Don’t blame it on the financial quotient

Some people manage quite well within what they earn, while others are perpetually broke. It amazes me to think how people from similar backgrounds and earning capacities can be so different when it comes to handling money.

“Geeta should be coming anytime now. She just called,” Amey said without taking his eyes off the far end of the road.

We were college mates, meeting after almost two decades. There was Amey, a general manager with a well-known PSU, Geeta, a principal consultant with a top consultancy firm, Sanjay, who ran his own management consultancy, and I, a financial planner.

On the face of it, everyone seemed to have done well since leaving college. But, I couldn’t help pondering over what Sanjay had told me at our last meeting: “I hardly have any savings and am worried about the education needs of my children.” It was difficult to believe he was so hard up. I would have thought he was fibbing, had it not been for hi vital statistics, which he laid bare before me for advice.

Geeta was just sauntering in, smiling and waving at us, the same aquiline nose, confident air, poise and all. Once she was done with apologising for being late and making herself comfortable at the table, we started talking about the old days, our respective careers and the money each had made.

Amey talked of the good investment opportunities in real estate in Pune, where he had made a packet. He was talking about Dubai being a good investment destination.

My attention wandered. My mind was swarming with questions… how come some people do well financially and some are disasters? What is it that sets people from similar backgrounds apart from each other?

It must have to do with the financial quotient (FQ), I concluded. Some are well-endowed by nature, others work their way up, while those lower down the totem pole are invariably stubbing their toes on one or more areas - savings, expenses, loans, spending, unsupported aspirations, etc. As a financial planner, I have come across so many people from either category. What, if not FQ, can account for that?

Among the things I have noticed in people with high FQ are a regular savings regimen, control on expenses, involvement in fiscally prudent activities, clear understanding of risk and return, inclination to build an alternate source of income and seize opportunities as they come.

They also prioritise their goals, know the limits of borrowing and are willing to postpone some gratifications. Such people also evaluate the alternatives, invest time and money to investigate before taking decisions, rather than go with the flow. Such people are usually thought leaders in their circles.

But, all these are qualities one can imbibe and hone, with some effort. Unlike intelligence quotient (IQ), which is somewhat difficult to improve upon, FQ can be improved if one is willing and eager to do so.

Here, in front of me sat two people, poles apart - Amey and Sanjay. Amey, for sure, earned less than Sanjay, given that he worked for a PSU.

Between them, though, he was the one with higher FQ, for he had decent savings, built some assets and also enjoyed life. In fact, he was just back from a trip to Europe, with his family.

Sanjay, on the other hand, had not taken a holiday in two years. His last holiday was in Goa, at a fairly modest resort. On the face of it, he was as a high flier, while Amey was a plodder. But, financially, Amey was the big bull and Sanjay no more than a mouse.

So, what had gone wrong for Sanjay? A preponderance of loans… his house was mortgaged, he had taken hefty loans for his business and his lifestyle verged on the lavish.

It was a dangerous mix. No wonder, his net worth was negative, as I had found out after running through the financial details. The fixed costs in his business were killing - the rent was high, he had some high-cost debt in his books and lots of debtors to service.

I had suggested that he reduce the fixed costs to start with and substitute some of the high-cost debt with lower-cost loans, and focus on collecting his dues from clients.

Geeta, too, seemed to be doing fine. She was based in Singapore, travelled to India often, owned a house each in Singapore, London and New Delhi. She was truly a world citizen.

Right now, though, it was Amey who was telling her things about the London property market that she didn’t know. He was mentioning areas I hadn’t heard of before.

“How do you know so much about London property market?” asked Geeta. “Interest,” said Amey.

“You are interested in property, aren’t you?” “No, in securing my future… in keeping worries at bay,” said Sanjay.

Here was a Mensa member among us, I thought.

The writer is a certified financial planner who runs Ladder 7 Financial Advisories and can be reached at
ladder7@gmail.com.