I have wondered why people avoid money management before.

But this post is about the visible and the hidden components of money management. In other words, the iceberg theory of money management.

Iceberg Theory of Money Management

As I said, knowledgeable people make financial mistakes too. This happens because despite knowledge they may not have the right skills or the attitude towards money management. Other characteristics like confidence, values they have learnt from their parents, fear of numbers,etc.

The Visible:We can see our knowledge level as well as our skills level. It’s about reading up blogs, dailies, magazines and upgrading your knowledge. Also about keeping your records tidily, operating the accounts like the demat, broking accounts, etc.

The bad news is that the visible part is only 10-15% of what it takes to manage your money.

The Hidden: My take is that 85-90% of your money management depends on your attitude and other characteristics. Like there’s laziness, greed for extraordinary returns, fear of numbers, fearing the markets, etc.

Some of us are benefitted with the values we have learnt from our parents/influencers. For some, the parent/influencer effect is a handicap.

Conclusion: Money management expertise has four components. 1. Knowledge 2. Skills 3. Attitude 4. Characteristics like confidence, values.

Just reading up a blog/magazine won’t help you with your money management. You need to be aware of your attitude and various other self concepts, values to make improved financial decisions.

Update: Ideasmithy has another example of the Iceberg model in her post Just Chemistry. She writes:

Good sex is a little more complicated – a combination of attraction, talent and emotions. The first, we’ve already established is plentiful. The second, talent, is slightly harder to come by. Yet, like some slightly expensive things, with some effort, it can be discovered and earned.

But the last, emotions, that’s the tricky bit. Emotions are that vital ingredient, the salt in a receipe.

I guess, attraction is the visible part & talent and emotions is the hidden elements. What do you say?

Do you agree? Disagree?

P V Subramanyam is a Chartered Accountant by qualification and a financial trainer by profession. He also is a popular blogger and writes regularly for financial websites and magazines.

He responded immediately to my questions that I have asked fellow finance bloggers. I found the answers full of insights and am sure you’ll do too.

1. Why is it that generally people avoid or have a fear of financial planning?
Just like having a health check up – you do not know what you will find! And the doctor may say “No drinks, no smoking, do exercise….” Who wants to? What is the fundamental problem? Man is a victim of his habits, not what is good for him NOT EVEN WHAT HE ENJOYS. Look at a cigarette addict – he hates smoking, but smokes (I am happy I am a shareholder of ITC)

2. What are the various options available for investments? What would be your recommendations?
Equity, Equity and Equity sensibly. Closer to the event debt. If you know how to do it on your own great, or go to a mutual fund.

3. Can you give a brief overview of how should one’s portfolio be at different ages.. Eg at 25 years, 35 years, 45 years etc.
Wrong question. Each person is different. I know most people try to create ‘ideal portfolios’. I call it “Personal Financial Planning”. Trying to commoditise it is wrong.

4. Is it advisable to have a personal finance consultant who maintains ones portfolio?
No harm, but do not allow operational authority. Are there people who do this? No idea whether it is available for retail. For HNIs yes, at a Rs. 20 crore + portfolio it is worth it. If so how much do they charge? Rs. 5 lakhs + Are they really helpful in the first place? Extremely.

5. Are there some online resources that you would recommend for readers to handle their money?
I use and like myirisplus.

6. Do you visualize a growing use of personal finance software to track and manage money in India?
Mostly people are too lazy to do all this. Unless the INCOME TAX authorities ask for too many details (which they will shortly) that too in electronic form.

7. What prompted you to start your Blog?
Students asking for notes. What motivates you to keep on blogging? I tell them the syllabus is the whole blog….so I have to keep adding.

8. What are your three best blog posts?
Readers should answer this, correct?
Ranjan’s Note: A few that I liked:
a. Archive for National Pension Scheme (NPS)
b. Do you need an Investment Advisor?
c. Financial Problems: How to tackle?

Do hop over to Subramoney for more insights from PV Subramanyam