Madhu T, ET Bureau Oct 4, 2013, 11.09AM IST
(Experts say individuals…)
When the going gets tough, hoard as much money as possible. That is the simple strategy adopted by some individuals to face the likely setbacks presented by the prevailing bleak economic scenario. According to financial advisors, some of these individuals are absolutely sure that the economy is not going to turn around in the near future. They are also reasonably sure that they have to endure a job loss or at least a pay cut in the coming months. The solution to all these gloomy possibilities: save as much as possible, create a war chest so that you are ready to face any adversities . "I must confess that things weren't this bad even during 2008. We used to get calls from at least half-a-dozen new clients every day. That has almost stopped ," says a financial planner, who doesn't want to be named. "Even existing clients are really worried about the future. They are not very convinced about the longterm prospects of the economy. We really have to convince them," he adds. Despite the pep talk, some people have cut down on their investment and very few individuals have completely abandoned their financial plan to save more money.
How Bleak is the Scenario?
However, according to financial advisors, the strategy may badly backfire. "This is not a strategy. These people are reacting to external events and they are in a panic mode. They have not planned for future goals. That is why they are reacting in such manner," says Gaurav Mashruwala, a certified financial planner. "Instead of preparing for an eventuality, this strategy is trying to predict the future . That is why it will complicate matters further." Many experts like Mahsruwala believe the pessimism is overdone . "Yes, things are not that good. But many of my clients, especially the richer ones, are overdoing it," says a wealth manager, who doesn't want to be quoted. He cited the huge gains made by the markets on the appointment of the new governor of the Reserve Bank of India or on some vague statement coming from US Federal Reserve or some Indian government official to send home the point. D Sundararajan, investment consultant at Trendy Investment , says, he understands the vulnerabilities of this set of individuals . "But instead of focusing on these external factors, they should actually try to strengthen their financial plan to face an eventuality."
Focus on Your Financial Plan
Experts say they really encourage people to save more, but they say saving more becomes a problem when one overlooks all other goals. "One should always try to save more. But if you have the real concerns about your future, saving is not enough. You have to plan for your future, after taking into account all eventualities on the way," says Mashruwala. He says an average individual should try to follow certain rules all the time: she or he should have a health cover; a life insurance cover if there are dependents. She or he should have a plan to clear off debt if there is any. Next step is to start investing to meet future financial goals. Here again follow the thumb rule: park the money in liquid or liquid-plus or bank fixed deposits to meet short-term goals; if the goal is 2-3 years away, look at debt schemes and invest in equity only if the goal is 7-9 years away. Irrespective of whether the future prospects are bleak or bright, one can't bypass these steps. Now, moving to the present "bleak scenario," one should try to identify the concerns rather than soaking in the general pessimistic mood, say experts. For example, what are you bothered about? Is it a job loss or a pay cut? Then, you should focus on increasing your contingency fund. "If you have outstanding loans or big EMIs, you should try to build a bigger contingency fund. Also, if you and your family are covered by your company health insurance cover, you should try to get an individual cover," he says.
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