We are not saying that numbers and calculations are not important. Indeed, a well-laid financial plan based on calculations gives a solid foundation. However, you shouldn’t let math dictate your personal finances. It is a misconception that financial planning is all about numbers.
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Do you spend hours poring over numbers before taking a critical financial step? Do you let Excel sheets dictate the path towards your financial goals? Are you abiding by a set of thumb rules to guide your personal finances? Or do you let emotions and other non-financial aspects have a say in money matters? Yes, the math is very important, but sometimes life throws difficult choices at you. Mumbai-based IT professional Dhiraj Surjiani (see picture) had planned to buy a house in 2025 and started saving for the down payment. However, when his brother’s family shifted to another complex last year, he felt compelled to buy a flat in the same project. It didn’t seem worth waiting a few more years as planned.
“Our children have a close bond, so we felt it would be good to buy a house nearby to let them be together,” explains Surjiani. He liquidated his savings for the down payment and had to borrow from relatives to fund the shortfall, but he managed to keep the two families in the same housing society. Financial plans may look good on paper and online calculators, but there are aspects outside the realm of math that may not align with reality. In this week’s cover story, we explore why individuals need to look beyond math and situations, allowing numbers to take a backseat.
Numbers can appear daunting
Future targets may seem too high. If inflation is 6%, here’s how much you need to save for a target of Rs.50 lakh (present day value).
Why numbers are tricky We are not saying that numbers and calculations are not important. Indeed, a well-laid financial plan based on calculations gives a solid foundation. It factors in your cash flow, liabilities, existing assets and risk tolerance, crunching these into specific numbers that you can work with towards achieving critical financial goals. However, you shouldn’t let math dictate your personal finances. It is a misconception that financial planning is all about numbers. Amol Joshi, Founder, PlanRupee Investment Services, contends that the advisory industry has turned planning into a complex activity. “Financial planning need not be a complex Excel sheet exercise or a 42-page financial plan,” he insists.
There are downsides to relying too heavily on the math. Numbers in isolation can often seem daunting enough to make us doubt the math itself. Suppose you want to send your three-year-old daughter abroad for postgraduation 18 years from now. An online goal calculator will tell you that if inflation is 6%, the course costing Rs.75 lakh today will require nearly Rs.2.1 crore after 18 years. To amass this corpus, you must invest Rs.28,000 every month in an option that gives 12% return (see graphic). This math can make financial targets appear beyond reach. This can put you off the plan or even give up on your dream altogether. Mrin Agarwal, Founder, Finsafe India, observes, “Often the client is not ready to believe the numbers. Some will simply reject those numbers and refuse to implement the plan.”
Goal math can change drastically If the inflation or return assumptions play out slightly differently, the initial goal math can change completely.
The initial goal value assumed is Rs.25 lakh. At 6% inflation and 12% expected return over 15 years, a monthly SIP of Rs.11,993 will help achieve the target corpus. If, however, inflation is higher at 8%, a higher outgo of Rs.15,874 will be needed.
At the other end, numbers can even lull us into a false sense of security. If the figure thrown up by the calculator is within your means, it makes you feel in control of your future. You run with the math, thinking you are on track to achieve your target. However, a prolonged illness, job loss or business setback can leave you without income for an extended period of time. “Personal circumstances keep changing. Numbers on the Excel sheet can look exciting, but practical life can work out differently,” says Tarun Birani, Founder, TBNG Capital Advisors.
Dhiraj Surjiani Mumbai Did not plan to buy own house until 2025. Started investing towards down payment accordingly.
When his brother moved to another complex, Surjiani felt compelled to keep the family together and bought a house in the same project three years earlier than planned. Borrowed from relatives to fund shortfall.
At 52, Pune resident and avid biker Deepak Kulkarni met with an accident that left his vision partially impaired. He was forced into early retirement, which was a financial setback. With the help of his financial adviser, Kulkarni redrew his investment plan and is now getting back on track to fulfill his family’s aspirations, including his daughter’s pursuit of higher studies abroad. “My adviser guided us through this phase so we could continue towards our goals,” he says.
Sushobhan Chowdhury Bengaluru Enjoyed the security of well-paying job in reputed advertising firm in Dubai.
Feeling dissatisfied at work and bitten by the entrepreneurial bug, he shifted back to Bengaluru in 2018 to start his own advertising agency. He had just two years’ worth of savings at the time.
Others may experience different issues. Perhaps the stock market misbehaves closer to your intended goal due date. Even your own needs can change over time as your family grows or lifestyle changes. “You can have a vague idea of your goals when you begin, but clarity may only emerge over a period of time,” points out Hemant Rustagi, CEO, Wiseinvest. You may suddenly find that the money pot you were counting on is falling short of the desired value. Whatever the numbers tell you, there are always risks beyond your control. In his widely acclaimed book The Psychology of Money, Morgan Housel writes, “A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality.”
Buy vs rent: It’s not always about money Emotions and other soft aspects often triumph over financial arguments when buying a house.
When finances are secondary Despite his high-paying job in an advertising firm in Dubai, Sushobhan Chowdhury was not satisfied. He quit in 2018 and shifted back to Bengaluru to start his own advertising agency. While the family had a buffer of around two years’ worth of savings to fall back on, the transition phase was difficult, with business expenses running way ahead of initial revenues. “I did feel pangs of anxiety during this phase without the anchor of a full-time job,” admits Chowdhury. His business has since blossomed and he is thankful that he deviated from the original script. He even wants to start a restaurant now. As Chowdhury’s experience shows, not everything has to be financially perfect. Real life involves dimensions that cannot be captured in an Excel sheet. Our emotions, dreams, social compulsions and other aspects are often playing tug-of-war with the rational mind. Rohit Shah, Founder, GYR Financial Planners, says, “Financial planning goes far beyond mere numbers. It is also about embracing one’s feelings, emotions and happiness.”
Prepaying home loan brings peace of mind While continuing with a home loan gives tax benefits, closing it early is more important for some. Here is the math of a Rs.60 lakh loan for 20 years at 8.5%.
There are many situations when finances tend to take a backseat compared to other aspects. The biggest push-back comes when kids’ education aspirations are involved. This is an area that severely tests all metrics pertaining to financial prudence. Joshi remarks, “When it comes to children, the emotional ingredient is very potent. Indian parents tend to place a high emphasis on fulfilling kids’ study aspirations, often at the cost of other goals.” It is common to find situations where a couple compromises on retirement, diverting the nest egg towards funding the child’s expensive foreign studies. Financial advisers meet with stiff resistance when they try to dissuade parents against such a step. “The financial plan will suggest that a couple must prioritise retirement over kids’ foreign studies, but try telling that to the family,” says Shah.
Deepak Kulkarni Pune At 52, he met with a bike accident that left his vision partially impaired. Was forced into early retirement.
Re-oriented his financial plan with the help of a financial adviser to get back on track and fulfill his family’s aspirations.
Some parents don’t stop at kids’ education either. They also aspire to leave behind a legacy for their progeny. This means building assets that can be passed on to future generations even if it leaves less for one’s own pleasures. Buying a house is another critical decision where emotions and other soft aspects are supreme. The debate over renting versus buying a house spawns endless arguments, but a common theme runs in most conversations. “In the rent versus buy argument, the math very clearly favours renting in many cities,” asserts Shah. “But when you put yourself in the shoes of the other person, a different perspective emerges,” he adds. The comfort and security of owning a physical asset entices many to take that step. He recalls how a couple had chosen to stay on rent instead of buying their own place, but changed their mind after a tiff with the landlord.
There are also practical difficulties in frequently shifting houses, particularly if you have children. Uprooting the family every few years can be traumatic for kids, which makes any financial argument seem secondary. Ketan Pandit, a Mumbai-based marketing professional, has been househunting for over two years. While he is firm on his outlay, Pandit is keen to put his renting days behind him. “Having lived in both my own house and rented places, I don’t want to keep moving anymore. I want to give my wife and daughter a space they can call their own.”
Don’t let kids’ studies crowd out your retirement needs Even as you try your best to fulfill your kids’ study aspirations, do not compromise on your nest egg.
Even home loans have non-financial as pects. Repaying a home loan weighs heavily on borrowers’ minds, especially if it is a long-term loan of 15-20 years. Many want to prepay the amount and become debt-free faster. “While some think of the EMI as a recurring expense that is building a future asset, others want to be rid of the burden at the earliest,” remarks Birani. Shifting one’s career path or quitting an existing job to start a business are also decisions that may not make financial sense right away. It is also not uncommon to find individuals taking a prolonged sabbatical from work to explore their options, observes Birani. They may not have adequate savings, but the desire to unplug and recharge is overwhelming. Most likely, any such step will involve prickly tradeoffs and biting lifestyle changes. But for some, it may offer something more meaningful— happiness and peace of mind. No mathematical algorithm will have space for that.
Balancing the scales Ultimately, personal finance is about making the choices that lead to contentment. Even as emotions and aspirations form a big part of your financial journey, you must know the full implications of your decisions. “You need to deliberate upon both sides of the coin,” insists Suresh Sadagopan, Founder, Ladder 7 Investment Advisories. Even if reality is hard, acknowledging it will sensitise you to different scenarios. For instance, when discussing your kids’ foreign education, you should explore options for scholarships or opting for an education loan. Beyond money matters, your kid’s safety, exposure to foreign cultures, and ability to cope are also important considerations.
Ketan Pandit Mumbai Has been scouting for own house for the past two years.
Remains intent on sticking to the budget, but is keen to have space for wife and daughter to call their own, free from the trappings of living as a tenant.
This also extends to the emotionally charged decision around buying a house. “It may not always be a great idea to buy a house early in your career when mobility opens you up to career opportunities,” Sadagopan avers. “It often makes more sense to rent closer to the workplace initially. Later, when you are settled in your work life and the family needs security, go ahead and buy the house.” Even as you aspire for big dreams, it should not leave other life goals compromised. “You cannot afford to commit all resources towards one goal,” warns Rustagi.
The solution lies in having a goal-centric approach to investments. Having clarity on various goals keeps emotions at bay. Also, you need to prioritise goals. If your priorities are set, you will be in a position to allocate money to each goal appropriately well in advance. It will stop you from diverting money meant for key goals. As you tackle this tricky quagmire of dreams, emotions and financial realities, take your loved ones along. “Managing interpersonal dynamics at home is a big part of financial planning,” Joshi observes. A couple’s approach to money and their aspirations may differ considerably. An overseas trip may take precedence for one, even as the other partner wants a bigger sedan. Sit together to identify common priorities and make space for individual aspirations wherever possible.
