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Cricket and Financial Planning are More Related than You Think! - Outside View by PersonalFN
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Cricket and Financial Planning are More Related than You Think!
May 28, 2016

India hosted the T20 Cricket World Cup a few months ago. Having braved Australia in our quarters, we glued ourselves to the television sets hoping to upset West Indies (Champions) in the semi-finals, but lady luck had a different plan. Although we couldn't win the semi-finals, the blue-eyed boy of Indian cricket, Virat Kohli, won the Man of the Series award, having scored 273 runs at an average of 136.50 in five matches with three half centuries.

At the end of the T20 Cricket World Cup, we comfortably ushered ourselves to the Indian Premier League (IPL), choosing the teams we wish to support.

For a country of over 1.7 billion, cricket is an obsession. Anyone who has watched a cricket match in a stadium can vouch for the electrifying and contagious atmosphere. Cricket is one sport that unites the country beyond caste, creed, and religion.

Although a lot has been written about the game, did you ever notice that cricket is an analogy for the nuances of Financial Planning? Here's how:

  • Target: "How much do we need on the board to win this match?" is a thought that goes through every captain's mind. It is important to have a winning score to fight for. Moreover, the score changes from pitch to pitch, opposition to opposition. In financial planning too, you need to know the target you need to achieve to win / accomplish vital financial goals of life; and it changes from person to person. For example, the amount required to live a blissful retired life differs from person to person, depending on each one's lifestyle.
  • Format of the game: Any cricket enthusiast would vouch that the strategy changes from one format to the other (T20, ODI, and Test). Similarly, in financial planning too, you got to know the time left (balls left) in hand to achieve the goal. This will determine the strategy that you need to implement. For example, when you are approaching retirement, it is prudent to be conservative and move your accumulated equity corpus to a debt fund.
  • Pace your innings: Winning teams know, the key to success in cricket is to pace the innings as the match unfolds, maintaining the required run rate at all times. In an ODI, the first 15 overs give the batsman a chance to tackle the other team's bowling strategy. This means, good batsmen try to accumulate as many runs as possible in these 15 overs to boost the team's winning total. In financial planning, facilitated by a longer investment time horizon, you can deploy a strategy, by which a predominant portion can be parked in equity and you can clock better returns on our portfolio at the early stage of one's economic life cycle. The compounding principle works in our favour in accumulating a substantial corpus when you start early.
  • Strategic Decisions: Every team plays to win. The most important responsibility of a captain is to make strategic decisions at different junctures of the game, depending on how the team and game progresses. He is either going to be hailed as a hero for winning the game, or criticised and cursed for his decisions. In our lives, the choices we make in crucial times steer the wheel of fortune. It is important to monitor our portfolio regularly to assess if, it is in sync with our goals and does help achieve the financial goals we have envisaged, and if need be, to take timely corrective course. Remember: The decisions we make today shapes the future.
  • Attitude: Discipline is one of the most important skills every sportsmen needs to inculcate. We know quite a few cricketers who lost their wicket in life because of the wrong attitude. Similarly in financial planning, you need to be disciplined in your approach while investing and have a prudent outlook towards money. You see, there will be a constant fight between your wealth-creation team and financial-needs team. In your path to wealth creation, your attitude towards money matters the most. So, it is important to cultivate the right attitude from the beginning of your economic life cycle.
  • What's your Plan B? Cricket can be full of highs and lows. The theatre of emotions is what makes it interesting. In a tight game, when the game is about to slip out, you often see the captain taking a completely new approach. In financial planning too, life has its grey shades - it is uncertain. There are times we could be caught off guard by life's googlies. Plan B in such circumstances gives us the necessary financial cushion to tide over such times. To remain resilient during the uncertainties of life, it is important maintain a healthy balanced lifestyle and have optimal life and health insurance plans. Moreover, create a contingency fund that covers 12 to 24 months of living expenses.

If you are a cricket enthusiast and relate to this article, we invite you to correlate more areas between cricket and financial planning. For those who are not cricket enthusiasts, this analogy may be a stretch, but it provides us a broad canvas to make complex concepts simpler.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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