Sunday, November 19, 2006

Money wise pound foolish

The other day a friend complimented me on my "timely" decision to buy a house. He was appreciative in the light of the fact that the said house has appreciated in value by more than two times in a span of two years!! Though the appreciation is of little value to me unless I sell it off and book a profit, which is a very remote possibility.

Any way this brings me to review some of my financial decisions. And as I go through the process, it begins to dawn on me that every small and petty decisions have their financial ramifications. For example if I buy a IInd class seasonal ticket for my daily local train journey instead of a Ist class pass, I save around 500 bucks a month. If this 500 is invested every month from the time my son was born and upto his age of 15, we can draw more than 6000 bucks every month when he attains the age of 18 and upto the age of 22!!! Ofcourse, I have assumed a return of 10% on the investments.

Well, this example appears to be an extreme one. But I'm convinced about my point about the financial ramifications of every decision you make.

So let's take a look at some of my financial decisions:

Buying a house: As I mentioned, this decision has got me a lot of compliments. But the truth is that it is more of a coincidence rather than a decision. I happened to be the Area Manager in an Housing Finance operations and I stumbled upon a house that had a 300 sq.ft. terrace apart from being a duplex and a penthouse. Much more than that, I had the benefit of my siblings encouraging me with both moral as well as financial support. Now that the value has appreciated more than two times, this decision stands out.

Buying a car: This one is "bad in principle". Well, I've been used to having a car since my employers paid for that for the last 10 years. But now since I have come away from the "Marketing" assignment, my conveyance reimbursement do not match my car bills. Even then I continue with the car, though most of my friends with similar change of job profile have adjusted themselves. Even though in Mumbai there is little use of the car, I refuse to stop using it. Heart (read ego) prevails over mind( read common sense).

Loans to friends: We know that money matters should be separate from friendship. But when a friend asks for money and you want to help but the money asked for is high and the possibility of it coming back soon is a bit remote, what should one do? Well, I gave the money ......, though I won't recommend this .

Isn't it a bit difficult to talk about your decisions without looking at the emotional part of them? So your financial decisions are also emotional in nature.

And when you allow emotions it effectively means that you allow "Fear" and "Greed" also. That explains the mob psychology of stock investors and the reason most people loose money in investing in stock markets.

For the moment, I'll try to watch my financial decisions and learn about myself from them. Why don't you try it for yourself.
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