Author: Jagoinvestor

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“I created 1.5 crores in last 7 yrs” – here is an Inspiring Money Story !

Posted on by Jagoinvestor

This time we are going to share money story of another reader of ours (Name not disclosed as per request). This person is from Bangalore, belonging to the middle class and is now working in the US from the last 2.5 years. He is a regular reader of this blog and agreed to share his money story with a bigger audience.

Money Story from India

Over to him…

When I was Growing Up

Born and Bought up in Bangalore, I have spent ~30 years of my life in Bangalore and 4 outside of India. Yes, I have seen Bangalore go from a quaint friendly place where I could cycle 20 km in 30 odd mins through peak traffic, be out any time of the night, ask strangers for help to the current madness on the streets.

My parents were both employed in Banks. My sister and I were never left wanting for anything that would enrich our lives. Looking back; there are things that are more evident to me now with some wisdom that I have gained.

My dad standing in ration line 20 odd years ago for necessities like sugar, our first vehicle – A Luna if anyone remembers, the frown and anger (a reflection of his inability to shell out more cash ) when I asked for something by the month end.

Our Financial life improved with new Pay Scales

Things improved significantly around 10 years back when with new pay scales and an open economy, and a mortgage that was paid off, my parent had more disposable income and could get us (almost) anything we wanted – All I wanted was 500 INR per month pocket money when I was in engineering.

dreaming of money

We did have a very sheltered life though. My parent’s primary focus was to get us educated and to ensure there are no stones unturned in giving us a quality education

I completed my BE in Computers Science and after 3 years of work experience, completed MBA from a top 3 business school in India

The Financial Struggle – Money Matters

Unfortunately, like most Indian families, this education never covered financial education. While it’s easy to now look back and fathom what my parents underwent financially when we were growing up – I still remember an incidence when I was in high school and I wanted a quiz book which costed around 5 INR (yes, 5 INR . Not a typo).

My father had told me he can only get that after a week (payday) and I had thrown a fit calling him names (I was a mean teenager). That night, when I was miserable for shouting at my father, I walked towards his bedroom to apologize and I could hear him almost apologizing (sobbing) and informing my mother that he couldn’t get what was necessary for me.

This incident for some reason stuck with me through.

Parents financial struggle for children

I have seen poverty up close through my relatives and some of my friends (while we were relatively bit better). When I was in 5th, I realized that a friend of mine wasn’t able to pay his school fees for the month. It was Rs 30 per month (I studied in a small govt aided Kannada school) and I had asked my mom to pay his fees which she graciously did until he completed his schooling!. Experiences like these made me dread having less money than what was necessary to sustain and to some extent experience life

No money matters discussed openly!

Money matters were never openly discussed and this translated into my spending habits in my initial working years. I was making around 25k take home a month ( a princely amount on 2007 ) and I just burnt through all this – Food, gifts for friends. Zero savings except for a ULIP plan of 60k per year and a couple of LIC plans based on relatives recommendation.

Fair to say that when I wanted to complete my post-graduation, I had to borrow the ~15 lacs for my MBA from banks and relatives and also withdrew the 1 lac I had in PPF

3 years of work and negative 16 lacs to show for it!

Then my financial life took a new and positive direction

During MBA, thankfully, I ran into some good, positive money minded individuals, courses, blogs (Jago investor and Subra money for example) which opened my eyes towards my financial fallacies.

27 year old, out of MBA school and 20 lacs in debt, with a salary of ~1 lac per month, I ensured that I paid off the debt in 2-2.5 years ( I had a consulting stint for 6 months in Canada that helped). My parents btw thought I had gone cuckoo in trying to repay my loans early and selling off my non-performing ULIPS and LIC plans (at a loss).

Now, 7 years later, with 7 more years of work experience, I have more than ~1.5 crores in assets. I don’t own any real estate and am looking for the best investment. I am not in love with Bangalore anymore, as I used to and the area I would like to stay is way-way-way beyond my reach.

Here is my current breakup

[su_table url=”” responsive=”no” class=””]

My savings Amount
401(K) (retirement saving in the US) $55000 (Rs 33 Lacs)
Mutual funds (in the US) $35000 (Rs 21 Lacs)
Liquid cash (in the US) $50000 (Rs 30 Lacs)
Mutual Funds in India Rs 55 Lacs
Stocks in India Rs 3 Lacs
PPF Rs 21 Lacs
Fixed Deposits Rs 10 Lacs
Total Rs 1.73 Crores

[/su_table]

Let me share how I started my savings

Once I started saving money, they were always in small amounts. The guideline was to keep aside 15-20 % take home income into savings right away. This was apart from the mandatory cuts like PF from pre-tax income. Just think that your take home is 15% less and stretch the rest of the money for your needs. Else, your monetary demands will always stretch to match the supply.

I was surprised at how quickly they all add up. Investing in PPF is a good example.

It’s surprising to see that I have 20 lac in that debt-like instrument. Or the mutual fund which was mainly based on small SIPs of around 20-25 k per month, to begin with. With the way markets have behaved over the past years, they quickly grew and have resulted in the current amount.

Over a long-term, a small investment on a regular basis can create huge wealth .. below is one small example of it.

I have learned that the difficult part is to start and I maintain disciple in investing systematically. Once you do that, they give you some surprising results.

My next 6 yrs plan

I intend to not touch my Indian mutual funds, invest another 50 lacs there over the next 6 years and just let it marinate and grow over the next 20-25 years when I retire.

These numbers indicate that I am potentially ahead of some peers in the income and asset curve in the same age range

Money for me now is a means of where I want to be in 20 years from now while enjoying life on the way and being able to help everyone who matters to me. I hope I am able to use money as a tool to enrich not just my life but many others – Next stop, for now, is a small home of my own.

How important is money in life?

Currently, Money is a contributing factor for peace of mind.

I’m glad that I can provide for my family, spend some good amount, have a security blanket in case of emergencies, help my family and potentially don’t have to worry about money when I retire.

It’s not the end at all but is a means to achieve my goals. I know people romanticize having less money, but having stared at poverty up close in many cases, I can tell for sure that it’s always better to have enough money to ensure peace of mind. At the same time, the definition of “enough money” keeps changing. In college, 500 INR per month was enough money.

First job – 7000 per month for the first 6 months was enough for me to live like a king. My salary jumped to 25k per month and 3 years later and I thought I ruled the world. This is how I felt!

How happy one feels when one gets the salary first time in life

Now, with 15x – 20x that income, I am still not sure if it’s enough money (especially as I plan my retirement and my child’s education 15 years from now). I am still trying to find my answers there. My wife calls me a compulsive worrier and over thinker and maybe that’s true.

I started educating others on money

When I meet my friends with less money than me or family members with less money, my first thought is how to help – not necessarily financially, but in terms of education. But it’s not always easy. I tried educating my uncle on how his LIC policies are a bad investment and he can look at markets and MFs as he’s retiring 20 years from now and I was snubbed as a know it all in some circles.

I also donate at least 10k a month or two into micro ventures such as https://www.rangde.org/ to ensure I can contribute some way and make a difference in some small way. One of my goal, when I retire, is to ensure I have enough money to generously help those in real need

Don’t make stupid mistakes when it comes to money

When I see my cousins burning through their money in their 20s with no investment or investing in something just for the sake of 80C, friends buying the latest gadget (iPhone upgrades every year ! ), spending insane money on cars, to me it looks like people are finding happiness through small things which is never-ending.

There will always be the next thing that money can buy. I don’t want to judge anyone. Maybe they know something I don’t. But I find this very running after materialist things/brands and spending without a thought about the future very concerning

My younger cousins make fun of me (all in good humor) for not wearing branded clothes. But I am glad in the “cheaper” clothes that keep me comfortable and have never understood why I should pay 5k for a pair of Nike floaters

I am glad to share my story

After I shared my story with all readers on Jagoinvestor platform, it bought back so many memories – I’m literally in tears thinking about what our parents had to go through to get us this life that we now take for granted. I feel lucky to have such parents and in general to have been bought up in an environment that could get me to where currently I am.

Thank you for giving me an opportunity to share my experience with you ! and I request all readers to share their own money stories with all of us, there is so much to learn and know how others have lived their financial life and think about money matters.

What is your money story?

If you want to write your money story, Leave your details here and Jagoinvestor team will get in touch with you with next actions.

What do you think about my money story? Did you enjoy it? Can you share your views about money and how it changed over the years?

5 reasons why people avoid retirement planning and die poor?

Posted on by Jagoinvestor

From last 8 yrs, I have been talking and dealing with investors & I can see some progress on how people see their retirement these days. They have got more “serious” about retirement planning.

Almost all the clients we have, for them retirement is a big goal and their focus on it is worth appreciation. But that’s a very small number, few hundred may be.

If we talk at the mass level (All India level), there is almost no seriousness for retirement planning. At the mass level, people are very short sighted and plan for their short term goals, but not “long term goals”

Retirement Planning

5 reasons why investors don’t plan for their retirement?

What about you?

Have you started your retirement planning?

Is some money being invested for retirement goal each month?

By “Retirement planning”, I mean a well thought investment plan (it might not be written) for your future. Are you consciously thinking about create a big enough corpus at your 60, which will support you for next 30-40 yrs?

Please do not confuse “retirement planning” with buying some random policy for your 80C deduction, which had a word “retirement” in the name. It’s mostly a well marketed product sold to you on the name of retirement.

Now, let’s see some of the top most reasons why people don’t invest for their retirement seriously!

Reason #1 – It’s a “Selfish” Goal

I recently attended a session where the speaker asked this question – “Which is the most important financial goal of your life?”

To this, there were many answers like ..

  • Retirement
  • Children Education
  • Buying a House
  • Getting Debt free
  • Stating own business
  • Daughter Marriage

But the trend was clear… “Retirement” was not in majority.

The group age range was between 30 – 50 yrs. The speaker was silent for a moment, but then he said something which really hit me.

“Most of the people know deep down that Retirement is their biggest goal, but they refrain to accept it because it’s a SELFISH Goal”

Planning for Retirement is a “selfish goal”

Yes, retirement is about you and your requirement. Your retirement is the most costly financial goal and long duration goal, which will have to be provided for not just years, but DECADES.

It feels very odd to openly accept this and say this, especially in a society where we are always taught to first provide for others and think of others needs. We are taught from childhood that we should not think about yourself, we should not be self centered, we should think about others, we should think of others before thinking about yourself.

“Others” here can be our parents, children, friends, relatives, husband, wife or anyone else.

Retirement is a selfish financial goal

It’s a taboo to tell someone that “I want to first think about my own happiness and requirement at the cost of others”. You suddenly become “self-centered” and “rude”.

This is one major reason why a lot of people think of their own retirement at the end, only when other goals are planned for.

I think this is changing slowly and the way people are prioritizing things is slowly taking a new shape. I can now see a trend, where people have started giving importance to their own dreams and desires, compared to our parent’s generation.

While, you plan for important financial goals of your life, like buying a house, your kid’s education, children marriage etc, you need to give first priority to your own retirement.

It does not make sense to not plan for your own retirement, at the cost of other goals.

Reason #2 – Because it’s too early to plan

Imagine you are 30 yrs old.

It’s been just few years since you started your career. The top most thing in your mind right now is “how to buy the house?” and how to get the better pay package in the next job?

You are so engrossed into the hustles and bustles of life, and suddenly something says to you “Are you saving for your retirement?”

“Dude, I am just 30” – You feel !

Let’s be honest, it’s very tough to get serious about retirement at such a young age.

Some days back, we did a small survey with 379 people where we asked them what was the biggest reason why they did not consider retirement planning as their #1 goal in life, and the top most reason they choose was “It’s too early to plan for it”, the average age of this group was 30.4 yrs.

Which clearly shows that people are 30 are avoiding retirement planning because they feel it’s too far in future to even think about it.

retirement planning survey

But there is a problem…

Most of the youngsters never get out of that “I am still young” mode for decades. And one day when they hit 40-45, they feel they made a mistake of not starting early. Some people realize this at 50.

And then by that time, it’s very late.

So even though your retirement is very far away, you need to get this once and for all that you would need a big sum of money at the end, and early you start, better it is. You might not give high priority to retirement saving in the start, but start with something at least and increase the allocation later in life as you move from 30 to 40 .. and so on.

Reason #3 – They are not able to visualize the “Retirement” goal

We all are very bad at predicting how our lives will turn out to be after 10 or 20 yrs old. Just think about your past for a moment. 10 yrs back, did you have even a slight idea of how your life would have been today?

Not at all!

So it’s tough to predict how good or bad the future will be.

This is the reason, why most of the people do not plan for retirement. They are not able to visualize how serious it is to plan for retirement and how tough it will get if they do not have enough retirement corpus.

Most of the people who earn sufficient money right now never realize that one day the SMS – “Your salary XXXX  amount has been credited in your account” will permanently stop and they will be left with another approx 40 yrs to be alive.

Thinking about your retirement

Your health will not be at the best level and your kids may not be in position to take care of you in the same way you imagine them to take care of you. They will be busy and struggling with their own life issues.

It’s not easy to look far ahead in future and visualize it especially when you have a very active income right now. Just like its very tough to image how it feels to be hungry, when you are easily getting 3 meals each day.

There are various examples of successful people who died poor and struggled in their retirement life. If you do not have enough money in your retirement, you do not have power with you. People do not treat you well, and that’s the harsh reality of life.

Don’t be that guy !

Subra has written a great piece called “Retirement Failure”, where he talks about how a retirement life looks like, if you do not have enough money at retirement. He is one of the best authors and writers on the topic of retirement, so you can trust him 🙂

So start getting serious about future and plan for the D-Day !

Reason #4 – Not able to save enough money

People also don’t save for retirement for the simple reason that they just don’t have any surplus left at the end of month. It’s fairly logical!

Incomes are not increasing, while expenses are growing like amoeba in all directions. It’s getting tough to save in today’s times especially if you are single earning member in family with 5-6 people in a big city.

It’s true that you are not able to save much, but that’s something to get altered to and act on it, rather than hide behind that fact and just let years pass by.

Just because you were not able to save enough for future, no one is going to give you money at your retirement.

So take charge of your future now, and act on it. Work on your income, work on your expenses and make a start. Start saving with Rs 1,000 a month first, then Rs 2,000 and eventually go up and up.

Even if you are able to save Rs 5,000 or Rs 10,000 a month at minimum, a good retirement corpus can be generated. You will not be a RICH guy, but you will have something to fall back on at least.

What can you do with Rs 10,000 per month?

Below is a graph which shows you the power of investing Rs 10,000 per month on a regular basis for next 30 yrs. You can create close to 4 crore at retirement if you are a 30 yr old person.

Wealth creation for retirement

It can be a slow start, but that’s OK.

If you want to talk to our team for your retirement planning, just leave your details on this page and our team will call you to discuss about your retirement planning.

Reason #5 – They see their kids as retirement corpus

I am not giving my own comments on this point, it has to be written by you.

Yes, I do not want to give my comments on this point because it’s such a sensitive topic that various people will have very different style of thinking on this topic.

From my side, I can only say that I can see lots of people in big cities these days who are very clear that they do not want to depend on their children for anything. They want to give the best to their kids and raise them as amazing people, but then they do not expect anything back from them.

But from the small city I have come from (and many of you) , it’s almost a crime to think like that. Most of the people really see their children as “Budhape ka Sahara” and literally expect them to take care of them “because” they have also raised them and spend on them all their life, so it’s now their turn to return back.

How do you see the relationship with your kids?

Few months back, we did one online survey on this website to understand how do people see their relationship with their children. 49% participants in that survey choose the option which said “Give and Take Relationship”, where as only 21% felt that it’s only a “Give Relationship”.

are children retirement plan for parents?

I can’t comment if it’s right or wrong, but would like to know from everyone, what they feel about this point? Please expand this 5th point in comment section and have some fruitful discussion.

A software guy left his job to be self employed – His complete story

Posted on by Jagoinvestor

One of our readers, Anjan had shared his experience of leaving his salaried job last year to become self-employed. He wrote a detailed experience of his journey on one of the posts so I am reproducing his message in the form of the article here. (note that this was shared last year, but I am posting it now)

Over to Anjan experience sharing below…

I want to start off by saying that I was really inspired by that one article of yours (I am talking about Manish Article) where you wrote your experience about how you quit your job at Yahoo and finally decided to follow your dream against all odds and opposition.

Quit job in India - Real life experience

I left my software job at 27

Ever since the day I read that, I knew I had to get started on my dream and drew up an action plan to free myself from this IT job which I considered as nothing more than slavery from Day 1.

So last month, I successfully quit my job at the age of 27.

How my frugal nature helped me

I was always very frugal by nature even from back in my college days when I used to do odd online jobs that didn’t pay much but I ensured I saved every penny I possibly could. I built up sizeable savings which netted me a few thousands of rupees as interest every month.

I guess that habit carried over to my professional life when I got a job. I started saving almost 95-98% of my monthly income and managed my expenses as much as possible from the interest income.

My salary was a meager 35k, so it wasn’t easy but where there is a will, there is a way.

I was fed up of boring work and Politics

So after working 5 years during which I cursed my company and boss every single day, I finally had enough of the BS and dropped the resignation notice on them out of the blue. I got the topmost rating in 4 out of 5 years of my stay there.

So they were surprised by my decision especially at a time when media is reporting massive job cuts in IT due to US Visa issues and automation.

office politics

Having to do 12 hours of boring donkey work everyday, having to work on weekends/holidays thanks to impossibly tight deadlines without any extra pay, having to beg for 5 days leave to go on a vacation once a year, having to tolerate their politics and favoritism which denied me opportunities I deserved was killing my soul from within and I was dying a little with every passing day.

Even on holidays/vacations, there was an expectation to be available on phone for support.

I started acquiring new skills and planned my exit

I just knew life couldn’t go like this forever. So I made plans to become self-employed late last year. I started acquiring new skillsets through sleepless nights and sheer hard work to switch over to freelancing with the aim to open a small business a few years later.

Once I felt ready and confident, I quit.

After being self-employed for just over a month, it feels amazing. It’s hard work without a doubt and there have been many sleepless nights to deliver projects on time but the sense of freedom is just indescribable.

There is truly something to be said for working for yourself. The best thing is my salary is not fixed anymore. The harder I work, the more I earn, so there is an incentive to work hard and increase income.

Why I planned it NOW and not in the future?

Age is an important factor. I have reached an age where I knew my parents would start badgering me for marriage within the next couple of years. So I knew it’s now or never. I had to act and I knew I had to stick to my plan no matter what may come or else it will be too late.

The fact that I love to travel was perhaps my biggest motivation to become self-employed as employers would never give you more than 5 days’ leave even if you beg. I am the kind of guy who loves to go on month-long tours.

My next plan?

Thanks to my frugal nature, I saved up enough money during my employment to last many years even if I stop working today. I plan to increase my savings to an amount that would last a lifetime by the time I reach 30.

So a few years of sheer hard work is ahead of me but for now, I am enjoying my new found freedom even though I am working super hard.

Conclusion

Congratulations to Anjan for this new journey in life and best of luck to him. I hope reading his experience would be helpful for those who need some motivation to leave their jobs to break the monotony and explore their full potential.

Let us know if you have any more ideas or points to share?

Are you ready to deal with a job loss?

Posted on by Jagoinvestor

Job loss is a scary situation because it’s a big disruption in your life. If you lose your job, you need to suddenly look for another job quickly because you have to meet your household expenses and also deal with the emotional crisis.

In case of a layoff, you also lose self-confidence and start doubting yourself and keep wondering what the future is going to be now. Look at these news headlines which talk about so many job losses in India. While all the sectors have layoffs, these headlines are more from the IT sector.

layoff headlines india

Are you prepared enough for a job loss?

Have you ever thought about this situation? Have you ever visualized about losing the job?

We all are so confident subconsciously that something like a job loss is never going to happen with us. We hear that it has happened in someone else life, but we consider ourselves so lucky for no reason.

Our lives are smooth and our planning for the future is perfect, but it’s critical to check if you can take the bad news of job loss? Is your financial life strong enough to handle that situation?

Have you ever thought about this?

Have you ever thought about how you will be paying your EMI’s, your kid’s school fees, rent, various other household expenses and how you will deal with stress and the insecurity which will come with the job loss. If we pick the software industry, there is enough bad news coming in from the last many years.

The industry is going through tough times (and even good times) and it’s not very uncommon to hear that thousands of employees got a pink slip and lost their jobs!

If we talk about you, are you skilled enough to find a new job in the same industry with the same pay package? Can you afford a lower salary? Do you have enough savings to deal with the stress of living without a paycheck for the next 6 months?

I found some real-life experience of people who are sharing about their job loss and how they felt about it. Please read them to understand how it feels and what it means.

Story #1 – How Ganesh felt when he lost the job in a startup

Below is an experience of Mr. Ganesh who shares how he lost the job and had to face issues in his life.

Real life example of job loss in India

Story #2 – How a software engineer felt after a job loss

Here is another experience of a quora user who worked for Symantec and lost a job when his wife was 5 months pregnant.

Another example of a software engineer loosing job at IT company in India

How to prepare for bad times?

We don’t wear a helmet while driving because we want the accident to happen. We wear it so to make sure we are protected if something goes bad accidentally.

In the same way, we should design our lives in such a way that even if we lose our jobs, the impact is limited and the emotional and financial loss is in control.

I know losing a job is not a great thing. Most of the wake up when they actually lose the job and start thing on what to do.

Don’t be that guy!

While you can’t stop someone from fire us, you always have control over what you can do to face that situation. So let’s talk about a few things you can and should do today to be ready for that scenario.

Action #1 – Have 6 months worth expenses in an emergency fund

When you lose the job, the immediate question which comes to your mind is – “How will I pay my bills?”

You have EMI’s, household expenses and many more things to deal with. You already know how messy it can get. I don’t want to get into details of it, but you need to pay all the bills. At best you will be able to stop a few things for a while, but how long?

Impact of job loss on your financial life

You should have enough liquid money with you which can last for a few months. It’s like the emergency fuel (6-month expenses) you need in your car to reach the petrol station (new job).

One more reason why you need to have enough emergency funds with you is that it gives you more power to choose your next job.

If you do not have money at your end to last another month, you are too scared. It’s a panic situation which forces you to choose any job which comes next. It’s like being desperate for marriage and then saying YES to the first person you meet. Not a good thing for the long term.

Action for you: Just multiply your expenses by 6 and keep that amount invested somewhere which can be available at short notice (like few days). The focus has to be more on availability and not returns. You can choose a debt mutual fund or a simple fixed deposit for this.

Action #2 – Don’t have a neck to neck expenses

A good habit for any investor is to make sure that their income is 1.5 times of their expenses. You should not be living a life where every penny you earn is getting spent.

I know it’s easier said than done for many people, but at least start taking action towards this.

There are two benefits here.

Benefit #1 – You will have good surplus each month which you can invest in for the future. It keeps you worry-free and you also can save good amount.

Benefit #2 – When you lose your job someday, you at least have an option to take up a job that is paying you less. Imagine you are earning Rs 1 lac per month. In case your expenses are neck to neck, you will not be able to accept a job that is offering you Rs 80,000 a month. Can you?

I strongly suggest that your total expenses (including EMI and everything) should not cross 60% of your income. It’s a good habit to practice in your financial life.

Action for you: Find out the ratio between your income and expenses. How much are you saving each month right now? If it’s less than 40%, focus your energy on earning more income. If not immediately, give yourself 2-3 yrs of time when you will increase your income to the next level.

Action #3 – Be awesome in what you do

Don’t be mediocre in what you do. Don’t be average in what you do.

Are you a java developer? Then be the one who knows everything inside out and make sure you are among the top 5% in the entire world

Are you a marketing guy? Then make sure you are the one who can really transform the marketing of a company if you take that task in your hand.

Are you a chef? Then make sure you are worth inviting to master chef show!

Whatever you are doing right now in your life, just make sure you are ONE OF THE BEST.

Be awesome in what you do

I am not saying that you should do something extra ordinary in life, but whatever you are doing, strive to be one of the best in that field.

If you focus on this, then you probably will never lose your job. And even if you do, you will quickly get another, And if you don’t get another job quickly, you will at least be calmer and composed than others who know that it’s just a matter of time. Your panic level will be low.

Action for you: Make a list of things you need to do to go to the next level in your profession. List down which are the training you need to attend, list down which all certifications you need to complete. List down if you need to change your job to learn new skills? List down if you want to ask for help from someone more awesome than you. List down all the points and complete that in the next 12 months.

Action #4 – Start saving money and build a good portfolio

There is this concept of human capital and money capital.

Human capital is our ability to work and earn money, it’s about the potential and how much you will bring in the future.

Money capital is your portfolio which gets build over time, you keep earning money and save from it and start increasing your money capital.

When we start our career, we are high on human capital and zero on money capital. When we retire, we have money capital and very low human capital (maximum cases).

Start building a good portfolio

Focus on investing and saving money from a long term perspective. It’s better to lose a job with 50 lacs lying in your mutual funds and deposits in the bank. It’s a much better panic situation compared to just having some money in your bank account.

I know it’s very tough to have any portfolio at the start of the career but do whatever best you can do. Focus on creating your first 1 lac, then first 10 lacs, then first 50 lacs.

But at least take actions to reach there.

If you have good amount in your portfolio it feels safe. You can fall back on something which can last you for many years in the worst case. Imagine not having much in your portfolio and losing a job. Even Rs 10,000 invested per month can give you 25 lacs in 10 yrs if done in the proper way.

Saving money for future

So ask yourself, if you have enough money capital as per your situation? Have you built and saved your money capital or not?

In the case of job loss, most of the people who are in extreme panic are those who have no sufficient money capital and human capital. Even if you save 10% of your money income on a consistent basis over your working life, it’s going to be a very huge amount. But most of the people even fail there.

Action for you: First slow down. Then see how much is your monthly surplus each month? Are you investing that money on a regular basis? If not, it’s time for you to start your SIP (our team will help you in building wealth in a systematic manner).

Don’t make these 5 mistakes at your work

Let’s quickly look at a few points which lead to a job loss. Many people just do wrong things at work and expect to never get fired. If the points below are true for you, its time you relook at your approach and take corrective steps.

  • Not updated yourself as per job requirement – Are you still acting as if you are in 2007? Are you refusing to learn new skills that are required in your job? Are you into that comfort zone? If yes, it’s a signal that you may lose your job because you are getting stale day by day.
  • Not able to work with others – Are you a team person? Any work is done by a group of people and not a single guy. Make sure you know how to have good relations with your teammates and work with others. If you are not a team guy, you might not be part of the team soon.
  • Failure to do your work – This is a no brainer. Are you consistently failing in the work assigned to you? Are you not able to complete it in a given time and with the expected results? Get more trained, ask for help from others if that’s the case. It’s ok to fail once in a while, but if it’s happening very frequently you are on a list of non-performers and you might get a pink slip very soon.
  • Failure to take initiative – Are you just doing what you are supposed to do? That’s all? Are you taking new initiatives yourself and showing that eagerness to go out of your way and surprise your employer? Remember, the pyramid is smaller at the top and you want to move to the top like many others. You will be the first tree to get cut if things get ugly.
  • Failure to demonstrate productivity – Are you busy or productive? A lot of people do lots of things at work only to produce very little at the end of the day. Make sure you are doing more and highly useful productive work. Also, make sure you show that to your employer. Get it noticed and recorded.

I hope I was able to reignite your thoughts on these points. Do let me know how many marks out of 100 will you give to yourself on preparedness for job loss?

If you are 100% prepared and ready to cope up with it, you score 100/100, else 0/100 at the extreme end. I would like to hear about this from you and what you are going to do about it.

Buying Term Insurance Plan? Here are 20 Critical things to keep in mind

Posted on by Jagoinvestor

If you are planning to buy a term insurance plan in coming weeks, then you are at the right place, because today I will share dozens of points which any term plan buyer should know before they buy the cover.

So, if you have no idea of how does term insurance work, and if you have asked yourself – “Which term plan should I buy?”, then you are at the right place today.

Most of the buyers who are new to term insurance plans do not understand various critical facts and points which they should consider while they are buying the policy and because of that, I came up with this checklist which will help you.

Let look at each point in detail.

buy term plan checklist

1. Earlier you buy a term insurance plan, better it is

There is no minimum or maximum age for term insurance. Earlier you purchase the policy better it is.

Do not be very late because as time passes, your premium amount will also increase depending on your age and also if you develop any illness or disease, it will get tougher to get the policy later. So once you are clear that you require a certain amount of life cover, go ahead and complete the action within a few months.

2. Buy the term insurance policy only till your retirement age

Till what age should you buy a term plan? Should a 30 yrs old guy buy a term plan up to 80 yrs? The answer is NO.

You should not buy it for the longest tenure possible because you only need life insurance policy till your retirement and not beyond that. This is because not many family members will be financially dependent on you beyond your retirement age.

When we are young, we have more financial responsibilities, and hence it makes sense to take a big cover. But as our age increases, our assets will grow and at the same time, we will be moving towards the retirement age, at which point we no longer remain provider for our families.

3. Don’t get mislead by “per day premium” marketing gimmick

A lot of insurance companies have started to advertise their term insurance plans by sharing the cost per day basis, like for example – “Buy 1 crore term plan just for Rs 25/day”. However, note that these numbers might be applicable only for a certain age group and tenure of the policy.

Like it might happen that the advertised premium per day is only for the clients around 25 yrs and for a policy of 40 yrs.

cheap term plan premium

Your case will be different and the premiums might differ for you, so don’t get trapped by the lure of cheaper premiums.

4. Don’t buy single premium policies

At times, you have to choose between single premiums vs. regular premium while purchasing a life insurance policy. A lot of people think that just because they can afford to pay a onetime premium, it makes sense, but it’s not true.

Other than some cases, it does not make much sense to pay a one-time premium (single premium) while buying a term plan. The best option which will work for most people is the yearly premium. So if your agent is trying to explain to you how a one-time payment will help you save the cost, run away and don’t fall for it.

5. Take an increase in premiums in a positive manner

This is a big one which is critical to understand.

When you buy a term plan (or even health insurance), sometimes your premiums can increase after your medicals are done and you may be asked to pay an extra premium. This increase in premium is due to health issues and it’s very valid to ask you to pay this extra premium.

Most of the buyers are very critical of the premium increase and choose to not move ahead or postpone their decision of buying the plan.

However you should understand that the premiums increase is a natural thing to happen if you are of the high-risk category (like a smoker, alcoholic or if some past illness). It’s actually a good thing that the company is beforehand checking the facts and still offering you the plan, though at a little high premium which is very fair from their point of view.

If you are still not clear on this, you should learn how insurance companies work and what is their model?

At that point, rather than postponing the decision, the best thing is to go ahead and buy the policy.

6. Don’t get over-excited by term insurance riders

“Riders” are great add on with a term insurance plan, but only if you really require them or if they are specific to your case. Don’t add them just because it’s available and gives you a sense of more security. I mean if you do a lot of travel and are most of the time in your case, the risk of dying in an accident is higher for you, so in that case, you can add an accidental rider. Here are various types of term plan riders

  • Accidental Death Rider
  • Permanent & Partial Disability
  • Critical Illness
  • Waiver of Premium
  • Income Benefit Rider

In the same way, if you feel that you want to cover the risk of some critical illness in the future and don’t want to buy a separate policy, then you can add critical cover. But don’t add any term insurance riders for the sake of it.

7. Buy the basic version of the term insurance plan

A term plan comes into various flavors nowadays. The most basic one is the one which pays you a lump sum on death. However, there are other variations now which also gives you income for 10/20 yrs along with the main cover, or pays only the income for the next 10/20 yrs and a small lump sum at the time of claim.

I think one should just choose the base policy in most of the cases. Most of the other options are designed for very specific situations and they are not “better” or “bad” compared to the base policy. To check this, you can go to any term insurance premium calculator and find out the premium with rider and without a rider.

8. Tell them if you are smoker/alcoholic

One of the worst things you can do while purchasing any life insurance plan is to hide the fact that you are a smoker or consume alcohol. Please don’t hide it. There is nothing like a best term insurance plan for smokers in India at the moment.

Your premium calculation happens based on this critical information and if you hide these facts, then you are actually breaching the contract with the company and almost always your claim will be rejected at the end. Also, don’t think that just because you smoke just once in a while does not make you a non-smoker.

Below is some data from economic times on the rising number of claim rejections because of the hiding of information.

Claim rejections in life insurance

If you smoke (even though every fewer number of times), you are a smoker in the eyes of the life insurance company. Same is the case with those who take alcohol.

Make sure you fill your own form because there have been cases when an agent just mentions the policyholder as non-smoker or non-alcoholic to make sure the policy is easily issued.

9. Don’t hide your health information

Another grave mistake done by policy buyers is to hide any critical health information while purchasing the policy. If you have any health issues or have gone through any major operations/surgeries then you should clearly communicate that to the insurance company. One of the reasons for term insurance claim rejection is hiding important facts while purchasing the policy.

Please don’t wait for the insurance form to ask you the exact details.

An insurance policy is actually a proposal from your end in the eyes of law where you have to disclose all the facts and the company will accept your case or reject it. So the bonus of providing all the information is on you.

10. Don’t hide your family health history

Even your family health history matters. If your parents or siblings have some illness, then even that should be shared by you. Please don’t hide it because even that information impacts your premium.

Many people think that just because their parents had diabetes, it does not matter at all. That’s not true.

11. Don’t take small insurance cover (like 10-20 lacs)

Do you know that the average sum assured per India is in the range of Rs 90,000 to 1 lac only? Indians on average are highly uninsured, however, that’s mostly true for those who do not have term plans. But even those who have term plan try to cut the corners and eventually take less term insurance cover.

The most favorite number nowadays is Rs 1 crore. I see most of the people just taking a 1 crore term insurance plan thinking that it’s the right number. No, it’s not the case.

life insurance formula

With the rising costs and lots of aspirations, Rs 1 crore might not be enough for most of the families all their life. I suggest you should take a good enough cover which gives you enough peace of mind.

Make sure you add up all your liabilities, 300 times of your monthly expenses and some more amount which can help your family reach your other financial goals and take at least that much cover.

If your life insurance requirement is Rs 1.3 crore, better than a 1.5 crore and not 1 crore.

12. Don’t overanalyze and delay your decision

Do you see that ad these days on TV where a lady shouts on her dead husband for forgetting to buy the life insurance even though they had decided to take it

“Kya, tum term insurance Lena bhul gaye, ab Ghar ka kharcha Kaise chalega”?

One of the biggest issues with most of the potential policy buyers is that they want to buy the best term insurance policy and don’t want to make any mistake. They are aware that they need a life cover, they also start searching for the policy, do the term insurance comparison, but then start to over-analyze the policy, its features, the premium comparison and what no.

Finally, they just don’t take any decision because of the analysis paralysis. They postpone the decision and think that they will “soon” buy it.

Don’t do this

But a decent term plan asap. Do some study, but don’t get into that zone where you are just stuck because of small points. It’s better to have a good term cover with any company, rather than having no cover trying to search for the best company.

13. Don’t forget adding nominee name

While filling the insurance form, make sure you carefully put the nominee name. But who can be a nominee in insurance? Ideally, it should be wife, children or someone whom you want to pass the term plan money. But try to avoid very old people as the nominee (in general).

Also make sure you mention this fact in your WILL too, or if you are not going to create a WILL right now, you can take the life insurance policy under MWP Act, so that your nominee will be the final person (it can only be wife and kids if you add MWP) who gets the money.

If you have bought the term plan long back and now your preference has changed, it’s better to change the nominee name.

14. Don’t take more than 1-2 policy

You should ideally have 1 term plan policy in your life insurance portfolio, the max can be 2 policies. But nothing more than that.

I have seen some people dividing their 2 crores of the cover into 4 policies of 50 lacs each with 4 different companies and it’s a little bit of stretch. In almost all cases, 1 single policy of a big amount is good enough.

However, if you still feel that you want to break it into two policies, that’s the maximum you should do. Also, some people who are buying another term plan after a couple of years should not note this point that they should eventually not have more than 2 policies.

15. Disclose the old insurance policy

When you buy any life insurance policy, it’s mandatory as per their rules to disclose the old insurance policy you already have. In most the cases, when people buy a term plan for the first time, they already have a couple of traditional insurance plans, but they fail to declare that.

I suggest you don’t do that because as per life insurance policies, a company should know how much coverage you already have and only based on that they will offer you additional cover.

One should disclose old insurance policy while purchasing new insurance policy

If you have already bought a term plan without mentioning your old policies, you should reach the customer care of your term plan company and share with them about your old policies.

16. Be open to try online brokers

There are various online brokers which are building a long term business in the insurance space and provide various extra benefits to their customers like fast service, claim settlement assistance without you (customer) incurring extra cost, because they get compensated by the insurer (without putting any additional cost on your pocket).

The premium for you is the same if you buy it from the company directly only or through these brokers. These brokers give you various options to choose from and help you buy the policy which you want.

You can approach these brokers if you really feel they will add value to your transaction. I am not saying that online brokers are the only way to buy. If you are very critical of them or are old fashioned, then you can directly reach to company or your neighborhood broker.

17. Check the policy papers once you get it

One of the things which you should immediately do after receiving the policy is to check all the fine points and a copy of your medical examination. Nowadays, the policy papers have your medical records.

Kindly go through each point and make sure things like your age, name, blood group, address and other important things are mentioned correctly.

There have been cases, where the information has been wrong. If things are wrong, you can reach out to their company customer care to get it corrected.

18. Don’t fall for “10 times of Income” marketing

Almost all the call center marketing people try to sell you the cover equal to 10 times your yearly income. This often is a very simplified way of finding your life insurance coverage.

A better way to find out your coverage is to find out 300 times your monthly expenses and add up your outstanding liabilities to it. In the end, you can include 30-40 lacs more into the final number to take care of your other financial goals in future like kid’s education, etc.

For example, a guy with monthly expenses of Rs 50,000 per month and with 60 lacs of the outstanding loan will need 300 x 50,000 + 60 lacs = 2.1 crores at the minimum. So he can take a 2.5 crore term plan for himself.

However much life insurance you should take is a function of your expenses and liabilities and not your income. What if a person earns 6 lacs a month, but a modest Rs 50,000 month expenses with no liability?’

How to calculate life insurance cover value?

The “10 times of your income” marketing will say that he should buy a 6 crore term plan, whereas his right number would be in the range of 1.5 to 2 crore only.

19. Choose a strong and good brand while choosing Insurer

There are 24 life insurance companies in India (the year 2017) right now. Do you think each of them are equal in terms of surviving, claim settlement experience (not ratio), dealing with clients, depth of medical examinations, integrity in conducting business and what not?

Here are the list of all the life insurance companies in India as of 2017.

  • AEGON Life Insurance
  • Aviva Life Insurance
  • Bajaj Allianz Life Insurance
  • Bharti AXA Life Insurance
  • Birla Sun Life Insurance
  • Canara HSBC OBC Life Insurance
  • DHFL Pramerica Life Insurance
  • Edelweiss Tokio Life Insurance
  • Exide Life Insurance
  • Future Generali India Life Insurance
  • HDFC Standard Life Insurance
  • ICICI Prudential Life Insurance
  • IDBI Federal Life Insurance
  • IndiaFirst Life Insurance Company Ltd – India First
  • Kotak Life Insurance
  • Life Insurance Corporation of India (LIC)
  • Max Newyork Life Insurance
  • PNB MetLife Insurance
  • Reliance Life Insurance
  • Sahara Life Insurance
  • SBI Life Insurance
  • Shriram Life Insurance
  • Star Union Dai-ichi Life Insurance
  • Tata AIA Life Insurance

When you choose a life insurance company, you should make sure you choose the one which has a strong presence, along with a good brand (not the biggest). Read reviews online and check their data and read about them.

20. Communicate to your family that you bought a term plan

You should share about buying the term plan with your family immediately along with the policy papers and the contact number of the insurer.

You can also write down the claim process on paper and keep that at a safe location and share it with family. I know it’s not an easy conversation to do even though it’s a logical thing to do. But at least communicate with your family about the important things they should be aware about.

20 things to know before buying a term plan

Steps to follow while buying the term insurance plan online

  • Understand your requirement first, find out how much insurance cover you are looking for
  • Go to various term insurance premium calculators on the web, and see what is the premium amount
  • If the premium is within your budget, then apply for the term plan
  • Make the initial premium payment and start the documentation
  • Medicals will be arranged for you by the term plan company which you should complete on time
  • Once everything is fine, your policy will be issued.

Let us know if you still have any queries?

7 alarming signals that you will not retire RICH in future

Posted on by Jagoinvestor

Will you become RICH in the future?

I know it’s your aim and you want to become rich, but there might be many things you are doing which are increasing your chances of remaining poor or middle class going forward. These are clear indications or signals that you might not become RICH and it’s time to do something about it.

Will you retire Rich or Poor?

I want you to read each point I am going to talk below and check if it’s applicable for you or not. Rather than an intimidating article, I want you to see this article as a wakeup call for yourself and redesign your financial life.

Signal #1 – Your Focus is not on increasing your income

Is your focus on increasing your current income? Do you think about it, fantasize about it and try to take any action? No, it’s fine if you are not succeeding right now, but the main question is – “Is it on the conscious checklist that you need to increase your income?”

Not increasing their income was one of the top most regret of most of the people in our survey

A lot of investors are just going with the flow of life and treat their income increase as fate. They feel they do not have much control over it and hence don’t do anything about it.

Given the way expenses are increasing these days, it’s almost a given that you will not be able to create wealth if you do not work towards an increase in your income.

Signal #2 – You depend too much on credit cards and loans

Are credit cards and personal loans your lifeline?

Are you consuming most of the things like Car, Bike, Vacations, Mobile on EMI? If that’s the case, you are in the EMI trap already and coming out of it is not easy.

Time will keep passing and it will be difficult for you to get out of it. This is a big signal that there is something seriously wrong in your way of life. Other than a home loan and the Education loan, or any emergency personal loan, if you have made taking loans and swiping your credit card every now and then for trivial things, it’s a big signal that you will not end RICH

Signal #3 – You are unable to save anything from last many years

Past performance is not an indicator of future, BUT past indicator is at least signal of what can happen in the future. If you are unable to save much from your salary from the last many years, it’s something to worry about.

There is a great chance that what has happened in past will continue unless you give it a direction yourself.

[clickToTweet tweet=”Once you reach #retirement, your income will stop, but your expenses will not. ” quote=”Once you Retire, your income will stop, but your expenses will not, That’s the reason you should start your retirement planning”]

It’s time to meet a good advisor and work on your financial life. Either you seriously need to work on your income potential or take some drastic steps to reduce your expenses.

There is huge number of investors who think that – “From next year, I will start saving” and this is not happening from the last many years. It’s a signal that you might not get RICH in the coming decades.

Signal #4 – You are already very late in saving

Just because you are late, does not mean that things can’t change now, but the effort you will have to put in will be a lot now. It’s like a game of cricket. If you have to chase a big score and you have lost some wickets before 25 yrs and have not made many runs, now you need to show the extraordinary game to win the match. The run rate required will be quite high.

Let’s take an example of 3 people who started saving at 30 yrs of age, 40 yrs of age and 45 yrs of age and they all want to retire at 60 with Rs 10 crore corpus.

The one who starts saving at 30 yrs, will have to save Rs 35,000 per month throughout his life. However, the one who was late by 10 yrs will have to now save Rs 1.15 lacs, around 3 times more.

And the one who is late by further 5 yrs (at 45 yrs) will have to save Rs 2.25 lacs (almost 7-8 times more).

late investing example

In the same way, in your financial life, if you have lost a good chunk of time already, you will have to save much more and take more risks to reach the goal of wealth creation.

I anyone wants to start their wealth creation, then you can open a FREE mutual fund account with Jagoinvestor.

Signal #5 – Every month-end is a struggle

If every month end a struggle for you financially?

If it’s happening from the last many years, you need to understand that this is not a good sign for the future. You first need to get into a situation, where your month-end is not a struggle, then at the next stage you need to move to a stage where you save some month each month and finally, you need to work towards a situation that you save substantial money each month.

Signal #6 – If your job opportunities are very limited

Are you into a business or a job where it’s very tough to survive to find another job easily? In short, are employed in a sector that does not have enough opportunities? If that’s the case, and if you rank yourself “average”, then you might find it tough to search for other jobs that pay better salaries.

Also if your skillset is limited, your main challenge is of “survival” and that’s not a great aim to have.

Signal #7 – You seek too much “safety” in your investments

Finally, if you are an investor who does not want to take enough risk with their investments, means they just want to get predictable near inflation returns, then it means you are a Fixed deposit or PPF lover. Nothing wrong in that, because it’s your design internally and you have got developed as that kind of investor, but you need to be clear that you are earning only near inflation returns.

Check out the video below where I talk about why investors should avoid fixed deposits for long term investments.

If you invest in FD’s or equivalent products, your corpus will become bigger and bigger in number over the years, but it will not increase your purchasing power. Unless you invest very huge amounts, the corpus you will create will not be enough to be called RICH in the future.

How many signals are present in your financial life?

Out of these signals which we discussed above, how many are true for you? What are your thoughts on the points above? Can you share them in the comments section?

8 Benefits of filing ITR, even when income is below exemption limit

Posted on by Jagoinvestor

Have you filed your income tax return?

Yes /No?

There are many investors who have very low or zero tax liability and therefore they skip filing their income tax return. Then, there are investors who do not file their returns for years and only when something urgent comes up which requires their last few years of ITR, they go to a CA and file their old tax returns.

what are the 8 benefits of filling ITR?

Today, I will share with you why you should file your income tax return, even if you have income below the taxable limit.

Before that, let me share with you what exactly is ITR, for those who are not aware of it.

What is Income Tax Return (ITR) and who should file it?

An Income Tax Return is a form, where a taxpayer discloses details of his/her income, claims applicable deductions and exemptions and taxes that are payable on the taxable income.

As a responsible citizen of India, everyone who has an income should file an ITR, because in this way we are actually declaring all sources of income whether taxable or non-taxable.

The Income Tax Department mandates everyone to file an income tax return if one’s gross total income (before allowing deductions under section 80C to 80U) exceeds Rs. 250,000 in a financial year.

One can also file it even their income is below the taxable limit or its zero (in which case it’s called NIL return). Filing Nil return will act as proof of accumulated funds in your bank accounts or other investments.

Here are the 8 benefits of ITR.

There are various benefits if one files ITR irrespective of their income. Below I have listed a few benefits of filing ITR.

Benefit #1 – Proof of accumulated earnings over the years

It might happen that a person is earning some small income over the years which is below the taxable limit and over the years they accumulate good corpus. Now it may happen that they might get tax scrutiny for some reason after a few years.

If someone has not filed the ITR over the years, it will be a lengthy and tiresome process to explain the sources of earnings over the years. However, with ITR, it will be legal proof of income earned in each year.

Benefit #2 – VISA processing

If you are traveling overseas or planning to travel in the near future, proof of earning is required. If you are salaried than the employer certificate will work but if you are self-employed than income details are needed to be submitted. So, ITR return will work as income-earning proof.

ITR is required as one of the documents for visa application

Benefit #3 – ITR serves as proof of income for Self-employed

Being self-employed does not provide earning proofs such as salary certificate from the employer and form 16. So, having ITR ready with you as proof of income is the most convenient proof.

Benefit #4 – One can Carry forward capital losses

If you have incurred capital losses, the Income Tax Act allows you to carry forward losses for eight consecutive years, and balance it against future gains and income.

To keep a track of your losses, the Income Tax Department has laid out that, Losses for a year cannot be carried forward unless that year’s return has been filed before the due date. So, even if it’s a loss return, you do not have any income to show – do file your return before the due date to declare the capital loss incurred.

Benefit #5 – Helpful for those with very small earnings

There are many people who get some small incomes such as

These people total income might be below the taxable limit and they might feel that they are not supposed to file any tax returns, as they don’t have to pay any tax (because TDS is already deducted). But by filing ITR they will get legal proof of income (in case they need it).

Benefit #6 – Claiming Tax Refund

If you have paid excess tax on your income, then you can file for a refund from the income tax department. In order to get this refund, it is mandatory that you file ITR.

Getting a refund of your taxes feels like getting a paycheck credited. Many salaried people don’t file their ITR as they feel that the tax on their income has already been deducted and they have form 16. But, it might happen that, the employer has paid more tax on your behalf, not taking into consideration your actual house rent, tax-saving investments or insurances. So, in that case, filing of ITR will lead you to ask for a refund from the IT department.

Benefit #7 – Ease of getting loans

If you apply for any loans such as a home loan, car loan, etc., then ITR for the last 2-3 yrs is asked as the mandatory documents. ITR will help your lender to assess your repayment capacity and is an important document. A lot of people who have not filed ITR on time rush at the last minute for these documents, so why not better file it on time?

Benefit #8 – Buying a high life cover

When you buy higher life insurance cover the Insurance company asks for proof of income to assess the cover amount to be provided to you. For this salary slip, bank statements or ITR of the last 3 consecutive assessment years are required.

It might happen that you don’t get a salary receipt or your monthly income is being paid from different groups so bank statements will also not work as strong proof. So, better to have an ITR return filed.

Do you know someone who should file ITR in your circle/family?

I hope the above points will make you understand why it is always preferable to file ITR, even if it might be NIL return. In a lot of families, there are people whose name there are small incomes like dividend income, income from tuition fees, small business income and this article applies.

So make sure you start filing an ITR for them and save yourselves from the future hassles involved.

Do share your views, experiences and ask queries through comments.

5 benefits of investing in auto mode at the start of each month

Posted on by Jagoinvestor

There are two types of investors.

  • Category 1 – Those who invest their money manually at the end of each month
  • Category 2 – Those who auto-invest at the start of each month.

Today we will discuss which option is better than others and what are the benefits of choosing the auto investment mode at the start of the month

Benefits of investing your money at the start of month

While investing at the end of the month manually is very intuitive and sounds comfortable to most of the investors, we think that investing in the auto mode at the start of the month is much better and beneficial for an average investor.

Most people adopt the “Save whatever money is left at the end of the month” approach in their financial life, but there is enough research and proof that it does not work for the larger masses. The best option is to put your investments in auto mode and let it happen automatically each month.

Now let’s looks at the benefits of investing in auto mode at the starting of each month

Benefit #1 – You can manage your lack of discipline

Can you trust yourself in investing each month manually for the next 5-10 yrs?

If you decide to invest Rs 10,000 on the 25th of every month for the next 10 yrs, will you be able to do it consistently for the next 120 months (10 yrs X 12 months)?

Trust me, it’s a lot of work and very hard to act in a robotic fashion.

  • Sometimes, you will postpone it
  • Sometimes, you will feel – “Let’s do it next week”
  • Sometimes, you will skip it for the sake of other expenses
  • Sometimes, you will just be involved in some other tasks
  • Sometimes, you will actually follow it
  • And most of the times, you will just forget it

Compare this will an auto mode, where you have set up your SIP (automatic monthly deduction in mutual funds) or a recurring deposit (for those who don’t think mutual funds are their cup of tea), and the money automatically gets deducted from your bank account (considering you have the balance) and then gets invested without your intervention.

Which one of these options do you feel will be in your interest?

Most people think that each month of a certain date they will invest some X amount on a regular basis, but they are not able to do it on a consistent basis. They either lack in discipline or they are so consumed in other areas of life, that they are not able to follow what they promised themselves.

Due to this, their financial life suffers. The money does not get transferred from the bank to the investments and eventually gets spent.

Trust me, even if you are the KING of indiscipline, the auto investing will create wealth for you!

Benefit #2 – You avoid unwanted expenses

“Supply creates its own demand” – a classic principle of economics. If you have money lying available in your bank account, you will find enough reasons for spending that money.

Hence, if you think – “Let me first spend, if anything is left, I can always save/invest it at the end of the month” , it’s almost guaranteed that you will not find any money at the end (unless your income is very high compared to your expenses)

This is the reason why you should create a structure that takes away some part of your salary from your savings bank account to somewhere else which is not easily visible to you (like PPF, RD, or mutual funds).

I have devised something called a “10% margin system”, which can truly transform the way you manage your cash flow. It’s one trick that will help you save more money each month.

Under this system, you only keep your monthly expenses + 10% more in your bank account and invest everything else at the start of each month. Click here to read more on this 10% margin system.

How to save more money each month

So if you invest at the start of this month, you will shop only limited to your needs, you will not overeat outside, and to a great extent, you save on the unwanted expenses.

The whole idea is to “cut” the excess supply of money to yourself by investing it at the start of the month itself.

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Benefit #3 – It develops the Habit of Saving

One of the biggest challenges for new investors is to develop the “habit of saving” in them.

The world these days is such that it’s very easy to SPEND money on things you don’t really need. You spend on mobiles, gadgets, parties, traveling and consuming various things (nothing wrong in these things). However, beyond a point, you start crossing the limits and you start “wasting” money at the cost of the future.

Most of the investors find themselves not saving any money and living paycheck to paycheck for the simple reason that they never develop the saving habit and eventually end up in the never-ending cycle of earn -> spend -> earn -> spend

You should check this excellent simple video by Brain Tracy on why you should save at least 10% of your salary if you are a beginner investor.

Some time back, I had written an article for beginner investors and how they should manage their financial life. Please go through it.

If a person sets up the auto investing at the start of the month, then at some level the habit of saving starts. If one is able to continue that for a few months, the overall expenses will get adjusted with the leftover money in the bank account. If you are a new investor, the primary reason to start your SIP or RD is not to save money, but to develop the habit of saving.

Benefit #4 – You reduce the risk of investments

If you do not spread your investments across months, then there are good chances that if the markets fall suddenly, its impact will be high on your wealth. In the same way, the upside potential is also high. But let’s focus on the risk part here.

If your investments are happening each month on a regular basis, then your investments are spread over all kind of markets like bull and bear market (assuming your investments are happening in mutual funds SIP)

So if you want to control the risk part, it’s a good idea to let your investments happen on a monthly basis and not a one-time basis. A good example of this is SIP in ELSS vs. One time investment in ELSS for 80C.

For example, consider two friends Ramesh and Dinesh

Case 1 : Ramesh invests Rs 1.5 lacs in one go for tax saving during the month of Feb, but the markets in next one year go up and down and eventually go down by 10% . In this case, the investment done will be having high risk, because all money was invested in one go (which also means that potential returns can also be high if markets do well) and all the ups and downs impact will be on the total money.

Case 2 : However, Dinesh does a SIP of Rs 12,500 per month in ELSS, and in 12 months he invests total of Rs 1.5 lacs. In this approach, the investments are spread over 12 different months and risk (and returns) will be more controlled. If markets go down in the first few months, then it’s only for the amount invested before that event.

Benefit #5 – Guilt-free Spending

This is one benefit that is often not appreciated enough.

When you save your money at the start of the month, then the rest of the money is available for your expenses. Now you can spend it freely, without any guilt.

Most of the people who do not save enough or save at the end of the month, keep worrying and thinking while spending their money. They keep feeling “Bahut Kharcha ho Gaya is Baar” while going for outings or movies etc. This is because they have not allocated money for the future.

So you should start your auto investing (SIP is one of the best way of doing that) and once you have done that, I suggest you adopt the envelope style of expenses where you create few envelopes for each expenses category and put the cash in the envelope and use only that till the end of the month.

Envelope System of saving

However once you setup your automatic investments at the start of the month, you then just have one agenda – “Spend rest of the money” guilt-free.

Are you starting your investments in Auto mode Now?

So what are you waiting for?

If you have not yet started your investments in auto debit mode, you should immediately start your investments. You can either start your SIP with our team or reach out to your trusted advisor who can guide you on this.

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Hey Married Men – Do you know about buying Life Insurance under MWP Act?

Posted on by Jagoinvestor

Do you have any life insurance? And are you really very sure that it will protect your family?

Majority of people who buy life insurance in India, buy it for the sole reason of protecting their family’s future. But is taking the life insurance a sure shot way to protect your family (I mean your immediate family here, which is spouse + kids)?.

protecting family under mwp act

If the primary breadwinner dies because of any reason, the family will have to suffer in absence of a regular income. The spouse will suddenly not get any income and might have to start earning. Your family and kid’s future is also at risk.

Let’s see some risk your family has 

  1. What if you are businessmen and you owe money to someone? After you are dead, the creditors will approach the court and they will get the money out of your life insurance proceeds
  2. Consider you have a big home loan which you have not accounted for while taking a term plan. If you die, the first right will be of the home loan lender because the loan is on your name. The right of the family comes only when your loans are paid off.
  3. What if you have not created your will and there are family members who claim their right in your life insurance proceeds?
  4. What if you yourself change your mind later and don’t want to give the insurance proceeds to your own family?

Are you prepared for this situation? If not then think about it. There is a way which will help you at some points if this such situations appears in-front of your family in your absence and the solution is MWP Act.

Click Here to Buy Term Plan

Have you heared about MWP Act?

MWP means Married Women’s Property Act. This act is prepared by taking into consideration the rights of a married woman on her property. According to MWP Act . the earning of a married woman in India is considered as her own property and this Act Protects the property owned by a woman from Creditors, relatives and even from their husbands.

Buying Life Insurance Policy under MWP Act

MWP Act 1874 under which Section 6 deals with life insurance. If you buy a life insurance under MWP Act, then it will protect the women’s right on the life insurance proceeds money in all the cases. Even the husband can’t do anything about it once the buying is bought under MWP act. This applies to all kind of insurance policies be it a term plan or an endowment/money back plan.

mwp act meaning

Who can be the Beneficiary and Trustee?

When a policy is bought under MWP Act, the policy is treated as a TRUST and its guarantees that the proceeds from life insurance policy are free from any creditors or court attachments.

The first right is of the family only (women and kids). Imagine if you buy an endowment plan which matures in 20 years and you bought it under MWP Act. Once the policy matures, then even the person who started it will not be able to claim anything. The first right will be of the beneficiaries mentioned in the policy.

Beneficiaries can be:

  • The wife alone
  • The child/ children alone (both natural and adopted)
  • Wife and children together or any of them

Trustee can be:

Unlike beneficiaries, having trustee is not mandatory for this MWP Act. The policy holder can mention one or more trusties. Having a Trustee is not compulsory but if the beneficiary is minor then in that case it is compulsory to have a Trustee. The Trustee should not be minor. The Trustee can be change whenever the policy holder wanted. The Trusties can be –

  • A person
  • A bank
  • An institute
  • Beneficiary herself/himself

How will the beneficiaries get benefit ?

When something wrong happens with the policy holder and the insurance is claimed by the family, the creditors can claim for the insurance benefits. In this case the family members will get less benefit of the policy. Or sometimes the other family members can also claim for the part in that policy if the policy holder does not have will.

But if the policy is covered under MWP Act then the whole benefit will go to the wife or kids (whoever the beneficiary is) of the policy holder.

Procedure to buy life insurance under MWP Act

The process is very simple. All you have to do is fill up a MWP addendum form separately at the time of buying the policy. Your agent can help you with that form or talk to the company in case you are directly buying it from the insurer.

However note that it can’t be added separately once you have completed the process of buying the life insurance (means you can’t add the MWP act later)

mwp act addendum while buying life insurance policy

Who can take a Life insurance policy under MWP act ?

Any married man can take a life insurance policy under MWP Act. This includes divorced persons and widowers. The policy can be taken only on one’s own name, i.e., the life assured has to be the proposer himself. Any type of plan can be endorsed to be covered under MWP Act.

Difference – Insurance With MWP and Without MWP

There is not a lot of difference in taking a life insurance under  MWP Act or without MWP Act but we can see some points which shows the difference. See the following picture.

Life Insurance Policy with or without MWP

Are there any disadvantages of buying policy under MWP Act?

Yes, There are disadvantages to signing the MWP addendum as well

  • The Beneficiaries cannot be changed. In case at some point you decide to change the beneficiaries . It won’t be possible if you sign a MWP addendum.
  • Loan cannot be taken on the basis of the policy. The policy could not be used as a security against loan.

That makes it also necessary for loan providers on Life Insurance policies to check before taking it as a mortgage for lending whether the policy does not contain any MWP addendum, as they will not get the benefits from its proceeds.

Let me know if you want to know more about this?

The myth of “Early Retirement” – A real life case study !

Posted on by Jagoinvestor

This article is a guest post by one of our readers Vikram Agarwal, who wanted to share his experience on the concept of “Early Retirement”. Vikram was generous enough to share his story and some of the real-life things which will make you think hard about this concept. Like Vikram, if you feel you can write on jagoinvestor, please click here

Over to Vikram.

—

Most of my friends in my friend circle in late 30’s ask me one question – “How much money I should have now, so that I don’t have to work anymore while maintaining a decent standard throughout of my life, with all the future expenses taken in to account?”

They want to ‘Retire Early’

early retirement

In fact, I also used to be an ardent follower of the concept of ‘Early Retirement’ but now have realized that the concept is more like a mirage, which does not exist in reality and once you reach there, it vanishes.

Moreover – in my view, it is quite dangerous for an individual to run after this concept. In my opinion, you achieve retirement either ‘NOW’ or ‘NEVER’ irrespective of your current level of income or financial state.

Early Retirement is a state of mind

It is a state of mind, rather than a stage achieved. The moment you achieve early retirement as per the physical criteria set by you five years ago taking inflation, life expectancy and all major and minor expenses in your monthly calculations, by the time you achieve retirement as per your old financial definition, all those things become sub-normal or default.

Your mind will have another definition that looks normal for you in today’s context for example for future kids’ education, your house quality, the type of car you own, facilities you desire and all other such expenses.

My personal example

For example, five years before, owing a 2 BHK house in the newly developed area with Marti Dzire hatchback car and with the kids going in a decent school used to be a life I wished for and I had done calculation for the amount required to maintain the same standard throughout rest of my life without working.

And that was ‘Early Retirement’ according to me and as per standard definition.

great future illusion

But, now it seems owing a 3BHK house (one extra room for parents or for guests) in a good location of a metro city, a nice Honda sedan and a ‘good’ school for kids throughout their education duration is ‘Normal’ for me. Now it’s the standard, I would like to maintain before retirement and after retirement.

My next target!

My new “target” might be owing to a villa or bungalow, and a nice SUV and kids in the ‘best’ school of the area. And once I achieve it, I think it will become a new normal with time.

The next level

And who knows, a car for wife will be a standard I will look for in the future, as I will not be able to manage all the household activities on my own and an extra car becomes a necessity. (I did all my retirement planning calculations with taking decent return on investment as 10% which is quite modest in the long term, so as not to fall in the trap of exuberant returns which might be temporary and actual return might spoil all your calculation.)

Even with a slight increase in any of the above ‘wish’ list (like the possibility of sending you kids abroad for his or her graduation) will push you back in time and you will not be able to achieve you ‘wished’ retirement any time and this carrot and stick game continues.

When your desires convert to your “needs”

You would not know when your ‘desires’ got converted into your ‘needs’. And now it looks like there is a meaning in the sayings of wise old man that “There is enough in this world for one’s needs and not for one’s desires”. I can sense the truthfulness in these lines with some financial literacy and practical experiences.

Greed Desires

If at all early retirement could mean anything for a ‘disciplined’ guy is thru’ a windfall gain from lottery or legacy, otherwise if one tries to achieve early retirement from normal gradual process where mind and hard work is involved, his thinking mind will quickly adapt to current situation and will turn the old desired standards in to ‘Normal’ or ‘Below Standard’ life in today’s’ terms.

The word ‘discipline’ need stress here because there is an old saying that irrespective of the size of the pot, if kept isolated all the water will drain out eventually if not refilled on time and only a disciplined life can control this drainage process and can prolong it (Read, why we are overspending these days by Manish)

Or you can become a hermit in deep forest, secluded from this physical world and concepts of ‘Future Expenses’, ‘Inflation’ become meaningless for you, one can think of early retirement stage.

early retirement myth

But, I guess this is practically impossible and this article is not intended for those who might be thinking of this stage as one of their future possibilities.

Story of my seniors – Real-life case

I personally know two of my seniors who after working at very senior positions in the company left their jobs as they thought they had enough money to sustain the rest of their lives and tried to follow new pastures in future life.

But, eventually, they had to join back in their respective jobs in order to meet their monthly bills and continue with their other passions in life.

It is human psychology to get adapted to the current situation and at present it looks like achievable calculations on paper and unreal confidence of being satisfied in case you achieve current target, but in reality it does not happen and by your own nature and human being’s reason of existence, you will always be pushed to work.

Basic foundation of human existence is WORKING

This wish of ‘ Not working’ one day will take you away from ‘Karma Yoga’ which is the basic foundation of human being’s existence. Even in GITA, it is mentioned that all of us have to work one way or other and this is the law of life.

I remember a recent discussion with a prominent businessman in my home town. He told me that he used to ‘struggle’ a lot to book rooms in his locality for any private family functions for his guests they had to ‘adjust’ sometimes as per hotel terms and conditions.

Now, he has built his own guest house and no need to be ‘dependent’ on the hotels any more for bookings, etc. and I was thinking that if this rich man thinks booking rooms in 5 star hotels as per their terms and conditions is a compromise in life, what independence could mean for him ?

Don’t buy anything less than a BMW

A few years ago I was having a discussion with one of my friends and in his views, having something below Mercedes or BMW is a compromise as all other brands do not give importance to safety standards and life is precious more than anything else.

At that time owing a Honda city and maintaining it was the kind of life I wanted to live for all early retirement calculations and now since I can afford Honda City easily, I have a choice, either to keep working to be able to buy Mercedes or BMW one day or put my life always at risk while driving mass-produced cars!

We can retire the day we are BORN

On second thought, I achieved financial freedom years back, the moment I had enough money to be able to afford public transport all through my life. In fact, to take it to one extreme side, we have the potential to retire the day we born and it is only afterward that we enter into the working force in this world, fall into the financial trap and again want to get rid of it.

This wish of ‘Not working one day’ can make you lazy, averse to work and afraid of accepting challenges as in your thought process you are always after something else and it is quite natural that you will not focus on the very basic aspect of life you want to get rid of one day.

Here is a great answer which deals with this issue on quora thread

don’t want to work

These days a lot of people think of retirement at an early stage, some talk about retirement in the late ’30s or early ’40s and there are various articles circulating around to tell how to achieve it.

But, this kind of thinking pattern in today’s youth is preventing them from acquiring skills which can help them in their current job profile and make it interesting.

Story of my father

My father achieved his financial freedom just after his retirement and both of his sons are well settled and living a decent life and he does not have any liability in his life, yet he is always focused on ‘working life’ and whenever he gets any chance of making money with guest lectures etc., he always looks forward to it and that’s what he says is the secret of his healthy life.

Had he focused on early retirement, this ‘fire’ or ‘energy’ inside him would have subsided quite early and he could have attracted many lifestyles related diseases like blood pressure and diabetes etc, which is happening these days even to the young generation.

So, one should not focus on achieving early retirement any time but should think of living a simple, satisfied, and an exemplary life and realize that the ‘Work’ is the only thing that matters in life and for this you need continuous practice for sound physical and mental health to keep your body fit and energetic and let other things come on its own without worrying about it.

Watch this TED video which talks about an experiment of living a simple life in a tiny home.

It is a good idea and in fact a necessity to have the habit of saving and investing, but the idea should come from the need to meet future expenses and not to achieve early retirement.

So what should be your plan in life?

The financial goal in one’s life should be to have sufficient inflation-adjusted funds for all major expenses in the future like owing a house, Kids education funds, children’s marriage funds, emergency funds, and retirement funds in present terms and all funds invested properly.

At large, one can think of a ‘stage’ where he or she will not be worried about ‘Net savings’ from the income and can live a life one desires with his current income from job or business and even If he/she spends all of the earnings he should not be worried financially.

The more one earns, the more facilities one can desire and his current lifestyle will remain in accordance with his income levels and this is what I call real ‘Financial Freedom’.

That is an inherent assumption here that the rise in expenses (with inflation) will be taken care of by salary increments/ job changes or business expansions and for there is no other alternative but to ‘Work’.

What do you think about Early Retirement?

So let us know what you feel about this concept and my points regarding it? Do you agree with them? Is there any point where you can add?

Would you like to share your own story in the comments section and how you have dealt with the concept of early retirement? We would like to thank Vikram for his contribution on this subject on this blog.

Also, if you feel you can write on jagoinvestor and contribute, please click here