In a bustling neighbourhood inMumbai, the Shukla family was considered the epitome of success. Shukla, asuccessful businessman, his wife, a dedicated homemaker, and their twochildren, Rohan and Rita seemed to have it all. From the outside, their lifeappeared to be a seamless version of prosperity and contentment. However,beneath the surface, the Shukla family was unknowingly trapped in a web offinancial misconceptions that threatened their long-term prosperity.
Trap 1: Blind faith infavourite financial instruments: Shukla had always believed in the power of real estate as asure-fire investment. Over the years, he had diligently invested in multipleproperties across the city. Despite the market fluctuations, he remained steadyin his belief that real estate was the safest bet. However, by concentratingall their investments in one asset class, the Shukla family had inadvertentlyexposed themselves to significant risk. They were vulnerable to any downturnsin the real estate market, with limited liquidity to address immediatefinancial needs. This is an example, and the writer has no intention to demeanthe power of any market instrument.
Trap 2: Chasing notionallong-term benefits: Rohan,the eldest son, was a firm believer in long-term investments. He meticulouslyresearched mutual funds and stocks, focusing solely on the projected long-termreturns. However, he failed to consider the family's immediate financialrequirements. When unexpected medical expenses arose, Rohan had to liquidate aportion of his investments, disrupting his carefully laid long-term plans. Thefamily also overlooked the importance of insurance and emergency provisions,considering them unnecessary expenses. This left them financially exposedduring times of crisis, compromising their lifestyle and future financialsecurity.
Trap 3: Lack of financialcoordination within the family: During any functions, the Shukla family was known to coordinatethe colours of their outfits. They loved selfies and pictures and others usedto look up to this flawless coordination. But in the Shukla household,financial decisions were solely head-of-the family Shukla's domain. Despitebeing well-intentioned, this led to a ‘dependence’ mindset within the family,where other members had minimal understanding or involvement in financialmatters. Alternatively, families often fall into the trap of an ‘independence’mindset, where each member manages their finances independently, withoutconsidering the collective financial goals of the family. While Shukladiligently managed the family's finances, his wife and children had littleknowledge or input, leading to a lack of cohesion and alignment in theirfinancial planning. Rohan was managing money in his limited capacity for hisincomes only.
Consequences of thefinancial traps: Despitethe booming economy and the family’s increasing income, the Shukla family’sprosperity was hindered by these financial traps. By over-relying on one assetclass, ignoring short-term financial needs, and lacking cohesive financialplanning, they inadvertently put their long-term prosperity at risk.
Breaking free from thetraps: A roadmap to financial immunity
The Shukla family's story isnot unique. Many Indian families find themselves in similar financial traps. Tobreak free and secure their financial future, families must adopt a moreholistic approach to financial planning.
Diversification iskey: Instead ofputting all their eggs in one basket, families should diversify theirinvestments across various asset classes. Real estate, while lucrative, shouldbe balanced with investments in mutual funds, stocks, bonds, and otherfinancial instruments. This not only mitigates risk but also ensures liquidityand flexibility in times of need. A luxurious liquidity and emergency provisioncreates a strong fundamental base for the family.
Balancing long-term andshort-term goals: Whilelong-term investments are essential for building wealth, families must alsoconsider their short-term financial needs. Setting aside funds for emergencies,health insurance, and liquidity is crucial to safeguarding against unforeseencircumstances. By striking a balance between long-term wealth accumulation andshort-term financial security, families can ensure a smoother financialjourney. After all, money is needed at every age, stage and phase of life.
Open communication andcollaboration: Financialdecisions should not be the sole responsibility of one family member. Instead,families should foster open communication and collaboration when it comes tofinancial planning. Regular discussions about financial goals, investments, andexpenses ensure that everyone is on the same page and working towards commonobjectives. This not only promotes financial understanding within the familybut also ensures that all members have a say in shaping their financial future.
The Shukla family’s journeyserves as a cautionary tale for many Indian families trapped in similarfinancial mindsets. By diversifying investments, balancing long-term andshort-term goals, and fostering open communication, families can break freefrom these traps and embark on a journey towards financial wellness and prosperity.Remember, financial security is not just about accumulating wealth; it’s aboutprotecting and preserving it for generations to come.
(The writer is a FinancialEducator with 15+ years of experience, a published author, a TEDx Speaker andhosts multilingual podcast shows ‘LaxmiGyaan Library’ & ‘A Sip of Finance’)
