Real Estate

Personal Finance for Professionals (Not Just FM’s)

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<p style="text-align: justify;">I write this article as a person with an educational background in engineering &amp; management coming from a very middle-class background. Sharing my thoughts on personal finance for young professionals with the intent that this message reaches out to those who won&rsquo;t generally read an article or journal on the subject.</p><p style="text-align: justify;">A piece of great news coming in recent weeks is that hiring across levels is picking up across industry segments and experience levels. That&rsquo;s great news for a country like India, where you do not have any social security/welfare support available irrespective of how long or how much you have paid in the form of direct taxes while in employment.</p><p style="text-align: justify;">It has been disheartening to see so many professionals fall into very tough times in this period due to salary cuts or worse. My heart goes out to all affected professionals, and I have tried to support them wherever and whenever possible.</p><p style="text-align: justify;">However, the fact that I found disturbing was many professionals who were at a stage close to the end of their normal professional career and had held posts of reasonable seniority (read compensation) were struggling as much as reasonably younger counterparts who would have much lesser opportunity to build on their personal finances for such a rainy year (not just a day, for sure).</p><p style="text-align: justify;">It would be wrong to judge all on the same scale as each has their own life conditions to manage, but I do believe that many would be better off if they had focused on managing their financial health as much as they do on their daily work and social schedules.</p><p style="text-align: justify;">It is a harsh fact that our education system does nothing to educate us on personal financial management, and added to that; the social norms also find it to be rude to discuss such matters. Most of us end up spending long hours and weeks at work with no time or awareness of how to manage our finances, which becomes apparent only when the rainy days come.&nbsp;</p><p style="text-align: justify;">There are ample information sources available in today&rsquo;s world that can be used for self-education, along with many well developed financial advisory support systems. It is important for each of us to make a conscious effort to become aware of and use the support systems available for better <a href="https://en.wikipedia.org/wiki/Personal_financial_management">personal financial management</a>, which can help us achieve our personal desires besides readiness for tough times.</p><h2 style="text-align: justify;"><span style="font-size: 14pt;">Some guiding points from personal experience:</span></h2><ul><li style="text-align: justify;">Start saving from Day 1 of your professional life, even if it is a summer job or internship. It is never too early.</li><li style="text-align: justify;">Money in your bank account is not enough. Invest in financial instruments which give you inflation-beating returns.</li><li style="text-align: justify;">Take educated risks early in your life. If done right, higher risks will lead to higher returns over the long term.</li><li style="text-align: justify;">Insurance &ndash; life, health and assets are all critical. Make sure you are well covered. Specifically, in terms of health, do not get lost in the mirage of corporate cover as it may not be there when really needed.</li><li style="text-align: justify;">Market tips and trading trips may give you adrenaline bursts but not really long-term stable returns unless you have enough time to spend. So be careful about what you put at risk.</li><li style="text-align: justify;">As you get closer to hanging your boots, get more liquid. Your investments should be able to give you an alternate income flow when the time comes.</li></ul><p style="text-align: justify;">I am surely not one of the richest people around, but I have been able to tick off many items that people have on their bucket lists. So, I hope this personal finance advice for young professionals helps at least some people out there.</p><p style="text-align: justify;">I would be happy to connect with people individually if you think you need some help getting on track. Work hard, play hard but invest harder!</p><p style="text-align: justify;"><span style="font-size: 10pt;"><em>This <a href="https://www.linkedin.com/pulse/personal-finance-professionals-just-fms-shailendra-nath-mrics/">article</a> was contributed by our expert Shailendra Nath.</em></span></p><h3><br /><span style="font-size: 18pt;">Frequently Asked Questions Answered By Shailendra Nath:</span></h3><h2><span style="font-size: 12pt;">1. Why is personal finance so important? </span></h2><p style="text-align: justify;">Volatility in careers is only increasing. While our earlier generations stuck to a job for their life, our generations have been changing more based on interest &amp; opportunities. Business dynamics and volatility shall continue to increase in the foreseeable future. The pace of change in the Fortune 500 list of firms is only increasing. This means even more volatility for individuals in the next few decades. One may not hold a job for all of their working years.</p><p style="text-align: justify;">To be able to sail through such volatile times, you need to create assets that can then become a source of alternate passive income. The pandemic has proven this to be true more than ever. Hence, the criticality of personal finance.</p><h2 style="text-align: justify;"><span style="font-size: 12pt;">2. Why is personal financial management important to your professional success?</span></h2><p style="text-align: justify;">The rules/laws may be different, but the principles of managing money or making money decisions stay pretty much the same. If you learn to treat money with respect and strive for value in every transaction, personal or professional, you will create value for your firm as well. No firm can ignore that.</p><p style="text-align: justify;">Also, if you are looking for career growth, you will need to understand the nuances of budgeting, cash flows, and spend management as you go up the corporate ladder. Hence, understanding of finance is as important in your professional life.</p><h2 style="text-align: justify;"><span style="font-size: 12pt;">3. What is your understanding of personal finance?</span></h2><p style="text-align: justify;">The Indian culture always emphasizes saving, which is good but not good enough. We also need to invest our savings to grow it at a good rate. This growth has to be able to take care of:</p><ul><li style="text-align: justify;">Our short-term goals like a house, car or vacation</li><li style="text-align: justify;">Midterm goals like children&rsquo;s education, marriage, etc.</li><li style="text-align: justify;">Most critical is the retirement income pool creation. While the official age remains at 58/60, the actual retirement is in many cases being forced through age discrimination in many firms at ages as early as 45, which is when many are starting to earn reasonable surplus income that would have been useful for their retirement years. Very harsh but a reality. So, it&rsquo;s critical to start saving for your retirement as early as you can.</li></ul><h2>&nbsp;</h2><h2><span style="font-size: 12pt;">4. How is personal finance best managed?</span></h2><p style="text-align: justify;">I strongly believe that personal finance should be taught as a mandatory subject in both school and undergraduate courses. That would create a baseline understanding for all, which is &nbsp;essential. This individual-level awareness would possibly create a more aware population that makes our governance work better, and the masses are not just looking for freebies. Such an environment would benefit our country&rsquo;s economy and thus allow a better life for many more than today.</p><p style="text-align: justify;">For those starting off on the subject, I suggest reading a lot from standard neutral sources. Read product brochures to compare but take decisions on the basis of rounded information. Consult professional wealth advisors but watch out for those looking at pushing a singular product/product range.</p><p style="text-align: justify;">The principles are not very difficult, and neither is a simple but prudent investment approach. It&rsquo;s more about deciding on your risk appetite and taking the decision to start. Once you have set up a process, it need not be time-consuming at all.</p><h2 style="text-align: justify;"><span style="font-size: 12pt;">5. Why does personal finance depend upon your behavior?</span></h2><p style="text-align: justify;">Our elders worked for basic needs, we have worked to achieve a certain standard of life (individual goals), but Gen Z is looking for experiences in life - interests and hobbies well away from their profession. Some of them find a permanent full-time profession over-bearing and would prefer to take breaks to satisfy their urge for experiences. Hence the need and utility of money are very different for each generation.</p><p style="text-align: justify;">Another aspect is the risk appetite. A high-risk appetite can lead to higher returns in the long term, but it&rsquo;s for an individual to decide how much of their overall asset would they be willing to expose to such risk. Many may prefer a moderate risk portfolio with moderate returns, and it&rsquo;s not so bad.</p><p style="text-align: justify;">However, zero risk and no action are not an option. The sooner one realizes that, the better it is for their financial well-being.</p>
KR Expert - Shailendra Nath