Myth is always far from reality. It applies to some of most common or following 5 financial planning myths. The goals and objectives in our lives keep changing with time. In India, Financial Planning is loosely correlated to Retirement planning which is not true. In laymen terms, We need Financial Planning for each & every critical financial goal in life. Be it Kids Education, Buying a Property or Retirement. Different financial goals have different time frames e.g. i have time frame of 10 years for kids education or 15 Years left for retirement. The biggest roadblock to financial planning are following most common financial planning myths. Let’s address these financial planning myths one by one
Insurance as an Investment
The biggest Financial Planning myth in India. Insurance is financial security tool rather financial planning tool. The biggest culprit for this myth is Income Tax Saving linked to Insurance products. We don’t need Endowment Plans, Money Back Policies or Whole Life Plans. In true sense, Term Insurance is perfect Insurance product. Term Insurance along with Health Insurance, Accident Insurance & Critical Illness Cover completes the Insurance portfolio. The premium of these products in not that high.
SIP is fool proof Investment
The mutual fund house project SIP (Systematic Investment Plan) as financial planning instrument which never give negative returns. It is not true, you may my check post on Why you should not invest in SIP
Earn Throughout Life
Entire banking system work on an assumption that all depositors will not come one fine day and withdraw their entire savings. If this happens then entire banking system will collapse. Similarly we individuals live under impression that we are going to earn throughout our life & live forever. We have very limited time to fulfill all financial goals. In today’s cut throat competition and huge supply of new talent, Retirement age is as low as 40 years instead of conventional 57 years. It is important to be realistic about earning years and plan accordingly.
It’s too late / too early to start Financial Planning
It is one of most critical Financial Planning Myth. During initial years of Career we think its too early and then after sometime we feel its too late. In my opinion, Financial Planning should start from 1st day of 1st job. Objectives might change over a period of time but portfolio can be fine tuned accordingly
Real Estate is best bet for Investment
Again a wrong notion. No doubt Real Estate is safest bet from financial planning perspective . The entry and exit points are very crucial to qualify Real Estate as best bet. Going by Warren Buffet principal “You should invest when everyone else is selling and You should sell when everyone else is buying”. I agree that it is very difficult to fine tune & time the investment but little research from your end can help to achieve maximum accuracy. Like stock market, if timing goes wrong in Real Estate investment then it might severely impact your returns.
I have tried to list down some common financial planning myths. Hope this article is useful for you and you will take care of financial planning myths while making investment decisions.
Copyright © 2011-2013 Nitin Bhatia. All Rights Reserved.
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