine Help : If this is your problem, you’re probably not reading my blog, or getting any other form of financial help. Whether it’s arrogance, ignorance or indifference, you simply will not seek assistance. It will be hard to help you unless you decide you want to help yourself.
13. Using Success in One Area to Overshadow Failures : It’s great to celebrate even the smallest of victories – lasting change does not happen overnight! But like making the problem look smaller, people in denial can often take the tiniest victories and use them as their victory speech for months, ignoring the rest of their declining financial situation.
14. Believing Your Actions are Independent : You are not alone in this world. Even if you’re single and live alone, your actions still affect others around you. If you’re in a relationship or part of a family structure, the effect is tenfold. Making decisions without considering their implications on others is a quick path to failure.
15. Missing Out on Promises and Responsibilities : Being unable or forgetting to pay your bills, or promising to go on a vacation with your spouse and never saving up enough money for it – these are both good examples of this symptom.
Somebody Save Me!!
If you’re nodding your head furiously, there’s a good chance you recognize some of these in yourself or those around you. It’s not a lost cause, just the first step!
While a detailed analysis might involve the help of a good psychologist, I’ve prepared a few tips to get you started if you’re trying to help someone get out of financial denial. Each situation will be unique and rely on the strength of your relationship and how well you know and respond to the person in question.
Consider the following:
If you’re not close, find someone who has a well-established relationship with your target (target being the person in denial).
Try to understand your target’s point of view and base your comments from that perspective.
Point out the potential consequences of doing nothing.
Ask your target to approach your opinions with an open mind and no commitments.
Never, ever accuse your target or use ‘you’ statements – it almost guarantees defensiveness.
Help your target see things from a different perspective.
Seek the help of a trusted or verified source, like a Financial Adviser or magazine.
Help your target develop an alternative financial plan. Walk them through it step by step.
Show your target how their denial is affecting their loved ones.
Don’t get frustrated – you can only make your target aware; they have to change their own behavior.
If you can, pick a day where they are feeling optimistic about their finances (like after a big tax refund).
Conclusions
Focusing on the future effect of your actions and on solid financial principles is the key to overcoming denial and moving forward.
If you’re in way over your head, please get some professional help. More often than not, the underlying issues are too personal and too in-depth to solve in a blog post.
What I can do is make you more aware of what to look for and spark a sense of acceptance within. Best of luck!
Source : http://www.fiscalfizzle.com/2009/09/denying-money-problems/
Whether overcome by an unexpected experience, or living in a state of horrible financial neglect, many people are in full-blown denial about their contributions to the event. ‘How can this possibly be my fault?,’ they ask.
My friends, you have more power than you think.
Defining Financial Denial :
My definition of financial denial is simple, although the effects are far from that:
Having a money problem and not being able to admit it.
Without getting past acceptance, the problem never exists in the first place, and you can’t begin to work at the root of the issue. Without diligence and a sound plan of action, a solution is impossible.
The form of denial most familiar to many of us is associated with substance abuse – alcoholism and drugs. In fact, financial denial is very similar, and you’ll likely recognize some of the symptoms on the list.
The Symptoms :
Denying financial problems is as much a disease as substance abuse, and the effects can be damaging and long-lasting. Money affects every other area of life – including relationships, careers, and personal health.
Let’s look at some of the signs you or someone you know is in denial:
1. Using Lack of Failure as Evidence of Success : Many people without any visible or major money problems use their high success rate as an excuse to avoid saving or making other smart money moves. Unfortunately, getting lucky is not evidence that you’ve done all the right things, just that you haven’t been caught by Murphy yet.
2. Getting a Thrill From Living on the Edge : For many people, living paycheck to paycheck is a psychological thrill. They get a short-lived high figuring out how to pay their bills and successfully making it through another month. It may be fun for a while, but the likeliness of disaster looms.
3. Hiding Money Problems from Friends & Family : If you’re not willing to share your financial habits with your loved ones, you’re probably embarrassed about something. Hiding can extend the problem, because others it affects are often unaware that it’s even happening.
4. Making ‘Someday’ Statements Frequently : People who play the lottery, overspend regularly, or are living in a perpetual state of ‘it will be better tomorrow’ are victims of this symptom. When did we stop being happy with what we have today, and instead look for a quick fix in the future to fix our current problems?
5. Having a Rationalization for Everything. Excuses, excuses : The highest-level deniers can come up with a logical, thoughtful explanation for almost any expense or silly money move. These folks are particularly hard to break because they usually think that their logic equates to being correct in their assumptions.
6. Getting Angry When Confronted : One of the classical denial symptoms is using anger or blame to shift attention from the issue and onto something else. It’s often the most hurtful to those around you.
7. Believing You’re a Unique Exception : While we’re all unique in some way, it’s hard to say we are exceptions to the rule. Dealing with money follows a set of principles that, when violated, boomerang back and hit you in the face harder than you expect.
8. Thinking Emergencies Won’t Happen to You : I hate to break it to you, but none of us are God. Believing that you’re invincible doesn’t decrease the probability of a financial emergency striking at any minute.
9. Creatively Making the Problem Look Smaller : People in denial have the uncanny ability to disguise and downplay money issues in a way that makes them seem insignificant.
10. Being Scared of ‘Normal’ : Many people have the genuine psychological need to stay away from ‘normal.’ They believe that life without debt, without money problems, and with adequate income and savings – would simply be too boring. See #2.
11. Not Having Hard Data to Back Your Claims : It’s great that you think you’re on your way to a comfortable retirement, but do the numbers speak the same truth? You may get a lot of psychological mileage by making generalized and inflated statements, but be careful of actually believing what you say! Do what you say.
12. Refusing Genuine Help : If this is your problem, you’re probably not reading my blog, or getting any other form of financial help. Whether it’s arrogance, ignorance or indifference, you simply will not seek assistance. It will be hard to help you unless you decide you want to help yourself.
13. Using Success in One Area to Overshadow Failures : It’s great to celebrate even the smallest of victories – lasting change does not happen overnight! But like making the problem look smaller, people in denial can often take the tiniest victories and use them as their victory speech for months, ignoring the rest of their declining financial situation.
14. Believing Your Actions are Independent : You are not alone in this world. Even if you’re single and live alone, your actions still affect others around you. If you’re in a relationship or part of a family structure, the effect is tenfold. Making decisions without considering their implications on others is a quick path to failure.
15. Missing Out on Promises and Responsibilities : Being unable or forgetting to pay your bills, or promising to go on a vacation with your spouse and never saving up enough money for it – these are both good examples of this symptom.
Somebody Save Me!!
If you’re nodding your head furiously, there’s a good chance you recognize some of these in yourself or those around you. It’s not a lost cause, just the first step!
While a detailed analysis might involve the help of a good psychologist, I’ve prepared a few tips to get you started if you’re trying to help someone get out of financial denial. Each situation will be unique and rely on the strength of your relationship and how well you know and respond to the person in question.
Consider the following:
If you’re not close, find someone who has a well-established relationship with your target (target being the person in denial).
Try to understand your target’s point of view and base your comments from that perspective.
Point out the potential consequences of doing nothing.
Ask your target to approach your opinions with an open mind and no commitments.
Never, ever accuse your target or use ‘you’ statements – it almost guarantees defensiveness.
Help your target see things from a different perspective.
Seek the help of a trusted or verified source, like a Financial Adviser or magazine.
Help your target develop an alternative financial plan. Walk them through it step by step.
Show your target how their denial is affecting their loved ones.
Don’t get frustrated – you can only make your target aware; they have to change their own behavior.
If you can, pick a day where they are feeling optimistic about their finances (like after a big tax refund).
Conclusions
Focusing on the future effect of your actions and on solid financial principles is the key to overcoming denial and moving forward.
If you’re in way over your head, please get some professional help. More often than not, the underlying issues are too personal and too in-depth to solve in a blog post.
What I can do is make you more aware of what to look for and spark a sense of acceptance within. Best of luck!
Source : http://www.fiscalfizzle.com/2009/09/denying-money-problems/
Tuesday, August 18, 2009
Financial planning is not a onetime event; it is a process
Source : : IRIS (23 July 2009)
In an attempt to understand what is happening to the financial planning market and what influences investor confidence most, Yogita khatri of Myiris.com managed to get an exclusive interview with Aadil Kadri, Manager - Advisory, Continental Financial Services. Aadil Kadri is a Manager - Advisory, Continental Financial Services. From humble beginnings as an average academic and struggling salesman, this Indian Professional Financial Advisor has clawed his way to the top of his profession. Aadil is a qualified and result oriented Certified Financial Planner (CFPCM) from Financial Planning Standards Board (FPSB) – India. He has a strong business acumen in advising Individual and Corporate Clients on securing their Financial future based on their personal and professional goals. Aadil has been advising clients on a range of financial services for over 13 years. A dynamic individual, Aadil, believes in leading from the front and is passionate about spreading financial awareness and the need for proper Financial Planning.
What led you to choose financial planning as a career?
I have started working with my father who used to be an LIC agent for brief stint from 1986 -1991 after he retired and I was helping him paying the premiums for the client and taking him on our scooter in Baroda - India out for a client meeting. To tell you the truth I was not happy with what my father was doing at that time and I use to actually hate this industry where my father used to convince people for their own benefits. After my college I got an opportunity to sell a concept of TIMESHARE with one of the reputed companies in India. It was then I realize that even I can also convince people. I have started thinking that it is same thing which my father was doing with a little difference and that is I was convincing clients to spend the money on timeshare (holidays) and my father was convincing clients to save the money for securing their financial future. It was then I decided to choose financial planning as a career because this is what will make me happy as my clients will always remember me and my services for a long time.
What is your take on current market situation?
How do you see the market going forward? I always believe and guarantee 3 market scenarios to my clients:
1. The market is going to go up.
2. The market is going to go down.
3. The market is going to remain flat… (There is no 4th option).
In either of this 3 conditions if your Objectives are defined and analyzed properly with a proper ASSET ALLOCATION set in place depending upon your age, objectives, goals and risk appetite, the markets are least to be bothered about.
What services do you offer? How long have you been advising clients?
I am associated with a Financial Services Company and we have number of products to offer from our range of companies we have tied up as our channel partners. We offer Protection Plans, Savings Plans, Mutual Funds and Medical Insurance.- I have been advising clients from more than a decade… to be precise this is my 13th year in the industry.> Briefly explain the investment / selling scenario of the financial products you offer in current market?In this current market what I do is to build a relationship in my first meeting and assess client`s objectives and requirements as per his GOALS and aspirations. Once that is done… depending upon his priority and budget I recommend him solutions. I strictly follow the Financial Planning process. The biggest ASSET an individual is having is an ``Ability to earn an income``. What I do is to see that it is properly secured before I advise him to look for any other savings / investments.
How important is an independent financial advisor (IFA) in the total sales process?
An independent financial advisor and that also if he is a multi tied product provider it is always an advantage for the client because a multi tied IFA will not be biased on promoting the product from the same company unlike the tied agents. In this situation the IFA will give the product from the gamut of products which is in the best interest of the client. An IFA who has a CFP certification is always an added advantage for the clients as he takes the client through a process of Financial Planning and advises unbiased recommendations.
In today`s fluctuating market conditions, what`s been the most common reaction from your clients?
It`s a very important question which you have asked and let me explain you in detail keeping in view this market especially NRI`s in UAE. (I am sure it is more or less the same situation everywhere in the world). What has happened is that during the boom phase i.e. 2003 - 2007, investors have made lots of money. The whole of the economy was booming. Every individual or company has started making lots of profits from the business / investments. Salaries have been increasing across the board. During that phase investors/clients have taken huge commitment mainly by way of Housing loans or car loans or any other commitments. They have not understood the nature of the market and they have not done proper Asset Allocation. But now what I feel is that clients are much aware and cautious before jumping in any impulsive decisions. I am sure this financial turmoil or crises (whatever we say) will be the best lesson learned by all investors (including myself).
How many clients do you currently manage?
I have clients around 150 quality clients in total, which I have made over a period in the industry. What I mean by quality clients is that these same clients keep on enhancing their own business or they keep on referring their friends / colleagues / relatives. One has to understand financial planning is not a onetime event it is a process and has to be reviewed periodically as the circumstances and life situations keep on changing for an individual. This is the reason why it is always important to keep an honest relationship with the client and help them plan their financial future.
What do you think influences investor confidence most?
Do you think investor confidence is improving?In the age of Internet and media what clients require is not the products and the information on the product. Many a time`s clients know more about the product than an IFA.What investor wants to know from an IFA is that how this product is going to help them and their family for securing their financial future. If you want to influence the confidence of an investor do not try to sell them a product, but help them to buy a solution for their problems. Investors confidence is increasing day by day and the credit goes to the regulators i.e. SEBI / IRDA / RBI because of their strict norms and rules & regulations which is not allowing the product providers or IFA`s to do anything which is not in the best of their clients interest.
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