Planning mismatch for the self-employed

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: Self-employed people, smart and efficient as they are in fields as diverse as industry, trade or any business, medicine, law, or any profession, often tend to do themselves a disservice when it comes to financial planning. Not only they botch up their own personal financial plan (provided they have one) but also display a queer ignorance about the financial planning process. More often than not, their ego, created by their success in their occupation, makes them think, or pretend, that they know everything about personal financial planning and are capable of taking care of themselves, even if they are quite insecure from within, which is mostly the case. The moment you ask them about their financial goals and what have they done about them, they tend to go into a shell or try to change the topic. Most are quite indisciplined as well, as are their cash flows.

Compare them to the salaried class and you will end up thinking that the latter are generally superior to self-employed professionals, insofar as financial planning is concerned. They are more disciplined, since their cash flows are disciplined. They are quite aware of their confines: their pay-checks, their budgets, their savings and their expenses.

Self-employed people, in contrast, are not really clued in to these elements. Cash flows happen – for professionals, these are generated perennially, but not necessarily for business persons – and investments are indeed made.

However, such investments are usually haphazard. Generally, they find themselves on the wrong side of investors’ emotional cycles of greed and panic (accompanied with market cycles of boom and bust).

Why does this happen so sloppily? Well, for many self-employed people, inflows are dependent on business cycles. “Vagaries of business”, as the good old economics textbook calls it, can often make life difficult for such people. Self-employed people can go – and believe me, they often do – through really rough patches at various times of the year. There is no regular income for them.

Moreover, there is no social security to fall back on or a provident fund or any other obligatory/compulsive savings. Joint families, on which one could depend upon in times of need, are disintegrating. Just consider the need to plan for medical exigencies. Is your lawyer conscious about health insurance? Is the doctor protecting the financial health of his own family if, God forbid, something happens to him? Is your trader buddy clued in on retirement planning? Chances are that no proper planning has been done by them. This state of affairs needs amendment, provided the professional concerned is guided by a financial planner.

Financial planning is important for this lot because it takes care of their wealth-creation needs in a methodical, systematic manner, protecting it and transferring it smoothly to the next generation. It can make a difference to their lives and in the way they manage their affairs. After all, their needs (children’s education, marriage, vacation, lifestyle, retirement and the works) are similar to everybody else’s.