Got Money Phobia? How should we deal with it !!

Money and personal finance matters are very important however many of us fear in dealing with them and are clueless at the time of emergency, so let’s discuss what are the common fear most of us have and how can we overcome from these fears.

1. Stock Market is very risky: I will lose my money

Many of us feel that stock market is a very speculative place and there are very high chances of losing money. Those who have lost money in past or have no knowledge/experience have very high feeling about losing money in the market.

So, How to deal with it:  If you don’t have much knowledge then it is better to invest via mutual funds not directly through stocks. Still if you want to invest in stocks, it is better to first gain knowledge of the subject or take the help of a financial adviser. Also remember not to follow tips from anyone blindly. It is always wise to invest for the long term and not be influenced by short-term flux or churning.

2. I don’t have enough money to face a Medical Emergency

Many of us fear that if there is some serious medical issue in family, they may have to spend all their money to deal with it. It is actually true to some extent looking at the high cost of hospitalisation and medical care and if someone have critical illnesses or accidental injuries.

So, How to deal with it: Health Insurance is the answer. We all should have a basic health plan of, say, ₹5 lakh and get a bigger top-up plan of, say, ₹20 lakh with a deductible of ₹5 lakh. This will be cheaper than a single cover of ₹25 lakh. We can also create an emergency fund along with the basic health plan to cover the other expenses. It’s also important to buy critical illness and accident disability insurance plans which comes at small premiums and cover only those cases.

3. I won’t be self-dependent after my Retirement

More than half of Indians fear they will not be able to support themselves after their retirement, with 70% people expecting their children to support them, says one study.

So, How to deal with it: Proper retirement planning is must for every person. We should start saving more of our income by cutting down on non-essential expenses. Further we should ensure to invest in the right avenues so that our corpus is growing and able to beat inflation over the longer duration. It is always wise to take the help of a financial adviser. Also, we can explore additional sources of income to supplement our existing income.

4. I am in a Debt trap

This is a world of EMI and Credit cards. We keep on buying things through EMIs, sometime even if that is not required. Upgrading to a new IPhone or going for an exotic foreign vacation so as to put the pictures on Facebook/Instagram is not very uncommon now days. This temptation to buy on credit often results in several loans and falling into a debt trap.

So, How to deal with it: Be a sensible buyer is the KEY. Everything in the market is for us only, but it does not means that we should be buying anything or everything. We need to ensure that total EMIs should not be more than 50% of our income. If we already have lot of loans, a proper plan should be prepared to repay them, starting with the most expensive ones like a credit card bills or personal loan, and moving to car and education loans. Few Loans like home loan and education loans have tax benefits so we can continue however if the rates are high or we have capacity we can prepay the same.

5. I will be fired from my Job

In the current competitive market fear of losing job is very common, technology is replacing humans and many people become outdated/redundant in this kind of environment. Economic recession, cost cutting are also other reasons for people fearing loss of job. So If you are worried it may be due to one or more of these indicators you may have witnessed.

So, How to deal with it: we should always have emergency corpus to meet our regular monthly expenses in case of loss of jobs. We can have that corpus for 3 months to 1 year depending upon which industry we are working with.  Further we should keep on updating our skills and have knowledge about what is going on in our industries and sector so as to be ready to face these eventualities.

Finally the simplest way to manage these kind of financial fears is to be organised and prepare well for events and eventualities. The help of experts is always better if we don’t have much understanding of the things.

Ten Financial Sins, and how to beat them

Everyone has some financial bad habits or we call them as sins which stops us to be wealthy and financial independent, let us find them out and also the way to comes out of it.

1. GREED

We all want to earn high returns, but understanding the risks is not everyone’s cup of tea. For example: Investing in stocks is risky but can be very rewarding if done carefully and in a disciplined manner. But dabbling in futures and options is usually ruinous for the small investor.

How to beat it

It is better that we should buy equities through mutual funds, if we don’t have much know. Futures and options are not for common investors.

2. FEAR

At one side greed makes investors overlook the risks involved and on the other side fear makes people blind to the opportunities. Fear of losing money makes investors shun the potential of equities and pushes them to buy instruments which offer assured but poor returns.

How to beat it

We should do proper asset allocation based on our financial goals and then stick to it. Historical data has confirmed that periodic rebalancing of the portfolio can yield better returns rather than just sticking to some fix return instruments.

3. ENVY

This is a very common human nature, we get enamoured when we come to know about our family & friends investments and the high returns they earned. And by this we start copying their investments so as to get same benefits.

How to beat it

We should always remember that every person is different so as their needs and investments, Following in somebody else’s footsteps may not always deliver the desired results. Past performance of an investment option is not an assurance of future returns .Investments should be customised to the needs and risk appetite of an individual. What worked for someone in a certain situation may not work for everyone.

4, WASTEFULNESS

In today’s consumerism wasteful spending is a common problem, especially for youngsters. Online shopping has further fuelled this malaise. Young people want to buy the latest gadgets and new apparel, without thinking about it’s the impact on their finances.

How to beat it

If we are earning then we would be spending also but it should be within limits. We can set a budget to ensure that we don’t overspend and stick to it. We can us budgeting apps which can send alerts if we spend beyond a limit on any head.

5. PRIDE

Some time we get emotional to certain investments with a feeling that selling an investment at a loss would make them appear stupid. And then we try to justify that it was a right decision and are willing to hold it till it recoups its losses.

How to beat it

We should never fall in love with our investments It is silly to let our ego define your financial choices. If a stock has no future, dump it and cut the losses. If we continue holding it, the losses will only grow bigger.

6. BLIND FAITH

Sometimes we get into the trap of a smart salesperson who miss-sells financial products for his own benefits/targets as we believe too much on some people and don’t try to find out the nitty-gritties of the products. .

How to beat it

We need to ask questions and do our own research and don’t take a decision in a hurry or because there is a deadline approaching. We should spend some time to compare its features, read up the terms and assess its utility in your portfolio.

7. LUST

The temptation to make easy money can make even smart people part with money or bank/credit card details. Now day’s online frauds are very common; fraudsters cheat people by promising them a huge share in their inheritance, stock tips or bargain offers on their credit cards/insurance policies etc.

How to beat it

Always remember that there are no free lunches in this world and if someone is offering most probably he is a cheat. We should never believe fraudsters who promise money for doing nothing.

8. IMPATIENCE

In today’s world we all want the results at the click of the button. However in the investments time is the key, impatience prevents us from earning high returns. Early withdrawals from the investment kitty cuts down the power of compounding. Selling off a stock or equity fund too soon will help book profits but give us a serious wealth. 

How to beat it

We should invest with a proper plan and time horizon. Don't sell as it has given some profits, Assess the real reasons for selling and Sell only if we need the money or have some better options to reinvest the proceedings.

9. LAZINESS

Procrastination is a common problem and many times we feel that things will get right on its own. However delaying investments can cost a lot. If our money idles in a savings bank account, it loses value. In five years, even a modest 5% inflation will reduce the value of ₹1 lakh to less than ₹78350.

How to beat it

We should start SIPs in mutual funds and sift the extra money from saving accounts to liquid/ultra-short term funds. Now days it’s very easy to invest through online platforms and we can do in automated way. This will ensure that the amount gets invested every month.

10. FORGETFULNESS

It is a very common problem that we forget paying our bills on time which leads to some delay penalty of ₹100-200 to serious penalties running into thousands of rupees. If we miss an EMI or a credit card bill, we will be slapped with interest, late payment charges and also the taxes. But if we miss the tax filing deadline or an insurance premium, it can be in serious issue.

How to beat it

If we can’t remember or disciplined to make payments on time, then we should opt for auto debit facilities offered by most of the billing/credit card companies. We can also put alerts for important dates like insurance premiums and GST/IT returns etc. Just as automating SIPs and recurring deposits ensures that we don’t miss investment targets, putting bills on auto payment mode means you don’t miss payment deadlines.

What should we learn from the Crisis?

We get panicked when we see that our whole life’s savings/investment reduces to half its value in a just a year. But yes this is also the reality and faced by many investors during 2008-09 crisis. The investors’ money reduced by almost 60% (assuming the money was invested in BSE Sensex) within January 2008 to March 2009 period.   It needs extra ordinary courage and patience to digest such kind of loss and remain invested. However those who continued for next two years they were back in profit  If we see the historical returns the market since has given approx. 10% average annual return if my holding period is more than five years. So what should we do where there is a bloodbath in the Dalal-Street and how to survive this kind of situations, lets us find it out.

  1.  The most important lesson we should learns from past crisis is that Stock Markets goes ups and down but will finally react to the underlying economic signals. It will recover back if the underlying economy grows. However the small retail investors typically buy when markets are high and sell when markets crash. We have seen it in 2008 crisis. The mantra is: Buy Right products and hold, don’t get into panic selling. Usually there is a sharp recovery after a crash which cannot be encashed by the immature investors except may be few experts and hence small investors are most likely to miss the recovery. Unless we are invested, we could not gain from the market recovery. The strategy should be holding a well-diversified portfolio (through diversified mutual funds) rather than just a few stocks.

  2.  The old saying “Never keep all the eggs in one basket” is always relevant especially in case of the investments.  In the past we have seen various themes like IT, Pharma, Infrastructure funds which have done exceptionally well for some time but also turned huge negative when the hype related to these sectors waned out. We need to diversify our assets in different asset class like equity, debt, gold, real estate etc., not just that within asset class also we need to diversify further like in case of equity we should spread our investments in Large, Mid & Small cap Diversified Funds, Sector funds have higher risk and should be limited to only a small portion of the total portfolio. Diversification is very important and while analysing the return part we should see the portfolio return rather than one particular class of the assets.

  3. Portfolio Rebalancing is another important thing need to be practiced in investments. Normally  when the market rises we get carried away with it and forget the prudence while increasing the allocation in that particular asset class, rebalancing has a purpose and should be practiced in a systematic way. First we should decide how much debt and equity we are comfortable with based on our risk appetite and financial goals.  Once it is decided it should be practiced and rebalancing should be done when one asset class goes up. For example if we have decided 50:50 as equity and debt and due to rise in equity market the portfolio moves to 65:35, in that situation we need to redeem the excess equity exposure and brought it back to originally decided allocation.  As we reach to our financial goals we should reduce exposure from high risk category to low risk category.  By rebalancing we also tend to book profits in between while reallocating the assets.

We have seen a very sharp growth in mutual fund investments in last two three years. These are those new investors who have not seen a long and deep market crash like in 2008-09. The points mentioned above are very important for those investor. If an investor has begun to invest just by looking at the past few years’ returns and don’t have a proper plan/strategy, he will panic and sell at the first whiff of a longer market crack. Panic selling and greed-based buying will costs much, not just money but also the trust in the markets. Hence it is always better to take proper guidance from an expert.

Why should we SAVE MONEY ??

Everyone want to spend money so as to live comfortably and enjoy the life but in this article I want to discuss why should we save. Yes we can think that its very obvious why to save, but still lets find out more the reasons behind savings. Here while talking about saving means saving and investing both.

Normally we all feel that “saving money” is only related to securing your future. The equation for them is

Save money = Lead a better life tomorrow

However there are various other angles we need to think about, and that’s why we are going to discuss this in details. So lets understand it more in details:

1 – Securing our future

The most basic and core objective of saving money is to use it for our future requirements. We save or accumulate the money and use it for your future requirements.

We must know that “One day, our regular income which comes by name of salary will stop coming”

There will come a time when we will be left with 30-35 more years of our life and there won’t be a regular salary coming into your account like it happens today. We need to create a big enough corpus, which helps us to lead a life we desire for next few decades even when there is no regular inflow and which should last till our death.

Few people may think that they can avoid creating their wealth because their kids will take care of them. However it’s up to us to decide if that’s the right approach towards life or not.

Savings and Investing what does it means?

Saving: Saving money is very important. We should save money because if one day suddenly we need money we will have it with us. If we just keep on spending all the money that we get and one day we need money we will not know what to do

Investing: Investing makes our money grow. Just as a plant grows from a seed to a plant. When we keep our money in a savings bank we get interest but if we will invest our money in fixed deposits, shares, mutual funds, public provident funds, etc. our money will grow from a small amount to a big amount faster.

Start saving some money for future

To start with If  someone can’t manage to save enough money, at least he should start saving some money starting from TODAY itself . Let me share with you some numbers on this. If a 30 yrs old person invests Rs 5,000 per month for next 30 yrs consistently, then @13% average return over long term, a total of approx Rs 2.2 crore can be accumulated.

The amount of saving is something depends on person to person and even small amount can also make a big difference in a person’s life. We should remember that Anything is a good start! , may be upgrade later – but at least START RIGHT NOW.

2 – To allow us to do what we love to do

Let’s ask a basic question: Do you love what you do?

It is not just work we are talking here but about pursuing our passion for living or doing full time job in the area which we love to do. What we mean here is that do we have enough time and money to do things we love for few hours each week? Something which we truly want to do other than our regular job work?

·        Do you want to socialize more by throwing a party for your friends, but worried about the cost and affordability?

·        Do you love photography, but those costly lenses seem to be out of your current budget?

·        Do you love travelling to new places, but you are stuck because the home loan EMI needs to be paid first?

·        Are you afraid to tell your boss that you want to go on a month long road trip, with your best friend which was planned years back?

·        Want to go on a weekend trip with your friends, but seems it’s out of the budget!

Yes It’s going to be very tough to really achieve all the points mentioned above, if our bank balance is not sufficient. So what we understand here is that Less money means less power with you to do the things in your own way!

We basically need money or time to pursue our hobbies and both of these will come only when we focus on creating wealth.

There is a famous saying that “ Making Money is a hobby that will compliment any other hobbies we have, beautifully.”

If we are so much dependent on our monthly pay checks, it’s going to be very suffocating going forward. Enough wealth in a person’s kitty gives him that power to do things he loves.

3 – To enjoy and live a better lifestyle

There are many thing which don’t need money lie A great nap, a conversation with a good friend, a simple meal with your loved ones. However we should remember that this a materialistic world and we need money to do a lot of things in life.

Yes, I am talking about those materialistic things.

·        A beutifull house

·        A luxry Car

·        Dining in a famous restaurant

·        Partying with friends

·        Buying the I Phone

·        Going on an exotic trip

·        Redesigning your house

We need to spend money on various experience and possessions, only if we actually have the money at the first place (not always, but most of the times). We can be able to do it only if we have money saved at the first place.

While some one can argue that we can always take a personal loan and upgrade our car or go on that vacation etc. However we are talking about the way we do not increase our burden and tension but to enjoy without the tension which comes with the loans.

So lets understand first that What kind of life are we looking forward in coming times? Is our wealth enough to lead us there? Are we doing enough for that?

4 – To have financial independency

Financial independence means when we don’t need to work for earning money.

While retirement is linked to age (which is generally around 60) , the financial independence is a function of wealth and not our age. Financial independence can happen even at the age of 35 or some may be not even independent at the age of 60.

Financial Independence is also referred as financial freedom : Where our passive income equals our desired lifestyle expenses”

For a normal investor, financial independence can happen only when we start our wealth creation journey well in the start of working life and are disciplined enough not to disturb it for long time.

Millions of people go to their jobs in the morning with different moods depending on the day. They are happiest on Friday and very sad on Sunday night. We need to seriously start investing for the goal of financial independence if this is the case with us.

We should reduce our dependency on our active income (salary) as we move from age 30s to age 40s . We should have created enough wealth in the first 10-15 yrs of our working life that some part of our expenses can be met by passive income which our wealth can generate if things go wrong.

It does not mean that we should create wealth stop working and start living on the passive income right away, but we need to create that situation for so that It will bring peace of mind.

5 – To have tension free mind

Not have enough money brings a lot of tension. If we need peace of mind, we need enough wealth on our side which can give us comfort. If we do not have enough wealth we will keep worrying about future every now and then and every small financial problem will give a goose bump and force us to think about scary future.

If we don’t have enough money it  is bound to cause a lot of stress.

Various thoughts will cross the mind …

·        What will happen if I lose my job?

·        How will I meet my financial goals?

·        What if I suddenly need a lot of money for medical emergency?

·        What if I am not able to give my kids all the things they want?

It is possible that even a respectable amount of money saved at might not end our worries, but it will surely bring some peace of mind and lower the stress.

As a general rule of thumb, If a person has worked for X yrs in his life, he should at least have X/2 years worth of basic expenses saved at the end. This could be a general formula which one should aim for at the least.

6 – To pass on to our loved ones

We can see that a lot of families struggle for money generation after generations. The grandfather worked for money all their life, then father and then the son is also doing the same.

Many people who struggle financially set a goal in life that their kids should not face the same. They want to leave them a house and some wealth which makes their start a little easier in life. Although they also teach them money lessons and make them responsible.

If we create wealth in your life, we can leave some part of it for your kids so that they can pursue things they truly wanted to do and not work just for money to bring food on the table.

A lot of wonderful people are never able to do things in life which they truly want to do. They are not able to live their own life fully because of the money matters. If they already have some comfort on their kitty they can do much better in their life without fearing for just to meet the needs.

Finally

To conclude, there is a great possibility that one or more things mentioned below will happen to you if you do not get serious about saving money in your life going forward.

·        We will be spending a lot time worrying about future and how will your life end

·        We will depend too much on others (your kids may be) for money

·        We will have hard time maintaining a good standard of living

·      We will be too dependent on our active income and will be forced to keep working even when we don’t like it

·        We will find it tough to lead a better life compared to current lifestyle

·        It will be hard for us to focus on things we love to do, because we don’t have enough money or time

If we have still not crossed the age of 45, We still have a good chance to create a respectable corpus by the time we retire, even though we have lost a lot of time for compounding. This needs a proper planning and assistance through a good advisor.

Brexit and India; How are we placed in the current crisis !!

Last week United Kingdom voted in favour of exiting the European Union, which was kind of surprise to the world as most of us were expecting that it will remain with Euro.  Due to this surprise globally almost all the markets reacted negatively and Indian market was not different. Reacting to this news Indian market fell more than 2% on Friday, Rupee fell by 70 paisa against dollar, and FIIs were net sellers. Pound is trading at it 30 year low against dollar. Gold, Silver and Crude prices went up. So what will happen going forward, is this the end of the world, how Indian markets are placed, can we face this situation? Indian investors have all these questions in mind. So lets try to find out the possibilities and likely situation.

Let’s first understand the negatives:

1.  This will open a Pandora box of exiting from the European Unions. Many other countries like Greece, Ireland etc. may also follow the UK style voting. Various groups opposed to the EU membership in other European countries have already started demanding their own referendums. This will increase in risk aversion when it comes to investing. 
2. Britain votes for exiting then businesses in Britain will be at a disadvantage, and London being the financial capital will lose a lot of sheen.
3. This sudden increase in global risk aversion will have negative impact on the inflows from foreign portfolio investors (FPIs) to emerging countries and India will be impacted due to this. Money will move out of Britain and will affect currencies including INR (£ will weaken and $ will strengthen) and in turn affect the global economy.
4. European Central Bank has its limitation to fight this situation, with interest rates at rock bottom, some of them even negative, there is a limit to how much further stimulus central banks in developed markets can give their economies; 
5. India exports a range of goods and services to the UK, including apparel, motor vehicles, pharmaceuticals, IT services, and gems and jewellery. Indian bilateral trade will be impacted due to fluctuating currency and global stock market volatility. Indian companies having base in Britain will have a smaller domestic market, rest of EU will become an unprotected export market
6. The other major global even is US Fed raising rates, however due to Brexit it may not happen soon but this risk will remain on the global markets.
7. For India the upcoming Foreign Currency Non-Resident (FCNR) fixed deposit redemption due in September is a major currency risk. However as per RBI governor and other experts this FCNR redemption in September should not be a big worry.
8. For India, Inflation is slowly moving up and will have impact on the economy. Rising Crude oil and food items prices will restrict RBI to cut rates from here onwards. This will have impact on the markets. Any further weakness in the rupee will also tie the RBI's hand in reducing the rates.
9. Indian banking sector is facing a challenge on account of huge NPAs and needs a serious policy directios for the regulator.

So, how are we placed in this scenario and can we face this situation, lets understands the positive factors also in the current environment

1. Indian economy is much stronger than it was 5 years ago thanks to sound monetary policies by the RBI, softening of commodity prices which ensured fiscal discipline, stable and able Government at the Centre and reforms initiated by them.
2. Though UK has given its referendum, the Brexit will not be happening overnight. Its a gradual process which will take at least 18–24 months to complete as the new UK Government will have to strike new deals with other countries.
3. Brexit has driven away fears of a US Fed rate hike at least for the time being and could lead to lower commodity prices, which would be good for the commodity importing countries like India.
4. The immediate impact of Brexit has seen the US dollar appreciate and this usually sees commodities with strong links to financial markets weaken. Since money gravitates towards the appreciating dollar, commodities take a back seat. A sharp drop in oil and other commodity prices will benefit a number of companies India.
5. Although Brexit will have impact on Indian GDP growth but still Indian economy is the fastest growing economy although it may have some impact due to Brexit but it will remain at top on the GDP growth.
6. Higher GDP Growth rate, fiscal deficit within reasonable limit and lower current account deficit is seen stabilizing the economy.
7. Lower base, benign commodity prices, government policies along with increased capex could help earnings to improve going forward.
8. A good monsoon will help in reducing the food prices and also help to boost up the demand from rural India.
9. A good monsoon and high GDP growth/corporate earnings will be a positive for the Indian market. Especially domestic oriented companies may do well in this scenario 

So what a long term investor should do in this scenario:

• Markets always have a habit of obsessing about one or the other factor over a short term, be it Brexit, Grexit, terror strikes, Iran issue blah blah blah…so for a long term investor its not necessary to react for everything and anything.
• A long term investor should learn to ignore every form of macro information and just stop trying to predict them. Nobody knows exactly what is going to happen. And everyone is trying to give their opinion, and someone is bound to be right just out of sheer luck.
• As happen in past no news continues to be a news forever similarly in few months nobody will even talk about Brexit (now the official news is here), however, it is also true that something new will pop-up on the horizon soon. Something related to oil OR China OR NORT KOREA OR IRAN OR US OR Fed OR COMING ELECTIONS whatever, and there will be talks going on everywhere
• If we have selected right stocks/mutual funds and have confidence on them and have surplus funds, its always wise to buy when everyone else is selling so go and buy more in uncertain and volatile scenarios.

25 Years ago on 21st June 1991, PV Narsimha Rao took oath as Prime Minister along with Manmohan Singh as FM. Sensex on that day was 1360 and today it is 26,400. Growth of almost 20 times in 25 years.

Now let’s go in flash back and see what happened during this 25-year period.

The Babri Masjid demolition and subsequent riots...the worst foreign exchange crisis, Mumbai Serial Blasts, Harshad Mehta Scam, Nuclear tests, Kargil war,  The IT bubble, Ketan Parikh Scam, the 2008 housing bubble, Satyam Scam, European Crisis, Droughts/ Worst Monsoon,  All time high crude oil Prices, Inflation in double digit, 26/11 attack etc.. etc...

All these events by themselves are good enough to scare the hell out of anybody. But wouldn't we made money by forgetting about them and believing in the power of trade and commerce instead? As we have seen in the past the business goes on even if there is a bomb blast in neighbouring country, the ticket counters at the multiplexes are crowded as ever. Businesses at fast food restaurants remains as brisk as ever.

So let’s concentrate more on picking the right stocks and schemes and focus to remain invested for long term as per our own financial goals rather than worrying for anything and everything in this world.