The Fundamentals of Financial Wellness

I usually clarify upfront that this is not about financial planning but it is about bringing the much needed balance in your finances and how you feel about it (often connected with Mulaadhar/root chakra !). Financial wellness is not about using financial health checks (which are available across the internet) but it is about understanding the basic rules (yes, not just principles !) which govern our financial wellness, have a good plan and most importantly feel satisfied with where you stand and your planned future ahead (despite the uncertainties !) .

Common-sense is not so common  :  Solutions to the most complex challenges in life are often very simple. Same is true for financial wellness. Please understand how much you save (not how much  you earn !) after finding out your earnings (business/salary income,  investment gains) and subtracting all the outflow (expenses, emergency, loan etc).  This is similar to learning how to stay afloat in water. We need to be able to breathe and breathe well in a way that we can continue to stay afloat and swim for a long time !  the-rule-of-72We also need to understand the time value of money (assuming about 7.5% inflation rate, we need to understand what it means to my Rs 1000 invested at 8%, 12% and 15%.) We also need to understand what happens if I keep that money as cash in a locker !
Common sense also includes understanding the Rule of 72 (so that we go beyond the simple mathematics and get insights on how to see the growth % and money).  It is also important to understand which road we plan to take (and prepare for) ! This is a long term game and not about daily transactions !

Power of compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” ― Albert Einstein

Please decide which side of the equation you want to be and plan accordingly.  This is also a lot about using the Ajna Chakra (insight, gut feel) and not just looking at the numbers. Internet has lot of material on this topic which we also learnt in the school.  Please get the insights on “how compounding works”, it will transform your life. 

Various investment options:

With clarity on the common-sense and the power of compounding, we need to review where we stand in our spending vs earning (in the swimming analogy, we need to decide whether we are about to sink or we have enough oxygen for a long swim !).  This is a very specialised topic is about knowing various debt and equity investment options (beyond the scope of this write-up). If you are up to it, many avenues are available ranging from real estate to commodity trading !  You also need to decide how you plan to diversify and be prepared to play a long term game.  Some tips:

  • History and economics usually don’t hide the insights you need for a balanced financial wellness. For example, if you take a 15 year duration from 1999 to 2014, you stand a probability of losing 33% of the time (if you stayed invested only for a duration of 1 year every year !). This probability reduced to zero if you remained a longer term investor (i.e. invested for at least 7 years!)  Be ware of such simple insights (i.e. if the market crashed for a year or two, don’t rush to get out of the market !)
  • Goal based investing is one approach often recommended by the experts and it makes a lot of sense.  Go ahead and use the tools and technology available – while using the common-sense – to create a plan that works for you ! Execute it with excellence !
  • It is also important to understand that you (and not your High Net Worth Client Manager) need to be in control of your plan (i.e. Strong Manipur/Solar Plexus Chakra is critical here.). For example, the financial advisors have their own vested interest (their commission) so just be aware of that and plan your own work accordingly. Even if you have a manager who manages your fund, he/she can only execute with excellence, the control of key inputs/parameters must remain with you !

I usually cover these points in a 4 hour experiential workshop but felt that the essence of that workshop must reach out to a broader audience and hence this article.  There are 2 simple exercises that participants love (the a-ha moments) in the workshop about (a) knowing how you are swimming in your life of financial wellness and (b) Goal based investment planning. 

In the end, it is not about a “smart” stock or mutual fund or investment idea, it is ALL about “executional excellence” !

Gunjan Trivedi

Life Coach & NLP Master Practitioner