Category Archives: Planning

Please Subscribe to the improved blog

I feel like a sheep today. The reason is that I am requesting you to take the trouble of migrating to the new improved blog.

The blog is linked to a Personal Finance website

It also has a discussion forum where you can clear all your doubts.

And an Advisor’s Directory too. And we are planning a module for personal finance calculators too!!

That’s why I’m asking you to migrate to the new blog. And if you need the RSS feed, click here

Waa!! (that means thanks in sheep language; and I’m not a black sheep but a wheatish one!!)

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Personal Finance Website Update

Nine months ago I did not know what a blog is? Stuck up at home due to a back injury, I was casually chatting up with a geeky friend asking him about how to create a website, purely in jest. “Why don’t you begin with a blog and then see if you can make it bigger”, he said and gave me a link of Blogger.

300 posts later, the dream of translating it into a website seems plausible. Just take a look at what I’ve created without knowing html code! (Well, I can figure out the a href link code, but just!!) Now you know why there’s no post here. I have exported these posts to my website blog

RSS readers are requested to take this feed please: http://feeds.feedburner.com/personalfinanceforeveryone

Personal Finance 2.01: It’s a one stop personal finance website and I urge you to take a test drive. Feedback will be of immense help.

Discussion Forum: It’s a forum where you can discuss all your doubts and questions about personal finance, planning and various products like insurance, stocks, mutual funds, etc.

PF 2.01 Blog: I have started a blog focussed on personal finance and I would invite you to share your thoughts. Let’s have a real conversation of PF going on here.

Weblinks: I am regularly out on the web. When I find a great site I list it here for you to enjoy. From the list choose one of my weblink topics, then select a URL to visit.

NewsFeeds: We have some great news feeds to take a look at. Suggestions are welcome.

Financial Advisors Directory: We invite professional and net savvy advisors to register and provide the information needs. This one is a first in India to the best of my knowledge.

The design stage will take another two months after which I’ll be ready to go live. The real action begins only after then. Wish me luck.

Power and Magic of Compounding

Simple maths tell us more about the power of starting early and investing regularly rather than any rants. Check out this simple calculator by Hugh where he gives an option to compare two savings/investing options.

I have taken the following case:
Case 1: You start now with a yearly investment of Rs 1000 and stay invested for 40 years.

Case 2: You start after 20 years from now but invest Rs 2000 instead for 20 years.

In both the case, the amount invested is Rs 40,000. Assuming a common growth rate of 10% in both the cases, in case 1 , the accrued balance works out to Rs 442,593 . The accrued balance in case 2 is Rs 114,550.

Why don’t you work it yourself and take away your learnings.

Financial Literacy Drive Treasure Post

This post links to a treasure trove of information on personal finance. Actually, April was National Financial Literacy Month in the US and JDR (GetRichSlowly) has the ultimate collection of posts covering everything on Personal Finance.

Other than the 20 posts linking to the literacy drive, he also links to his popular articles and the websites which provide such information. Maybe it’s all dry information, but you can do well to bookmark that post and keep coming back to it. It’s dry, but important for you. Why? Look at the following questions and then decide.

How much do you know about money? Have you learned about the power of compounding? Do you know how the stock market works? What is a bond? Can you tell the difference between an Income Statement, a Balance Sheet, and a Cash Flow Statement? Do you even know why you would want to?

Do you know how to keep a budget? Do you understand how your taxes are used and why we pay them? Do you know what it takes to purchase a house? How much insurance do you need?

Head on to this treasure trove. Even though some posts are US specific, the concepts are useful and important to learn.

Tips on Financial Planning and Budgeting

Getting rich is in your hands, nobody else’s . So get started with working hard or smart (depends on you again), adding to your finance knowledge and generally taking responsibility for yourself. Get Rich Or Die Trying.

If Financial decisions look like rocket science to you and Investing is even more daunting, here are some baby steps for you.

This one is from Deborah Fowles, Guide to Financial Planning in About.com Seems very elementary but I doubt how many people are scoring more than 5/10. Here it goes, the top ten:

1. Get Paid What You’re Worth and Spend Less Than You Earn : Hey, I get less than what I deserve and so do you!! And I’ve not done any budgeting so that I may be sure of the second part.

2. Stick to a Budget : I’m ashamed, no budgeting exercise for myself, not to speak of sticking to one.

3. Pay Off Credit Card Debt: Thank God, I finally get a score on this one. I’ve managed to stay clear though I’ve had to suffer with the agonising interest calculations earlier.

4. Contribute to a Retirement Plan: I do have a pension plan but I’ve never cared to figure out whether it is sufficient! Will give 1/2 for that one to me.

5. Have a Savings Plan: Yeah ,I’ll be partial to myself and give some score here too! I do save about 15% of my income though it’s a recent phenomena. Better late than never!

6. Invest! : Pretty straight forward. But few people manage to find an hour for that in a week. They’ll rather watch TV(Big Boss is on these days!)

7. Maximize Your Employment Benefits : A meeting with your HR guy!! Brace yourself. I have no hope with my guys.

8. Review Your Insurance Coverages: Putting a finger on that is important from the family point of view. Those of you without that responsibility can breathe easy on that count. But I get full marks here!

9. Update Your Will: Never thought about that up till now. Bless Ms Fowles.

10. Keep Good Records: I will, as part of my New Year resolutions. But I’ve yet to get started on that. Next Monday, I promise.

Phew!, I score about 4/10!! So much potential to improve!!

But before I sign off, for guys who suddenly want to get started with their budgeting exercise, here are percentages of major spending categories from the US Bureau of Labor Statistics (2003) Consumer Expenditure Survey. May not apply to you and me but it’s an interesting statistic anyway. Gives you an idea where you stand and where you can increase/decrease your expenses.

Food at home 7.7%
Food away from home 5.4%
Alcoholic beverages 1.0%
Total food and drink 14.1%
Housing 32.9%
Apparel and services 4.0%
Vehicles 9.1%
Gasoline and motor oil 3.3%
Other transportation 6.7%
Healthcare 5.9%
Entertainment 5.0%
Personal care products and services 1.3%
Reading .3%
Education 1.9%
Tobacco products and smoking supplies .7%
Miscellaneous 1.5%
Cash contributions 3.4%
Personal insurance and pensions 9.9%

Work on your Budget sheet for two hours and it’ll tell you a lot about yourself. Look at it as a personality test!!

And yes, Taxquery wonders how any financial planning can be successful without tax planning. He’s dead right. Go to his wonderful blog for tons of info on Taxes

Personal Finance at School

This news can make you feel that it should have been started in your time. The Government is thinking of starting a course on Investing in the schools in Std. XI/XII.

For me the first principle of investing is “better late than never”. But actually it is to “start early”. And when it comes to making money by investing, time is on the side of the youngsters.

Investing and the stock market will play a vital role in the future, irrespective of what the youngsters choose to do with their life.Whether they want to build a career in business, be a freelance artist, or whatever, knowing about managing their own money will give them freedom and choices in life that they wouldn’t otherwise have.

Actually investing is no rocket science that it is made out to be. Agreed that it is a bit complex, but the important aptitude too have is to “spot trends” and to “break away from patterns and convention”. And our youngsters excel in that.

Moreover, you don’t need to be a car mechanic to learn driving. Operating a car and servicing them may need an effort to understand the mechanics of the car. But you need to understand the functions of the steering, gear, clutch and accelerator only to learn driving. Like investing, it may appear daunting for the newbie. But leave him on the steering for a week and there he goes.

The ideas behind investing are really very basic. And you don’t need to know everything before you start putting some money. For the teenager, the biggest enemy is `inertia ; the tendency to do nothing’, says Bamford. To combat this, take a few steps to learn about investing, and then take a few steps to actually do it! “These can be the most profitable steps you’ve ever taken.” Janet Bamford in Street Wise from Bloomberg Press (www.bloomberg.com). “The great thing about investing is that you can start slowly, bit by bit, and get more deeply involved as you learn more.”

Critics might argue that teaching teenagers the nuances of financial markets is putting too much pressure too soon. But being protective of our children may hinder their growth. Throwing the baby into the swimming pool and letting him learn swimming might seem heartless. But it actually helps the child.

Ultimately it is important for all of us to take responsibility for one self. Managing your money is critical in the game of life. And instead of learning theory of history, civics, etc, investing will be one practical aspect of our education. And maybe it will help the youngsters to face the “fear” of stock market and the “greed” that it brings along, and make them better investors than us.

Bring on the course fast, GOI.

Is ULIP for you?

ULIP is a hot selling insurance product these days. Unit Linked Insurance policy is an insurance policy where the funds are invested in the Capital market and the policyholder bears all the investment risks.

Insurance companies are falling over each other to bring out ULIPs in new and attractive packages, thanks to it being accepted across India in huge numbers. More than 80% of the new premium income of Insurance companies come from ULIPs today.

Advantages:

  • Tax benefit under Sec 80C
  • Better returns than other insurance policies like endowment and moneyback.
  • But shouldn’t this product be left to Mutual Funds who have been dealing with investments in the capital market with much more transparency and disclosures?

    Well, the Insurance companies have only added the insurance angle and are charging separately for that too.

    Let’s look at the charges for investing in a ULIP. Generally, a Mutual Fund charges 2.5% as entry load and 1-2% as Fund Management charges.

  • Premium allocation charges: Companies charge from 5% to 70% as premium allocation charges in the first year. Ofcourse it comes down in the second and third year but still is substantial. This means that only the balance percentage will be invested in funds and the charge goes into commission and other administrative charges.
  • The Mortality Charge of the Life Insurance Coverage: This is common for all the companies and depends on their mortality table.
  • Fund Management Charge ranges from 0% to 2% depending on the Insurance company.
  • Policy Administration Charges
  • Sum Assured charge
  • Surrender charges
  • Last but definitely not the least, the commission ranges from 10% to 32% for your friendly advisor.
  • Companies also run schemes where they take high performing advisors to Singapore, Brazil et al.

    And the investors will be taken to the cleaners!!

    So look befor you leap for a ULIP!!