Why is Personal Finance so complicated?

We all have our own reasons (and excuses) to not be able to manage our money. Some of us do not want to think about finance; as the term “finance” scares us. Some of us think it is too complicated for a layman to understand it. I belonged to both the categories until sometime ago.

Life is Short! It is indeed short for few lucky ones. For the rest of us, unfortunately we live till we are 60.

Let’s get down to few basic reasons and understand why it seems hard and why it is not:

1. The Paradox of choices: Take Mutual funds for example. There are so many types of funds available to invest in. Each of those segments have several funds in them. Take Insurance for example. So many companies, so many types, each of them look similar yet they are different. Which one to choose from? How do we know which is the best one for us? A research showed that after a certain point, the more options you have the less likely you choose one. And this is true.

2. What works for many, may not work for you: Most of the guidelines on personal finance outlines an ideal scenario. You might have heard about 50-30-20 rule or 10% expense rule. These are great thumb rules, but it doesn’t work in most cases. It doesn’t factor in the commitments you have. It doesn’t factor in the lives dependent on your income. It did not work for me at all. Almost 60% of my monthly income was kept aside for my EMIs and my families expenses.

3. Cultural thought process: We are thought to look at money in a certain way. The ideal way of life for our parents would be to study, get a job, save enough money, park your money in Fixed Deposit (FD), buy a house, buy a car and the list goes on. Be "well settled". And this well settled is defined and approved by someone else.

4. We can make a plan, but life has its own plan: We are traditionally very optimistic about everything and assume that nothing can happen to us. In reality, one unfortunate incident can turn our lives upside down. Unfortunately, we are not taught to protect ourselves from these situations.

5. I don’t have enough money to save: We live cheque to cheque. I lived this life too. We like to think “life is short”. We have enough commitments and the money left after fulfilling the commitments is so small, we prefer to reward ourselves with a good food or a party.

6. We all earn different. We all spend different. Our commitments are different: In today’s world, with social media and internet, we can see everyone spending money - buying things or traveling, and we start to compare ourselves with them. We compare our lives with our friends and peers. But the correct approach is to see what works for us. Everyone has a different journey, different preferences and different liabilities and it cannot be compared. We have to look at our income, liabilities, our commitments, etc and plan our finances.

7. Money is boring ☹: Money is a complicated term and can be only handled by big banks and professionals - This is a myth. In fact, the more you depend on professionals, the more commission you pay them instead of figuring it on your own. It will automatically become interesting, wehn you see your savings, invesmtnets grow, it will bring interest and a senses of confidence in managing your money and eventually, you would be a professional managing your personal finance.