Hirannya

Tag: Financial Planning

  • Budget – How does it matter?

    Budget – How does it matter?

    Just for a moment think that you have been always a prudent investor and you understood very well the power of compounding and impact of inflation on return. Now suppose you always schedule your yearly vacation during budget time. So this means you go to some place far away may be in North-East India or in Galapagos or in Timbuktu island just few days before the budget day. You do not get any internet there, no newspaper, no TV channel. And you come back almost after 7 days since annual budget is presented every year. Do you really think that your overall portfolio would get seriously suffered due this untimely(!) holiday of yours? Time proves – it would not. Chances are it would instead benefit you! As long as you save and invest regularly and your portfolio is designed to beat inflation over long term – you are safe and destined to succeed.

    Budget is of utmost importance for country’s economy and for functioning of government. Yes it mentions changes in tax slabs sometime and sometime also changes in product basket that qualifies for tax exemption. It increases or reduces your post tax income. Budget also mentions that some items will get dearer and some will get cheaper. This also may increase or reduce your expenses. So the changes in tax slab alone cannot decide your cash-flow situation. So many other factors are also there. Hence it can be safely said that your overall family budgeting and discipline will finally matter. Nothing else actually.

    indias-finance-minister-arun-jaitley-budget-2014-15-fiscal-year

    Some of the indirect tax rules may also see changes in this budget. Some industry may get tax sops, some may have to face more tax burden. Changes in excise or customs duty may adversely or favorably impact some industries. There will be surely some knee-jerk reaction for sure and effect can be seen in stock prices of such companies in short run. But again in long run, a company’s stock price is most likely to reflect only how well a company’s management manages cash-flow, generates return on equities, creates value for shareholders. Hence if in your portfolio there is a stock which is well bought i.e. you bought an above average company at a below average price, you are safe and did a commendable job. Stay assured that such buys will always create lot of real wealth for you in long run.

    So the basics remain unchanged. You can skip this budget if you are already on right path. And how the ‘right path’ looks like? See below:

    1) Focus on your family budget. Along with your household and lifestyle expenses also allocate fund for leisure, entertainment, travel but stay within limit. Do not overspend.

    2) Write down your financial goals. Set your targets. Look at the possible scenarios. Check your surplus. Start investing accordingly, and remain rock steady.

    3) Keep emergency fund ready in liquid instruments.

    4) Calculate and then take right amount of life cover.

    5) Depending on the city you live, likely expenses in nearby hospitals – take right amount of health cover (popularly known as medi-claim).

    6) Saving tax is definitely a good idea but not by compromising on life goals’ strategy. If some tax saving investments get fit into your recommended portfolio to achieve financial goals in time, then fine, go for it (early in the financial year) and save tax.

    7) Monitor your investments and review your financial plan at regular interval.

    Mr Bean

    Phew! You are almost done! So pack your bag and go for a vacation. Will see you post budget. Happy journey! 🙂

     

  • Retirement Planning

    Retirement Planning

    Nothing is permanent in this world. Everything that comes will definitely go including us. But we don’t know when. Apart from this everybody would like to live life peacefully as long as they live. You have to decide whether you want to depend on somebody or live on your own without compromising your life style throughout your life. That is why it is best to put our best efforts and save more for the future. The important thing you have to begin with is to have a retirement plan for you today.Retirement Plan is very important in our life. The earlier we construct the structures to attain a wonderful retirement the better for us. Saving for your retirement is one of the toughest and most vital things you will do in your working years. Because you have to save for your children’s college education, paying your home loan, children’s marriage, buying cars and all the other everyday costs.  Everyone has their own retirement dreams as well.The thumb rule is that you will need approximately 70% to 80% of your pre-retirement  income  to maintain your lifestyles in retirement. However, depending on your own situation and the type of retirement you hope to have, that number may be higher or lower.

    THERE ARE LOT OF FACTORS ONE SHOULD CONSIDER FOR RETIREMENT SAVINGS.

    • Retirement Age: This is the first factor you should consider at what age you expect to retire? In reality people say that they will work even after retirement from current job. Here you have to consider like health problem, job instability, or change of workplace etc. Assume that your retirement age is 60 then earlier you retire you need more money throughout your retirement life. It is best to prepare for unanticipated events that may force you for an early retirement.
       
    • Life Expectancy: Nobody knows the life expectancy. There are few factors which may give     you a hint. Your family history – like your parents and your relative’s current age or how long they lived. Common diseases in your family.  Your past and present health status etc. These are all the factors you have to consider when calculating your life expectancy. You will approx find the number of post retirement years you will spend.
       
    • Inflation: Inflation is one of the main factors while you save for your retirement. Just to save for retirement you start saving but forgot the impact of inflation then your savings will not sufficient. If you don’t account inflation while saving then inflation will reduce your value of your savings. So it is very important that your saving has to exceed inflation.
       
    • Your Lifestyle: Different lifestyles are being adopted by different people. Generally Lifestyles are usually simple for most the people. But it is very important that what type of retirement lifestyle you would like to enjoy. Like travel, or hobbies you would like to pursue etc. These are all questions can help you to decide your required corpus for your retirement. Many people tell that they would like to work part time after retirement. But the answer is practically not possible.
       
    • Health: Nowadays it is very important to consider the cost of health care. Health care costs are rising every year than inflation. People get health insurance cover from employers generally till retirement. Very few offers this after retirement. If you are not taking this in to account then it will eat your savings later. It is better advisable to buy long term health insurance for your better tomorrow.

     

  • This umbrella is for all season

    This umbrella is for all season

    Wherever you are, you surely experience monsoon at some time or otherin the year. During monsoon we never forget to carry an umbrella whenever we go out somewhere (We may forget to bring it back thoughJ). The good old umbrella will protect us from untimely showers, will keep us neat enough to carry on our tasks, will help us to keep promises that we have made – even when mother-nature tries to play spoilsport.

    Similarly we need to carry an umbrella throughout our lifetime to protect us and our families,financially from unpredictable events and mishaps. This umbrella will also help us to keep our promises that we all make to our family members (often silent but bold enough). Our life can remain on track, even when luck is not in our side – thanks to this umbrella!

    Bitter Truths:

    1. Man is mortal. Yes, we will die one day. When, nobody knows. An untimely death can leave the family in lurch.
    2. Life is unpredictable. We may face an accident – minor or major – anytime, anywhere. Apart from physical pain, financially also it hurts.
    3. We may get diagnose with some critical illness at some point in our life. We may still survive, but there could be long term treatment. Thus, it can create a big hole in our pockets.
    4. We all know the virtue of spiritualism. But can we live the life of a saint? No. Hence we often find ourselves surrounded by expensive goods, gadgets, artifacts and jewelry. An act of robbery or an electric short circuit can then suddenly take us to Stone Age. So all our belongings as well as our “home, sweet home” are under risk –whether man-made events or natural calamities (earthquake, flood etc.).
    5. We may lose jobs. Pink slip, pay cut, trimming workforce – these words are not from Mars!

    Better Solutions:

    1. If you are married or if someone is/are financially dependent on you, consider taking life insurance – immediately. Remember it should be pure term policy only – online or offline, whatever you are comfortable with.
    2. Taking a standalone health insurance policy (popularly known as mediclaim) over and above the one which is provided by your employer is always a wise thing to do.
    3. While taking a pure term policy you should also opt for a ‘critical illness’ rider. This will come cheap. You may even consider taking a separate critical illness insurance policy altogether.
    4. Home, in most cases the biggest investment we make in our lifetime or the most critical asset we ever possess. A home insurance is thus necessary but often sidelined by most of us. A comprehensive home insurance policy canalso take care of its belongings.
    5. Contingency or an emergency fund should always be there. Take no chance here. This will always come handy when unpredictability strikes our life – whether it is losing our job or meeting an accident or anything you cannot think of now.

    Must not forget:

    1. The life insurance cover should take into account your family’s lifestyle expenses, outstanding liabilities, priority financial goals of your family members, without fail.
    2. While taking a mediclaim, remember, that your lifestyle, your location and standards of nearby hospitals / nursing homes should also matter in choosing the cover amount as well as the service provider.
    3. Before applying for a home insurance cover first checkout with your society members whether a full building coverage is already taken or not; also check your loan papers to find out whether you yourself had bought one while taking the home loan.
    4. Your contingency fund should take care of your 6 months’ expenses at least, including EMI and premium outgo. Also make provision there for emergency medical expenses. Remember, your emergency fund should always enjoy maximum liquidity, so that you can access it even in midnight.

    So, you see, whether it is raining or not, this umbrella is always useful and critical. Make sure – your umbrella is big enough to not land you in any awkward situation.

  • You also have a stake in the market, do you know that ?

    You also have a stake in the market, do you know that ?

    Yesterday, I met a friend in my office. And my friend’s friend was also there with us. While we were discussing about our profession, challenges and opportunities; he suddenly asked – So you people deal in finance, right? You then must have invested heavily in the stock market also? I replied – No, not exactly … Before I could say anything further, he quipped – Good, you should not. Because stock market is risky and nothing but a gamblers’ den. I replied – that see, driving is also risky. It is even riskier for my 5 year old daughter and certainly not so for me as I know how to drive. He did not argue further, but from his facial expression I made out that he was not convinced.

    I was thinking about this futile conversation later also. Then I made a list of people whom I know very well and who have never invested in the stock market. When the list was ready I found a striking similarity there, that they have all actually invested in the market – mostly without even realizing that!

    How?

    Suppose your name also feature in that list. Here is a brief background of yours – You work in a reputed MNC at a senior position. You have been working in this organization for last 5 years. Four times in last five years you received a hefty hike in your salary. Before this you worked with a leading Indian conglomerate for 7 years.

    Before going further, tell me now – Do youagree that you have already invested in stock of your current organization?

    While changing job 5 years back you had choices before you – which company’s offer letter to accept or which interview to go for at the first place. Out of many job offers pouring in your inbox you decided to choose only a few among them. You needed a job then, but you also had your terms and conditions well set out. These are as follows:

    • Company’s goodwill
    • It being employee-friendly
    • Good management
    • Long-term growth prospect
    • Incentives
    • Its position among the peer
    • How the company fared during last recession etc.

    Once all your terms and conditions were met you were ready to go. So almost all your efforts can be summarized as below:

    • You decided to join the current company finally and hence also committed to give the largest share of your day’s productive time to that company. Time is money. So this was a big investment of yours.
    • You did your due diligence well before investing err joining.
    • You checked your margin of safety before joining there.
    • You made sure that the company’s management run the company well and with values and principles.
    • You give a lot of importance to company’s profitability in future which is directly linked to your growth and prospect.
    • Still this decision of yours is not completely risk-free. Agree?

    If this is not stock investment – what else is? Want to see more similarities between choosing a job and investing in stock market? Here you go:

    • So even if an ABC Company with no credentials offers you a great package, in most probability you will decide not to join there. Your view here is surely long term.
    • Again when you search job you mention a few sectors only as your preferred ones. This means you will unlikely to venture into any sector where you do not have much knowledge. But over the years as your experience grows, you realize that you can do justice to many more sectors. So your circle of competence grows over time.
    • If this investment decision of yours is turned out to be really good, then you are expected to get good incentives, year-end bonus and pay hike. Are not these similar to rights issue, dividend, and bonus shares (not necessarily in the same order)? Did I forget to mention ESOP as another fall-out?
    • Your value of investment has also been appreciating in the process. Next time, may be after years, when you will look out for a new job after consistently giving good performance year after year in the current organization – other companies will definitely assign higher value to your candidature then. This is similar to your investment capital getting appreciated.
    • When your company manages to bag new orders, expands to newer and lucrative horizons, acquires a good company or get itself acquired by a bigger and better company – you feel good. Feel vindicated in your choice.

    This is what stock investment is all about. If you make informed choices and remain careful in handling your investments, you will get your effort’s worth. You will create wealth in long term. But you need to be as careful and serious as you are while looking for a job. If you are an entrepreneur or a businessman or a professional having your own practice, then the similarities are even more. There you know the things (checklist before investing in anything) from inside.

    There are more checklist involved in buying stocks, than what we have discussed above. There are dissimilarities as well. Like, while buying stocks you should always look for a good bargain i.e. buy the stock when it is available at a good price.

    Buying stock is like buying a business. How can you be casual then? Warren Buffettonce rightly said, “An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.”

  • Make sure that you get 10 out of 10 here!

    Make sure that you get 10 out of 10 here!

    You know that financial planning is important and that is you are opting for it or you have already opted for one. Here is 10 point checklist to make sure that you get it all from your financial planner and miss nothing –

    • Financial Planning is having a bird’s eye viewof all your financial matters
    • Financial Planning is joining bits and pieces to make you see the big picture
    • Financial Planning is a roadmap / blueprint / game-plan to achieve financial freedom
    • Financial Planning is financial fitness
    • Financial Planning is a commitment to not make any financial mistake ever
    • Financial Planning is optimization of resources
    • Financial Planning is securing your present and future
    • Financial Planning is a coin having two sides – strategy and action
    • Financial Planning is planning life and it also addresses concerns beyond money
    • Financial Planning is making life simple and clutter-free

    You know your finances well. You are a disciplined saver and investor. You know your income and expenses. You know your assets and liabilities. You know your insurances. You are taking care to keep enough funds ready for children’s higher education and marriage. You are saving regularly through provident funds and other investments to make sure that your post-retirement life becomes smooth and tension free. But can you see that ‘big picture’, that snapshot which covers everything at one go? Which gives you a clear picture of your present and future? That experience is like having a bird’s eye view. Financial Planning should make you feel that.

    You have a target set. You have some limited overs to play. And you are playing to win the game. So you know now whether you can afford to play slow or not. You know now the importance of having a game plan. You have certain financial goals set – 10 lakhs for child’s higher education, 10 lakhs for child’s marriage, 4 crores for retirement. In next 8 years child will be passing 10+2. In next 16 years child would be of 26 years and ready for marriage. In next 20 years you will be retiring. To achieve all these you have to have a game-plan ready. Financial Plan is equivalent of a roadmap which you require before you set off a journey; is equivalent of a blueprint which you require to construct something big; is equivalent of a game-plan which you should look for if you are here to win the game.

    Financial Planning makes sure that you are making optimum usage of all your resources. There should not be any place for regret. It gives you the best fit solution. It starts with safety and security. First you secure your family’s present and future, next move forward to achieve goals. Financial Planning focuses a lot on setting strategies right. But if strategies are not backed by actions, then everything falls flat. It is a long term (financial) fitness program. Stay tuned. Stay focused. Stay fit.

    Money is important. So is relationship. So are your hobbies and passions. So is your health. So is your contribution to society. The list goes on. If you overlook any of these, real wealth can never be created. Among all asset classes, the most important asset is surely YOU. You need to invest in yourself regularly.

    Financial Planning should make your life simple and secure and make you happy.Period.