The ‘nothing can happen to me’ attitude

July 25, 2011

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Decent paying job? – Yes
Chances of a better paying job? – Maybe, Yes
Own a car? – Yes
Own a house? – Yes
Happy family? – Definitely Yes. I just love my wife and kids. I want my parents too to lead a great retired life.

That pretty much sums up most of us. India is growing and it has opened up a lot of opportunities in the last decade or so which has greatly improved living standards for most of us — the middle class. Just 15 years ago, a new joinee getting a salary of 10,000 rupees per month was probably the best in class in India. Then the software and services sector opened up and things changed so much for the better, at least monetarily.

Now, for the second set of tick-mark questions:
Chances of being fired? (or company re-aligning verticals) – Yes (has already happened once)
Car Loan? – Yes or just finished it off
Home Loan? – Yes, EMI keeps increasing

Enough savings to last six months without salary (with car and home loan EMIs)? Very tough but can manage.

Enough savings for wife and kids if you die tomorrow? No. But why do you ask such insensitive questions? What’s wrong with you? I don’t drink and smoke, maybe I should exercise a bit — but nothing can happen to me.

Unfortunately, that too pretty much sums up most of us. And this uniformly applies to an individual earning 10,000 rupees per month and 1,00,000 rupees per month. Maybe this is probably too simplistic a way to check our financially vulnerable points — but then that’s what is most important and often ignored.

We no more live in times where the social security structure is high. Earlier, security was provided by close families and even employers who would step in and lend a helping hand in case an employee or their family went through troubled times.

But things are different now — the expectation is on the government to provide social security — and that would take a long time to happen. Corporates are cutting down more and more on additional benefits to employees and their dependents in the face of increased business competitiveness. Family and corporate values are very different from what they used to be in the last generation.

You may have consulted the best financial planner to chart out your future, but the biggest risk one must mitigate is the one in which your income stops. So step 1 of any financial planning should be to de-risk loss of income and that should be with a high-term insurance plan — something like 10 to 15 times your annual income.

Then go ahead and do the once-a-year ritual of making a 20-year plan on an excel sheet with the goal of retiring with millions. And yes, most of us give up on planning when you realise you have to save more today than you earn, to reach that goal.

Been there, done that?

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