While taking small or big investment decisions one should always remember that not every decision has a single or a non-subjective answer. Nowadays, as the influencing era is at a boom, usually their followers blindly follow every information shared by them and suggest to their friends about the same.
But, when it comes to greater financial decisions it is crucial to understand that not everyone has to think the same way and act on it.
It all depends on age, family, other goals, risk appetite and many other factors. So instead of just following a single thought process one should always consider all the factors related to the financial goal.
And to get it exemplified, it's better to jot it down through a spreadsheet to get better insights for your important financial decisions of life.
Let’s explore some of the major financial decisions one has to take:
Buying a house or renting it
- Herd decision: It is always better to buy residential property for investment & let it grow.
- Second thought: Subjective to everyone, renting it can be beneficial too.
Before making such an important decision ask yourself “Is buying the house really necessary?”
Buying a house is like buying a liability and making it an income generating asset is what changes the entire perception about investments.
For buying a house you arrange the down payment, pay EMI with high interest loans and much more. These expenses add up until the end of the Loan tenure which can typically be 20 years.
Instead, if that same house is rented and the amount saved out of EMI (EMI-rent) can be invested to generate an average of 12% over the years. By this calculation renting a house can sound like a smart financial decision.
Buying a residential apartment or plot for investments is like blocking the liquidity of cash flow until or unless you are not generating any income from it. So, instead of just walking on the pride while crunching your finances beneath your feet, you can save a lot of money the other way around.
When can I retire?
- Herd decision: Once I am 55 or 60 years old.
- Second thought: How will you spend your time, after retirement? It depends on that about when and with how much corpus you require to retire?
Retirement is a crucial time in life. You know it’s all slowly coming to an end and you need to utilise every moment of your retirement to fill it with happiness and joy in your last stages of life.
Almost everyone thinks of retirement as a corpus creating mission. “I will retire with ____ amount of money in my account”. Sudden pause on all the work and social interaction, it becomes crucial to decide the time spent in retirement. Sure you might have planned vacations, but all this is again a herd decision about going to vacations in your whole retirement.
So, if you are someone who is close to retirement then think again if you will regret the last few years of your life or really think about spending the precious time and money.
Should I change my job for higher remuneration?
- Herd decision: Ofcourse, higher pay is always better
- Second thought: Do I really need to change my job?
Usually this is debatable but one should control and quantify all the points before jumping for higher pay in every new job. There should be some upper references above money, which can be job satisfaction, finding your passion, travelling, spending time with family etc.
Money plays a vital role in survival of daily lifestyle but having ample time to spend on self & family is also important. Changing a job for better remuneration is good until it fulfils your long-term goals but switching on a yearly basis questions your professional credibility & sustainability in the corporate culture.
So, If someone is ready to give up on these perks just for the sake of money in the short-term then think twice before entering yourself into the bandwagon of long-term credibility.
Do I need to share my investments details with family or not?
- Herd decision: My family members won't understand risky asset classes, so they won't allow me to invest in it due conventional belief.
- Second thought: I need to educate my family members & dependents about modern investments & its benefits.
Typically talking about personal finance has always been a taboo in Indian society (With just 27% people are financial literacy as per SEBI survey report). Since childhood we have been taught to enjoy life without worrying about money. Suddenly while growing up, we are blank on the concept of money management as we have never been educated about the same.
The situation is changing now. Everyone's finally realising that this topic shouldn’t be a taboo anymore and is crucial to live a balanced life. With the emergence of technology & social media everyone is getting aware about new investment avenues with their pros & cons. It is now wise to share about investments and money management with your family dependents and kids.
Make them aware about your decisions, mistakes & lessons you learned.
Educating the future generation at the early stage i.e. your kids can help them to make wiser decisions in their future lifestyle.
Can I do my investments on my own or need an expert advice?
- Herd decision: Investments are easy and don't necessarily require experts.
- Second thought: If it was that easy everyone would have earned money through it.
Since the Covid-19, retail participation in capital markets have shot up tremendously, people have started investing, trading and learning about the share market. And because of record high volumes, everyone made money between 2020-2021. But after that the reality struck everyone and made everyone realise that it’s not that easy to make money out of the share market.
Patience, persistence, more than basic knowledge are all necessary to get the most out of your investments. And all those who thought this as a piece of cake lost their interest because it's actually not a piece of cake.
There is a reason there are professionals who put decades of their life to study the in and out of the financials market. So instead of just diving directly in the ocean without knowing how to swim, take a mentor with you and drive safely with your investments.
Every decision in life you made has an experience attached to it. And with the help of a mentor, you are able to empower your future possibilities with a roadmap to attain it.
Sanchit Taksali, is a Certified Financial Planner with more than 7 Years of Financial Industry Experience. Currently, he is handling the Wealth Management Department at the Sebi-registered investment advisory company Kedia Capital Services. He can be found on Twitter at @sanchittaksali and on Instagram at SanchitTaksali.