Tag: Amar Pandit

Planning to retire early? Here are a few tips.

Growing up, college seemed like the ultimate dream. But when we eventually got there, we realized how wrong the movies had it because having to attend lectures religiously and curtailing expenses wasn’t part of that dream! The next dream had us envisioning ourselves as working adults. And why not? All they had to do was go to work and get paid for it. Unfortunately, this bubble burst pretty soon as well because work was hard, hours were long and savings were hard to create. Next came an early retirement dream to enjoy the results of your hard work in the prior years.

Now, retiring as early as 45 seems like an appealing idea but with the ever-rising inflation rates and the unimaginable demands of future generations,  is retirement actually as comfortable and fun as we imagine it to be? Or is there a catch or a reality check that we fail to comprehend?

It’s important to remember that the grass is always greener on the other side but, only when one makes an effort to water it. This concept holds extremely true when it comes to retiring early. Many might think it to be a trivial thing to consider but, it is only with a purpose that a plan can become successful. So, once the purpose has been envisioned clearly, the next step towards an early retirement would be to strategize about how to get there.

The first step should be deciding upon the MAGICAL NUMBER, the one that will unbind you from all work-related obligations to let you breathe freely, without compromising on your current lifestyle or aspirations. It should also provide for any contingency in equal measure so as to empower you to leave behind a legacy for your loved ones.

Following the below-mentioned practices can help you set yourself up well for retirement.

1. Setting aside 25 % of your gross income every year

While this amount might seem quite less in the initial years, as your career advances and you reach your retirement age, the small amounts add up considerably. As you will progress in your career and reach your age of retirement, these savings could not only add comfort to your early retirement but, also come in very handy in paying off any sudden liability or unplanned requirement. This doesn’t mean that weekend trips and impulsive buys should stop completely. A few smart choices there as well will award you with inspirational financial freedom. This practice would also serve as a good lesson in planning for your future for the coming generations.

2. House yourself in a budget

There truly would be no point in early retirement if one had to worry about repaying a staggering amount of loans as opposed to having their basic needs like having a roof over their head fulfilled. Thus, it is very important to start EMI planning at the earliest. It is best advised to set aside a minimum of 30% of net income for EMI towards housing loans.

3. Invest in equity from the start, NOT debt

During the start of one’s career, one can afford to take a little risk, be aggressive in investments and opt for the equity option when building an investment portfolio. Of course, when nearing the age of retirement, one could move towards debt. But placing debt strongly before equity without having a profitable investment build-up would mean loads of interest payments being made from day one. thus, This would make early retirement almost impossible to achieve.

4. Prudently monitor all expenses

Human nature is such that it takes very little time to become habituated to a luxury which in turn becomes a necessity. A very apt example here would be the mobile phone. Earlier, it was a luxury before but now, it’s an absolute necessity. One cannot cut back on expenses when they become a necessity. Thus, savings become dependent on one’s growing needs. So, closely monitoring lifestyle choices and chalking out a monthly expenditure plan is imperative to retiring early and leading a comfortable retired life.

5. Invest any inherited asset cautiously

An inherited asset is always a valuable heritage. Thus, if one becomes fortunate enough to receive such an inheritance, prudent investment of it will double the asset value in no time. Hence, instead of blowing up the inheritance, it is always advised to do a quick financial check of it with respect to its market rate and inflation prospects.

Saving for Children’s Future: Common Questions Answered

Culturally, Indians are entrenched in family values and it doesn’t come as much of a surprise that securing one’s children’s future sits at the top of most parent’s priority list. Making sure that the coming generation has a superior quality of life and better opportunities is what all parents want. In today’s article, I’ve answered some of the most common questions parents have while planning for their child’s future.

  • What are the biggest investing mistakes people make while saving for their children?

    Most parents opt for Children’s insurance plans and feel they have secured their child’s future. A children’s insurance plan is a very inefficient way of saving money for your child’s future. In fact, setting aside money for your child’s goals like education, and marriage can be achieved by investing in Mutual Funds or any other investment avenues.

    Another mistake parents make is to start planning for the child’s higher education only when the child has already neared the age of starting college. By then it is already too late to start building a corpus for higher education and they start eating into their retirement corpus. One of the biggest mistakes parents make is not ascertaining how much money they would need for their children’s goals. They tend to overlook the impact of inflation and how it will increase the financial requirements for their child’s education and marriage.

  • Should one only look at long-term goals like education and wedding, or also save/invest for short-term goals?

    While higher education and marriages are big expenses in the long run, there are many expenses that come up in the short term. School fees and other extra-curricular expenses have skyrocketed. These recurring costs may not look big taken alone, but over a period they will significantly impact your family’s budget.

    Be it your child’s school fees, higher education, or marriage, prepare an estimate of how much you would require for each goal and when you require it. Start saving and investing towards these goals through monthly SIPs from the time of the child’s birth.

  • What kind of mutual fund should one invest in for a child’s goals?

    The first step would be to ascertain the major milestones you want to plan for – graduation, post-graduation, marriage, etc. All of these require a lot of money and you will greatly benefit if you start investing for these milestones well in advance. If you start investing a small amount from the time your child is born, you will have considerable time to build a good corpus for your child’s education and marriage.

    For long-term goals (more than 5 years away) you should invest your money in Equity Mutual Funds which will help your money grow and achieve these goals. Expenses that you will incur for your child within 3 to 5 years, like your child’s schooling, can be invested in debt and balanced Mutual Funds. When it comes to short-term goals, there isn’t a lot of time for your investments to grow as you may need the money in 1 to 2 years. For such goals, it is advisable to keep your money in a Liquid, Arbitrage Fund.

    However, there is a pressing need to gain a holistic view of one’s overall situation prior to creating any plan. The best thing to do is to get in touch with a financial coach to help you streamline your finances in a way that helps you achieve your goals.

  • Should one invest in real estate for the kid’s life goals?

    For most people in India, buying real estate is not just an investment, but a dream goal. While we feel we own a physical asset that we can pass on to our children or sell to fund our children’s education or marriages, the truth is that real estate is not such a lucrative option anymore.

    Real estate had a great run from the 1990s to 2008, and most people who talk about real estate giving great returns, are talking about their experience during this phase. However, post-2008 the real estate market has performed abysmally. The equity markets have outperformed the real estate markets by a great margin from 2009 to 2016 when it comes to capital appreciation.

    Therefore, though people view real estate as a source of wealth creation and value appreciation, in reality, the picture is very different. So as an investor, it is better to invest in Mutual Funds than real estate. Mutual Funds are a much more liquid asset. It is not easy to sell real estate when the need arises.

    Buy property for residential purposes rather than investment. DO NOT go overboard buying 2 or more properties thinking about retirement or kid’s needs or wealth creation. Look at building a more liquid, tax-efficient investment portfolio with mutual funds.

  • Should one opt for Child Plans (ULIPs) or Endowment Plans?

    People are made to believe that any product that is labeled as “Children’s Plan” is the best option for their children. But as parents, you must not fall for child-specific insurance products and “Children’s Plans”. Keep your insurance and investment decisions separate. The plan should be to cover risk through pure insurance products like Term Plans and opt for mutual funds for the purpose of investment.

The most important thing for a parent is to plan for your children’s goals and start investing in them in a consistent manner. This will help you realize the bright future you envision for him/her and safeguard your family’s financial future.

Doctor, your Finances might need a Check-up!

Mr. Shetty finally got himself to the doctor after having dealt with a terrible cough, high fever, and constant body pain. It’s not like he didn’t try to cure himself in the meantime. He absolutely did, but just used Dr. Google instead of an actual doctor. Upon examination, the doctor at once realized what the problem was and set Mr. Shetty on the right course of treatment. He also exhorted that an actual medical degree should NEVER be confused with a Google search and explained the importance of avoiding self-medication due to its possible side effects.

And Mr. Shetty isn’t alone in exhibiting this behavior. Most people prefer to self-medicate instead of consulting a qualified doctor. Self-medication by relying on a web search can have detrimental effects, but that doesn’t stop most of us from indulging in it. This is because the perils of ‘self-medication’ often pale in comparison to the comfort and ease of getting this ‘so-called medical advice’ in the confines of one’s own home.

Coming from a doctor, a request to avoid self-medication doesn’t seem all that odd. But when you consider that these doctors themselves indulge in self-medication when it comes to an extremely important area of their lives, the irony is hard to miss. Research has shown that 75% of doctors believe in self-medicating when managing their own finances.

So, are doctors exempt from the advice that they dispense to their patients? Well, they shouldn’t be, because the trap of self-medicating one’s finances can have adverse effects on a doctor’s overall financial situation. The most common mistakes doctors make include:

  • 1) Making investments in a combination of schemes that might not necessarily go together, simply because they seem relatively profitable.
  • 2) Having limited knowledge about the field of finance, causes them to become a victim of mis-selling.
  • 3) Relying on the advice of family, friends, peers, and CAs while making financial decisions.
  • 4) Delaying the investment process due to believing that they don’t have enough money to make substantial investments at an early age.
  • 5) Not having adequate Insurance for Disability or Professional Risk.
  • 6) Over-concentration in real estate, which is an illiquid asset.

But all these mistakes can be avoided if doctors follow the same procedure they use while diagnosing a patient and prescribing medication. Traditionally, doctors get a full history of the patient prior to prescribing any medication. But they fail to apply the same precision when it comes to diagnosing their own financial situation. It is not like doctors don’t think about their finances at all. Simply put, doctors just don’t have too much time to dedicate to understanding the intricacies of financial coaching. But complacency, when it comes to one’s finances, can prove to be very harmful.

So, how should doctors go about making (profitable) investments?

  • 1) Well, for starters, a doctor’s financial journey must begin by going against his/her own instincts to “play doctor”, in a bid to improve the situation.
  • 2) The second step is understanding that there is never a wrong time to begin investing. Investing, even later on in life, is much more profitable than not investing at all.
  • 3) The third and most important step would be to find the RIGHT PARTNER, one who would understand all your financial needs and goals and create a plan to ensure that you achieve those goals.

When trying to create a profitable portfolio, paying to get advice might not be everyone’s first choice. And doctors are no different. But, getting advice from someone who might be more knowledgeable in the field of finance might be a good starting point. This is because they will give you the right advice you need for protecting and growing your finances. So, just in the way you would approach a doctor for any physical malaise, or for help with your finances, get in touch with a trusted financial coach.

Money Mistakes Doctors Should Avoid

Today, Indian doctors are revered throughout the world as being amongst the very best. With a lot of focus being given to the patient care side of the business, most doctors end up neglecting their professional as well as personal finances. While it might seem like it’s the more intricate aspects of financial coaching that get overlooked, it’s actually the very basic concepts that get ignored. And this negligence can have detrimental effects on the doctors’ finances. The most common money mistakes that doctors routinely commit are:

  • An abundance of loans

    • Doctors don’t have the most stable income; their income depends upon the number of patients who come in for treatment. Despite this, their expenses are rather high. One of the major contributors to this large expenditure is the amount of loans doctors purchase. While the kind of loan purchased might vary from one doctor to another, doctors generally are holders of home loans, practice property loans, equipment loans, car and personal property loans. Higher the number of loans, higher the expenditure towards EMIs to pay off those loans.

    Insurance premiums, practice expenses and EMIs are major contributors to a depleting income. Add to that, spending money on buying real estate instead of leasing it and paying for swanky, new interiors, and you have a close to exhausted income. Since these are considered to be the big-ticket items for the doctor’s practice, servicing debt and maintaining other expenses could result in a liquidity crunch. This holds true even for the doctors who have built up a reputable practice for themselves.

    Many doctors act blindly on the advice of their accountants and purchase loans in lieu of tax planning. The primary reason for this is harnessing the advantages of depreciation and interest deduction. Very often though, this is done without accounting for the doctor’s liquidity and personal needs and causes severe cash flow problems for the doctor.

  • Over concentration in real estate

    • It’s no secret that doctors hoard real estate. A big reason for this is that large chunks of their income can easily be cushioned in real estate investments. Doctors not only believe that the real estate sector is insulated from market downturns, but also that it provides huge returns and tax benefits. Eyeing all these perceived advantages, doctors borrow money to make real estate investments and end up taking on debt. This strategy tough can be extremely dangerous, especially during market downturns because real estate isn’t a liquid investment.

  • Inadequate insurance against risks like death, disability, professional liability and loss of income

    • Most doctors view life insurance as an investment and pump in a lot of money into it. Given that doctor’s lead extremely busy lives, there is not much thought put into whether the policy purchased adds any value. The first agent who makes the pitch gets the sale.

    Due to high incomes, the premiums a doctor pays are sizeable, but the cover received in return is very low and most doctors remain underinsured. There is no forethought or assessment of the family condition to deal with the premature passing away of the breadwinner. Most liabilities aren’t covered, there is negligible disability cover, no income protection and no security benefits. It is imperative to appropriately look into this area to ensure lifestyle maintenance, wealth creating and wealth protection.

  • An ad-hoc approach to investments

    • On an average, a doctor’s portfolio follows the following pattern:

    • More than 60% invested in real estate
    • 10-20% in debt such as PPF, insurance policies, bonds and post office
    • 15-20% in cash like savings account and FDs
    • Negligible gold and equity investments

    Most doctors do not have the time to thoughtfully build their portfolio and, so they make decisions based on the advice of their CAs, colleagues, banks, family, friends, patients, etc. The result is a portfolio that is neither balanced, nor sophisticated. Instead, it’s a haphazard mix of investments that accumulate over time.

  • Absence of a written plan

    • Concepts such as financial goal setting, cash flow and debt management, insurance planning, asset allocation, retirement and estate planning are alien to most doctors for the simple reason that there is no formal education in personal finance or financial coaching. And it is this lack of knowledge that ends up costing them. They realize the importance of having a written plan in place only once something happens that damages their finances.

  • Lack of planning and vision to build a business

    • Often, a lot of money gets spent on superficial things such as doing over the interiors of the clinic in a bid to attract more patients. Investing in essential equipment is good and even necessary but it is better to defer expenses that will neither generate revenue, nor improve the patient’s experience. Also, doctors spend a lot of money to attend conferences where they could upgrade their skill set. But, these same doctors hesitate when it comes to spending on marketing and building their brand.

  • Myopic view of tax planning

    • Tax planning is viewed as an instrument to minimize tax and following this philosophy, many doctors end up doing things that aren’t in their best interest. They take several loans and purchase real estate and life insurance in an unplanned manner. They also indulge in tactics such as showing a limited income or a weak balance sheet with the objective of not paying tax. However, the right goal of tax planning is to maximize post tax income and that is the goal to work towards.

Understanding these typical money mistakes is the first step towards rectifying them. The key is to learn from them and make better choices in the future. This will ensure that you will enjoy the real value of money.

7 Common Money Mistakes People Make

Financial independence is something a lot of people strive to achieve. Despite the high percentage of people looking to achieve this status, very few actually manage to. However, it isn’t impossible. The best way to achieve it is to understand how to manage money efficiently and make it work in your favor.

Indians are among the best in the world in most professions and are held in high respect within the global community. When it comes to money management though, the same people are guilty of committing several mistakes.

  • Lack of goal-setting and planning

    • Nothing meaningful in life can be achieved without setting goals and planning. There might be instances when course corrections might be needed but there also exist certainties such as death, and retirement that will take place. The idea is to set goals and plan for all eventualities from the start to avoid any problems later.

  • No written financial plan

    • Due to a lack of formal financial education, most people do not understand the nuances of financial goal setting, cash flow, and debt management, insurance planning, and related activities. This limited knowledge leads to costly mistakes. Reactive responses to the lack of a plan can be avoided by adopting a holistic view of one’s financial situation.

  • Investments done in an ad-hoc manner, due to time constraints

    • Work constraints are increasingly forcing people to cut back on family time. Hence, financial wellness takes a back seat when it comes to using the little time that remains. As a result, people base their decisions on the advice of those around them; CA, colleagues, family, friends, banks, etc. Thus, the finances of most people are a hodge-podge of products accumulated over time.

  • Too many expenses and loans

    • Due to a mentality of borrowing money to achieve goals but also often defaulting on loans, banking and recovery agencies are booming businesses. Historically in India, the savings rate has been high but over time, has witnessed a considerable dip. Despite having a moderately high and stable income, people’s expenses and loans, nullify their earnings.

  • Inadequate insurance against risks of death, disability, professional liability and loss of income

    • To most, insurance is an investment tool or a tax-saving option. As most people do not look at tax saving prior to January, insurance becomes an easy option to latch on to. Ad-hoc advice from friends and family members is another reason why people end up with a plethora of irrelevant policies.

    Often, despite paying high premiums, most people end up with inadequate insurance coverage. There is negligible assessment of the actual financial risk a family might face. Most liabilities, critical illness cover, disability cover, no income protection or social benefits are other parameters that go uncovered.

  • Over-concentration in real estate

    • As stereotypical as it sounds, people do tend to hoard real estate, believing it to be a great investment avenue. There’s also the belief that in addition to being insulated from market oddities, real estate also provides huge returns and tax benefits. So, many borrow to invest in real estate and end up leveraged. This is a highly dangerous strategy to adopt. Especially during real estate crashes, the illiquid nature of real estate makes it a lethal investment option.

  • Myopic view of tax planning

    • Most believe tax planning to be a tool for minimizing taxes. They indulge in tricks like showing a limited income or weak balance sheet to fool the tax man. This can be avoided by understanding that the right goal of tax planning is to maximize post-tax income.

 

A basic solution to avoid these mistakes is to create savings, rather than an expenditure budget. Initially, especially if you aren’t in the habit of doing so, you might find it very difficult to construct a budget that works for you. But persevering and creating a savings budget is imperative to one’s financial health.

5 Big Money Questions You Should be Asking Yourself

“The importance of money flows from it being a link between the present and the future.”- John Maynard Keynes

With the amount of time people spend thinking about making more money in the present, it is quite surprising that planning one’s finances and maximizing them the right way for the future falls low on the priority list. People would have a financial masterpiece on their hands if only they spent more time on planning and allocating available funds in a systematic way as opposed to spending time and effort on accumulating money in the first place.

People often procrastinate when it comes to planning their finances. ‘I’m still too young to do this’, “The time isn’t right”, and “The market isn’t in the best shape right now”; are very common laments by people who stall their financial coaching process. But while chasing perfection is good, wasting precious investment time while pursuing it is a foolhardy thing to do.

Like with any other venture, the beginning is the hardest part. The right time to start, the tools needed for success, and how to get ahead are only a FEW questions that arise in people’s minds. In this case, however, the questions answer themselves. Carl Richards in his book, ‘The Behaviour Gap’ has provided a framework of the ‘5 big money questions’ that simplifies the planning process till it’s just a matter of striking the right balance.

1. How much can you reasonably save?

Creating a savings corpus for the future doesn’t mean that present-day needs should be compromised upon. The ideal plan involves keeping a portion aside from one’s take-home salary after considering current lifestyle and spending habits. In this way, the future gets slowly secured while the present is lived to the fullest.

2. What is your rate of return?

Returns need to be looked at as something that will enable you to meet your financial goals. This along with the level of risk one is willing to take while investing is what dictates the rate of return one should chase. Having either an over or under-par risk profile can be detrimental to the final corpus created.

3. How much do you need?

Estimating the amount of money required in the future is very important. A thorough assessment of one’s current lifestyle and needs must be done, following which inflation must be considered. This ensures that one doesn’t fall short of money in the future or cramp up their lifestyle in the present.

4. When will you need the money?

Money can be needed at any time. As such, certain goals need to be set to make sure that you have enough funds to combat whatever need arises. This can be done by setting specific goals and a fixed end date. This way specific needs such as funds for education, home, and the car can be prepared for and emergencies too can be tackled with relative ease.

5. What do you want to leave?

For a lot of people, leaving behind a legacy that will be remembered fondly is very important. It’s like leaving one’s stamp on the future. And one of the best ways to do this is to ensure that your future generations are secure. By planning the right way, it is possible to lead a comfortable life in the present AND provide sufficient for future generations.

 

While only five questions might seem insufficient to build your entire financial future upon, they can be thought of as five separate choices that provide the necessary balance to your plan. There definitely are many more questions that can be asked but these basic questions are difficult enough to answer by themselves and they must be truthfully answered to get the best results.

The hallmark of planning this way is that the focus isn’t on investments and their rate of return. This works because the rate of return is only a small fraction of the investment equation. Several other factors like, “Can I make a trade-off if I don’t want to take the risk of investing in the stock market?” Or “Is it possible for me to save more or if not?”, “Can I retire a little later or think about pursuing a second career?” must be considered.

Building a financial portfolio cannot be the single-minded pursuit of the highest available returns. It requires forethought, frequent course corrections according to the demands of the situation, and more than anything else, an effort to maintain a healthy balance.

When should you start talking about money to your kids?

“Teaching kids to count is fine but teaching them what counts is best.” —Bob Talbert, American columnist

This quote forms the very heart of the philosophy behind teaching financial responsibility to children. From an extremely early age, parents and teachers focus on schooling their children with math and other skills that are said to be utilitarian in their future.  In this ever so competitive world, four-year-olds are being enrolled in puzzling and difficult classes so that they get a head start in life but amid all this training, we forget to impart an important life skill—financial literacy.

How many of us realize that when our kids enter the real world, the first thing they will encounter is money? As a wealth tech platform, we have seen that when it comes to money, smart people commit blunders, whether it is in dealing with banks, taking loans, or making investments- all due to a lack of information or simply because they are unaware.

This is the reason one should begin teaching money management to kids at a very young age. It is known that the most receptive years for learning and grasping in children are between 5 to 12 this is the best time to introduce them to savings and teach them the importance of financial matters. We must add though, that even if your child has crossed the age of 12. Although, it must be added that even if your child has crossed the age of 12, it’s not too late but a little more effort may have to be taken as they might have already developed deep-rooted habits and turned into consumers. The solution here would be to guide them through the use of examples that are interesting to them.  As they enter their teenage, they become hardwired because of peer pressure and their external environment, making it difficult to get them to follow a financial awareness plan. At this stage in their lives, they are keen to buy the latest mobile phones, gadgets, and branded clothes, and do things that their friends are doing. Telling them to act sensibly and responsibly might be a tall order if you have not infused good money habits from an early age. In fact, there is a growing need to introduce financial literacy as a subject in school from Class 1 itself.

Many of you probably give your children pocket money, but what you don’t realize is that this does not teach them the value of money or how to manage it. Most parents do not take the initiative to teach their children about money. They might touch on the concept of piggy banks and savings early on, but are usually reluctant to discuss money and family finances with their children. In India especially, money is a touchy issue, and in terms of discussing sensitive topics, ranks as high as sex education. The best way to teach kids about money is to let them deal with money early on for they need to understand its power and the consequences of their decisions.

It’s far better that they commit mistakes at a young age with smaller amounts of money than financial blunders when they grow up. By starting early, you can give your children a strong competitive edge for their future financial success and make them responsible for their financial actions. The key learning points for kids should include having healthy values about money, setting goals and priorities, making prudent choices, delaying instant gratification, and understanding the virtues of hard work. Also, always keep in mind, that even though you might not teach your kids directly, they are learning by observing your every move.