10 Financial Planning Myths That Can Destroy

8/3/2019 10 Financial Planning Myths That Can Destroy

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AN EDELWEISS SPECIAL REPO

1010

Financia l P lanning MythsThat Can Destr oy Your Futur e…Buste d!



Foreword: The Money Game, and Why You Might be on the Losing Side

Financial Planning Myth #1 : Who, Me?

Financial Planning Myth 2 : It’s Too Early for Me to Plan

Financial Planning Myth #3 : I’m Not Rich Anyways

Financial Planning Myth #4 : I Don’t Have Money to Save

Financial Planning Myth #5 : I’m Already Earning Enough

Financial Planning Myth #6 : I’m Already Invested

Financial Planning Myth #7 : I Want to Beat the Market

Financial Planning Myth #8 : I Don’t Care About My Future

Financial Planning Myth #9 : It’s Too Confusing, and Risky

Financial Planning Myth #10 : I Can Do It All by Myself

Afterword : It’s Time for A New Beginning


Table of Contents



“Money was never a big motivation for me, except as a way to keep score. The real excitement is

playing the game.” – Donald Trump

It’s amazing how much time and energy people waste stressing over money, reacting to financial

setbacks as if money is life i tself.

What’s the point of playing the money game? Is it to amass a fortune? Of course not. You’re going

to lose it all when you die anyway. The point is to enjoy the experience of having the money, have

fun, and grow from it.

Play the money game for fun and growth, including the fun and growth of your dependents. Don’t

stress over whether you think you’re winning or losing.

You see, most of us were never taught how to win the money game and if we were, most likely we

were taught by people who weren't very good at it.

Remember, the first critical element in winning the money game is to know exactly how to do what

rich people do to get and keep wealth. Once you know how to play to win, you will never have to

work again…unless of course, you choose to.

And the only way you can know how to play to win is by knowing the different myths that can stopyou from playing the game at all.

In this Special Report, we at Edelweiss Financial Planning will expose some of the biggest myths

floating around today when it comes to planning your finances, so you can avoid trouble when you

come face to face with them in the future (and you definitely will!).

But before that, remember that despite knowing about these myths, you will get caught

wrong-footed by your own behaviour that will obstruct you way towards financial freedom.

However, if you know what these myths are, you will be in a better position to side-step them.

Only this can help you to big success and wealth through planning how to make your money earn

more money for you.

So let’s get started right here, right now!


Foreword: The Money Game, and Why You Might be on the Losing Side



“No one wants to die. Even people who wanna go to heaven don't wanna die to get there.”

~ Steve Jobs

This quote from Steve Jobs’ famous 2005 speech at Stanford University sums up how we look at our

lives and finances. We all want to believe that we have some magic potion that will save us from

dying even as we see others around us depart from this world one after the other. When it comes to

our finances, we all want to believe that we’ll grow wealthy in the future even as others around us

struggle to get there, ever after trying for years and decades.

Some of the common excuses that we hear of people not planning their finances are…

• I’ve just got a job, so I don’t need a financial plan.

• I’m too young to plan my finances.

• I’m too old to plan my finances.

• I don’t understand anything about finance. So please excuse me!

• This financial planning looks like a complex thing. So forget it!

• I’ve already invested a lot of money in the stock markets, and I think that’s sufficient for me.

• Wealth is something that other people have and that I can't get.

• I'm embarrassed to ask questions about finances because I don't know what I don't know.

The list of excuses is endless. And if any of these apply to you then you are not alone. Believe it or

not, most of your friends, colleagues, and neighbours are in the same boat.

The thing is that we all have our worldview when it comes to different matters of life. And financial

planning is no different. The problem lies in our education system that teaches us subjects like

maths, history, and home science, but not a simple subject on how we must treat the money we earn

after we pass out of the educational system. We are never taught how to use a simple arithmetic

concept like compound interest that is one of the most magical and easiest concepts in finance.

We are taught how to cook, how to stitch, and how to balance a bank pass book, but never how to

manage our money and how to invest the same to earn good returns.

So our worldview is that finance is tough, and financial planning is only for those who have the

riches.

But the fact remains that, if you wish to live a happy and contented life, you need sufficient amount

of money to meet all your financial needs – like your higher education and marriage, your children’s

education and their marriage, or your own retirement.

And to achieve these goals, you need to plan in advance. This planning must be done not by


Financial Planning Myth #1 : Who, Me?



calculating how much money you have currently, but how much do you want to have at the time you

need it, say 10-15 years down the line.

That is the core job of financial planning – to help you know how much money you need in the future,

and then to guide you in accumulating that much amount – bit by bit, month by month.

So the question, “Who, me?” when it comes to financial planning is a big myth. The earlier you get

over it, the better it is for you and your family who are dependent on you for their needs and wants.

“Procrastination is the bad habit of putting off until the day after tomorrow what should have been

done the day before yesterday.” ~ Napoleon Hill

There are many ways to avoid success in life, but the most sure-fire just might

be procrastination.

Procrastinators tell lies to themselves. Lies such as, "I'll feel more like doing this

tomorrow." Or "I work best under pressure."

But in fact they do not get the urge the next day or work best under pressure. In

addition, they protect their sense of self by saying "this isn't important."

Another big lie procrastinators indulge is that time pressure makes them more creative.

Unfortunately they do not turn out to be more creative; they only feel that way. They squander their

resources.

The biggest problem with procrastination is that it has a high cost to others as well as oneself; it

shifts the burden of responsibilities onto others, who become resentful.

Take the case of procrastinating planning one’s finances by saying, “I’m too young for it,” or “It’s too

early for me to plan.”

These are dangerous statements…dangerous for you and your future wealth.

Let us understand this using some calculations.

Let us assume you are just starting out with your investments, and need to collect Rs 1 crore in

wealth when you retire at 50 years of age (yes, you’ve promised your wife that you will retire at 50!)

Also, you have the ability to invest only Rs 5,000 per month. If you are 25 years of age now, you have

25 more years to earn, save, and invest Rs 5,000 per month.


Financial Planning Myth #2 : It’s Too Early for Me to Plan



Anyways, things look a bit different if you are already 30 years of age, and have just 20 years to earn,

save, and invest Rs 5,000 per month.

To reach Rs 1 crore when you are 50, your investments must grow at almost 17% per annum. Even

this sounds achievable.

But what happens if you are now 35 years of age, and thus have 15 years to retirement?

Your Rs 5,000 monthly investment must now grow at 25% per annum for you to reach Rs 1 crore in

15 years. Seems very difficult! And what happens if you are now 40, and have just 10 years to i nvest

and collect Rs 1 crore?

Forget it, because your annual rate of return must now be 43%. Not achievable…unless you have

some magic crystal ball that tells you which stock is going to be the next Infosys!

The equation gets even worse if you have just 5 years remaining to reach 50. Your money now needs

to grow at 106.5% annually!

Stay out of the stock markets and try your hands somewhere else. Like the casino or betting on

horse races?

The above example is a clear cut reason why you must start investing early. And to know where to

invest your savings for earning optimal returns, you need to start planning your finances early.

Waiting for ‘tomorrow’ is dangerous, because tomorrow won’t wait for you.

Our calculations show that to meet the target of Rs 1 crore when you reach 50 years of age, the

annual rate of return at which your investments must grow at, is 12.3%.

This is very much achievable, given that Indian stock markets have generated average returns of

around 18% per year over the past 30 years. So expecting just 12.3% average returns over the next

25 years isn’t unbelievable.




Financial planning isn’t about where you start, but where you want to end up.

So you don’t plan your finances because you are not rich now. You plan your finances

because you want to get rich in the future. You want to be able to meet all you

financial goals in life – goals like your children’s education and marriage, a world tour

on your 25th wedding anniversary, and your own retirement.

So, if you don’t have enough money, and especially if you don’t have enough money,

it makes a lot of sense for you to go in for financial planning.

Why? Because you have limited financial resources at your disposal at this point of time and thus

you must maintain a stricter vigilance over your money flow so as to maximise whatever hard-earnedmoney you are earning.

Do remember that financial planning involves loads of factors which not only helps you in planning

your goals but also meeting unforeseen risks, insurance planning, investment planning, retirement

planning, analysis of cash flow statement (your income and expenses), your current standing (assets

and liabilities), insurances and existing investments.

"If you would be wealthy, think of saving as well as getting." - Ben Franklin

This is probably the most dangerous myth to believe in. First of all if you don’t save you will

never have enough money, second of all small amounts can go a long way in your savings

especially when you take into account power of compounding.

Unless you have a large amount of debt, there is no reason why you should not be saving.

One common reason people do not save money is that they feel that they do not have any

extra money. There may be times in each person’s life when things are tight enough that this

is true, but more often people are unwilling to make the necessary sacrifices to really save

for retirement.

If you cannot save some money out of your income, you need to change something

in order to save.

Of course, it’s human nature that spending money gives us an emotional “high”. Marketers

know how to prey on our emotions so that buying that SUV, expensive cell phone,


Financial Planning Myth #4 : I Don’t Have Money to Save

Financial Planning Myth #3 : I’m Not Rich Anyways



Well, it’s great to know that you are doing well in your career and are earning enough

money as of now. You might be proud of yourself to see your salary or business

income rise by 8-10% every year, right?

If that’s the case, let us tell you that when you earn 10-15% more every year, you

don’t get richer. In fact, you are like running on a treadmill. However hard you run,you still remain at the same place.

How? Well, the answer us very simple.

Look at the inflation, or the annual rise in prices of everything you consume – groceries, food,

medicines, healthcare costs, entertainment etc. they are all rising by 10-15%, or sometimes even

faster.

or high-end TV becomes not a negative cash-flow situation, but an integral part of how we define

who we are.

But just stop for a minute and think about this. The sacrifices you make now will prevent you from

making bigger sacrifices when you are older. Think of the smaller sacrifices of eating out less often

and skipping one movie a month and compare it to making the choice of which medicine you can

afford to buy. This can be a motivating factor as well.

Here is an example that will help you understand the importance of saving (and investing that

saving) better.

Assume you try hard and are able to save Rs 1,000 every month by just skipping one visit to a

restaurant with your family every month, over 20 years (or 240 months) you’ll be able to save Rs

240,000, which is a good saving. Now if you invest this saving of Rs 1,000 every month in an invest-

ment that earns you just 10% per year, you can turn this Rs 240,000 of saving into around Rs

765,000 of wealth.

This will be good enough to pay more than 50% of your daughter’s MBA fees in the year 2030. And

that’s just with Rs 1,000 of lesser spending and saving per month. Rs 2,000 per month of saving can

invested at 10% can fund your daughter’s entire MBA fee then. Just imagine!

So the idea is this. If you think you don’t have much money to save now, try harder to save now (by

either earning more or spending less).

After all, your and your family’s financial future depends on it.


Financial Planning Myth #5 : I’m Already Earning Enough



This is one major excuse we’ve heard from people who have not got their financial planning done. “I have

invested money so my financial planning is taken care of.”

This is so far from the truth. There are loads of factors that go into making a viable financial plan, and investing

is just one of them.

People invest their money based on recommendations of their friends and colleagues. They are happy as they

think they’ve duly taken care of their finances by way of investing their money that is not jus t sitting idle in their

savings accounts. They don’t undertake any research of their own nor do they review any of their investments.

So the remain happy until the t ime emergencies come knocking. And since they are

ill prepared for such emergencies, they resort to borrowing. So the whole point is

that just by plain investing, your present and your future is not taken care of.

In fact when an emergency comes into picture, risk management or risk planning,

which besides contingency planning, involves insurance planning as well is also

equally important.

The truth is – financial planning can be just about anything (including investing).

So if you income is Rs 100 today and it can buy you 10 kg of potato, even when your income rises

to Rs 110 next year, you will stil l be able to buy only 10 kg of potato, because the price of potatoes

would’ve also risen by 10%.

Thus, the thought that “I’m already earning enough and thus I don’t need to plan my finances” can

prove to be disastrous for you in the long run.

Your expenses are also rising at the same, or even faster, pace as your income. And things are not

expected to be any different in the future given that inflation will remain high due to every rising

consumption and ever increasing scarcity of food and other consumables.

As such, there is a great need for you to put your money to work for you, even as you work harder

to grow your income faster than inflation.

Only a proper financial plan can help you know how you can put your money to optimum use so that

it earns you the maximum returns – returns that are greater than the inflation that is otherwise eatinginto your hard-earned savings.


Financial Planning Myth #6 : I’m Already Invested



“What’s financial planning? Just tell me a way to beat the market, and that’s all I want.”

“Beating the market” is a goal that is common to many investors. After all, who doesn’t want to earn

more money that his or her friend, colleague, or neighbour?

This ‘beating’ thing has been long ingrained in our brains as the only metric to show our power,

intelligence, and value over the ‘beaten’.

So, while getting a salary hike of 20% would make me very happy, knowing that my colleague got a

25% raise would make me feel pathetic.

Or as a scene in the movie 3 Idiots suggests, “It feels bad when a friend fails, but it feels even worse

when he comes first.”

This mindset is very much visible when it comes to investing and planning one’s finances as well.

But the harsh (and real) truth is that ‘beating the market’ is not a sensible, proper goal.

The only goals you must have as an investor are:

• To keep money (capital protection), and• To make money (capital appreciation).

These follow from Warren Buffett’s two rules of investing:

• Rule No.1: Never lose money.

• Rule No.2: Never forget rule No.1.

If you are living paycheque to paycheque, then financial planning would involve budgeting to ensure that you

live below your means and avoid debt.

If you can spare some room in your budget, then planning could involve setting up a retirement account and

making regular contributions.

As your income increases, you would add investing to the mix. Maybe you will plan a luxury trip.

Maybe you choose to buy a fancier car.

Financial planning is all this and a lot more. Start out with some basic goals, and determine how you

will get there, and voilá, you have a financial plan. Investing is just one piece of the puzzle, which is

what you must solve in order to achieve finance freedom.


Financial Planning Myth #7 : I Want to Beat the Market



"For I don't care too much for money, for money can't buy me love." - The Beatles

Of course, for the amount of money The Beatles have been able to make in their

music career, they have the luxury of being somewhat careless in how they

manage that fortune.

But we assume you aren’t any of the Beatles, and you still need to work hard to

sustain yourself and your family over the next 15-20 years at least. If that is the

right assumption, not caring about the future is not an option for you.


Financial Planning Myth #8: I Don’t Care About My Future

The idea of ‘beating the market’ is just a whim.

The reality is that your core goal must not be to beat the market,

but to meet your financial goals with comfort.

To achieve that, whether you earn same as the market (Sensex), or 1-2% here or there as compared

to Sensex’s returns, makes no sense.

Remember, trying to beat the market is like climbing onto a treadmill that never stops. It eventually

exhausts you, and you come flying off it.

We remember a small story that wi ll make this fallacy about ‘beating the market’ clearer for you.

Once, two guys were hiking through the jungle when they spotted a seemingly hungry tiger. One of

the guys reached into his bag and pulled out a pair of sneakers.

His friend looked at him shockingly, and asked, “Do you really think those shoes are going to make

you run faster than that tiger?”

The second replied, “I don’t have to run faster than that tiger. I just have to run faster than you!”

You got the idea, right?

In the same way, the idea in investing and financial planning is that your investments don’t need to

earn you more than the markets (or your friend or relative).

Your investments just need to earn you enough (while protecting your capital) to meet your long term

financial goals and live your life happily in your golden days.

Every other idea is a myth…a sham.



“Financial planning sounds too confusing to me, and thus very risky!”This is a common excuse we have heard from many people who are yet to

start planning their finances. They feel they are better off without planning

anything and just letting time take care of it all.

It really amazes us when educated people think that planning their finances

is risky.

This is especially when they are already taking much bigger risks by listening

to their friends, colleagues and neighbours and wasting their money on

unnecessary financial products that are never going to make them any

money.

If you also feel the same – that financial planning is risky – what you need to know is that so is

swimming, crossing the road, riding a bike, and driving a car. With proper training and guidance from

our parents and trainers, we learn to do these things fairly early in our lives.

But the sad part is that parents rarely teach their children how to treat money – how to save, invest,

and plan for their future. And that is what makes the grown-up children believe that anything to do

with managing their money is ‘risky’.

The legendary stock market investor Warren Buffett once said – “Risk comes from not knowing what

you’re doing.”

By educating yourself in planning your finances, you will know what you’re doing. And that will take

away a lot of risk from your investment decisions.

The simple truth is that if you don’t plan for your financial future, then your finances simply won’t

have one.

If you're young, don't let your age fool you into thinking that your future can easily take care of itself

and that it's too early to save for any financial goal.

The fact remains that the sooner you start saving and planning your finances, the less you'll need to

worry about your long term financial freedom.


Financial Planning Myth #9: It’s Too Confusing, and Risky



Independence is normally a good thing, but not when it creates a prideful attitude that says, “I don’t

need anyone’s help. I can do it all by myself.”

Reality is that we all need each other in performing different activities of our lives.

Of course, it is not misleading to think that you can do everything by yourself. But

if you are not doing it all day, every day, year in and year out like a professional

does, then how well are you going to manage?

Here are some things to consider: Would you do the fighting a legal case on your

house without a lawyer?

How about a spending a couple of years at school learning how to fix your own teeth?

What about spending years in a flying school just because you love air travel?

Too many people try to do everything by themselves because they think they should be able to, or

they don't want to pay the fees that professionals may charge.

Financial planning is no different so don't be foolish. Know your limitations and get help when you

need it.

Financial planning is no rocket science. It is a combination of simple financial strategies, few

calculations and, most importantly, your discipline.

However, you also have to commit time if you want to manage money successfully. You will first need

to start by educating yourself with personal finance matters and products.

If you are not able to make this commitment, it’s a good idea to hire a financial planner who will do

the handholding, advise and maybe even execute the plan.

So, financial planning isn’t risky if you know how to do it the right way.

It’s taking financial advice from people who don’t know what they are talking about all the

time…that’s risky.

And the biggest risk is – as we’ve discussed so far in this report – not planning your finances at all.


Financial Planning Myth #10 : I Can Do It All by Myself



"You don't have to be great to start, but you have to start to be great.” ~Joe Sabah

Whether you’re just starting out or you’ve been around the block a time or two, you should be

considering your financial future. Where will you be in two years, in ten, in thirty years? How would

you like to retire? Making decisions about your financial goals can be not only overwhelming but

also costly. If at all possible, start planning now for your future needs, which are only going to

increase as time passes by.

Financial planning is one of the most important things you can do for your future.

There are a few rules that you should follow to reach your financial goals and stay on track. Each

one is equally important for your plan's success.

1. Determine your current financial position.

2. Decide where you want to be in the future.

3. Design a plan to achieve these goals.

4. Implement your plan and do periodic reviews to keep you focused and on track.

5. Make necessary adjustments to ensure your goals are met.

And to do these – to assess your ability to care for your family, and provide financial assistance to

them – require that you get down to work now on your:

1. Monthly budget with income and expenses

2. Budget for large capital expenses over a 5/10/15 year period

3. A review of insurance plan(s) for what is covered and what i s not

4. An overview of all assets and debts

Hiring a financial planner can be a wise move if you're too busy to plan, hate numbers, have an

unusually complicated situation or need a nagging nanny to get you to save.

But remember, a lot of what a good financial planner does involves getting a client to focus on

important questions whose answers can dramatically alter the results all those calculators spit out.

An agent who helps you fill up a mutual fund or insurance form isn’t that advisor. Instead, he’s the

person who acts as your friend, philosopher and guide.


Afterword: It’s Time for A New Beginning



Thank you very much for signing up with Edelweiss and reading through this Special Report!

It suggests the great importance you give to bring your financial house in order and plan well for the

future.

We hope you enjoyed this Special Report and got the value you expected of it.

We'd like to ask you a small favour.

Provided you’ve liked what you’ve seen in this Special Report, kindly share this report with your

friends and colleagues who might be interested…and help them protect against the financial

planning myths that can ruin their financial future, and ultimately their wealth.

You can also send them to the page where they can sign up to receive this Special Report.

Thank you again for being there!

The choice you have now is to either do it all by yourself, or hire an experienced financial planner

who can handhold you through these requirements to help you create a plan for your finances.

But whatever you choose to do – plan your finances yourself, or get a financial planner to help you

out – remember that your window of opportunity closes a little more with every day that you put off

actively shaping your own financial well-being.

“The art is not in making money, but in keeping it,” goes an old proverb. Perhaps this is truer now

than it was any time earlier in your life.

Don’t overlook it…time is marching on.


Know Someone Who Can Benefit From This Special Report?



AN EDELWEISS SPE CIAL REPO

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10 Financial Planning Myths That Can Destroy

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