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.

Letter for Investors (Hindi)

Letter for Investors

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.

This Diwali Let’s do something different

Diwali is the festival of lights. We remember Diwali for the gifts, sweets, crackers, new clothes etc.

The five-day Diwali celebrations involves illuminating the household with decorative diyas (oil lamps) or candles, hanging up handmade kandils (lanterns), streamers of fairy lights, grand display of fireworks and crackers to signify the elimination of darkness and movement towards light; hope over despair; good over evil; and knowledge over ignorance.

Many of us look forward to a Diwali bonus normally given by companies besides a salary. This bonus helps in dealing with additional expenses like buying gifts and cooking feasts for loved ones, festive purchases, and meeting your regular. Although as compared earlier times now people keep on buying things regularly however still Diwali has its own importance for purchasing new things. However we should not get into impulsive buying just because there is a offer.

So what should we do to our bonus/extra money this time?

This time let’s invest this money to illuminate our future financial well-being.

However, while investing, we should keep in mind certain essentials:

1. Think and Plan properly before investing

2. Know your own Risk Appetite based on age, goals, income dependents etc.

3. Have Clear Objective and time horizon for investments

4. Understand the Tax Implications

5. Have proper Asset Allocation

6. Invest regularly to get the power of compounding

7. Have Discipline in investments

8. Take an Expert’s Assistance, It actually makes a different.

We should also follow certain don’t while making investments which are

1. Don’t Speculate, It’s dangerous

2. Invest own money, don’t leverage for investing except real estate

3. Don’t use Emergency funds for other purpose they are for emergency only

4. Don’t be emotional with your investment if it is not working then get out of it

5. Review and adjust your portfolio on regular basis

By taking these basic steps and investing surplus money in a prudent way can help us to get our future goals more easily and comfortable.

So this Diwali let's not just spend but also save to celebrate many more Diwalis in future.

Wishing everyonee Happy and Wealthy Diwali

After Body and Mind, Check your Financial Fitness Also

This week Our Prime Minister announced fit India Campaign “Body fit hai toh mind hit hai (If the body is fit, the mind is fit),” said Prime Minister Narendra Modi while launching ‘Fit India Campaign’ on National Sports Day celebrated every year on the birth anniversary of hockey wizard Dhyan Chand. 

In this day and age, tracking our health stats is very important and we all put efforts to make sure that our body is healthy. But what about our financial fitness?

Let us look at major parameters to know how healthy we are financially:

1. Spending Less then Income:

To be financial healthy it is very important that on cash flow basis we are in positive numbers. Means our monthly expenses should be less than our monthly income.

2. Paying all the Bills on time:

There are many utility/household bills like electricity, gas, phone, Credit card bills. Paying all the bills on time and in full is the good indicators of financial fitness.

3. Have Emergency Fund:

There are emergencies which comes without any prior announcements like medical emergency, job loss etc. In general, the more inconsistent our income is and the more dependents we have, the larger an emergency-fund cushion required. As a thumb rule we should have 3-6 months expenses as emergency fund in liquid mutual funds/savings accounts.

4. Have Sustainable EMIs:

Debt-to-income ratio (DTI) is a figure lenders use to gauge how well we manage our debt. To calculate DTI, add up monthly debt payments and then divide the sum by gross monthly income, the lower the DTI, the better it is. It should not be more than 40% in normal case.

5. Have a Good Credit Score:

Similar to a DTI, credit score is another way lenders measure how likely we will be able to repay our loan — and a lower score usually means higher interest rates on everything from mortgage to credit cards. Normally the credit score should be above 750+ in the scale of 900 to get loans easily at decent rates.

6. Have adequate Insurance:

Covering the risk is another important aspect to be healthy. Health Insurance, Life Insurance and Accidental coverage are important insurances. Having appropriate insurance allows individuals to be resilient in the face of unexpected expenses, such as the death of a loved one or a medical emergency. Every person should have appropriate insurance based on his age, income, number of dependents and risk exposure etc.

7. Have Sufficient Retirement Savings:

In today’s world when even government employees don’t have fixed benefits plan it is all more important to have Retirement savings looking at the socio economic structure and inflation. We all need to have sufficient retirement kitty as our longevity of age is also going up.

To keep our mind fit we need to be stress free. Financial wellness is the most important factor to remain stress free hence we all need to ensure that along with our body and mind we are financially fit also.

Even A Credit Score of 800 won’t get you Loan, Do you know Why ?

One of my friends’ younger cousin Sumit who is 26 years old has started working a couple of years back.  He is software engineer and got the job at Hyderabad based IT company. Since he is originally from Mumbai so has to setup his house there and hence brought new furniture for his rented apartment and also brought a Car both on loans to start his new life in this new city. He got the loans easily based on his salary and credit score.

Then, there was a medical emergency in his family as his father was hospitalised and he was forced to apply for another personal loan to help his family with the medical expenses as his parents didn’t have the health insurance. He was sure his loan application would be approved as his credit score was 800+ and he was making timely payment of his education loan and credit card dues and also the recently taken car loan which had helped build a strong credit history. But for his surprise his loan application was rejected.

So what went wrong?

Well a good credit score is a must, but it doesn’t necessarily ensure that your loan application will always be approved.

Lt’s understand what went wrong

Sumit’s total EMI of Rs. 20,000/ - on his net monthly income of Rs. 50,000/- is already 40% of income. Let’s assume his living expenses of Rs 25,000/- after paying the EMI he is left with only Rs. 5000/- . So if he applies for say Rs. 3 lakhs personal loan for 3 years , he will have to pay the  EMI of approx Rs. 10,000/- and hence will be in net negative surplus money at the end of the month. As debt-to income ratio of over 50% made him unworthy of securing further credit, despite him maintaining a good credit score hence lender’s won’t be willing to extend extra loan to him. Further two of his three loans – education and personal loan – being unsecured didn’t help matters either.

So what should a Person do:

In today’s world after Credit Score is available for all the borrowers alongwith that lenders also see certain other things and hence we need to take care of them.

Firstly As a borrower we need to be careful about our cashflows and ensure that total loan to EMI should not be more than 40% of net take home income.

Secondly we should apply for loan only for a genuine purpose which is within our payable capacity.

Thirdly we should not approach multiple lenders at the same time as this could be counterproductive. This phenomenon is called as ‘loan stacking’ where a consumer makes multiple applications with different lenders at the same time in an attempt to get more than one loan before a lender realises that another lender has already given a loan to the applicant.

Fourthly it is better to apply from the same lender specially if you are regular in payments,as he knows you better and can extend extra money based on your past credit behaviour.

Finally use the internet and online options to research about various loan options so as to get a best deal based on your current profile.

Want to live happily and in Abundance: Differentiate between NEED and WANTS

We all want to be wealthy and live happily, but the urge to splurge is something that is the biggest hurdle for long term wealth creation. For our better and secure future we all need to save regularly and enough so that we can live comfortably when we are not earning. The trick to investing, saving money, and reaching your financial goals is to make sure we are wisely balancing our long-term needs and short-term wants to allow us to live well, but frugally, and find joy and satisfaction in life.

So how to differentiate between need and wants?

Double chocolate chip ice cream? It's a food, so can mark it as a need. That designer T-shirt that fits you perfectly? Well, you need more shirts, so why shouldn’t it count as a need, too. Well It's easy to mix up wants and needs, break your budget, and lose sight. So what should we do ?

The basic definition of need is “Something which we have to have”; Like home, food & water(to maintain health), clothes (to remain comfortable and appropriately dressed), Basic health and hygiene items,

Want is “Something which we would like to have”  Everything that goes beyond the things mentioned above like - a big house, name-brand clothes, fancy foods and drinks, and a new car—is a want.

BASIS	NEEDS	WANTS
Meaning	Needs refers to an individual's basic requirement that must be fulfilled, in order to survive.	Wants are described as the goods and services, which an individual like to have, as a part of his caprices.
Nature	Limited	Unlimited
What is it?	Something you must have.	Something you wish to have.
Represents	Necessity	Desire
Survival	Essential	Inessential
Change	May remain constant over time.	May change over time.
Non-fulfillment	May result in onset of disease or even death.	May result in disappointment.

Simply put, needs are the things which are essential for one's survival while wants are those things which make one happy but are not essential for survival.

So to live a rich life first we need to distinguish between needs and wants and second rule is to apply that knowledge in our daily life.

There is one good way to identify need and wants; if we want to buy something take 2-3 weeks’ time before actually buying that item. Over this intervening period, if you are able to carry on with your life comfortably, then the thing you were eyeing was not a 'need' but a 'want'.

Have a budget, and come up with a plan, and act on it. Even if it takes long time, just working toward a goal is empowering. It makes us feel capable, instead of deprived; it makes it easier to tune out all those things we don't need, and it puts ourselves in charge of where we will go next.

Take time to reflect on all the ways that we have been blessed. Then, decide what's really important to, and go after it. Once we become better at differentiating between wants and needs, we will probably see that we have been able to fulfill more of our wants over the years than we realized. And that can be a major turning point.

Lessons to be learnt from the Indian Election 2019

Congratulations to everyone.....

World's largest festival of democracy is over & strongest statesman of the world is at center again- So let’s find out what we can learn from this biggest democratic festival of the word’s

1. When it's about nation: Support the Nation.

2. When it's about army: Support Soldiers, they fight unconditionally.

3. When so many social schemes are on ground: don't say "Kya Kiya".

4. When institutions are working, to hide your inefficiencies: don't blame them.

5. Every success has a very hard work in the back ground. Don’t fall prey in short cuts.

6. A proper machinery, man power, planning and other resources are required. You can’t get a success without all these basics.

7. When democracy is prevailing: don't spoil image of nation on foreign soil.

8. When secularism is prevailing: don't coin word intolerance to appease communities.

9. When nation is rated as emerging global powers: don't say it's fudged analysis by rating agencies.

10. When leader is working with integrity: don't say he is corrupt without any concrete evidence.

11. When positivity prevails: don't spoil your image by talking or supporting negatives.

12. When victory is inevitable: respect the verdict unconditionally.

13. When in debate a friend gets annoyed: wait patiently, better sense will prevail, than leaving him.

14. When some sensitive topic about the history is being discussed, don’t talk casually “Jo Hua So Hua.”

15. Understand what your customers expect from you and Deliver those without demand.

16. This is 21^st Century, Technology plays important role. Do not underestimate the power of Social Media.

Jai Hind. Jai Bharat.

Check your Risk Profile

My Friend Raj is an engineer who is good in saving, He is saving money for past many years, however all his money is going in fixed Deposits. One day while discussing generally, he told me this and I asked him why is he keeping everything in FDs, he replied he is interested to invest in higher yielding comparatively risky investment avenues but he don’t know how much risk he can take and what is suitable option based on his own risk profile that’s why he ended up in FDs.

Well this is a very common thing I heard from many other investors. So the question is how to gauge your risk and then how to match the investment options with the risk profile. So let us simplify the Risk profiling.

1.      Segregate Goals             

Firstly we need to segregate each and every goal based on time and amount required. There could be different goals like next vacation tour in holidays, buying a car or, retirement planning etc.

2.      Setting Time frame        

After segregating the goals we need to setup a time frame for these goals, which will help them decide how much investment risk they can take for better returns. For example vacation holidays could be of short term like next summer season, buying a car may be a target of three years and retirement planning is required for the age of 60. Each goal has certain time line to achieve them.

3.      Choosing the Right Investment option  

Once goals are defined and time frame is fixed. The investment can be made based on the time horizon and fund requirements. Setting a time frame for goals will help to decide how much investment risk can be taken for better returns.

Here we need to understand that some of the investments may give high returns but the returns may be volatile over the short term. Such investments require a sufficiently long investment time frame in which the volatility will smoothen out. On the other hand very safe investment options for long term may not be able to match the return potential from the other investment options.

Sometimes we may be tempted to assign high return investments for their short- term goals if they have fallen behind in terms of the goal amount. But the risk in doing that is we may find that the value of the investments has dropped when the money is actually needed.

While selecting investments based on the time horizon of their goals, we should also remember that a longer investment horizon alone does not make a fundamentally bad investment less risky. We need to select only sound investment options/instruments after evaluating their strengths and features.

By aligning their investments to the goal horizon & time frame we can ensure that the level of risk is appropriate without being too high. This way we can put our savings at risk to earn good returns without putting our financial goals at risk from inadequate funds.

We also need to understand that every person has their own financial goals and risk appetite. While doing risk profiling we need to understand the same before selecting the investment options.