Hazards of delaying Financial Planning

        Delay in starting financial planning is a common thing we face across in our profession. We have multiple times seen a uncertainty on face of people when we make them understand the need to plan and to engage a planner for same. We are here to share a few examples of how people  deny financial planning to save a few paise and spent lakhs of rupees on their callous attitude.

        Scenario 1 - Mr. Shastri, septuagenarian was our family friend and a regular follower of our blogs. On his coaxing, his son met us to discuss his financial problems. His son was  a well earning individual but had no time to invest his savings. He stacked up his money in Bank Fds and paid hefty tax on interest earned. It was a common problem among all busy executives. Also, he had insufficient life cover and had no health insurance for his family. We recommended him a revised asset allocation as per his goals and a re look at his insurance portfolio. He was not convinced whether there could be anything more secured than his FDs. He asked to call after a week after he thought well over it. A month passed after which he called us to tell us that a routine health check up is now showing high sugar for his wife. He wants to take now a health cover for her and is wondering if it is possible to get it now. Also, he had no liquidity to pay for her emergency hospitalisation. Not sure how to raise his money, he had to take a personal loan to pay it off. We wondered how simple his life would have been if he had not thought too much on taking up financial planning.

        Scenario 2 - Aakash was a like a younger brother to me, he would ask me before he took any major financial decision. So, I gave him a financial plan to make his decisions quicker. He was excited to have his own individual plan ready in early twenties. However, the problem was that he was always distracted by peer pressure. He wanted to have the best things for his family and in process got derailed from his plan implementation. A plan without implementation is as good as no plan. In spite of saving 60% of his salary after home expenses, he has zero investments. He made some random expenses and got some unwanted loans,which made his life burdensome.

        Scenario 3 - Mrs Sharma, a maths professor, was a widow, looking to secure her retirement as she didnt want to depend on her children. She had opened a trading account with her local broker, who would give her multi bagger tips for sure profit. She was making good money in it and was sure that she will be safe even in her retirement this way. When we asked her to stop her short term trading and make a plan for long term, she would snub off saying she did her research well and the broker was old trusted friend. Last week, she called me asking if I could give her some tips in this declining market as she lost a lot of money with her old friend. ;-) I reiterated my point that investments without a plan are not worth taking a chance especially for a retiring individual. Better pay your annual fees rather than loosing your capital.

        These were few cases where Financial Planning was ignored considering it to be a cost or stale paper record. It is a wrong notion to avoid planning and also to plan but not implement it. Plan today to avoid a Sorry Tomorrow. Reason for avoiding it can be many but we need only reason to do it- i.e. Love for our family.

Sale in Sensex

The current fall in Sensex indices was seen by many market investors as a blurred memory of 2008 decline, where all the bets including good blue chip companies were falling flat. It is due to this reason that investors are wary to make any movement. As for us,we received calls from many of our clients and long term investors if they should do anything, in particular should they square off their position in line with the deteriorating market situation.

Keeping in mind those calls and other frantic news, today we would like to reiterate a few things on this situation. Let me explain you with a simple example, we witness at every season end a general sale across all brands. It could be either in electronics, clothing or even in some services. It shouts discount as high as 50%. So, what do we do when we read such news? Do we worry that something is amiss in this company that is why this sale or do we think that the item on sale is defective. We do not consider buying it. No, none of these things cross our mind. We take it as a good opportunity to buy some of our favorite brands which were otherwise expensive to buy. Even in sale we select as per our preference. Although, if the deal is really lucrative we might even get some average things or not so important things in our buy.

Similarly, consider the fall in market as something bound by external forces, although not necessarily seasonal but bound to happen. It might be due to bad company performance, declining interest rates or bad credit market. Any if these or other factors accompanied by strong external policies, could be the reason for falling stock prices. If the entire economy is affected by any particular announcement like GST bill or FDI investment in any particular sector, it is futile to distrust your investment.

So,as we have maintained in past, the only probable action in this lowering market is to buy. Although, this is our personal generalized advice, we maintain that buying in dips always helps to average out the cost price. Also, it is necessary to identify the lows from your purchase price. Don't try to ape the action of the short term traders, who only fuel the decline in stock price. 

Remember investment is a long term game and should be always viewed for over a period for comparing. SO, don't be wary of these small waves in the sea of investment and continue your journey with confidence and discipline.

Savings accounts not so simple

        I remember some few years back ,one of leading bank had pioneered the concept of home based savings account opening with a simple utility of a tab. No need to send any physical form or photo, the relationship manager  captures all details on his device and only asks for a photo identity proof. Boom you have opened a new savings account. Along with it he hands you an account opening kit containing rules, charges and a default debit card (although not personalised) and it's security pin.

        So simple that it seems opening an account , we slowly realise that we have dug a hole for uncounted charges and fees. These days banks tempt us with variety of savings account designed in a way to suit our needs. Some of the popular types are:

1. No frills savings account
2. Senior citizens accounts
3. Women special account
4. Kids advantage account
5. Zero balance account

        The main purpose of any savings account is to compliment hard cash in hand. However at times, the minimum required balance forces us to limit our usage . Hence, in this article we would like to draw your attention to few pointers which may help you decide banking with appropriate bank.

Check on charges - for every additional demand for a cheque book , replacement of card or interest statement could mean an additional charge to be levied. Also, at times, the Neft charges are huge to make a regular transfer among your various accounts. In case, if you transact more than 15 time at the local branch in a month (in most of banks ) it is subject to charge. These charges are mostly true to a simple savings account or mostly in private banks. Incase of privilege banking or HNI account these charges could be waived off.

Check on Average Balance Requirement - in case if there is high balance requirement, opening a savings account is not helpful especially if it's a salary account with all EMI and payments linked to it.

Check on automated payment option - although now mostly all bank have  introduced ECS payment for utility and other regular bills,it is no harm to understand if it is free or chargeable.

Check on technology support - it is necessary to see if you can transact your basic needs beyond local branch from your computer,mobile or phone. If there is an app designed it should have the required  security facilities. Even if the bank boosts of good deals on online marketplace it always better to compare it on ur own.

Thus we understand that owning a savings account is not a momentary decision buy requires a lot of plan to it. Its not like a sub sandwich, made of limited options.

Investing vs Saving

We often use the word 'saving' and 'investing' interchangeably and believe it to be alright. We mistake the two as synonyms and use them without any precaution. Every Investment is a subset of Saving but the other way round is not always true.

So, how do we categorically differentiate between the two? Why is it important to understand the difference between them. Today, we would mainly like to highlight on these two points.

The Merriam Webster definition of Saving goes as “an amount of something that is not spent or used” and for Investment goes as ” the outlay of money usually for income or profit“.

So, every amount that is saved is not necessarily invested. Hence, when in financial planning we talk about saving it is more related to your survival instincts and when we talk about investment it is about your goal achievement. In simple words, savings is acceptable for short term requirements whereas for long term,we should think of investing them. A person, who just manages to meet his expenses talks more about saving and not about investment. On the other hand, a person who has a healthy surplus of savings talks about investment to get better returns.

Why is Investment necessary? 

 

Lets take a simple example, we may have some extra dal – rice over dinner, which keep back in refrigerator for next day consumption. However, on next day due to some reason,we can't eat it, we prefer to give it away. We don't store it for weeks together unless it we are running tight on our monthly budget. Just like this, we can hold our saved money only a few days in our bank account or locker but beyond a certain time, it needs to be kept in a better savings avenue. In simple words, it needs to be put for a better use than storing it back.

Thus, as a planner whenever someone points to us that we are saving well for our family future, we quickly correct them to invest well rather than simply saving it. An asset can rise to its full potential only when it is put to a proper end use and earn a better return potential.

Lastly, lets look at some of avenues to save and invest :

For short term savings, we can look at :

• Savings accounts
• Money market accounts
• Money market mutual funds

For long term investment,we can look at :

• Stocks & Shares- Direct Equity
• Fixed Deposits
• Mutual Funds & ETFs
• Small Saving Schemes
• National Pension Scheme
• Real Estate
• Precious Metals

So lets all look at making the most of our saving and invest it in the right manner to help us achieve all our goals. Contact us at saarthifp@gmail.com to understand your goal planning.

Just don't ignore it

My mom's mobile's bill date is same as mine. I prefer to pay my bill online via debit card or net banking mainly to avoid delay or inconvenience of visiting the physical outlet of the mobile company. I usually remind her to make her payment when I make mine or offer to do it so from my side. However, she usually refuses to take any help from me and prefers to make her own payment at the mobile store. Out of ten, in nine instances she misses the last due date and pays penalty on her bill amount. Also, whenever she makes any payment she is habituated to round it off on a higher side so as to avoid multiple note transaction.

This is just of the example where we find people not only make excess payment but at times even just let go extra money due to their casual attitude. We might be calculative in our big numbers but when it comes to small penny calculations, we are okay with the mismatch. For us , if the dhobi counts 50 clothes over our count of 45,we are OK with the difference of 5 clothes as it maybe our counting error. If we go to refill our fuel tank for Rs 200 and the attendant tells us he doesn't have change of Rs 500, we ask him to fill for the entire amount. We go to buy our daily grocery or shop at supermarkets, the attendant tells us that we are short of Rs 100 shopping for a weekly bumper draw, we buy an unwanted item to meet the target.

However, when there is a addition in any tax cess or rise in fuel costs, we all make noise over it. We can't bear to see the fact that we need to shell out an additional percentage for welfare of our country men but don't blink an eye when private tutors increase their fees. We hollow our thinking between our own and not so own.

What we need is a clear demarcation between need and want, urgent and not so urgent requirement. If we have made a budget of our requirements, why do we fumble at every given opportunity. Why do we change our step to match the external changes. If things are getting expensive, we have to consume it less and not pay more over shooting our budget. However, areas where we can control like making payment on time, avoiding over spending for paltry rewards, we should try to do it. 

 

Take help of your planner today and get a personalized budget as per your own requirement. For detailed conversation email us at saarthifp@gmail.com

Pregnancy Goal - Not just another expense

Among the various goals, we discussed in the month of Oct 2015, one of prime goal that we didn't discuss then was “Pregnancy Expenses”. We are habituated to include only those goals in our financial plan, which we believe could dig a big hole in our pockets. Rest of expenses, we shun it by saying “Yeh toh manage ho jayega”. So, how well prepared are you for this expense? It could be that you have grown up children and never could it incur to you – that how expensive raising a child could be.

The main purpose of this article today is to highlight some of expenses related to pregnancy.It might be helpful to plan your own family or help some younger sibling in your family. Some of the major heads in which we would like to highlight these expenses are:

a)Pre -hospitalization – It includes all your daily visits to a doctor- including your monthly ones or any special visit for consultation to a specialist. It is on an average Rs 500 – Rs 1000 per visit. 

 

b)Hospitalization – It is your actual delivery expense. It includes doctor's fees, operation charges, room charges or with C- section possibility it may also include various treatments for medical complications.The cost could run something between Rs 75000 – Rs 300000. (depending upon the hospital selected and medical complications)

c)Medicines – With the number of body tests increasing everyday, the medicines suggested for patients are also high. The doctors prescribe various supportive medicines in addition to vitamins and nutritive food supplements. With growing career importance, the average age of mothers' has risen to around 30, which at times requires them to take hormonal injections. You can expect the monthly billing to be on an average from Rs 2000 – Rs 5000.

d)Blood Tests – It is a regular feature to include at least three – five blood tests during any pregnancy. With India on its way to become number one in sugar prone diseases or various viral infections, there are many checks recommended by doctors. The average cost of these could be around Rs.1000.

e)Sonography Expenses –Around three-four sonography are normal for any pregnancy. It could be a simple 2D scan or a clearer 4D scan. The sonography expense increase as the pregnancy advances. The cost could range from Rs.700 -Rs 2500 per sonography. 

 

f)Fitness and Yoga – These are add on costs, which may be incurred or may be avoided. However with stressful life floating around, it is mostly preferred by couples to have a smooth pregnancy. Also, it has only positive impact over long run. It can be a minimal expense or if you take the best Lamaze classes in the city,then it could be a big hole in your pocket.

g)Baby Shower function - Indians celebrate all their life events with equal pompous. So, having a new member join their family is also an important event to be celebrate with all rituals and lavishness. The function could be a traditional one or quick set up with friends. The expense is entirely discretionary. 

 

h) Post delivery - Expenses do not galore only before baby arrival, they are huge even after a baby is born. Some of the commonly incurred expenses include - Stem cell Banking, Basic clothing for babies, Masseur for mother and child, domestic support in case of nuclear family , sweets across families,pediatrician charges, medicines for mother and if required for baby and even basic vaccination charges should be considered.

So, now we understand that the expense that we might just ignore as easily manageable one could actually be more expensive than bringing home a new mid size family car. So, plan for your pregnancy goal and do not ignore it.

Shubh Mangal Savadhan

It is a marriage season out there. All around people are hopping across marriage venues leaving behind their best wishes for the newly weds for a successful life ahead. After all the efforts back in preparations, planning and co-ordination finally an event has taken shape.The two different individuals are coming together to share their life together. Going forward among the various things that they will share and plan include their personal finances.

a) Understand your cash flow – To begin with it is necessary to make a note of following points:

• Are both the partners are working, if yes, then cash flow doubles else the couple have to survive on single income.
• Make a list of necessary expenses which are likely to increase with two people living together including living ,conveyance or lifestyle expenses.
• In case of home contribution, work out the likely increase in it.
• Understand the likely emergency provisions to survive for any contingency.
• Also make sure, if you have committed any funds to your respective parents, your spouse is made aware of it.

b) Distribute your monetary responsibilities – For a successful marriage, it is best to distribute your responsibilities along with your funds. Similarly even in personal finance, it is best to understand,who is going to perform what role. You can divide your bills clearances and payments versus spending in line with the budget. It ensures clarity of funds movement. This will give you full freedom of doing your work and to learn from your own mistakes.

c) Sync your savings – Prior to your marriage, if you have been making savings it could be in line with your goals and income. However, going forward, you have to sync your goals as a couple and rework your priorities. So, now the savings are suppose to be in line with your goals as a couple. Also, the previous savings should be now utilized to clear off your joint liabilities and outstanding.

d) Update your records – It is necessary to update all your nominations, contact details and all required documents including PAN card, Passport ( if you wish to), ration card and even your voters card. These records are basic and should be corrected under any circumstances. Get the process in motion at earliest.

These are few beginning points to bring your personal finances in place. Once, the wheels of personal finance are set, it is recommended to get your financial plan devised to improvise it further.