I actually believe that both finances and life are interrelated. Happy finances leads to happy life and vice versa. Now happy finances don’t mean that if Gandhi ji keeps wearing smile on currency notes it is happy and it certainly don’t mean having more money. Just like to lead happy life you need to remove unwanted stress and negative thoughts from your mind, same way to lead happy financial life you have to have much organized, controlled, targeted and clutter free finances. Anything that makes you live an easy life makes your money happy. It may mean a debt free youth or secure tension free retirement, even leading a healthy lifestyle as it reduces the chances of withdrawing money to pay doctor’s bills. This is true that money can’t bring happiness but it can certainly help. The opposite is also true that if your financial life is not in order then it has its own repercussions on your personal life.
We are emotional beings and thus emotions guide our decision and due to this we many times take such decisions which we might not take under normal circumstances. For e.g. you visit your bank to draw your monthly pension, but come out with a child insurance plan in the name of your grandson. Relationship manager of your bank has been transferred to a new branch and to help him achieve his targets you open a new bank account in that branch. You apply for a credit card just because it offers 10% cash back on movie tickets …etc. These are some of the stories which I keep on hearing in this profession. All these small things together, slowly and gradually fill your financial life with so much clutter that you starts feeling disorganized and could not focus on other important financial goals. To bring happiness and order in your financial life the first steps is to list out those unwanted elements, de clutter and consolidate it. Some of the areas where you can look at are:
You open a new bank account every time you change your JOB, though sometimes this is under compulsion as your employer doesn’t have salary account with your old bank but it doesn’t justify your continuing with the old account. Having different tax files in family member’s name is fine, but having 4 bank accounts for different files is something incomprehensible. To top it up people come up with very innovative excuses like 2 of their accounts are not in knowledge of income tax department, or they have made few investments and keep on getting some interest amount in those accounts , or one of his friends works with that bank and he’ll get upset if he closes his account. C’mon give me a break. Ask that banker friend and he doesn’t even remember his friend’s account number. You can’t escape from income tax people, the bank details on your old investments can be changed to the new one, and all your true friends also wants your financial life to be in order. So stop making excuses, get up and mark one day to have a look at your unwanted bank accounts and just close them up.
Can you guess the maximum number of policies anyone has ever bought? 5,10,15,20? I have met a family having around 50 insurance policies. And the worst part is there are only 2 insurance products and the agent has created some ladder out of those, means different policies will mature in different years (one after another). This was to supplement retirement income. I think 50 insurance policies can only complicate your retirement income and nothing else. This is not the lone case. Many people have many different types of insurance policies. Some were bought under obligation, some were bought for a goal like child education, Pension plan, savings and many were bought under obligations but then mapped with goals as you don’t want to admit that you did come under influence. People have many policies but no adequate insurance coverage. Keeping insurance and investment separate has many practical and financial advantages. Sit with your financial planner and get your insurance portfolio reviewed and surrender all “not fit in” policies even if at loss. Buy a term life insurance with the insurance cover that is required for your profile and invest the surrender proceeds in a much transparent, liquid and manageable investment option. Believe my words you will feel much light after this activity. (also read : Review your insurance portfolio)
Credit Cards and loans:
“You are eligible for preapproved personal loan of Rs 1 lakh, also as you are our privilege customer so we offer you a Free Credit card. Click here to know the details.” No I am not offering a loan or credit card, I am just pointing out the ads designed to trap you. And you will surely get into this trick when you are going through a bad financial phase. Why Bad financial phase? See, you will get lured to a loan only when you are in need of some money, you will need money either to spend or to honor the interest payment of other loan. Spending on loan or credit card, transferring the balance to other credit cards to pay in EMI, taking personal loans to pay the credit card bills etc. all these are signs of getting into vicious circle of debt. Slowly you screw up your credit score and now no financial institution will lend you anything even for your genuine requirement. You should understand the difference between good and bad loans and make it a point to use only good loans like House loan, education loan etc. More loans means more EMIs, More EMIs means more stress on your financial life, a burden you always want to get rid off. Take a deep breath. Plan to clear off your bad loans and cancel your unwanted Credit cards.
Just like insurance policies, there is no logic in accumulating number of Mutual funds. Having 4 infrastructure funds doesn’t lead to diversification and neither does having 5 large cap funds of different fund houses. One Research in U.S tells that having 10 actively managed funds that all focus on large caps can leave you with same stock market exposure as a single Low cost index fund- while incurring much higher cost in the bargain. You should not have more than 6-8 mutual funds diversified between large, mid and small cap categories. You should also diversify fund houses. Consolidate your investments in a single folio of a fund house. (Read : Best mutual funds to invest in 2014)
Besides mutual funds I have also seen people accumulating land investments like anything with 3 reasons – one Real estate is safe and secure, second they don’t have knowledge on where and how to invest elsewhere and third is that Real estate is the only place where one can park his undisclosed income. Well for last reason I don’t have any answer as this is actually a practical issue, but for first 2 I have answers to. People find difficulty in managing mutual funds which can be bought and sold on a click of mouse; I don’t understand how they find solace in real estate investments which sometimes is actually very cumbersome to manage. Real estate in India has many inherent problems, so better to reduce your exposure. (10 reasons why real estate is riskier than equity)
Our life in general and financial life in particular is like a smart phone where when we keep on loading unwanted apps we face slow processing speed and also a toll on battery life. Delete unwanted apps and you will get a good performance.
Anything that is not letting you lead a healthy and positive life is a clutter. It applies to both our physical, emotional and even to financial health. Remove the clutter and see how effective and efficient you become. Get rid of unnecessary to leave time for the necessary.
Do share the post with your friends and help them de cluttering their financial life.