Category: Psychology and Wisdom

“Jo Cheez Free Mein Milti Hai Uska Paisa Kyon de Bhai?” said one person when his financial advisor asked him to pay a fee for advice, something which he has been giving free for the last 4 years. It may sound obvious that if you are getting something for free then why should one pay for it. But when it comes to financial advice, free can be very costly.

It is very common these days to hear about stories of investors losing money because of wrong financial advice. You can call it mis-buying of financial products or misselling or both. And while it is reasonable to expect every individual to gain enough knowledge before buying a financial product, I think a much bigger responsibility is upon the financial advisor to guide investors in selecting appropriate financial products. But many financial advisors have failed in protecting their client’s interest. Wonder why? Read on…

Conflict of interest

When financial advisors also sell financial products, it is a clear case for conflict of interest. The craving for misselling is higher when the advice is given for free and income is earned only from sales commissions. One important question for consumers of financial products would then be: “Will the financial advisor recommend me those products that are most appropriate for my needs or the ones that give him/her higher sales commission income?”

This conflict of interest, coupled with human greed has been cited as the main reason behind several global financial crises as well as the day-to-day mis-selling of financial products.

Separating advice from sales

Across the world, steps are being taken by financial regulators* to separate financial advisors and sellers. (*In India, RBI is a regulator for banking, SEBI for securities markets including the mutual fund industry, IRDA for insurance, PFRDA for pension products and FMC for commodities markets)

In healthcare, it is fairly clear that we go to a doctor for advice and then buy medicines from the chemist, so most people are accustomed to paying a fee to the doctor and then buying medicines from a medical store. It is also clear to us that if a doctor earns a commission from the sales of medicines or medical tests and surgeries etc, then the chances of getting biased advice are very high. The same logic applies to the financial services industry, however so far the distinction between financial advisor and seller has not been very clear. (Learn about our Financial Coaching Program)

In my opinion, the chances of an individual getting the wrong financial advice are several times more than getting wrong medical advice. Why? Because so far in India there is no regulation for financial advisors and that means that anyone can print a visiting card saying that I am a “Financial Advisor” or “Investment Advisor” or “Financial Planner” etc. There are no mandatory educational qualifications, experience or registration requirements. But things are about to change!

What the financial regulators in India are proposing

The financial regulators in India are working towards regulating financial advisors. Regulations will include a minimum educational qualification and registration to get a license for becoming a financial advisor. It will have a set of rules laid down for advisors and any misconduct can lead to a penalty or even revocation of their license.

SEBI, in its concept paper for the regulation of investment advisors, has proposed several steps to separate investment advisors from investment product sellers. One of the things proposed is that all professionals who want to call themselves ‘advisors’ should not take commissions from financial product manufacturers and their income should come from the fee that they charge their clients i.e. investor.

If advisors will have no commissions to earn, their advice will remain unbiased and they would represent the interest of their clients and not of the product manufacturer. This is termed as a fiduciary relationship. Clients would then have to pay advisory fees to the advisor based on the value received. Financial product distributors or sellers who offer transaction execution and related service can earn commissions, but then they will not be able to call themselves as advisors.

So for a common man, differentiating between a financial advisor and distributor will be made easier. Here are a couple of related articles in the financial media: Sebi to come out with guidelines for investment advisory space and SEBI certificate must for investment advisors

Fees v/s Commission – does it make a big difference?

I think many individual investors resist paying fees and don’t really bother about how much commission their financial advisor or agent earns because they feel that “It is the financial product company (e.g. mutual fund or insurance) that is paying commission to the agents/advisors, so why should I care?” Well, actually it is the investor’s money from which the commission is paid! To understand this better, have a look at these two presentations on Why did SEBI Abolish Entry Loads in Mutual Funds? and How to evaluate your financial advisor.

There have been some anxiety and concerns amongst an existing lot of financial distributors and advisors. Their biggest fear against this regulation is that “consumers are not ready to pay a fee for advice, so we have to live on commissions.” Some of these concerns are valid and hence the new regulation has to be supported with adequate efforts on investor education and awareness.

What is the way forward?

Some really important developments are going to happen in the near future that will significantly impact financial advisors as well as individual investors.

In my personal opinion, regulating financial advisors will be beneficial for both – investor community and the financial services industry. However, it will be very important to implement the regulations in a consistent and phased manner with adequate investor education. By consistent, I mean that coordinated regulations should come across all products i.e. mutual funds, insurance, pension products, etc. So it should regulate financial advisor and not just investment advisor, thus encouraging holistic financial planning. The good news is that multiple financial regulators are collaborating on this effort of regulating advisors and we can hope for a comprehensive regulation.

Along with regulations of financial advisors, it will be very critical to conduct an awareness drive to make people sensitive to the fact that paying fees to a financial advisor/planner are more transparent. This shift in perception is very important otherwise many honest financial advisors will have a tough time running their practice and many consumers will be deprived of good financial advice.

Also, I’m not saying that paying fees for advice is any guarantee for getting good advice, you may even get very valuable advice for free from a friend or you can educate yourself enough to be your own financial advisor. But if financial advisor as a profession has to grow and mature, then I think a consumer paying fees for advice is much more transparent than the commission-based model which has an inherent conflict of interest.

Are investors fully aware of this critical issue?

In my professional experience spanning over 14 years, I have had the privilege to work closely with various banks, asset management companies, stockbroking and distribution houses, independent financial advisors, insurance companies, media houses and financial regulators in India. So when SEBI made the concept paper for regulating investment advisors open for public comments in October 2011, I interacted with various stakeholders on this issue to get their opinion.

And I realized that while the financial industry is abuzz with discussions these developments, there was hardly any discussion happening amongst the investors and consumers of financial products. Most of them are not much bothered about this issue of fees and commission. So I thought it was important to write about this issue with an objective to give individual investors a viewpoint that would help them in working with their financial advisors. Many good, honest financial advisors are today facing a lot of challenges in sustaining their business and convincing their clients to pay fees for advice, service, etc.

And many myopic financial advisors are going around finding newer ways to misguide their clients under the garb of being their trusted financial advisors or ‘relationship managers’. Hence it is important to take an informed and balanced view on this. We have also created a website – http://wikipaisa.com to spread more information on this issue of Free v/s Fee for financial advice.

I’d like to take this opportunity to know your views as an individual. Do you currently pay a fee for advice? And if not, do you think it makes more sense to pay fees? Or do you think the current model of the commission structure is fine? If you are an advisor, do share your feedback too, but please mention in the comments that you are an advisor. So do share your views and also answer this poll question.

This is a guest post by Deven Shah, who works as a Consultant with the National Institute of Securities Markets (an educational institution established by SEBI) and has played a key role in initiatives like InvestorFirst.in, The Pocket Money Program and CPFA Examination.  All views expressed in this article are his personal opinions and do not represent the views of any organization he is associated with. He also leads WikiPaisa – a collaborative effort to make money simple and live happier. He can be reached on [email protected]

Do you know that you are holding some of the bad financial products in your portfolio? Also you are not clearing some of this mess because of a very well-known behavioural concept called “Endowment Effect”. Did you know that this same behavioural concept is used by the sellers to make more sales! I will talk about that also.

Endowment Effect

Endowment Effect theory is a well-known concept in the world of Behavioural Finance. Endowment Effect says that we tend to value thing more just because we own it. However we don’t value things more in pricing terms if we don’t own it. Endowment Effect also says that we tend to love what we have already and if someday we need to change it, it’s not easy for us. We resist it a lot. So final one line conclusion is “If I own it, it’s good and it’s valuable and if I don’t own it, I am not sure, maybe it’s not worth!” . You can see this in all aspects of your life. Check with any couple, who has the cutest child in the world? Check with any employee who loves his organisation; ask him which is the best company to work for ? Ask any murderer’s parents, if they really think their son/daughter is involved in crime and you can hear, “No it’s not possible, their son/daughter is innocent”. So the point endowment effect puts is, what is ours is clean, good and worth something. This is what happens with most of the people , if not all .

To explain it other simple words; How much money do you expect for your mobile phone, if you wanted to sell it? And then think how much money would you like to pay to someone if you wanted to buy it? In most of the cases, one wants a higher price when he wants to sell and wants to get the same thing for lower price. There is nothing wrong in this as we all are human and we will think from money point of view. But take the underlying learning from here. If a person has something, he treats it very special and does not think rationally at times and it affects him a lot in his financial life. A lot of people don’t want to admit that what they have is ordinary and just like others. Let me take each area of financial life and show you how it’s applicable there.

Example of Endowment Effect with Stocks

You might be able to relate to this. The stocks you own are always worth and they have potential to go up, that’s what you think. If market goes up, you feel that your stock has potential to go further up and if markets go down, you say – “huh!, this is temporary, they don’t understand how strong fundamentals are for this stock, I will wait”.

In 99% cases its nothing but endowment effect, just because you have it, you start feeling special about it, but the other guy from some distance can clearly see what an idiot you have been so far! And incase you didn’t hold that stock, it might happen that you would have not recommended it to someone else, you could see things clearly only if you don’t own it. (read my experience) Even in mutual funds, if some of your friend asks you which funds he should go for, most of the people will recommend mutual funds which they already hold. For them just because they have bought some XYZ mutual fund, it’s one of the best (that’s why they bought).

We get comfortable & repulsive to change

Another big thing which happens to us is that once we buy something or own something, we start being very comfortable with it and find all the reasons of why it’s good for us and why it’s not worth changing it. Look at your job portfolio, its same!. (read another beautiful concept called Mental Accounting).

How Trial & Money back guarantees make use of Endowment Effect

So now you will relate to Trial & Money back guarantees. Once we bring something on Trail or buy product on money back guarantee; almost never one’s returns back as they have tasted it, felt it, owned it and now they believe that they need it. I have never seen anyone returning some product which was on money guarantee! The sellers understand the power of endowment effect and hence use it to their advantage. In his book called “Stocks to Riches”, Parag Parikh talks about an incident relating to this.

Raju : Mom, See what I have got !, The latest Stereo system . It will fit perfectly in our drawing-room. Wait till I play it , you will love the sound.

Mom : Raju, where did you get the money to pay for such an expensive item ?

Raju : Its on a 15 day trial basis , The shop round the corner allows you to use the goods before you buy it . Since college is closed for 2 weeks , I thought I will listen to music for some days .

Mom : Are you sure they will take it without any fuss ?

Raju : Off course Mom , dont worry , see here is the card . It says that they will take it back , No questions Asked !, if refunded with 15 days trial period.

Mom : Thats great , Handle it carefully . They may not take it back if it’s misused.

Raju : Dont worry , I will be careful .

After 14 days…

Mom : Raju , dont forget that trial period ends tomorrow, We will really miss this stereo , we had so fun listening to music .

Raj : Did you notice how exactly this fits our decor and space . I really love its sound . We wanted it from so long , Lets keep it only , and make the payment , anyways we needed it .

Mom : Yea ,  I think we should keep it , the price is also justifiable and within our budget and we really needed on for long and the best part is we got to use it without paying :

One should think about his financial products from other’s eye also and should be open to accept that it’s time to find alternatives and change it. Don’t just concentrate on those points which makes you believe that what you own is best, also see the bad side. Let me know if you realise that you have seen this endowment effect in your life ?

If asked, “Do you have a lot of knowledge about personal finance?” You would say “Yes, of course!” Now, on the next question, “Is your financial life great?” For most of you it would be “No”. We all know term plans are required, we need to start the SIPs to meet financial goals, we need to cut down on our expenses, etc etc. But, how many of us actually go ahead and implement what we all claim to know! A very small percentage!

In this article, me and Nandish will talk on how taking actions is the real thing to be done in your financial life and just by accumulating knowledge about personal finance (what most of the readers on this blog do!) does not add up much in our financial lives! . In the video above, we are sharing – how two of our clients have given a new direction to their financial lives. Watch the video above to hear some action-provoking conversations between me and Nandish. There are two domains each person has called ‘Knowledge domain’ and ‘Actions domain’ .

Knowledge Domain

This domain is filled with the knowledge aspects in your life. When you read a blog, magazine, watch a show.. etc…etc, you are increasing your knowledge domain. You knowledge expands and you know more and more things. Your clarity on various subjects increases. This part is very important because it gives you confidence and understanding along with reasoning ability. If you are following a blog from long, your knowledge domain might be very high. But guess what! Your knowledge domain has very less impact on your financial life

Action Domain

Action domain is very simple to understand. All it means is how much action you take after increasing your knowledge domain. The more proactive you are in implementing what you know; it will have direct relation with the quality of your financial life. Increasing your knowledge domain will be of little or no use if you don’t expand your action domain.

In our financial coaching program, we concentrate heavily on taking actions and moving things in our clients’s financial life. We see people have good knowledge, but the one place where they are stuck is “Actions”. Somehow they don’t move forward by implementing what they know. Take yourself, many of you know that you need to take a term plan , you need to start your SIP, you need to start exercising (that includes me as well), but we don’t Act! and that’s where our big knowledge domain is of no use! Start taking actions!

I see so many readers on this blog who keep sharing their actions and how they started their SIP’s after reading an article . How they took the term plan after reading my article on online term plan , how a lot of readers got in action and started exploring options for their health Insurance, after reading one of my recent articles on Health Insurance

Financial Life as a project

One of the biggest reasons why most of the people fail to take actions in their financial life is that they dont look at their financial life at a project which needs a completion in all areas dont take a lot of actions in their financial life .

If you are stuck in your financial life and feel that you need an extra support which helps you be in action, you can register for our paid Financial Coaching program

Conclusion

Which of the two, knowledge and action domain is important? I personally feel that action domain is much more important than knowledge domain, because once you choose to act, you are bound to learn things and find out ways of completing somethings.

Please share what actions you have taken in your financial life? Which domain is bigger in your financial life ? Also let me know how was the video and if you liked the conversation ?

Also wanted to know your opinion on “Financial Action Day”, when we celebrate a week or a month as “Action Month”, when we as a group take massive actions in our financial lives and complete the long pending tasks ! . What do you say ?

Do you know what your money personality is? Now you must be thinking what is the meaning of “Money Personality”? Let me give you a hint! . Ajay earns a lot of money, but his financial life is not that great, the main reason is that he is too conservative with his investments and all his money lies in Fixed Deposits and Cash in the Bank, that’s all. This happens due to his internal design of being a “Saver”. His life is all about saving and only saving and there comes his money personality. Let’s explore more on this.

Money Personality

We have identified that each one of us have a money personality which we develop during our life and all our actions are driven by our money personality, even our financial life is driven by it and the product we choose, the way we look at each and every aspect is result of what money personality we have. Over the last few years, when we interacted with dozens of clients and thousands of readers like you, we identified that each one of us can be categorised in following money personalities which we will discuss today.

1. Spenders
2. Savers
3. Avoiders
4. Saints

Watch the following video which Me and Nandish has recoreded for you all .

1. Spenders

The first money personality is “Spenders”. People who fall in this category have an attitude that “Life happens now”. They will spend their money all over which makes them feel that they are “living” the life. They will buy expensive gadgets, eat out at expensive places and will make sure that they are not at all compromising on enjoyment. The behaviour also affects their financial life; their savings are not as much as it can be because most of the leftover money at the end of the month is saved. The simple rule of Savings = Income – Expenses is applicable for these people. Most of these people dont have much left in their bank account by the end of the month and they wonder “Where does it all go? ” .

2. Savers

The next personality is that of the “Savers”. These people believe that life is all about saving and for being prepared for the future. They are not exactly misers, but they appear like misers to others. Whatever can save money for them looks attractive to them. This behaviour also enters their financial life and they invest in anything which claims to save money to them. You can also attach the word “Safety” with these people. They invest in Fixed Deposits , Reccuring deposits , bonds , debentures and other investments which are safe avenues. These people like to buy stuff if it claims to save money to them .

3. Avoiders

The third and an interesting category are of “Avoiders”. These people are great avoiders, when it comes to taking actions, they will not spend or save, and instead they will just avoid the situation and find all the reasons in life for delaying things and avoiding it. They read, talk and learn about everything, but don’t apply it to their life in any way. I personally think that a lot of us are like that. There are even many readers here who are learning things from months/years, but still they have not done anything with their learnings, they just read and feel happy that they know something good, but where is the action?

4. Saints

The last category is really a different one and often forgotten, that is of “Saints”. A person who belongs to this category feels that money is an unimportant thing in life. His beliefs would be “Money is not important thing in life”, “More money is more trouble”, “Life is all about being Happy and content” and “You just need bare minimum and satisfaction to lead a happy life”. While that all is fine, these people over react and don’t give much importance to money in life. Most of the people who talk like this are those who really can’t make a lot of money and deep down they themselves are worrying for money, but they make sure they show themselves as not-interested-in-money kind of individuals.

Conclusion

So which money personality is better than the other and how to make change in your personality? First thing is that there is nothing bad or good about having one of these money personalities. These personalities get into us because of various reasons in life and it’s not that easy to change them. What’s important is that you need to be aware about your personality and how it’s affecting your financial life. Try to find out how your money personality can help in having a financial life which you desire.

What do you think about these personalities and which one are you ?

Today I am going to share with you a financial coaching tip called “Opportunities in your financial life” , which intends to show you that there are already opportunities in your life which at times you dont look at and feel as if its not there and you have to work hard to find one . I will also share with you a short sample conversation between a person and a financial coach and I am sure you can relate it with your financial life . Lets start with a story  –

The perfect Women

There’s a wonderful Sufi story about two friends who are catching up after not seeing each other for some time. One is married, the other single. The married man asks his single buddy about his love life. The single friend explains that a few months ago he thought he had found the perfect woman. “She had a gorgeous face,” he says. “Her looks were incredible.” “So why didn’t you marry her?” his friend asks. “Well,” explains the single friend, “she wasn’t very intelligent.”

He goes on to explain that a few weeks later he found another woman he thought was perfect. “She was as beautiful as the first woman and brilliant as well.” “So why didn’t you marry this woman?” his friend asks. “Well, she had a voice that sounded like nails on a blackboard” . The married friend nods, but before he can say anything the single friend continues: Then, just last week I finally met the perfect woman. She’s beautiful, she’s intelligent, and her voice is soothing and relaxing.” “So when’s the wedding?” the married friend asks. “There won’t be one,” the single friend explains. “It turns out she’s looking for the perfect man.” The single friend remained single, he had various opportunities to get married but kept missing them.

Opportunities in your Financial Life

When you visit your bank, you see the opportunity to open a PPF account in front of you, when you see insurance advertisement, you see that it is important to have adequate life cover. Many such things come in front of your eyes each day and you don’t pay much attention to it. This story is staring you in the face. It’s knocking you on the head. It’s so obvious; you can’t believe that you never thought of it. But you did not and someone else did- and they are creating wealth.

The key learning to be taken in your financial life is that investment opportunities come in your life every single day, month and year and most of the time you find faults in them and stop them to get into your financial life. We see most of the people blaming insurance agents, brokers for selling wrong products to them. It happens sometimes but that does not mean you have to become a fault finding machine. Coaching conversations helps you see what you are unable to see right now. Each conversation makes you present to the existing wealth creating opportunities you have in your life.

Our mental energy needs to be invested and focused on these opportunities rather than spending time on finding faults. If you find faults you are creating a wall between you and available investment opportunities.

Coaching Tip : Stop being a fault finding machine and focus on wealth creating opportunities. It is never late, what you are seeking in your financial life is seeking you.

A basic financial coaching call

We would like to share a sample financial coaching session with you. I am sure you will love the conversation and can also relate it with your financial life . Here a Financial coach talks to a person

Coach : What do you want to create in your financial life?
Client : hmmmmmmmm (a pause)

Coach : I got your answer, It is loud and clear to me
Client : Hey, but I did not say anything

Coach : Your silent pause had an answer inside
Client : What answer you could hear, can you share ?

Coach : I could hear a sense of no clarity in what you want, this no clarity is running your current financial life. You      want to do a lot of things in your financial life but don’t know what exactly you want.
Client : Oh yes I can relate to that, I really don’t know the first step, I think it is a mess

Coach : I see, Can I ask you something
Client : Yes go ahead.

Coach : Why do you earn money?
Client : aaaaaa for a good life, for getting all the comforts in life, for my family.

Coach : ok good. A daily wage worker goes to work every day to earn his daily wages. His focus is on getting two meals a day. Buying food for his family and that’s all. His focus is on wages and not on financial freedom.
Client : Oh , This has made me think, I am not focused on financial freedom but on basic things like that daily wage worker.

Coach : What is financial freedom according to you?
Client : It is having lots of money and a day comes when I never ever have to work for money.

Coach : Good. There are various definitions of financial freedom. The one that I want to share with you is “You are financially free when your passive income is equivalent to your desired lifestyle”.
Client : Good one.

Coach : So now do you want to play for financial freedom or basic needs. If you achieve financial freedom the basics will be automatically taken care off.
Client : Oh yes yes I got your point. I don’t want to be like that worker any more. I want to play for financial freedom.

Coach : On the scale of 1 to 10 how much would you rate your financial life?
Client : I would rate it to be at 4

Coach : Thanks for being authentic. The gap is to be seen as scope of improvement
Client : Ok.

Coach : What is a one thing you can do to increase your rating
Client : I guess making right investments.

Coach : Think deeper, what will help you make right investments
Client : I need to have proper knowledge

Coach : Excellent. Knowledge is the power. Make a commitment to spend uninterrupted time for reading about personal finance. Make a commitment to send me your questions and really learn how to get in control of your financial life. Don’t just have your coach in getting a financial plan , use the coaching such that you get in control of your financial life, use the coaching to convert your financial vision into a reality.Use the coaching to simplify your financial life. On the next call we will define your personal finance as a project. I will also share some of the ebooks that will help you learn transform your relationship with money.

Client : Wow. I am excited to read. Thanks for your time
Coach : All the best. Stay in action, stay committed.

Do you know how to write your financial goals? How many lines or words does it take? Think about your retirement goal for a moment. Now if you thought, “I have to generate a corpus of 5 crores in next 30 yrs” is a goal, you are mistaken… to a really large extent! While this way of defining goals is better than not defining a goal at all, this is not how you’d do it if you want to be inspired each moment as you work towards that goal. After a point, you’d just be lost again in your daily life. There is another way of writing financial goals and today, I show you how to do just that.
 

Let me ask you a simple question. When are you excited about watching a new upcoming movie? What if I tell you that there is a new movie out soon, called “Kuch Log”? Will this tiny bit of information do anything in your mind? Does it excite you any? Does it inspire you to go to theatre and watch the movie? No! .

But what if I show you a trailer? Some exciting snapshots of the actual movie that give you a feel of how it will look like? The best tantalising glimpses?  Won’t it then, create a shift in your mind and motivate you to actually consider watching the whole movie?  I’d say Yes! . In the same way your financial goals defined in just one dry, boring line, with a target amount & date can not motivate you enough. It can motivate only those people who really are disciplined and committed in life .

In this article, I’ll share something very personal about us at Jagoinvestor. This process, is what we do with our clients. The way we work with them, goes way beyond traditional financial planning. Instead of just goal setting in the traditional way, we do something additional called Goal Visualization! . Goal Visualization is converting your target amount and target date into a more descriptive paragraph and see how your life will be in future . It gives you more clarity and what you actually want your goal to look like .

Here’s an example…

Year : 2040

I am retired now, and living in my native town of Bangalore. My house is a little far away from the city because I like to spend most of time in nature related activities like hobby farming and some social causes like consulting with poor farmers on how can they use today’s technology in their work.

I am trying to get back to my routine work, these days, as I’ve just returned from Australia , where I spent a month-long holiday. Next year’s destination is South Africa which recently got added to my list as the next world cup is there! I have all the time now, to go watch my country win there. It will also give my wife a chance to explore various historical sites of that country, which she loves a lot. Its part of my “30 countries I visit before I die” target that I had set for myself.

It gives me immense pleasure and satisfaction, when I teach mathematics to a group of 30 poor students who can’t afford a fee! That’s exactly I am doing these days. As I am retired now and really love the subject, I want to help in sharing my knowledge any way I can.

Me and my wife go for a daily walk in the morning; we have been doing it for years now, the last 20-25 years in fact. We have made sure that we won’t be victim of deteriorating health which will make all the money we have saved, all our lives fruitless! We have always done our best to keep ourselves on the move and now we have joined one the biggest health clubs in the city. It’s cost us more than 70 lacs for a lifetime membership, but it’s been worth the cost and it gives us all the time and resources we need from it, whenever we visit it.

I have generated enough wealth in my life which takes care of my basic needs and luxuries in life. I never have to think twice, before buying  something important. Money does not come in the way of my leading the kind life which I always dreamt of! I have achieved this! While I like to live simply, I have created a situation where money is the last thing which I have to worry about, as far as my life is concerned.

I have spent most of the time working for software giants across India and US, and  I never felt as if “This is exactly what I want to do!” Now I am free of those worries, which came in the way of  my desired life. I feel I am really spending each day of my life the way I always wanted to, not the way I am forced to because of various reasons in life. I am happy!”

Goal Visualization is not Dreaming

Goal visualization is not dreaming ! . You need to have a visions in life and this goal visualization is looking at how your vision will look like in future . Remember that Dhirubhai Ambani never had a goal of have 5 crore in retirement , He had a vision and that vision inspired him each moment in his life to move forward. To do anything which makes his vision true .

Goal Visualization gives you the power, it inspires you ! . It makes you crave for your financial goal which you create for yourself. You will not believe but most of our clients discover themselves and are amazed to find out how they themselves wanted their future life to be , and it happens only after they approach us to work on their financial life. There is less of number crunching here and more of human activities which connect to a person , motivates them and fills them with energy.

Your Action today after doing Goal visualisation

When you do goal visualization, go into the future and see yourself – Are you are happy? Excited to see yourself getting what you really want?  Then, come back to reality (come back to NOW). The next step is to answer a bigger and important question. You now, have to write what commitments are you willing to make, what efforts are ready to do today which can lead you to the goals you want for yourself.

It goes a little like this…

Year : 2011 ( Today)

I was actually thinking of upgrading my car from Santro to Honda as my salary has gone up by 100% in last 3 yrs, but If I look closely now, I feel that it was a “wish” created out of nothing. It’s not actually a  “need” !.  If I ask myself whether it’s really required, I see myself answering “Not Really”. I can actually continue with same Santro for next 3-4 years. Better that I, use my increased income to reach my retirement goal at the earliest.

My wife has subscribed to a gym membership but her trips to the gym are very limited. On second thoughts, we will stop paying 3,000 per month fees and better use Rs 150 per day pass every time she goes. Anyway she goes about twice a week, so it would save 1,800 bucks without compromising what we are doing right now. It’s just that we have to relook things and restructure them.

I save around Rs 5,000 a month, but after doing the goal visualization exercise, now I am committed to achieve it at any cost. I am not just committed, reaching my financial goals is my sole focus now. I will car-pool, I will cut on my smoking, I will limit my outings (at least the ones that do not matter), & I will cut down wherever I really can.  I will not compromise on things which I love or add to my family lifestyle and happiness, but I will be really merciless when it will come to things which I truly don’t want in my life. I will be now committed, on finding a better opportunity to work, I will get out of my comfort zone and take some hard decisions in life to make things happen now. I am going to start my SIP next week, Wait… why next week? What’s stopping me from doing it today?  What’s keeping me from doing right now? I will call someone right now and find out how its done! I will not let “I don’t know” kind of excuses come on my way! I’ll use “I just want it at any cost, no matter what” kind of energy to reach it.

This is the new mantra of goal setting which we are trying to incorporate in each person we meet or each person we encounter at Jagoinvestor. We give them food for thought, we make them connect to their own financial life and show them the power of doing Goal Visualization and not just scribble some numbers. If we were just computers, it would have worked! .

We make them write these things down. We do more of listening and less of instructing, because we make people instruct themselves!

Goal Visualization is not a replacement of Goal Setting

Note that goal visualization is not an alternate of traditional goal setting , rather its a supplement and additional exercise to make your vision stronger , make your commitment more strong and a reason for you to look at your goal with high priority and seriousness.

I hope you appreciate the fact that this way of goal visualization is better than fooling yourself with something like “I want to create 5 crores in 30 yrs for my retirement?” . It only gives you a short-term orgasmic happiness and then you start you day next week in the same manner as if nothing happened ! , unless you are high on discipline to save for that goal . Only then it can work ! . If you mix goal visualization with traditional way of goal setting , it can be much better than just goal setting and finding a number which you need to save monthly .

If you don’t take action after reading this post, it would be waste of your time truly speaking. So now, is the time you start writing down your goals in detail and visualize it. Do it right now! Not later, not after dinner today, not on the weekend and definitely not when you are free!

Send your goals visualization to me (A strong exercise)

What about this ? Download this Goal visualization sheet, Take two prints, You fill one of them and let your wife fill another (incase you have). Goal visualization is a joint family exercise, not just yours. It has to be taken by your spouse separately. You will be amazed to see how much it differs for you and your partner even if the target amount and date was same. You two, might visualize it very differently.

Once you are done with the goal visualization, send the filled sheets to me at  manish [at] jagoinvestor [dot] com. I’ll do my level best to look at them and give my comments if they are of any help to you. I don’t guarantee that I will get back the next hour, but I will try to get back as soon as possible . This exercise alone however, will give you some power to take action which you are missing till now in your life!

Comments ? You can also pick up a goal and do goal visualisation on the comments section too. See if you feel it is strong enough! , Do you feel it helps you to generate some commitment and leads you one step closer to taking action ?

Disclaimer : The examples given in this article for goal visualization are created just for article and it’s not a real example of some person.

How many different types of information, do you have stored in your head, relating to your financial life? Your PAN? Your policy details and where they are stored? That fixed deposit, which you opened up some years back? Maybe, you’ve kept the documents in the top cabinet of the red almirah, but no one has any clue about it! And if someday, God forbid, you die suddenly, and your family needs information in a hurry, where do they look? Where do they go? Yeah, eventually, they will figure it all out, but only after a whole lot of time wasted (weeks, months, even a year!) and a lot of heartburn! Why not create a better situation for them ?

How about spending a few hours to make an emergency kit which has all the info, they might need at any point of time, so that they don’t have to get frustrated every time, they figure each investment / insurance policy, home legacy? Isn’t that a great idea? Here’s an example. Just to find out how to get the insurance claim settled, they have to start from scratch. They will start enquiring with others, search the internet (if they know how), and various other means. They might not have a clue that whom to contact and what options they have. Won’t it be the better, if they can find everything directly from you? TODAY? The kit is a kind of ready-to-use first aid box, only it relates to your overall financial life. Handy dandy for your family, if you’re disabled or immobilized or… dead! What normally, would take many months for them to find out – by playing connect the dots – can be given to them before hand, ready made & beautifully packaged! 🙂 This might seem embarrassing to many, but bluntly out, you choose!. Minor shyness / embarrassment now, or huge problems & inconveniences to your family later. Note that this whole emergency kit making will not help you today much, but a lot to your family at some later stage, read this article

What all details you can have in that kit?

• Important Details of your life
• List of important documents and their locations, eg.,  Passport, Driving licence,  PAN etc.
• Important instructions for them to carry out, once you are dead. Eg., insurance claim process, steps to selling off some property, claiming the bank account, investments etc.
• Important contacts, like the CA , lawyer, your stock broker and their details.
• List of all assets and liabilities you have
• All your investment and bank details

Following is the sample of how you can store that information in a tabular form.

Who should make this kind of Document ?

If your spouse and parents are financially literate and are from this generation who surf internet, know how to find out information somehow, you won’t fully appreciate the beauty of this whole exercise. I’ll bet my hat however, that that isn’t the case :). Most of the spouse do not take much interest in these financial matters . Ergo, you can see, how important this document can be for your family! This can turn out to be one of the best gifts you ever make them.

Ideally, you should make your spouse aware of this. However many wives/parents don’t want to hear about death and deliberately don’t pay attention. This document is especially for those situation.  We must print it out and give one copy each to wife and one to your most trusted friend or relative. Also you can have this document stored in a Bank locker and tell a trusted friend about this fact that there is a location which has all the information which your family might need some day.

Important Instructions in the Document

Make sure, you mention all the things which you wish your spouse/parents/children to do or carry out.

It can be things like

1. Life Insurance claim procedure

Give them detailed instructions on what they should do to claim your Insurance amount from the Life Insurance company. It can start from contacting the agent, filling up the forms, making sure all the documents are in place, constant follow-up with company etc.

2. How to use your life Insurance money for future

Once they get money from your Life Insurance, suggest how they can channelise it into different instruments based on their understanding, risk-taking capability and the amount of ease you want them to have in dealing with those.

3. How to Break FD’s or redeem Mutual funds in case of emergencies

Put some details in, on how they can break the FDs or redeem the mutual funds, in your name, in case of emergencies.

Sample of an Instruction for Life Insurance Claim

Ajay has taken Amulya Jeevan Term Insurance policy for Rs 50 lacs cover. Ajay lives in Mumbai . He would write something like this.

Steps you should follow for claiming the Life Insurance cover money in case of my death.

I have a life insurance policy “Amulya Jeevan” with Sum assured of Rs 50,00,000. In case of my death, you should follow this procedure.

1. Meet our Agent named Mr. Funsuk Bangdu and ask him for the claim settlement forms , incase he is not able to give it to you , you can download it from LIC website
2. You should make sure you also have original policy document which I have kept at ________ .
3. Make sure you have you proof of title like PAN , Driving Licence etc AND marriage certificate copy .
4. Make sure you have taken my death certificate from ____________ which will act like my proof of death , this is Important ! .
5. Incase I die in accident, also have a proof of accident, this you can get from police station or hospital.
6. I have stored all the Medical treatment at ___________ , also keep with you just incase its required.
7. Incase LIC asks for my employer’s certificate, I have kept it at __________ or you can also ask my friend Robert who works with me and can help you on this , See this article to understand how someone you trust can help you .
8. Incase you face any issue in getting claim settlement, take help of Ombudsman whose address is as follows .

Shri S Viswanathan

Insurance Ombudsman, Office of the Insurance Ombudsman,

3rd Floor, Jeevan Seva Annexe,S.V. Road, Santacruz(W),

MUMBAI-400 054. Tel : 022-26106928, Fax : 022-26106052
Email :  [email protected]

Note : Worst case scenario — try to get help at jagoinvestor.com or contact Moneylife.com who can help you further in this regard!

This was just an example! You too, can mention detailed instructions for key things, which you feel can create issues for your family or where you feel they might get stuck because of lack of knowledge .

Download a Template

Now, this whole kit & caboodle won’t take more than a day, and it’ll be extremely helpful to your family and loved ones. And, to save your time and as my small New Years gift to you, I have created a template for you, to use 🙂 Just download it in any format (pdf , doc or image ) and fill it up .

Take Action today! Unless you take action, reading this article is worthless!. Share what you feel about this idea of creating a master document which would help your family in case of crisis. Do you want to add some more points which you feel i have left out? How much value do you feel one will add to his/her financial life by doing this? And aah… one more thing. Don’t forget to update this document every year 🙂

Bonus : Do you want to look at how our questions and answers Forum is helping VidyaSagar take his frist steps in personal finance ?