My significant other recently questioned me on the value of Financial Coaching.
As any entrepreneur would have it, I have my own self doubts and challenges in my business.
She is a good partner in terms of playing the devil’s advocate, which helps me immensely.
At the moment, it seems like a discouragement and sometimes I cannot help reacting.
But thinking about it later, I realize that it is an objection many people will have.
Who the **** needs financial coaching?
She raised a very important question – Look at our parents, they are doing well with money in their retirement. They did not have Financial coaching, not even a financial advisor.
So does it mean the world of financial consultancy/advice/coaching is dead?
It kept me thinking deep that afternoon as I was driving from Austin to Houston (3 hours) with my daughter.
And I found my answer or at least the reasoning behind reinstating my belief that financial problems are increasing in the world.
First let us see what our parents’ financial landscape looked like.
Finances in the 70-80-90s
People who worked in India in the 70-90s were mostly in government jobs, at least both our fathers were.
Government jobs were sought after those days, not because of the pay but due to the stability.
There was no way anyone could be laid off from the job, except in two cases.
- Do something unethical and get caught in an investigation
- The company is shutdown or sold to a private organization (disinvestment by the government), rarely happened
Other than the above two reasons, I have never heard of anyone losing their government jobs due to performance, cost cutting, moving jobs to other countries, economic depression or discrimination.
So our parents completed their tenure of 30+ years in the job and retired with the golden watch. Not only that, they are assured of retirement benefits that very few people can think of these days. Pension and free medical care (or lifelong subsidized medical insurance) are just two of the very important perks.
Now let us look at some of the other factors outside their job.
They did not have to invest in the stock market and lose their money from time to time, in order to beat inflation. Cash (in the form of CDs and FDs) earned 10-12% and government schemes were mainly debt based, with the government guaranteeing most of the returns. EPF and PPF (retirement savings vehicles) easily returned 8-12% without any risk.
They bought homes when prices were cheap and hardly anyone I know carried a mortgage/loan for more than 2 years.
They paid cash for everything they bought, from daily groceries to buying TV and paying household helps. There was no lifestyle creep that needed credit cards, personal loans, vacation packages, car loans.
They mostly traveled through public transport or had one car, that too a luxury.
They put their children through colleges which were mostly government funded. My father paid less than $200 for my four year engineering degree and around $1000 for my brother’s education in the same institution.
I can go on and on how simple finances and life were in those days. Managing finances were simple – earn, save, get interest, pension and spend a little.
Finances after the 90s
The then Indian Finance Minister, Dr. Manmohan Singh opened up the Indian economy to globalization in 1991.
This resulted in free market participation and entry of global private players into the Indian market.
What ensued is massive growth in the subcontinent, along with changes in jobs and lifestyle for people.
People got lured by the jobs in the private sector, more people moved to larger towns and cities, metros.
As more and more people moved, the metros got crowded and living expenses increased.
Wages increased too and the rat race in the economy started. People craved better lifestyle, more cars, bigger homes and more immediate gratification. Parents started boasting how their son and daughter are earning 10 times more, own two flats and fancy cars.
This is a long story, but few points will describe the massive transformation that happened all over the globe.
As economies boomed and busted with the technology revolution:
- governments struggle to keep economic growth and inflation balanced. Most of the time, this resulted in cutting interest rates to near zero levels.
- The perks of safe return on your money started becoming a dream and hard to achieve. The economy shifted to more borrowing and less saving as interest rates came crashing down.
- The demand for private jobs shifted the focus from a secure future to a short term gratification of more money, lifestyle and almost no pension or guarantees on money saved up.
- Housing, healthcare, education and everything else became expensive and complicated.
- Credit cards and Loans were introduced by banks to capitalize on the frenzy and greed of immediate gratification.
- One car and one home was no more enough for a family of 2-4.
- The world comes full circle from time to time. Excessive growth and boom times result in massive crashes, job loss, uncertainty, inflation – as happened in 2001, 2008, 2022 and will continue in the future.
- Banks and financial institutions were caught in the greed cycle and several collapsed in 2008 and 2022.
So how do the finances of an average household look like today?
- They have high paying jobs, often both spouses working.
- They aspire to keep up and increase their lifestyle compared to their peers, neighbors and friends.
- They use lot of credit based products to get perks that are promised – miles, rewards and vacations.
- They can no longer buy their homes with cash or short term mortgages – most are 30 year bondage
- They can no longer educate their kids at less than $1000. College fees are astronomically high, starting at $50,000 for an instate (the most subsidized) college.
- They do not have pension, only a 401k which does not guarantee anything.
- Mortgages and debt payments take away 40-50% of their paycheck.
- Taxes have increased, governments are in debt, most people do not realize their 401k will be 2/3 when it will be taxed.
- There are no assured return products unless you can accept below inflation rates. Either way, you will lose your money’s worth.
- Stock markets and real estate are manipulated and often more volatile. The retirement for most people are no longer secure but market driven.
- The jobs are assured till the end of the day. In 2022, Google and big tech workers found one fine morning they were not able to login to systems which they built themselves over several years of hard work.
I can go on and on, but we need to see the positivity. This is what Financial Coaching brings to the table. A wave of positivity to manage the volatile financial life for most people.
What is needed today?
In the hustle bustle of life today, most families have neglected taking care of their finances. The busyness of daily life – jobs, kids, marriages, divorces, parents, health, hobbies, homes, cars – have kept us in the rat race without pausing to think how should we organize our finances to live a good life and save for the future.
It is very similar to how health is affected for most people nowadays. The lifestyle shift has caused more cancers, heart attacks, mental health issues and in general a big problem in the sustenance of a good life.
By the time people realize, they already have cancer or close to retirement when there is no more time.
Finances are no exception. The excessive dependence on credit, greed for material things and possessions, immediate gratification has caused more fear, uncertainty and pain in most families.
Finances are listed as one of the top reasons for divorce.
What is needed today to have a healthy financial life are 4 steps.
- Financial Reboot – An awareness of where your finances are. This is a SWOT analysis of personal finances.
- Financial Plan – What are your goals? A deep thinking methodology based on values and priorities.
- Financial Flow – Spending and automating cash flow with focus on the present and the future.
- Financial Growth – A measured, planned and growth driven plan with Financial Reboot from time to time.
These 4 steps have been the pillars for my own finances. I have been able to keep a level head, meet all my goals and invest securely for the future.
Conclusion
While it is good to be positive about the future and hoping everything will work out well, hope is not a plan.
It is just like not exercising and hoping youth and good health will not leave us ever.
Similarly, finances need that tender love and care if you want it to serve you well over a lifetime.
Reach out to email: info@startyourfinancesright.com for more information.
