Thursday 2 June 2011

Financial Karma, the Ostrich Generation and Income Investing

Even if you are not a Buddhist, you will probably have heard of the concept of karma - the idea that good deeds bring rewards and that bad deeds will rebound upon you later in life. If you've ever watched 'My Name is Earl', you will have grasped the karma mechanism. If it exists, of course...(I'm not a Buddhist myself).

One area where I believe karma might exist is in personal finance.

A recent article in This is Money has highlighted the finding that in the UK half of workers retiring this year fear their finances will be so stretched there will be nothing left for their families to inherit. Only two-thirds interviewed said they would be comfortably off in retirement. In other words, after a lifetime of work and effort, not only might the majority not have enough savings for a comfortable retirement but they would not have anything to pass on to their children.

This generation has been called the Ostrich Generation - they know they will live longer than previous generations and that state and company pensions will not be so generous but they are burying their heads in the sand rather than planning for the future. Present (and past) financial decisions will revisit them - with a vengeance: financial karma.

So what can you do to encourage your good financial karma? Well, it is probably good to start with a bit a bit of financial meditation. Just as in a normal approach to meditation you are often encouraged to concentrate on your breathing - air moving in and out - for financial meditation you will need to focus your mind on your financial incomings and outgoings: income and expenditure. And good financial karma will result from keeping your expenditure below your income - which gives you a surplus or what I call Wealth Potential.

What is more, I believe that trying to invest money in 'get rich quick' schemes or investment types may lead to 'bad' karma - in other words, losing wealth rather than gaining it! It seems to me that the financial universe has a rhythm to it, and that rhythm is closer to 'get rich slow' than 'get rich quick'. I like to think of investing as more akin to gardening than prospecting for gold. Plant your financial seeds carefully, water them, protect them from bad weather and watch them grow, year by year. The parallel is income investing.

Anyway, my personal recipe for good financial karma is:
  • spend less (much less) than you earn
  • practice financial meditation (i.e. think about your finances and plan for the future)
  • invest cautiously and carefully, with a bias towards 'income' rather than 'value'
  • nurture your savings and investments
  • sit back, be patient and wait for financial karma to kick in...

Article first published as Financial Karma and the Ostrich Generation on Technorati.

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

1 comment:

  1. It's interesting to note that while you're right about karma being common knowledge, many people mistake karma as simply a law of punishment, when it is actually more of consequence both positive and negative.