31 October 2013

Thursday, October 31, 2013

So far we have covered most of the basic concepts including making personal balance sheet and Artha Chakra, or Wheel of Personal Finance, and we are well equipped to jump into devising investment plan. But before we do that, I want to revisit some of the thoughts from the first article: in our quest to create wealth, we shouldn’t ignore our health and happiness. In India, we culturally condemn wealth though personally we aspire to acquire it. As Diwali, the festival of lights when we worship goddess of wealth Lakshmi, is around the corner, it is apt to discuss this contradiction.

Ancient Hindu philosophy discusses four puruṣārtha (पुरुषार्थ) or efforts in life: dharma (धर्म), finance (अर्थ), pleasure (काम), and spiritual liberation (मोक्ष). So money’s importance was well recognized even in ancient time. Culturally, we seems to have misunderstood the teaching of having a sense of detachment from wealth, and a balanced approach towards all aspects of life including money, as condemning wealth. On the other hand, we seem to have embraced greed (chasing maximum returns, recent innumerable scams), which actually we should have condemned. For example, consider following Sanskrit śloka:

चला लक्ष्मीश्चला: प्राणाश्चलं जीवित-यौवनम् ।
चलाचले च संसारे धर्म एको हि निश्चलः ॥

It means: wealth comes and goes, youth and life leave living beings; in this world of coming and going, only dharma is intransient.

Notice that it doesn’t say money is evil, it just says that money is transient. Actually it says that even life is transient, so does that mean we shouldn’t value our life? It merely teaches us to have broader perspective, and encourages us to follow dharma. I take it as looking at money as just a tool, means and not an end; that money is important, but net-worth and self-worth are not same thing; and that ethics, health, happiness and wealth, all are essential for a fulfilling life. James Altucher has written a nice article on taking care of physical, emotional, mental and spiritual well being.

Let me repeat the foremost principle of my finlosophy: by all means, be prudent about money and respect it; but maintaining a certain level of detachment from it helps in setting and pursuing goals that give meaning to the life. There is more to life than just money. Without this context, the passive investment philosophy of asset allocation and rebalancing I practice in a detached, systematic, methodical way will not make sense. Now I think we are ready to look at investments.

What do you think?

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