8 financial lessons learnt over the decades

By June 29, 2019 January 29th, 2020 View Point

Ajit Menon

CEO of PGIM India Asset Management
Sourced with thanks from economictimes.indiatimes.com

The knowledge that I have gained over time, has done me good in life and I wish to share these experiences with you as we set foot into another decade.

As we embark on yet another decade, I was reminded of the past; the decades that have passed since I started my career. I was able to reflect on how my financial journey has evolved over the years, and my learning from it. While my middle-class moorings always made me conscious about saving money, my professional journey introduced me to investing very early in my life.

Over two past two decades I have spent time in the financial services industry working with some very diverse personalities. The experience has provided me with a ring side view of real-life personal finance lessons. The knowledge that I have gained over time, has done me good in life and I wish to share these experiences with you as we set foot into another decade.

Lesson 1: Never ignore insurance

Life can throw some nasty surprises at you. I learned early on the importance of life insurance to protect the interests of my family. I equally learnt the need to stay healthy and be financially protected with a health insurance to meet any financial issues owing to ill health. I recollect a colleague who faced lifestyle health issues, which severely impacted his professional growth, and in turn disrupting his best laid future financial plans.

Lesson 2: Stay invested for the long term

As much as this may sound clichéd, it is a fact which is hard to ignore. The Sensex moved from 5,491 on January 4, 2000 to 17,558 on January 4, 2010 and was 41,464 on January 4, 2020. Now, this is no indicator of the Sensex doubling by the end of this decade; but I can reasonably state with conviction that investments will grow if they are allowed to stay the course of the markets for the long term.

Lesson 3: Spread your money

The shear health benefits of eating a balanced diet don’t show immediately. However, over time one experiences the benefit not just by feeling healthy, but also by maintaining their weight. The same can be said when you diversify your investments across different asset classes. This anecdote was narrated by a friend the other way around to make me eat healthy and stay healthy to enjoy wealth.

Lesson 4: Focus on long-term financial goals

There are few financial goals that matter the most in life –retirement, child’s education, and a house of your own. There is time to reach all of them, the time that your investments can gain from. Today most of us buy a house rather early in life with the help of a loan. Repaying it is a goal which can be planned keeping tax benefits in a smart way.

Lesson 5: Look for tax-efficient investment options

While you cannot ignore income tax, you can definitely optimise your tax liabilities. There are savings and investment tools that can be tax efficient and help you with wealth creation. Go for financial instruments that are tax-efficient than be blinded by returns.

Lesson 6: Save for retirement

While one can achieve almost every life goal with the help of a loan, your retirement is something that you need to work on. Planning for retirement is not a mystery; it is a simple act of saving and saving more for a phase in your life when active income dries up. The collective impact of increasing longevity, better health care and rising costs could pose a disastrous outcome. Make sure you start saving for retirement from the time you start earning and never stop saving towards these goals.

Lesson 7: Engage a good advisor

Just the way a physician consults another physician about their health; I too consult with a financial advisor to address my biases and to keep my family financial goals on track. Select an advisor who has experience and meets your needs. Word of mouth references are a good start, but you could also check their credentials to ensure you are engaging someone with training and experience.

Lesson 8: Stay relevant

I love learning from reading and from experience shared by others. We naturally gravitate towards convenience and easy to follow habits. We have adapted to technology because of its necessity. Do the same with financial products and services. I know the initial hesitation I had with digital transactions, but now I hardly carry any cash. Believe me, managing money is as much about understanding psychology.