Michael Jackson's Great Mistakes - Let Us Learn !!!

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The King of Pop died. Michael Jackson may go down in the history as one of the most successful entertainers the world has ever seen. The world will remember him for his albums “Thriller”, “Dangerous”, “Black or White”; or his various controversies and lawsuits; or his ranch “Neverland”.

But, the world may also remember for the huge debt he left unpaid.

While dying at an early age of 50 years, he reminded us of some very basic but extremely important lessons in personal finances.

Let us look at these lessons:

1) Income, assets, expenses and liabilities are the four most important components of one’s personal finances. Whereas he did a great job with income and acquisition of some income generating assets, the liabilities and expenses did him in. However much you have on the income or assets sides, the expenses and liabilities can wreck havoc.

2) When one gets financial success at a very early age, it is important to check whether the same is sustainable. Projecting the current income assuming the same will continue could prove to be a costly mistake. This is especially true in cases where the income is on account of natural talent rather than acquired skill. The difference between the two is “hard work”. Whereas natural talent may not have to work very hard to get success, acquired skill requires lots of perseverance. It is this ability to continue sweating it out that helps when one passes through bad times.

3) Extrapolating the current income into the future is a common disease among many. Human beings are by nature optimist about their own future. Such a tendency often leads one to upgrade the lifestyle to such levels that it becomes impossible to fund it through one’s income. Then one resorts to debt. Debt, while giving instant access to cash, increases the cost of living through interest payments. The year 2008 came a rude shock for many, who had projected their income to grow and borrowed for houses larger than they needed. It was just stretching one a bit. In 2008, job security became a foreign word, incomes were cut and some people went through extremely tough periods.

4) Your possessions are not your assets. A huge house, the latest car, designer dresses and accessories may increase your social acceptance. But somewhere you need to stop. All may not be lucky to find support from friends and relatives when the party gets over.

5) How does one know whether a possession is an asset or not? The answer is simple – an asset has to pass at least one of the two filters: ability to generate income above the cost of servicing or possibility of price appreciation in future. And, the appreciation part should be explained by economics and not wishful thinking.

6) How much one borrows needs to be a function of one’s ability to service the debt. Only the Governments are privileged to borrow to repay old debt. Individuals must stay away from the debt trap.

Let us learn the personal finance lessons from one of the finest entertainers in the history.

MAY HIS SOUL REST IN PEACE !!!

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