Playing to the gallery? Even in investments?

‘Playing to the gallery’ means to do things that one thinks will make him or her popular among many people instead of doing what he thinks is right. In today’s closely connected world of social media, we do this often – we buy popular things and show off, we go to popular destinations and share photos from there, even we share the most popular opinion about everything to sound cool and sane. All these are ok, if you can afford to do so – but what if you do this even while managing money? That may not be that cool. Read on.

This trend can be noticed when someone matches with any one or more of the below character traits –

(1)Investing in sophisticated products while ignoring the basics – Investing into high-risk direct equity stocks (listed or unlisted) on a friend’s or colleague’s recommendation or investing into complex derivative products or in a long-term close-ended product with high initial investment required – none of these is wrong or inherently bad, but making such investments are only recommended when you have done your basics right. This includes –

 a.Having sufficient amount of emergency fund (at least 6 times of your monthly expenses) kept in very low-risk, highly liquid products.

 b.Insuring risks (mandatorily health and life at least) with adequate amount of cover first.

 c.Checking a product’s risk and liquidity carefully if that is linked to any critical life goal.

(2) Paying off high interest loan to spend on frivolous things – Taking personal loan to fund any emergency expenses, clearly indicates that not all is well in your personal finance. Even buying expensive gadgets or depreciating products on consumer loan proves highly detrimental for your finances. Using your credit card for convenience’s sake is one thing, but depending on credit card to ride over low or no balances in savings account is another thing – a strictly no no if you aim to have a healthy and sound financial status. Even if you are in no need to take any loan in near term, it is still a good practice to check your CIBIL scorecard in detail. If any discrepancy found there, resolve it immediately.

(3) Not disclosing real financial status even to immediate family – We all love our family above everything else. But to appease them and to make them happy – if we spend beyond our means, then such happiness is often found short-lived. Hiding details of high-interest debt or credit card expenses (even taken for a short-term) can be proven fatal in case of some emergency.

Personal finance is of course ‘personal’. But basic dos and don’ts are almost always applicable to all of us. Let’s keep our basics strong and then there is no looking back to build a mansion.