Celebrate Diwali with Five Rays of Financial Light

November 04, 2021 9:57 AM

Diwali 2021: On the eve of this highly cherished festival of lights, let us steer clear of indulging in messy firecrackers, fancy rockets and high-decibel bombs for the sake of our environment.

Diwali 2021

By Rajeev Mathur

Come Diwali, the environment all around us is dazzled in the brightness of illuminated cheer. On the day of this highly cherished festival of lights, let us steer clear of indulging in messy firecrackers, fancy rockets and high-decibel bombs for the sake of our environment. Instead, let us explode the wrong notions and misconceptions about finance and investments, thereby paving the way for our financial freedom and fulfilment. Among other things, there are five closely interlinked truths of life that are integral to defining, designing and, delivering financial and investment priorities.


The biggest challenge about retirement is rooted in illusion. It seems far away till it knocks on your door one day, as if unexpected. One invariably feels its presence at the point of no return. To escape this vicious cycle, it is imperative that you plan for retirement from the age at which you can comprehend its meaning, which happens mostly in your 20s.

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The early you start, the better you can plan for it. So, inculcating a saving habit, as also investing in different asset classes in line with one’s financial wherewithal helps one to make the most of the compounding effect which makes money grow exponentially over time. Time is money, they say, and they are absolutely right.

Life Expectancy

Assuming a student life threshold of 25 years, and a working life till age 60, the span of autumn years beyond 60 is substantial and must be planned for, given the fact that there is no income flow to support it.

Given the advancements and innovations in modern medicine and tech-driven comforts that have made lives hassle-free, the average life expectancy is steadily growing across the globe. What does all this mean in financial terms? The fact that we will live longer means we will need to save enough and invest wisely to live life on our own terms, rather than dictated by circumstances.

Standard of Living

Standard of Living implies the manner in which live, how the game of money – of earning, spending, saving and investing – impacts our life. Does it improve our level of comfort, does it help maximise our wealth, and does it help us with value-added possessions above basic necessities.

Closely linked with standard of living is the concept of Quality of Life which implies an individual’s sense of wellbeing including physical and psychological health, financial freedom, and social status. If our income is unable to assure us Quality of Life, something is amiss from our financial and investment planning. Although standard of living and quality of life are subjective concepts, our financial decisions impact them to a great extent which is why financial literacy is extremely important.

Medical Expenses

It is a well-known fact that ailment is a function of age. Consequently, healthcare costs grow in tandem with advancing age, more so in cities and towns where stress has a huge impact on peoples’ health. Hence, it is most important to factor in medical costs in our financial plans and budgets.

In India, there is no concept of social security or universal health coverage, which means the Out of Pocket expenditure on health is invariably phenomenal, which exposes common people to the perils of derailed home budgets and debt traps, especially in the case of serious ailments like cancer and heart disease.

Healthcare costs are inherently complex, and one can’t ever estimate the number and types of procedures and tests to be done in the course of treatment.

Further, wrong assumptions about medical insurance lead to last minute shocks in the form of higher-than-anticipated bills. It is, therefore, imperative to set aside a corpus for medical expenses, keeping it distinct from retirement savings and investments. As regards medical insurance, it is best to seek expert advice on choosing from among different heath policies.

Life Insurance

Life insurance is necessary protection for you and your family. Given life’s unpredictability, it is important that you ensure the well-being of your near and dear ones though life insurance. This cover will protect you and your family from the vagaries of life. Here it is important to understand the essence of insurance.

Never commit the cardinal error of mistaking emergency money for insurance. Emergency funds need be set aside on a monthly basis after taking stock of earnings and expenses, as also debts like loan EMIs and credit card dues. In the case of emergency money, liquidity is the key word, such that fast withdrawals can be made as and when required.

In the case of life insurance, protection is the key word, as we need to safeguard the future of our dependants while we are around. Both emergency money and life insurance serve different purposes and both are indispensable.

So, what do these five facts of life tell us. They highlight the need to put investments in perspective. In the ultimate analysis, what are investments all about? They are all about maximizing returns and minimising risks, which are a function of prudence and patience. Once we put the need to save and invest in perspective, we capture the essence of key investing paradigms, tools, and techniques, thereby making the most of the investing avenues and instruments.

After we arrive at the investible funds after considering the five truths mentioned above, it is important to define our short-term and long-term goals, which in turn would help define our investment goals which may pervade different asset classes.

‘Never put all your eggs in one basket’ may sound like a cliché, but it helps us maximise wealth and minimise risks. No source guarantees consistent returns all the time but collectively helps us move up the value chain of investments.

In the last two decades, different asset classes like equity, debt and gold have outperformed each other at different times. A prudent selection of diversified investments will hence help us profit from the highs of each asset classes, and offset the shortfalls arising from the lows.

Rajeev Mathur is President, Yes Securities. Views expressed are personal.

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