The financial decisions we take has a lot of emotions attached to them. Be it a first house or a first car, new member in the family or even our own retirement, the emotional aspect is always behind the first thought. Although in financial planning your financial situations have a larger say you cannot rule out your emotions. Because of this aspect many times you face this difficult situation when your heart says YES but your finances says NO. Unless you understand the future impact of the decision the emotion will always rule over your finances.
Here are few of such situations where emotional aspect is stronger but you need to do a detailed analysis to make your decision wiser:
1. Buying a House Vs Renting: Fora moment leave aside all the calculation by experts, it’s always a moment of happiness and joy when you decide to buy a house of your own. If you would have stayed long on rent then this decision will certainly bring cheers among your family. It’s difficult to describe in words what “ Ownership Of House” means for you and your family. But this is also a financial decision which is going to impact your cash flows for long. Most of us buy a house on loan and the loan EMI is where your emotions will play a very important role. In general, we will not mind stretching our finances cause it may be a lifetime decision. We will be ready to get a hit on our finances today in the apprehension of improving them with our increase in income. But no one can give surety of tomorrow so it’s wiser that we have our emotions under control and look at our finances very strongly so that we do not have to regret later.
2. Child Planning Vs Retirement: That’s one of the strongest decision of your life and filled with lot of emotions. Within your limited resources, you have to plan both. But emotions towards the children are much stronger than towards your own retirement. For child future, it is largely seen that parents delay their retirement planning. The children planning will take priority and today they won’t mind in letting the entire surplus go toward their future. But this could hurt badly. Your own retirement is highly important as you will be dependent on whatever corpus you accumulate. Also, there will be years in your retirement when your body will not allow you to work. Any shortfall of money can lead to difficult times especially when you are not sure whether your children will stay with you or not. Thus, though emotions towards children are high, your retirement too needs equal attention from you.
3. Safe Vs Volatile: It’s about your investment. I received many queries from visitors where they wish to have safe instruments to ensure their money is not lost. For this, they have an inclination towards FDs, Bonds, RDs etc.. This is true for long term investments. But what they compromise here is real returns. Any long-term instruments with the capability of generating higher returns will have volatility in its nature. Without it it’s difficult to think of generating enough real returns for wealth creation. Again one need to see the real picture of earnings and your requirement to see whether the safety you are demanding is good enough to meet them.
4. Estate Planning– There is a lot of emotions involved here. You might have an inclination towards someone very close to you and would like to leave more legacy for him/her. Grandparents have unending love towards their grandchildren and always aspire to leave something for them. All these emotions work around your estate planning. What you need to look at here is avoiding any kind of dispute between your family members. Leaving a legacy more towards any one member should not invite ire of other legal heirs. Similarly, all grandchildren should get equal share so that the love and affection between them do not get diminished just by one act of yours. In a nutshell, you should have a properly drawn estate planning taking into consideration all kind of issues which may lead to disputes or hatred among your loved ones. If required, discuss with your children your wish of leaving how much to whom. In one of the case, I handled the father had clearly discussed his estate plan with the children where he does not wish to leave anything to his eldest son since he was well settled abroad. The good part in the plan was that he got a written consent from his son which made things very simpler for him.
There might be many other situations where your emotions will have a bigger role. But financial aspects cannot be avoided and one has to see that the financial status is well established. Your financial decision will impact your life in later years or your family will have to live with the repercussions if you die early. So it’s wiser that you aim to get an unemotional third party view so that you know the extent of the impact of your decision.
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