Personal Finance is more Personal than it is Finance

– By Meghashyam Sinkar

Every individual is unique in terms of its needs , goals , risk , upbringing , behaviour which makes their financial decisions idiosyncratic. 

Personal finance has nothing to do with anything outside your own finances. It has got everything to do with how you save, invest, earn, spend, allocate and insure.It is about 5% of economics and 95% of YOU .

If you aspire to be wealthy in the future, you must align your actions today to ensure that you do end up wealthy. It is nothing but aligning your present self with your future self . 

Certainly it is not a one time job.It is an ongoing process. 

To achieve individual’s mandatory, lifestyle and aspirational goals , one has to have proper personal financial planning . Again it will differ from individual to individual based on the financial position of an individual, cash inflows and outflows , asset & liabilities etc . 

Therefore , it is important not to follow others style of investment, financial decisions. Do what suits you and to your financial life .

Finally it is not about products, calculations and returns, it is about YOU.

Happy Investing !!!!!

Why WILL ???

-By Rahul Mone 
 

This COVID- Pandemic has taught us one thing that Life is uncertain. We all know that Death is certain, Life is not.

Creating wealth for our family and future is just one aspect of financial planning. However, the process will be complete only when you decide what happens to your accumulated wealth after you are gone. A wise decision taken today shall be perceived a prudence and wisdom by the next generation. Thus, if you wish to pass on the hard earned legacy, one has to execute it through meticulous planning a succession.

Hence, it is absolutely critical that we should be ready with our plans of transferring our hard-earned assets, Financial as well as Physical to the beneficiary/ies, as per our wish and desire. It is our Succession plan for the distribution of our assets, as per our choice after our demise. If you don’t write a Will w.r.t. assets exclusively owned by you, it will be allocated in a standard way as defined by succession laws- which may not be in sync with your preference.

Many of us think that Nomination is sufficient and there is no need for making a Will but we should know that mere nomination or joint holding is a temporary arrangement, which helps in ensuring to carry out required administration of the estate of the deceased, till the legal heirs take the necessary, formal steps and have the assets transferred in their names. Nominees are in the nature of trustees of the assets of the deceased till the assets devolve upon the legal heirs and /or beneficiaries, as the case may be. Will takes legal precedence over a Nomination and Nomination cannot ensure acquisition of assets.

One of the most commonly used instruments for succession planning is the Will. Will is the easiest and most cost-effective way to ensure the devolution or distribution of one’s wealth. However, it is the only document where the person signing the document is not available at the time of it’s implementation and therefore, it is very critical that it should be made keeping in mind all the details about your assets that you need to be allotted to your successor as per your wish and it should be prepared carefully and envisaging all possibilities.

For making a Will, you can identify one or more person/s  as Executor/s who should be trustworthy, and dependable as he/she/they will be the one who will implement and ensure the adherence to the Will, in your absence. It is advisable that as far as possible, Executor of the Will should not be a beneficiary of the Will. You also need 2 independent witnesses at the time of signing of the Will but the beneficiaries to the Will cannot be the witnesses and this condition is mandatory. Also, it is strongly advised that one  should get a Doctor’s certificate confirming the person(i.e.Testator) who is signing / executing the Will was in a sound physical and mental health at the time of making a Will. 

Moreover, It is strongly recommended to have a separate Will for husband & wife, because if a single Will is executed by the husband & wife simultaneously, then say upon the death of a spouse, the surviving spouse  will not be able to alter the Will to add one’s new family in case of remarriage or exclude any of the children, due to change in circumstances.

 There is no specific format of a Will but it’s advisable to get the legal advice, in drafting a Will due to complex laws and even more complicated legal process and by taking a proper advice one can easily avoid prolonged, counter-productive and expensive litigation, as that is the last thing one intends to pass to the next generation. It is important to state in the Will clearly and unambiguously as to what amount or a share of property is being left for the successor and the reasons for any unequal distributions, if any so as to avoid any confusion or dispute. Ideally, the Will ,should be comprehensive with all details like all Bank Accounts, Demat accounts, Instruments such as Policy, MFs, Bonds etc, physical assets like flat/s, plot/s of land, jewelry, donations to Charitable organizations,  details of your Wealth Manager or Financial Advisor if any. It is also recommended to revisit a Will, every 5 years as the property or assets held could change or even devolution may change.

Will once made can be altered any number of times or in case of minor changes, addendum/s can be done (codicil) with witnesses. However, only the last Will made before his/her death shall be valid and enforceable. 

It is also advisable to get the Will registered or at least get it notarised as many times financial institutions like Banks and other govt. offices don’t readily accept the unregistered Will and are quite reluctant to act on the same The said Institutions/govt. bodies may insist for obtaining a  Probate (Certified copy of a Will by the Court) which is a time consuming process  (upto 1 or 2 years) and legal heirs need to pay court fees stamp  which is ad valorem i.e. a percentage of value of the assets. In Maharashtra, currently the maximum court fees stamp , payable is Rs.1.50 lacs. 

It’s also suggested to get additional certified copies of the Will along with original Will. The original should be sealed and should be kept with the Executors. Additional copies may be kept with persons whom you think should be in know of the same in your absence and even the beneficiaries can have a copy of the same.

Some people prefer Institutions as Executors instead of any individual person/s. There are some private family offices and some Banks and Financial institutions who act as Executors and help in drafting and executing a Will by charging fees.

Another option is setting up of a Family Trust. In this case also, some private firms, Banks and financial institutions act as Trustees and Executors. Sometimes, Family Trusts are created to protect the assets from getting attached / liquidated in the event business goes bankrupt. These are generally done by high net worth individuals or for persons who cannot handle their finances on their own or for the benefit of special children. They handle the expenses required for the maintenance of the beneficiary, manage their Funds and tax related issues as well charging some fees.

When there is a WILL, there is always a way………

Happy Investing !!!

Mythology & Money

During this unprecedented time and nationwide lockdown, one unexpected thing happened . Ramanand Sagar’s epic series ‘Ramayan’ returned back and getting aired on Doordarshan with the aim of keeping the country indoor which used to happen 33 yrs ago during the episode.

While catching the glimpse of series  , I came across an episode where Kaikeyi demanded the exile of Rama.

The brief story goes like this 

King Dasharatha, Rama’s father, decides to give his throne to his eldest son Rama . Everyone seemed very happy & pleased except Queen Kaikeyi – Rama’s step-mother, the king’s second wife. She wanted her son Bharata to rule the kingdom of Ayodhya . Because of an oath (Praan jaaye par vachan na jaaye’ sort of ) , Dasharatha  had made to her years before, she got the king to agree to exile Rama for fourteen years and to crown Bharata.

There are two lessons which i can relate to financial world from this part of Ramayana.

Importance of WILL & Trust : –

Human behaviour is unpredictable specially during emotions of fear , insecurity . You can see How Kaikeyi became insecure of loosing the status of Rajmata and about her son’s future .  Dasharatha  pleaded with her not to demand such a request but couldn’t stop her . She was scared that if Ram went to become King, Naturally Kaushalya ( Rama’s Mother ) would be Rajmata and she would be subordinate to her . This gave her lot of insecurity inspite  being an intelligent , loyal and she trusted Rama more than her own son Bharat .

Had there been a legal system at that time ,Dasharatha could have formed a trust and made Ram as main beneficiary .

But it is available in today’s time . It is very important , yet highly ignored & given least priority . Wealth Distribution is the 3rd pillar of Financial Planning after Wealth Protection and Wealth Creation . One can make a WILL or form a trust to avoid such unexpected surprises.  In fact, it is not always about dispute . It is important for the smooth transfer of the wealth to legal heirs or beneficiaries .

One can give a time to it now during this lockdown and prepare the handwritten will if not done earlier and then register it once life comes to normalcy.

Committing without thinking :-  

It’s Dasharatha’s commitment given to Kaikeyi which got him to this trouble . Same thing is observed in financial world . Lot of investors sign up for traditional insurance or unit linked insurance plan and commit huge premiums for long period of time without proper understanding of the investment products , thier future cash inflows , their cash outflows towards financial life goals . Any sort of sporadic cash inflow puts an investors into trouble as premiums have to be paid and one can’t exit the product easily as it comes with lock in conditions .The event like current one of global pandemic may create pressure on income . The person having low financial commitment can sail through this event without any emotional & financial burden.

Our Mythology gives lot of lessons on spirituality , life , management , behaviour & so on . However, there are many such lessons which one can relate to personal finance & money management and learn from it to make sound financial decisions in life

Happy Investing !!

This too shall pass away ….

We have seen the significant correction last week across global market . The fear of coronavirus looks to be more than actual impact of corona virus . The world economy was already struggling from US China trade war, Brexit issues, Oil prices & supply concerns & many more . The Indian economy has been under stress for the last few quarters with GDP growth coming under pressure  . The things were about to stabilise but pandemic situation clubbed with real time news update has brought the Indian and global market  into panic situation . Nifty corrected more than 20% in last 15 days.

When lot of things have changed in 15 days period , then it becomes hard to think more than 15 days ahead . But ,do not let this short term pain hamper long term gain.

The irony is that long-term thinking is most powerful when everything is falling apart. The majority of long-term results are determined by decisions made during a minority of times, and right now is one of those times. It’s a tragic moment to become short-sighted.

Markets had experienced such epidemic outbreak earlier Mars, Ebola ,Swine Flu . Refer our recent article  But they have always rebounded once things got settled down. Ohio lawyer named Benjamin Roth write after The Great Depression “Business will always come back. It will remain neither depressed nor exalted.”

However , it is always overdone whether optimism or pessimism and boundaries of both can only be known in hindsight, once they’re passed.

Currently ,No one knows how long will it continue except Virus itself.

What should Investors do ?

Don’t Panic and don’t act in haste . Selling at this stage may not be good .

Investors should add more equities in stagger manner and use this correction as an opportunity .

Historically, investing during these volatile times has rewarded investors handsomely over 5 years period .

And remember , this too shall pass away .

It looks bad today.
It might look bad tomorrow.
But hang in there.
We’ll get through this.

Be Safe  !!!

Corona Virus

We are seeing the impact of corona virus on equity market across the world . India is off course no exception as well . 

The coronavirus outbreak halted trade , tourism , consumption and many other activities. The effect of this outbreak may push China’s economy into a period of dull growth for some time.  Will it impact other economies further?  …Yes if it spreads further…..Will market falls further? …..certainly if virus stays longer.  

Markets alway give knee jerk reactions for any positive or negative events . It is always overdone in the market . 

Long-term investing is often best disconnected from short-term economic reactions. 

We have seen such epidemic outbreaks in the past . Below table provide the sense of market reactions following major epidemics in recent history.

corona virus

Carl Richard has nicely depicted current scenario in his famous sketch BehaviorGap 

WhatsApp Image 2020-02-28 at 6.05.31 PM

We have written on couple of times on different events whenever the market corrected in past .

 

CoronaVirus will be history after few months .  You need to decide where to focus  on CoronaVirus or Karo Na Invest !!!

Happy Investing !!!!

The Concept of ‘IKIGAI’ In Financial Freedom

– By Meghashyam Sinkar

Financial freedom is achieved when you have the OPTION to work rather than being COMPELLED to work. It is achieved when you have reached a place where you are no longer stressed about money and feel at peace . So people trade their time or skill to earn money in order to achieve the financial freedom .

Now , if someone is loving what he /she does and continue to work and in this process , earn money then it’s perfectly ok . But how many of them are actually loving what they do.

In fact , in this modern societies & communities , people do what they are told to do or what others do , rather than what they want to do . This may be due to number of reasons like social pressure , peer pressure , lack of clarity on life goals , fear , greed etc.

Lets consider that someone works unhappily for 20 – 25 years in trade of money say Rs. 100 /- p.a. and the other person works happily for 40-50 yrs ( or till his body supports physically ) in trade of money say Rs 50 /- p.a and both of them are able to fulfil their financial commitments and achieve financial freedom . Which is better ?

This is where the concept of Ikigai’ comes into the picture.

‘Ikigai’ is the Japanese secret to a long and happy life. It’s a Japanese word which means your reason for being. It roughly means the “thing that you live for” or “the reason for which you get up in the morning.”

When you do what you love , then you get into flow .You work towards excellence which automatically sharpens the skills or processes which results into monetary benefits . It gives you sense of satisfaction. It keeps you mentally happy which has direct impact on your physical health. You don’t retire from your work which means money keeps coming for long period of time .

In the book “ Ikigai – The Japanese secret to a Long & Happy Life”, it talked about the real life example of people who have their Ikigai’ . One of the example, the author talks about is Jiro Ono. He is the owner of one of the most popular Michelin 3-star Sushi restaurants, enjoyed serving his perfection in sushi to happy customers. He is currently 91 years old, and once said that he might die while making the sushi he loved.

You can watch the documentary movie Jiro Dreams of Sushi here. 

You can find many more such examples .

E.g. Amitabh Bachchan currently 76 years old but most sought after & one of the busiest actor even at this stage of his life . He found his Ikigai’ which is Acting . Today after 50 years of working (ups and downs ) but doing what he loves to do with persistence made him a veteran in his profession . Money then automatically flows . Recently, in one of the interview ,he mentioned working till he can because that’s his Ikigai’ .

The other great example is Steve Job who discovered his Ikigai’ and that passion made him today what he is known for .

Tiger Woods does not play Golf for the money, he doesn’t need the money, yet he plays. In April’19, he won his 15th Major Grand Title almost after a drought of 11 years. In the past 11 years, he went through 4 back surgeries and one heck of a divorce that took the world by surprise. He lost all his sponsors and the best of brands abandoned him. But, at the age of 43, he made one of the greatest comebacks in the history of sports. Because , Golf is his Ikigai’ .

Warren Buffett is 89. He has made enough money – one of the richest man on this planet. Yet, he drives to work and actively invests. He does not need to. But investing is his Ikigai’ .

Discovering Ikigai’ and working towards it makes your cash flow / financial plan feasible in long run as your income (cash inflow) time frame expands along with incremental growth after certain period when you achieve excellence .Infact after getting over through survival period , these people don’t work for money . Money becomes a by-product . They just enjoy the journey and its process .

So , find where your Ikigai’ lies. Enjoy the process, the outcome will take care of itself for your financial freedom .

Happy Discovering & Happy Investing !!!

Pay Yourself First

– Meghashyam Sinkar

When you receive the salary / professional income , who do you pay first?

Do you not pay to your driver ? Do you not pay to your maid ? Do you not pay to your DTH , broadband services ? Do you not pay to employee ? Do you not pay to your milkman? Do you not pay to bank in case of EMI ?

But do you pay to yourself FIRST ?

You pay everyone for their work and services as soon as your receive your salary or profession income except YOURSELF . What about paying yourself for the work you do for 25- 30 days in a month ?

In 1926 , George Clason in this classic book “The Richest Man in Babylon” shares the secrets of creating wealth through few simple rules . It says – ‘Pay Yourself First’ 

The book says that the first principle is “A part of all you earn must be yours to keep.”

He goes on to explain that by first putting aside at least 10% of earnings — and making that money inaccessible for expenses. It should be not less than a tenth no matter how little you earn. It can be as much more you can afford .
Over and even longer time, it would grow into a lot of money, because of the power of compound interest.

Below is the simple analogy given by him in his book .

“Wealth , like a tree, grows from a tiny seed . The first copper you save is the seed from which your tree of wealth shall grow . The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings , the sooner you may bask in contentment beneath its shade.”

Even a small amount can harness the power of compounding  and create the significant value given enough time. As the income grows, contribution grows . E.g.  A person with Rs 10 Lacs of earning keeps aside Rs 1 Lac every year for next 30 years can create a corpus of Rs. 1.64 cr. However , if the person keeps increasing the said contribution by 5% each year, then the corpus becomes Rs. 2.6 cr. That is huge difference in retirement nest.

Pay urself graph

Putting “Pay yourself First” strategy into practice will inculcate good savings habit . If you are not able to do it right now for some reason , then assess your cash flows , make budget sheet , see where you can curtail or prioritise your expenses and keep aside at least 10 % yourself first ,come what may.

Majority of the investors follow below equation

Income – Expenses = Savings . But it is conventional Thinking .

Financial Freedom thinking says Income – Savings = Expenses. So PAY YOURSELF FIRST.

The legendary investment guru Warren Buffett has quotably remarkably in simple word –

“Don’t save what is left after spending, spend what is left after saving.”

Happy Savings & Investing !!!

The First Step Towards Financial Independence

– Meghashyam Sinkar

The group of retirees was interviewed once in Boca Raton , one of the Florida’s wealthiest retirement communities . Interviewer asked the people – mostly in their seventies – If they had beaten the market over their investing lifetimes .  Some said yes, some said no , most were not sure . Then one man said “Who cares? All I know is , my investments earned enough for me to end up in Boca .

Could there be a more perfect answer ? After all , the whole point of investing is not to earn more money than average or others  , but to earn enough money to meet your own needs . The best way to measure your investing success is not by whether you are beating the market but by whether you have put in place a financial plan and a behavioural discipline that are likely to get you where you want to go . If you have made enough money and met your goals then you are a successful investor.

Carl Richard – A financial planner from New Zealand in his book ” The Behaviour Gap” nicely given below sketch which is reality .

Carl richard - Money vs Income

Ask yourself these questions ” Why money is important to you? What does money do for you ?  What is the purpose of doing the investment? Take a time and write down the answers .

No doubt, money is an important part of life.  But it is easy to fall into trap of money to worry endlessly about how to make more .How much is enough ? And the more you have the more you need . It is better to think about what do you need money for ? What is your goal? But goals should not be influenced by external forces like peer or social pressure . Find out what gives you a happiness . What makes you to jump out of bed ? what gives you  peace ? So , it is important to have money but not more than the goal it serves. Make your financial plan , prepare cash flow , know yourself in terms of where are you now and where you wish to go ? And finally get into action accordingly . It does not matter whether Rakesh Jhunjhunwala, Warren Buffett, a fund manager, your friend, bunch of other strangers have beaten the market and you don’t . No one’s gravestone reads ” HE BEAT THE MARKET. 

“Financial Planning is not about the markets , not about the products . Its about you & your journey.”

Benjamin Graham in his book “The Intelligent Investor” quoted that Investing isn’t about beating others at their game . It’s about controlling yourself at your own game.” 

Happy Independence Day and Happy Investing !!

Real Estate v/s Equity : A Never Ending Debate

– Meghashyam Sinkar 

Lot of time investors get into comparison of real estate and equity .However, they are two different asset classes so comparison may not be prudent . They are not competitive to each other but can be complement to each other .

However , the investment decision should always be determined by individual cash flows , profession, financial goals, desires , actual requirement , family background . Because there is nothing called good or bad asset classes . It is always suitable or non suitable .

Majority of investors come with below thought process when they think of buying( investing into ) the real estate .

  1. I have kid/kids so I want to leave behind one property for them .
  2. I ( or my spouse ) may start the business ( no idea about which business but something of own ) and hence buying the commercial shop.
  3. I will have rental income in my retirement life.
  4. My kid ( which is just 7 -8 year old ) may start some business so need a land for him/her .
  5. For my kid’s education or marriage etc
  6. Something like metro , ring road , airport coming nearby and hence there would be sudden uprise in property prices and will pocket handsome gains in shorter time .
  7. I am going to settle at my home town or any particular place after 10 -15 years so need it for my own consumption.
  8. My friends, colleagues or relatives bought it and hence I am buying it . ( May be peer pressure).

Here we don’t want to debate or question on above financial goals or thought process . However, investors need to ask certain questions to themselves before taking the decision which are like

  1. Will my spouse be able to manage the properties after me like talking to agents for renting or selling it out ?
  2. If my kids gets settled outside the country or even at far distant place in India , will it be possible for them to manage property related issues after me ?
  3. Will my business require office space? If yes, then such small or big , same or different area , same or different type of property ??
  4. What if triggering point of metro , airport doesn’t come up or get postponed by some reason ? Am I in a financial position to hold such bulky illiquid asset ? Am I in a position to service the interest ( EMI ) for another few years ?
  5. What If I need large sum of money for any emergency? Do I have enough liquid assets to take care of it ?
  6.  Will I be really going to my native place after 15 -20 years of living in urban city ? will that area still be liveable which I dreamt of ?

If answers to above questions are not clear then avoid getting into such concentrated investment .

The major challenge in real estate is liquidity . What is a point of having an asset which does not come handy when you need it most or when it requires for any decided goal .

This situation is like Asset Rich & Cash Poor. We have also observed that It creates hindrance for planning and achieving goals like vacation as people generally don’t sell assets (Specially tangible assets ) to go for Europe trip .

Then it comes with legality issues though RERA act has taken care of it to considerable level , but still if it arises then our judicial system is really slow.

Return is one of the most important deciding factor in the investment . Majority of investors are under impression that they have made a fabulous returns because they always talk around numbers and not percentage when it comes to physical assets .E.g. I bought the house for Rs 40 L and today it is Rs 1 cr.  What they forget is to add TIME and don’t calculate the IRR/CAGR to know the exact growth rate (Click here to Understand the calculation of IRR/CAGR/XIRR).Then it comes with taxation , maintenance overheads which further reduces the returns .

Both equity and real estate are long term assets class in nature and should be bought with the horizon of minimum of 7 years plus . However, investors don’t get daily value of the property , the fluctuation in the prices . Being tangible assets , they feel emotionally connected and hence tend to hold for reasonably longer period which ultimately results into higher value of asset over a period of time . Whereas equity being volatile & liquid , it is generally held for shorter duration . It always gets punished first whenever there is cash requirement and hence hardly 2% of the investors experienced superior returns inspite it being more transparent , least cosily and better tax efficient asset class as compared to real estate.

So next time , ask the relevant questions before buying into real estate and of course even for equity.

Happy Investing !!!

Questions that baffle me !!!

– By Meghashyam Sinkar
Sometimes observing people make you ponder , make you learn, make you laugh but sometimes make you puzzle .

On my recent vacation ,I observed people trying to break the line and enter in between while boarding the plan . The question came to my mind why such strange action /confusing behaviour inspite of having allotted seats .

That made me thinking of such confusing behaviour in investment world . Listed down some of such questions which baffle me .

During first interaction with the new client at his office , he mentioned that equity is risky and hence he has stayed away from it since last 10 yrs . After 30 mins , he goes out for smoking . When I enquired further about the number of cigarettes he smokes in a day . He said ten (10) and he finds investing in equity risky. What is more risky smoking cigarettes  or investing in equity ? I am confused .

Lot of investors get into LIC policies that to number of them and keep on investing in  it after agents convince them with the name of LIC brand or sovereign security . If the product is really good then why do you really need so many agents /middlemen inspite of having offices across most of the cities and need to pay them hefty commissions . LIC could have easily done it at least in the current age of technology.  I am confused.

When investors are advised to do 15- 20 years of long term SIP to get best risk adjusted returns then they are not sure of their future income for commitment . But the same investors take the home loan of 20 years wherein EMI is mandatory and investment is voluntary which can be paused , reduced or stopped completely unlike EMI. I am Confused.

Investors are obsessed with higher fixed interest rate and risk their principal amount for few percentage higher interest rate . Dont they ask these questions to themselves … Why someone is offering such higher interest rate ? Is that company in love with you ? Is trustworthiness questionable ? I am confused .

There are lot of trading classes which advertise  “ Earn Rs 1000 daily from stock market with capital investment of Rs 1 L   . Then why the class owners running the classes on Saturday & Sunday’s at the course fee of Rs 5000/- per person . Why don’t they earn these returns themselves without revealing the secret to become billionaire . I am confused .

Does it confuse you too ? Please share your thoughts if any or any strange behaviour . Meanwhile observation continues ……

Happy Investing !!!!