You can have your cake and eat it too

It is not that we do not know about this doctrine or that this is some new age thought. We practice this philosophy in our lives practically each day. Say we take a particular road each day to work,we think – How can I reach faster? Say we feel we are overweight; so we think how can I reduce? So on and so forth. We go for many training programs from anger management to art of living to possibility thinking. We all use this “How can I” principle practically every now and then in our life. Strangely though when it comes to money and when we wish to buy something which we know we cannot afford we tend to get cold feet and label the event as destiny. Never do we think of using the “How can I” principle. This is why most people end up with barely 10 per cent of what is possible during a lifetime.

What I am really talking about here is how you can drive your financial circumstances rather then let your circumstances drive you. Let us understand this with another pertinent real life example.

Say you wanted to take a personal loan. You would normally take a loan based on your income papers and start repaying via EMI’s. The question to ask is how can I have the loan without the stress of repayment? Well,how about taking a loan against some appreciating asset that you have? You get your loan and in terms of your cash outflow it’s all the same. The difference is not in your cashflow but in your networth. With a direct loan there is no change in networth. With a loan against an asset,your networth also keeps improving. Further if you make good gains you could also use the gains to prepay your loan. The underlying statement here is that first build assets. The golden rule is that the more assets you have,the more liabilities you can afford to have. But first you must build assets. Per se I am not saying liabilities are good things to have; just that there are better ways of managing liabilities.

There are many reasons why we have been pre-conditioned not to think in terms of “How can I” in money matters. The problem to a large extent is not with you but it is with our financial services industry which is totally product centric instead of being advice centric. Irrespective of any effort they may take to prove that their advisors recommend products as per the needs of the customer,it seldom happens. Companies are in the business of making products and money for themselves from such products. As a result the advice available is rather shallow and what you may hear is “This is the best product right now and the scenario may change in 2 months”,“Take it now”,“Take it before its off the shelf” etc. As a result people fall prey and tend to buy into such cheap tactics of manufacturers and their agents.

Being stuck in time is another grave error. Ask the chartered accountant community and they will advice investment into PPF,post office,LIC,bonds etc. Such advice is helplessly stuck in time. They rarely understand other investment avenues. Times have changed and that said; yes,history will repeat itself but the characters will be different. You do not really need a financial guru or a financial astrologer to tell you all this. All you need to do is to change your approach.

Always ask yourself – How can I? Think hard and you will always find a way in finance that is the beauty of finance – that there is always a way. Never think in terms of breaking or selling assets,increasing liability without an increase in inflow. Always try to keep what you have and get into the mode of preserving what you have and building more over and on top of it.

Yes,in financial management you can have your cake and eat it too. All you have to do is ask yourself “How can I have everything?”

— Author is Director,Transcend Consulting,kartik@transcend-india.com