Personal Finance Myths

There are many myths about personal finance. The reason I say they are myths is because it’s always not true what we think it is. It’s perceived to be true.

‘Mutual Fund investments are risky.’ ‘FD is a safe investment’. ‘Gold is a safe investment’.

‘Never ever invest in stocks.’ ‘Real Estate is The Best investment.’

‘Own house is an asset.’ ‘Term Insurance is a waste, as at the end of the period you don’t get anything.’

Above are some of the sweeping statements made by people. Many of them are myths –  personal finance myths.

To me, Personal Finance is the application of the principles of finance to the monetary decisions of an individual or a family unit. It addresses the ways in which individuals or families prepare a budget, save and spend money over time, taking into account various financial risks and future financial goals. Components of personal finance include checking saving accounts, cash, credit cards, consumer loans, and investment in the stocks, retirement plans, and social security benefits, insurance policies, and income tax management.

Personal Finance can be compared with Personal Health. We carry many myths about our health. Most of these are traditionally enforced on us or we pick it from someone and perceive it to be true. When we ‘feel’ everything is fine about our health a routine checkup tells us that the cholesterol level is just below the normal level. The doctor immediately prescribes a course of action including diet, exercise etc. and may not even talk about medicines. And then within few months you are back to normal health. Even in the worst case, doctor suggests remedies for the same and you start enjoying your normal lifestyle.

A person having huge investments in FDs thinks that it is a safe investment but he/she heavily loses on taxes. I know a senior manager of an Indian company having Rs.30L in FD and that too in his name. He falls into 30% tax bracket. His interest income itself is approximately 3L. The tax paid on that is nearly 1L.  It is a huge amount. I could enroll him in transferring the entire amount to his son and daughter by a simple Gift Deed as both are above 18 yrs of age. Now both the son and daughter, in spite of getting income of Rs.1.5L by interest are not eligible for tax deduction. Rs 1L is saved pa for the family.

Mutual Funds are one of the best investments for long term. But the Myth is MF is risky.

Yes, in the short-term of say 3 to 5 yrs, but not for 10 yrs. But many of us lose the opportunity or power of this investment as we carry the so called Myth of it being risky.

Life insurance is a part of Personal Financial Planning. Still many don’t want to take insurance, especially Term Insurance. They don’t want it but we all know that everyone ‘needs ‘it. The Myth carried as ‘no use, as we don’t get money back..’. But the fact is Term insurance is the cheapest form of insurance. If we insure our car why not insure ourselves adequately.

The main myth of Personal Finance is ‘why this planning is required? ‘Sub thik to chala hai’   Then I have to give them a kind of comparison of his family with the multinational company he is working with. He works for the company to make it profitable. But, His family also is a company- YOU INC… He may be the MD, wife being the ED. And who are the share holders who need to be kept happy, satisfied? Children, dependable parents… Doesn’t he need to have a good amount of planning to ensure that the share holders’ needs are well taken care off?

So let me conclude by saying that Personal Finance Myths from peoples’ mind need to be removed. How? By giving actual facts, working with them hand in hand at the same time caring for their feelings, following a process, fixing their priorities & involving all in the family. The personal Finance Myths will disappear and what they will experience is the reality. And the reality is much more beneficial if understood and followed in the right manner.