Tag: Advanced Level

10 uncomfortable truths about your job no one wants to admit

Posted on by Jagoinvestor

Today you are going to read 10 truths about your job and why you should accept them and act upon them as soon as possible. We all start our jobs with big dreams and future, but somewhere we are so lost in our daily routine that we do not observe some important things.

10 uncomfortable truths about your job no one wants to admit

This is a guest article by Mr. Hory Sankar Mukerjee, who has been working in the industry for the last 15 years. He has worked with banks, FMCG, media and Information Technology companies. He currently trains people. He is an author for Oxford University Press. He blogs, trains and loves to travel.

So let’s see some lessons which you should keep in mind. Detailed description of these 10 points is done later.

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Lesson #1 

Jobs are a transactional relationship between you & employer

 Lesson #2 

Hiring and firing are two sides of the same coin
Lesson #3

You may need to a plan B anytime, be ready with it

 Lesson #4

Promotions stagnate at one point, hence invest in yourself
Lesson #5

Start investing your money – Don’t depend on your active income forever

 Lesson #6

Don’t get ‘caged’, ‘institutionalized or ‘comfortable at your workplace
Lesson #7

Work on a second income, while working in your current job

 Lesson #8

There is a life beyond the job
Lesson #9

Live within your salary

 Lesson #10

The biggest lesson – Understand how companies work!

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Lesson #1 – Jobs are a transactional relationship between you & employer

If you ask, ‘why did your organization hire you?’ The answer is obvious. You were probably the best choice, the right fit and there was work for you in the organization. It also implied that the organization where you are currently working has hired your ‘skills’ and have agreed to remunerate you for your ‘time’ and ‘skills’ in exchange for money.

Another hypothetical but obvious logical question, therefore, is: What happens if the organization, ‘does not need your skill set, or you, or your time’? You simply get ‘FIRED’.

[clickToTweet tweet=”Love your job but don’t love your company, because you may not know when your company stops loving you” quote=” Love your job but don’t love your company, because you may not know when your company stops loving you” theme=”style2″]

Relationships in and with organizations are transactional. You can be fired for anything. (E.g.: Global unrest because of North Korea firing a nuclear missile on USJ). Jobs are about: ‘give and take’. You give your time and skills and they give you money in exchange. The day they do not need you, they will not keep you.

Implication #1: Never ever get emotionally attached to your organization.

Lesson #2 – Hiring and firing are two sides of the same coin

You have been hired and you can also be fired. While this was not so common, while my/your parents were working in the government sector, this is true today, especially for private-sector employees.

If your arguments are otherwise and you feel, my sector or my company is the safest, you need to re-think.

Take this example – Teaching is considered to be one of the safest professions. Unfortunately in my career, I have come across many educational institutes, which have fired people on a days’ notice. Across my experience in multiple industries, hiring and firing is just another process for the organization.

The trauma is for the person and his family who have been fired. Firing can cut across industries, roles, skills, technology, and jobs. Firing does not need a reason. Therefore there is no need to ‘feel secure’.

Implication #2: Just as you have been hired, you can be fired. Be ready.

Lesson #3: You may need to a plan B anytime, be ready with it

Jobs, like life, is very capable of throwing ‘surprises’. We may like some of them but would love to dislike most of them. In ‘jobs’ that we are in, we also need to mitigate the ‘uncertainty/unpleasant surprises’. We, therefore, need a Plan B.

Plan B is a plan that you keep close to your chest, (a ‘good’ hidden agenda) while playing a game of cards or a plan which helps the hero of a movie escape in case the rogues have understood your earlier plan. That is your ‘escape route’.

Do you have a plan B for your job loss?

While in a job be ready with your Plan B. It could be teaching, opening a road side restaurant, wedding photography or a rental income. It could also being an entrepreneur, life coach, and writer, encouraging your spouse to work or selling homemade pickles online.

Your Plan B essentially has the power to bring ‘food back to the table’ in case you face the risk of losing your job. It is also capable of taking care of your ‘needs’ during an emergency.

Implication # 3: Ask yourself ‘what is your plan B’? Have you started working on it? Do you have something to fall back upon if you lose your job today?

Lesson #4: Promotions stagnate at one point, hence invest in yourself

Wouldn’t it be great if our employers had granted us lifelong employment, secured jobs, yearly growths, and lifelong benefits? We all love ‘risk-free’ and ‘guaranteed returns’ like our love for FDs, KVPs, PPFs, LICs, and NSCs. However, returns from these like any other investments are either not guaranteed nor risk-free.

[clickToTweet tweet=”There is only 1 investment that gives ‘guaranteed and risk-free’ returns: ‘INVESTING IN YOURSELF'” quote=” There is only 1 investment that gives ‘guaranteed and risk-free’ returns: ‘INVESTING IN YOURSELF'” theme=”style6″]

Any investments that you do on yourself, like walking, hitting the gym, learning new technologies, not eating junk, staying healthy, getting up early, quit smoking, getting certified, learning to cook, getting back to the college to earn a higher degree, learning about stocks and mutual funds, pay you in the long run. Some other day this skill comes very handily.

Let me give you an example

The global head of an organization met me for a coffee and told me about his interest to do a doctorate. I asked him, ‘what motivated him to do that?’ He said, ‘I do not see a future for myself anymore here. Our organization is getting top-heavy.

Promotions are stagnating.

However since I am extremely interested in teaching, (Plan B) I want to quickly pursue it and move into teaching.’ After a year or two, I saw him getting registered into a doctoral program and working seriously on it.’

Implication #4: While you are in the job, do not stop investing in yourself. What is that you wanted to learn and you could not do it? Get back and re-start investing in yourself. This could be your Plan B.

Lesson #5: Start investing your money – Don’t depend on your active income forever

Would you not love it, if your employer kept paying you even after you left the company? Wow…I would love to die to join such a company.

But it never happens.

The money that you earn not only takes care of your today but also takes care of your tomorrow when you stop earning. (Retirement)

Earning is essential but not sufficient. It loses value. Start investing. Investing helps to save you from the rainy days of your future. Saving and investing, therefore, are not one and the same.

When I started working in 2003, had I invested Rs 1000 a month, in Franklin India Bluechip Fund, the fund value today, would have been Rs 5.4 lakhs. Unfortunately I did not.

I did invest. But the investments were in ‘stupid financial products’. Choose the right products. When you need term insurance, do not buy a traditional life insurance policy. When you do not have the expertise to invest in stocks, invest in mutual funds.

When you do not need a house, do not take a loan to buy it, especially when you are young. There is no dearth of financial products. But choose the right ones, which you understand.

Lead a frugal life.

Frugality is not depriving yourself.

Frugality is living simple and with a minimal. Many rich people are known for their frugal lifestyle. Frugality has its own advantages. The best of course is to ‘achieve financial freedom’.

Showing off could be deadly. Make a list of things ‘you have bought’, which you never made use of. It will throw a lot of surprises.  Remember that an elephant has two sets of teeth. One is for eating and the other for a ‘show-off’. It gets ‘killed’ for the one it shows off.

On a thumb rule, invest (not save) what you spend.

personal finance equation

Implication #5: Saving money is useless unless you invest it. Even more useless, is to save in the wrong set of products. The most ‘useless’ thing, is planning to invest after you have spent. Trust me you will never be able to.

Lesson #6: Don’t get ‘caged’, ‘institutionalized or ‘comfortable at your workplace

Three things that kill employee’s morale, growth and prospects of doing great. First is getting caged, second is getting institutionalized and third the idea of being comfortable at work. Let us understand them.

Caged: ‘Who will hire me after 10 years in the banking industry? I am lost and I cannot get out of this mess. Even if I want to, my family problems are not allowing me to.’

Institutionalized: ‘I am so comfortable with this place that I do not feel like changing. This company gives me respect and I am happy. Everyone knows me in this company. Let it go on. I am planning to retire from this place.’

Comfortable: ‘This place gives me peace. I am happy doing whatever I am doing. I do not want to change. It is the same soup everywhere. Why do you want to change, when things are so good here?’

Getting caged, institutionalized and being comfortable is when we set boundaries to ourselves. We are unwilling to try new things, find new solutions or unwilling to look beyond the ordinary.

Remember that the relationship with the organization is transactional. The day they do not need us, we are all gone.

Physical boundaries, mental and emotional boundaries tie us up.

A couple of my colleague’s hometown is in Kolkata. They intend to settle in Kolkata, post-retirement, however, they have bought homes in Gurgaon, where they currently work. Some of them are getting better opportunities in other cities of India, are unable to move, because of their emotional attachment to their newly-bought houses. (And the banks’ love for their home loan interests.)

Implication #6: Set yourself free. Do not get attached to your organization and look beyond the boundaries. Any change will initially bring discomfort and then things will settle down. You will then start enjoying it.

Lesson #7: Work on a second income, while working in your current job

My father retired from the Indian Army without a job in hand. In those days, getting a job was difficult. One day while he was worried, my mom said, ‘Why are you worried? You should not be. I have mine and that will be good enough till the time you do not find another one.’ This comforted my father. However, within 3-4 months, he got a new one.

The lesson to be learned is that, a second income is not bad. It gives you a cushion. This is very true especially for people with non-working spouses. Second income, gives you some extra luxury, some extra investments, and faster financial freedom.

Remember not to splurge the extra income that you generate, but invest a significant part of it. Also, ensure not to overburden yourself with that ‘extra work’. It should be something that you would enjoy doing.

Manish has already written on some nice ideas to create a second income, go read it and get some fresh ideas to work on

Implication #7: A second income is great. It gives you comfort, extra savings and after all a place to fall back upon in cases of emergency. In a world of uncertainty, this is surely a cushion.

Lesson #8: There is a life beyond the job

The work that you do was there before you joined the organisation. The work will be there after you leave. Work will never get over. Therefore there is no reason to panic. It is not a sprint, but a marathon. Have a life beyond the office. Spend some time with your GF, spouse, family or children.

They are the ones who will support and cushion you in your bad times. Spend some time in a week doing charitable work, teaching the poor, helping your wife cook or taking your old parents for a walk.

work life balance

It will help you learn ‘life skills ’and make you more ‘humane’. Someone had asked Dalai Lama, what surprises him the most. He said, ‘Man…Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health.

And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.”

Implication #8: Family is equally and more important than your job. Your work can wait. The time that you did not see your child grow up, will never come back.

Lesson #9: Live within your salary

Jobs and salaries do not imply living beyond your means. It gives you a right to spend, but not the authority to splurge. It is not only about you, but the ecosystem supported by your salary- Spouse, child, parents, grandparents, maid, milkman and the driver.

It also does not authorize taking more loans because the banks are willing. It also does not authorize purchasing five shirts or trousers, when you already have ten. Living a life, ‘paycheck to paycheck’ is risky and unworthy. It disturbs the ecosystem surviving on you.

Keep it simple – One house, one car, one bank account, a few shirts and trousers, one credit card, one debit card, one health, and one term insurance. Spend all the remaining time that you are left with into something more meaningful.

Every Diwali, when the newspapers are filled with offers and bargains, ensure that you are not the ones jumping in to buy. When you buy at a discount, you save, 50 percent, but when you choose not to respond or buy, you save, 100%. Ask, ‘Is it really needed?’

Implication #9: Debts are needed but not at the cost of destroying our mental peace.

Lesson #10: The biggest lesson – Understand how companies work!

The day Cyrus Mistry was fired, I learned the biggest lesson of my life. If a person of his stature can be fired, we are no one at our jobs? For the organization, we are dispensable.

If we feel that we are ‘assets’ for the organization we work with, the organization may think of us as an ‘ass’ (minus the ‘et’). After all, organizations are run by people. People change and so does their culture, values, and priorities.

Implication #10: Stop treating yourself or pretend to treat yourself as an asset and make sure you understand the realities of working with an organization.

Can you add another point?

I would like to know if you have any more point from your side? Can you add the 11th point in the comments section?

Also share with us, if you liked this article?

“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

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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

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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?

How is Rupay card different from Visa or Mastercard?

Posted on by Jagoinvestor

Have you heard about RUPAY cards? Today we will talk to them in detail and how they are different from Visa or MasterCard and if you should choose them or not. But before that, let’s understand the background first.

What is Visa or MasterCard?

You must be already having a debit card or credit card which must be having either VISA or MASTERCARD written on it. Visa and MasterCard are credit card networks with their own systems, rules, and processes for payments, benefits, etc.

However, Visa and MasterCard are both American companies globally accepted and widely used card networks across the world. There are some other card networks also like American Express, Amex, Citi etc, but you got the point. These are global card companies.

Now, these companies do not directly issue a debit or credit card, but various banks across the world offer their cards with payment network operators which can be VISA, MASTERCARD or others.

Rupay debit card

What is Rupay?

Rupay is just another payment network solution like VISA or MASTERCARD, but it’s our own desi version. It’s an Indian company and purely an indigenous product creates by us. Here is what Rupay website says

RuPay is India’s indigenous card scheme created by the National Payments Corporation of India. It was conceived to fulfill RBI’s vision to offer a domestic, open-loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments. It is made in India, for every Indian to take them towards a “less cash” society.

RuPay is the first-of-its-kind domestic Debit and Credit Card payment network of India, with wide acceptance at ATMs, POS devices and e-commerce websites across India. It is a highly secure network that protects against anti-phishing. The name, derived from the words ‘Rupee and ‘Payment’, emphasizes that it is India’s very own initiative for Debit and Credit Card payments. It is our answer to international payment networks, expressing pride over our nationality.

RuPay fulfils RBI’s vision of initiating a ‘less cash’ economy. This could be achieved only by encouraging every Indian bank and financial institution to become tech-savvy and engage in offering electronic payments.

Issuing Banks

Presently, RuPay has collaborated with almost 600 international, regional and local banks across the country. Its ten core promoter banks are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC. It expanded its shareholding in 2016 to 56 banks to bring more banks across sectors under its umbrella.

Rupay cards usage is increasing

Online transactions are increasing day by day in India as we are moving towards a cashless economy and the usage of Rupay cards is also increasing. Here is some data on Rupay online transactions.

Rupay online transactions

Why Rupay was launched?

As we are moving towards becoming one of the major economies of the world, it was very important that we own our own payment solutions like Visa and MasterCard and hence govt started working on Rupay!.

Two more benefits of the Rupay card network are that.

  • The transaction history will not go out of the country if the transaction is within India.
  • The charges that banks have to pay quarterly or monthly to the related companies to enter into the network is very low or NIL.

The image below shows you how a Rs 2,000 transaction charges will be lower in Rupay cards compared to a visa or MasterCard.

transaction charge rupay and visa card

How does any card processing happens?

When you swipe your debit card or make an online payment, your request first goes to the debit card networking and then from there it goes to your bank. After that bank confirms your account balance and then completes the further procedure or transferring payment money to the merchant’s account.

See the image given below to know the procedure of your card.

Debit card processing

Difference between Rupay card and Visa/Master card

Now let’s talk about some differences between Rupay and visa/MasterCard companies. This will give you a fair idea of how they are different from each other on various points.
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Rupay

Visa/MasterCard
Rupay is 100% Indian system Visa/MasterCard are international systems
Lower transaction charges compared to Visa/MasterCard It has higher transaction charges than Rupay Debit Card.
Banks don’t have to pay any fees to enter into the network Banks have to pay fees to join the network
Transaction history remains within the country. Transaction data is shared outside the country as it is an international card
All processing is done within the country so it has a high speed of transactions Here the processing happens at an international level so sometimes it has low transaction speed or errors in server
Some banks shows Rupay credit card on their website but it is not launched officially yet by NPCI. Visa/Master credit cards are available and have a strong network
The usage is very low and not widely accepted as of now Widely Accepted and Used
Can’t be used outside India as of now No restrictions like this

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Transactions limits of Rupay debit card

Rupay cards like any other cards also have transaction limits and ATM withdrawal limits. Here is a quick list if you want to refer them.

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Bank Name

Limits (ATM transactions)
Central bank of India Rs 40,000 and Rs 1,00,000
Bank of India Rs 25,000 each
Bank of Baroda Rs 25,000 and Rs 50,000
Vijaya bank Rs.30,000 and Rs.25,000
Punjab national bank Ra.25,000 and Rs.60,000
Oriental bank of commerce Rs.25,000 each
Dena bank Rs.20,000 and RS.25,000
UCO bank Rs.25,000 each

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How to Apply for Rupay card?

If you want to apply for a Rupay debit card, then you must first check with your bank if they have them or not? All the bank accounts under Jan Dhan Yojana already provide you the Rupay card, you don’t need to mention separately in your debit card application if you open an account under this scheme.

Let us know if you need any more information about the Rupay card and we will be happy to answer them in the comments section.

Do you want to Retire Early in India? A detailed guide with Excel calculator

Posted on by Jagoinvestor

Today you will read one of the fascinating stories of one of our readers (Naren from SavingHabit.com) who has shared his personal journey on early retirement and also gave a step by step path on how to change your mindset about it. This is a long article, but quite deep on the topic of early retirement. I suggest you read till end.. Over to Naren

–

A few weeks back, I had shared my comments on early retirement on the “Myth of Early Retirement” article and Manish asked me to to elaborate on my comment and also do a guest post on this topic.

In this post I will go in detail on how to plan for early retirement and also share my personal early retirement journey.

Disclaimer : This article is purely the author’s personal opinion. The author is not a certified financial planner. Seek the help of a certified financial planner for your individual situation.

How to plan for early retirement - A real life study and guide for beginners

When mid-level IT employees in their 40s are being forced into early retirement anyway through layoffs, it has become a necessity for our generation to pro-actively plan for an early retirement. As early as 2011, JagoInvestor reader Ujjwal working in IT predicted this exact scenario and recommended planning for early financial freedom.

How I discovered Early Retirement?

  • I graduated in computer science straight into a recession caused by the double whammy of the dot-com bust and the 9/11 attacks. My father had recently retired from his public sector job and I did not have any job offer on hand as campus hiring dried up completely. It felt like I was being tossed around by economic forces beyond my control.
  • When I finally entered the workforce at a Big Company, I was soon frustrated by the usual job stress and job insecurity.
  • I decided to end this “working for money” problem once and for all by joining an early-stage internet startup. Joining a startup was also my dream since college and I had plans to start my own later. The idea was when the startup will sell for millions, I would strike it rich and never have to work again. Well… 6 years later when the startup was sold, my services were no longer needed. I was out of a job without striking it rich 🙂
  • Around this time, I discovered the early retirement community online that talked about focusing on the one thing I could control  : my savings rate. All along I had focused on things outside my control and failed to solve the “working for money” problem. Out of all the options available to salaried employees to achieve early financial independence, early retirement offers the highest chance of success because its success or failure is under your control: how much you save each month.

WHAT IS EARLY RETIREMENT?

Most of the Early Retirement literature online is from the U.S which is understandable because they have a longer history of regulated stock markets & mutual funds compared to India.  

In this article I’ll do my best to translate Early Retirement for Indian conditions as we have our cultural differences when it comes to money like parents paying for child’s college expenses, joint families where children take care of  parents in their old age etc and recent cultural changes mirroring the U.S  like home loan EMI, SIP, credit card spending, low savings rate etc

Let me first start with what most people think when they hear the term “Early Retirement”:  

  • It is a stage by Age 40 when you are able to meet all your expenses through passive income from investments like Real Estate (rental income), Mutual Funds, Stocks (dividends) etc.
  • So you don’t have to work anymore to meet your expenses.
  • You can easily live on only investment returns post-inflation so your corpus will last forever beating inflation…theoretically.  

While this is the “popular dream”, in reality Early Retirement simply means achieving financial independence early in life so you can focus on achieving your important goals in life. This is popularly abbreviated online as FIRE : financial independence/retiring early.   

early retirement meaning

You can be employed at this stage, but in alignment with your life goals for example:

  • To do something you love
  • To spend more time with loved ones
  • To earn money with less stress & more work-life balance
  • To lead a healthy & active lifestyle

It is possible to retire early by age 40 but only if you aggressively save at least 50% of your income starting early in your earning life instead of doing a small monthly SIP with the goal of retiring in old age at 65.

Save 50% of my income??!! I can barely meet my expenses each month

Relax! You are already saving more than you realize. You already contribute 12%  of your basic income mandatorily to your EPF and get another 12% employer match. That is a 24% savings rate on your basic income. So calm down and I’ll discuss some strategies for increasing your savings rate later in this article.

There is a reason behind the 50% savings rate

High Saving Rate

This is the simple idea behind Early Retirement before inflation & investment returns enter the picture. 50% savings rate may not be possible immediately for people whose income is low or expenses are high but early retirement is not possible unless you increase your savings rate to at least 50%

Here are some inspiring real-life people saving close to 50% :

–  1 income, EMI, 1 kid, private sector, Bengaluru. Income: 81K, Savings:43K

– Unmarried, private sector, Mumbai. Income: 65K. Savings: 30K

–  1 income, Government job, no kids, Rajasthan. Income: 70K, Savings: 42K

–  Both working, 1 kid, private sector, Mumbai. Income: 1.05L, Savings: 45K

Here is the link to the “Family Finances” section from ET Wealth magazine. Make sure to look for households who fit your profile and are saving at least 50%. Ask yourself : If people similar to me can save so much, why shouldn’t I save more than my current rate?

Let’s step back here for a minute

First, you need to be very determined to retire early.

When you truly want something you will come up with solutions rather than excuses and you’ll get inspired instead of finding faults.  Imagine in your mind’s eye for a moment all the positive reasons why you want to retire early like Family-time, Freedom, Health, Low-Stress, Travel, Security  etc.  

Now get yourself into an optimistic “can-do” frame of mind before reading further.

you can do it

(Source)

Early Retirement is an improved version of Conventional Retirement

Around 100 years back even conventional retirement at age 65 was not possible for everyone. What was once a fantasy is a reality now. Now everyone believes it is perfectly normal to retire at age 65.

Similarly, for the first time in history, due to innovations like regulated stock markets, mutual funds &  SIP, even the salaried middle-class can now retire early which was previously possible only for high-earning executives or businessmen. So if you try and understand Early Retirement you too can take advantage of it and enjoy a better quality of life.  

Be ready to take some tough decisions on what is important to YOU in life rather than just going with the flow of what everybody else is doing with their life.

Can I just retire early and never have to work ever?

The typical dream of Early Retirement is to “sit and eat” from the retirement corpus without having to work for money from age 40 to age 90 which is a long span of 50 years which no one can predict.

It is a difficult feat to pull off as Life has a habit of springing surprises especially when you have kids and elderly parents. But it is possible if key variables outside your control like the stock market returns work in your favor and there are real-life success stories like Mr.MoneyMustache.

Two big problems with this  “I never want to work again” Early Retirement thinking:

  • UNCERTAINTY:
    • If a family member has a major health expense not covered by health insurance, how will you meet that expense if you are not earning any additional income?
    • If you cannot find a tenant for your rental income house for more than a year, how will you meet household expenses if you are not earning any additional income?
    • If the stock market crashes by 15% and goes into a 5-year recession, will you have the stomach to withdraw money for monthly expenses from an already depleted corpus?
    • What if all of the above happen simultaneously in your life like the expression “When it rains, it pours” ?
  • STRESS:  you’ll replace the stress of a job with the stress of obsessing over running out of money every single day of your early retirement.

My Alternative Early Retirement Plan for Indian conditions

Stop working for “money” but don’t stop working
  • By Age 40: Finish saving up for retirement by saving at least 50% of your income in retirement SIP.
  • After Age 40: Stop your retirement SIP & switch to work that you truly enjoy in order to cover monthly expenses.
  • From Age 40: Let compounding double your retirement corpus every 6 years until age 65!

The idea is to permanently secure your comfortable lifestyle by age 40 so you can follow your dreams without fear. Even in the worst case scenario you’ll always be guaranteed to enjoy the comfortable lifestyle of your 30s.

The benefits of this alternative approach

FREEDOM: Free by Age 40 to do work you truly enjoy

While saving up for retirement your monthly budget at 50% savings rate will look like this:

Income Rs.1 lakh =  Rs. 50K Expenses + Rs.50K Retirement SIP

By age 40 once you finish saving up for retirement, you don’t need the retirement SIP anymore and your budget will look like this

Income Rs.1 lakh = Rs.50K Expenses + Rs.50K Surplus

After age 40, you can work for a 50% lesser salary at jobs that are more fulfilling and less stressful but fully pays for your monthly expenses including support for kids & elderly parents:

Income Rs.50K = Rs.50K Expenses

Most people who want to retire early simply are tired of the job stress and deep down are not averse to working if there is work-life balance and they are working on something they truly enjoy.

SECURITY: Your retirement fund is actually a 25-year emergency fund!

If you ever lose your job before age 65 like the TCS/Cognizant/Infosys mid-level managers in the headlines : you can use a small portion of your  retirement fund to fund monthly expenses for even 3-4 years while you re-skill and find another job after which you can replenish the amount you took out during the jobless period.

Instead of trying to live off the retirement fund for life from age 40, you strategically use the retirement fund to build a safety net for uncertain times and take calculated risks like starting a business or a new career.

LESS STRESS: Not having to worry about money running out

It is an open secret that even the pioneers of early retirement that I hero-worship like MMM & ERE bring in active income in their “early retirement” from working on their passions like building houses by hand or working as a quant trader/researcher leaving their retirement corpus to compound meaning they are not solely living off of their early retirement corpus themselves.

So if the early retirement gurus are bringing in active income why shouldn’t you factor in the active income from your dream-job in your early retirement plans?  Why assume that working on something you enjoy won’t cover monthly expenses even after working at it for 3-4 years?  

You’ll be sitting on a 25-year emergency fund in the form of your early retirement corpus for God’s sake!  If you are still unsure, you can start working on your dream-job as a side-project while you are still working at your day-job to give yourself enough runway and confidence that it will make money by the time you quit your day-job.

PRACTICE: Great Training for “full retirement”

Scaling down your work by 50% by age 40 is a great way to get a preview of what “full retirement” will look like at age 65. You will get a lot of wake-up calls mostly around the state of your health, investment returns , wasteful expenses and whether you really have any true passions in life or were you just lying to yourself about “dreams & passions” to mentally escape from job stress 😉 So while planning for Early Retirement also work on your passion on the side to prepare yourself for the post-40 life.

4 STRATEGIES TO INCREASE YOUR SAVINGS RATE

Strategy #1 – Lower your expenses: This is the only thing under your control so tackle this first.  Analyze your lifestyle using apps like Spendee to cut down wasteful spending without being “penny wise and pound foolish”.

For example: In our house we use the internet for entertainment so no T.V or cable expenses, we mainly eat home-cooked food so our eating-out expenses are low, we do yoga at home so no gym fees, we own high-quality phones & laptops that are expensive but we maintain them carefully for years so they work out cheaper in the long run.  

It took us almost 3 years to systematically reduce our spending without feeling deprived.  In your household, what are the top 3 categories where you could get the same value but for way less money?

Strategy #2 – Increase your income: If you’ve cut all wasteful expenses and are still not saving enough then your only option is to increase your income. Your early retirement goal gives you the clarity and urgency to do what is necessary to  get that promotion or better-paying job. It will not happen overnight but you can work towards it purposefully now that you have a time-bound reason.

Strategy #3 – Get out of Debt:   If you’ve made the mistake of buying a house on exorbitant EMI at an early age, you need to first crush your EMI or education loan before attempting early retirement.  You need to simultaneously lower expenses and increase income. Read : Is home loan EMI jeopardising your other financial goals? Here’s what to do

Strategy #4 – Work as a team with your spouse: By age 30 you are probably married and both of you are earning. Get your spouse on board and work together as a team.  If all you want is a couple of years freedom to try your hand at a new career or business, try a mini-retirement instead.

If you are debt-free and your spouse’s income can take care of expenses, you can quit your job with the safety net of your spouse’s income. If you succeed in your venture and are able to cover expenses then your spouse too can quit their job to follow their dreams. This way both of you can make money doing what you like. Even if you fail in your venture, you can re-join the workforce & try again later.

Wow! An investment of Rs.75 lakhs in SIP over 35 years has given a retirement corpus of Rs.11.7 crores

But look closer and you’ll notice that this is a bad bargain for the number of years this person has to save. Why should you take 35 years to accumulate 75 lakhs?

Let’s see what happens if you try and accumulate the same Rs.75 lakhs within 10 years and then stop your SIPs but let the Rs.75 lakhs compound untouched for another 25 years.

saving plan for 25 yrs

WHAAAAT???!!! How did you end up with Rs.12.8 crores at age 65 even though you stopped SIPs at age 40!!!

THE SECRET : Compounding really works its magic on large numbers

SIP does not do the compounding by itself…only when you finish saving up a large corpus does meaningful and substantial compounding gets started. That is why you should accumulate your retirement corpus as early as possible for compounding to start doing its job.

See here, here and here for others who’ve illustrated  how saving up early then stopping and letting the money compound untouched grows the money like crazy meeting or even exceeding your goals as compared to doing a small monthly SIP for decades.

ILLUSTRATION OF THE TWO APPROACHES VIA EXCEL CALCULATON

saving approach

Download Early Retirement Calculator

MATHEMATICAL PROOF

THE RULE OF 72  a.k.a What they did not teach you in school

Question 1: How long will it take for Rs.75 lakhs to double @ 12% annual return?

You don’t need a calculator to answer this. Use The Rule of 72.

This handy thumb-rule derived from the compound interest formula says that to find the number of years required to double your money at a given return %, you just divide 72 by the return %

So 72/12 = 6 years.

Answer: Rs.75 lakhs @ 12% annual return will double in 6 years

Question 2: How many times will Rs.75 lakhs double @12% annual return over 25 years?

Answer: 25/6 = 4 times

Rs. 75 lakhs @ 12% return will double 4 times over 25 years

Question 3: What’ll be the final value of Rs.75 lakhs after doubling 4 times at the end of 25 years?

Answer:

Doubles first after 6 years       :            Rs.75 lakhs  x 2   =  Rs.1.50 crores

Doubles again after 12 years :         Rs.1.50 crores x 2  =  Rs.3 crores

Doubles again after 18 years :               Rs.3 crores x 2  =  Rs.6 crores

Doubles again after 24 years :               Rs.6 crores x 2  =  Rs.12 crores

Total doubling : 4 times

Final corpus : Rs.12 crores

  1. Now refer back to the alternative accumulation plan’s final retirement corpus of Rs.12.8 crores to verify that the Rule of 72 produces a result remarkably accurate to the result from a lumpsum investment Calculator.
  2. Also verify using CAGR calculator  that the initial lumpsum invested and future compounded corpus works out to a 12% annual return.  

A word of caution on debt: Compounding works against you when you have outstanding debt. For example: Say you have a 36% annual interest Credit Card and an outstanding balance of Rs.1 lakh on it. If  you don’t pay back the debt for 2 years then the credit card balance will double to Rs.2 lakhs.

How? Rule of 72:  72/36 =2. So your debt will double in 2 years!

compound interest quote

(Source)

FAQ 1: If I’m saving first for my retirement what about saving for my child’s college expenses?

Use the same Early Saving strategy to save for child’s college expenses:

At the time of the child’s birth itself, invest the prevailing cost of college into mutual funds and let it compound for 18 years to beat education inflation. For example: 4-year engineering course at IIT currently costs Rs.8 lakhs. Say your kid was just born this year. If education inflation is 12% y-o-y the same course will cost Rs.60 lakhs in 18 years. To beat this education inflation: Invest prevailing cost of Rs.8 lakhs in mutual funds at the time of the child’s birth itself and let it compound over 18 years to Rs.60 lakhs @ 12% annual return by the time your child is ready to enter college. Your child can take out an education loan for any shortfall over and above your savings.

If you don’t have Rs.8 lakhs to invest in mutual funds at the time of your child’s birth:

  1. Finish saving for your retirement first by age 40 so you don’t have to worry about losing your job or sacrificing your dreams.
  2. Then start SIP for your kid’s future expenses like higher education or wedding
  3. To bridge any shortfall between your SIP savings & the education or wedding expenses, your child can take out an education loan or scholarship for college and a personal loan for their own wedding.
  4. Since you’ll be earning while your child is in college, you can help out with whatever college expenses you can afford. Your child may also earn income through internships or side-projects while still in college.

Take care of your own retirement first before you save for your child because the child has other viable options like education loans, scholarships, low-cost weddings etc.  No bank will give you any “retirement loan” if you’ve not saved enough for your retirement!!!

Plus you can be a role-model to your child by balancing your dreams & your reasonable duty towards your child. You will be giving them the inheritance of them not having to worry about your retirement also when they make their own retirement plans

Like how the air hostess tells us in the safety precautions before every flight…..

oxygen mask

Image Source

I highly recommend that you read Manish’s article on how not to stress too much about the inflation in higher education expenses.

FAQ 2 : What about buying our own house?

I recommend from personal experience: Don’t buy a house on EMI at a young age in your 20s or 30s when you don’t know where you’ll settle down permanently. We move to other cities and even countries for work these days and there is no knowing ahead of time where you will settle down in old age.

Instead save SIP in mutual funds towards buying a house until you have 100% clarity closer to retirement in your 50s or 60s and then build or buy a brand new house or flat fully in cash without EMI. The SIP returns should be able to match the real estate inflation.  Until your retirement it is cheaper to rent in India at 4% rental yield even at 10% annual rent increase instead of paying EMI at 10-12%  and also property tax, water tax, maintenance, repairs, association dues etc. only to end up with an “old flat” after 25 years!

A couple we know are doing exactly this: after traveling all over India for work & renting throughout they are now building a house in their hometown for retirement in their mid-fifties.  Subramoney also recommends the same approach: See point #9 of his article.

Recommended reading: Why large investment in property at young age could be risky

FAQ 3: But we want to do extended travel frequently. That’s why we want to retire early and stop working!

Think win-win: Once you achieve financial independence you can quit your job and travel for say a year.  After a year of travel,  you can recharge both yourself and your bank accounts by returning to the job market for a couple of years to work on something you enjoy (maybe something related to travel!).  Then travel again. Repeat the process until your 60s by which time hopefully you would have traveled everywhere you wanted to and your compounded retirement fund will be waiting for you!

My Personal Journey so far

  • Age 36. Married. No kids yet.
  • We’ve saved up 30% of our retirement target so far
  • By age 45, we’ll finish saving up 100% of our retirement target & then let it compound untouched over the next 20 years
  • Own a flat bought with savings & no EMI in a city where we don’t live 🙂  Although it gives us a modest rent that we SIP, I consider it a poor decision as we could have reached financial independence already by renting instead of owning.
  • 3 years in Big Co IT dept : paid off student loan & credit card debt so savings rate was low :  around 25%. Debt-Free so I work at Internet Startup for 6 years : Saved little over 40% of my salary!
  • 3 years back, wife and I took a calculated risk to start own business when we had a savings runway of 6-7 years. 3 years later business income now covers monthly expenses and savings rate is climbing slowly towards 50%
  • Once we reach our retirement target by age 45, I may take up a job at a non-profit working for a better India at a much lower salary but only if it fully covers our already low expenses.
  • We exercise 30 mins to 1 hour daily towards our Health SIP & maintain a healthy diet. We plan to be be fit and healthy in our 60s when no health insurance will cover us.
  • We’ll save what we can for our future child using the Rule of 72 since the child has age on their side for compounding to work until age 18. But we’ll definitely teach the child to be financially independent in their 30s itself and follow their dreams without needing money from us 🙂

This is our story in brief.  We took calculated risks and re-invented ourselves with the safety net of savings that would have lasted for only 6-7 years. Imagine how you too can work on your dreams stress-free with the safety net of savings that’ll last for 25 years.

We are a regular couple with middle-class values. If we can do it so can you. Good luck!

Special Thanks: My wife & I are forever grateful to Mr.MoneyMustache for demonstrating that you can simply save your salary to freedom 25 years ahead of schedule!

I want  to end with a well-written poem about “A Man with Savings” that makes the point much better than I ever could with all the math & personal stories.

Please share your thoughts about early retirement under comments section. I would be happy to read them and also discuss more on this topic.

3G Theory- A must read for all investors

Posted on by Nandish Desai

We would like to share one of the recent interactions we had with one of our past clients. There is something important to learn from the interaction we had and so we thought of sharing the same with all of you.

Client: Hi Nandish, This is Sam (Name changed), Do you remember me, I joined your financial planning service 2 years ago.

Nandish: Yes, Sam I remember you, tell me how can I help you?

Client: You created my plan and suggested some actions to me but I did not listen to you at that time. You tried hard to push me but I did not take required actions. I am still at the same place where I was and also I feel I have lost two precious years of my financial journey. With god’s grace, my salary has now increased and I would like to once again start the planning journey with jagoinvestor. I have realized that to have a good financial life you need a have a mentor like you. I am sorry for not listening to you.

Nandish: That’s great Sam, I am happy to see you have regenerated your commitment, and you just had a wonderful realization and insight which can, in fact, change entire DIRECTION of your life.

The most important ingredient in living an awesome financial life (or life) lies in how coachable you are. Add this little ingredient ( of being coachable) to your financial life and see what happens to your financial world. Last time you paid fees to us, this time along with fees just be 100% coachable.

Sharing from my personal life I have a fitness coach, a music coach and a business coach to help me in different areas.

I owe my heart to them as they are my backbone. They coach me, stand for my success and they help me to move to the next level. I do not question my coach, I do what they ask me to do and the way they ask me to do. I surrender myself to them and allow them to mould me in their respective area of expertise.

It’s time to make a fresh start and fix your next 10 years; we are fully there to help you and to serve you in taking your financial life to the next level. The only request I want to make to you before starting the planning exercise is “Be Coachable”.

Start the planning exercise with an open heart and mind and take the required actions. People who are not coachable always remain stagnant in life. I and my team can help you if you are ready to be coachable. A lot of people think they are coachable but in reality, they are not. Our growth in life is directly proportional to how many teachers we have.

Client: I agree and this time I am ready to surrender and I promise I will take required actions.

Nandish: Great I will send the next actions to you.

Are you Coachable?

Let’s get out of Sam’s life and look into your own financial world. Are you coachable? Are you ready to take external help to plan your financial life? Are you ready to take external help to take your financial life to the next level?

If you are managing your own money are you qualified and experienced to take personal finance decisions on your own. A lot of people think if I can earn money I don’t need to learn how to manage money or they think paying for advice is foolish when everything is available online and you have bank relationship manager to provide free advice to you.

3G theory

I would like to share one theory with all of you; it is called 3G theory. Before leaving this world if I have to share one last theory then it will be “3G theory”

3G theory

3G stands for having 3 Gurus in Life

1. Health Guru

We all know health is wealth but most people do not take good care of their health. They have valid reasons why they do not exercise and live an unhealthy lifestyle.

Health is an area that takes back seat very easily and when something goes wrong with the body they start to realize their mistake.

Having a health guru is extremely important because that is how you will get accountable in the area of health. I get 10 minutes late and my coach will call me to keep my promise. I have a fitness coach and I feel it is one of the best investments I have. He is a no-nonsense guy, he just believes in action and he helps me to stretch my limits. If you do not have a health guru go and find someone at the earliest

2. Wealth Guru

Wealth creation is a game and you really can’t play this game alone. Before taking any important money-related decision even I do a short discussion with Manish so that I can have an external agreement. Personal finance takes a back seat very easily and it is extremely important to have a wealth guru.

I have coached hundreds of people and I can clearly see how their financial life has gone to the next level. I am not saying go to a wrong advisor and make him your guru, go to the best, pay the highest fee as that is how you will derive value from your association.

3. Professional Guru

You need someone who helps you to expand your body of work. Your work has to nurture you rather than pulling you down.

We at jagoinvestor have a business coach, we do regular sessions with him and he guides us on how we need to shape our blog and business. He has taught us many things and it has helped us to grow our business. We really love what we do, we are passionate and running a business is a skill that you can learn from someone.

Conclusion

People who have these three gurus’ will always have an edge over others.  You need a guru in all three areas to get accountable in the area of money, health, and work. The 3G theory is extremely simple, it says to find 3 Gurus and surrender to them. I have given the highest weightage to health guru because if health is not in place the other two areas will lose its meaning.

If you need help we are ready to COACH you

If you want to bring a shift in your financial life feel free to share your concerns with us and we will help you to design a wonderful financial life. Get in touch with our team and allow us to make a difference in your financial life.

[su_button size=”8″ radius=”square” background=”#D8180A” url=”http://bit.ly/pro-article”]YES – Connect me to a Coach[/su_button]
Share your details only and only if you are ready to be coachable because we can only help those who are ready to be our partners in the process. We believe that only a partnership can lead to magic.

70% investors are “Asset Poor” – What about you?

Posted on by Jagoinvestor

70% of people feel that they are “Asset Poor” as per my recent survey.

Are you one of them?

No matter how much you earn or how much wealth you have created until now, you will fall into one of the following 4 categories.

  • Asset Rich, Income Rich
  • Asset Rich, Income Poor
  • Asset Poor, Income Rich
  • Asset Poor, Income Poor

Suddenly one day, I thought how many people will consider them “Asset Rich” and “Income Rich”? So I thought of creating a survey which asked people just this simple question.

Survey with 1068 people

There is no good information available on this topic, hence I ran a survey for the last few weeks and I got 1,068 responses from various people who visit this blog.

Note that this survey does not represent the general population of the country, but those who work in big cities, have a decent income/wealth (probably) and are net-savvy. Basically our blog readers. So you can safely say that these 1,068 people are like you and me, hence these results are very relevant for you (our readers)

Before I discuss about each category and look more into it. I want to share with you the survey results highlights

  • Around 70% people see themselves as “Asset Poor”
  • Around 65% people see themselves as “Income Poor”
  • Only 10% of people felt they were “Asset Rich and Cash Rich” both

Results of asset poor cash rich survey

Asset Poor, Income Poor

At the bottom of the pyramid are the maximum people who feel them to be both “Asset Poor” and “Income poor” at the same time. As per our survey, it amounts to 45.97% people, or 45 people out of every 100.

Think about this, a big chunk of people feel they are not earning enough to lead a great life, nor they have built enough wealth to call themselves RICH. This is alarming!

Also note that these people “feel” themselves as Asset Poor, Income Poor. So it’s all about their own perception about themselves. So even a person earning Rs 50,000 per month might feel he/she is “Asset Poor, Income Poor”. It has a lot to do about your relationship with money.

I think people falling in this category must be highly stressed as they might be surrounded by various people who either own some properties or if not, at least earn decent enough to enjoy various materialistic things in life.

One of our old surveys shows that every 1 out of 2 people in India is stressed because of money related matters.

Survey showing the stress because of money

Asset Rich, Income Poor

This is an interesting category of people. A lot of people are asset rich, but Cash poor. You must be wondering how?

The best example of this category are some senior citizens who do not have any source of income, but they have good assets. However, they are either living in that property or it’s used by their kids now.

Another example for this category is families, which own ancestral homes in cities that were bought by their parents, and now those properties are worth crores, however, they still don’t have a decent income source. They might be into a small business or some kind of job, but they still earn enough to run the house.

Also in various smaller cities, there are many people who have a great amount of wealth, but their lifestyle if base minimum and they don’t spend enough on themselves. My own best friend who lives in Varanasi has wealth upwards of Rs 10 crore (total property worth), but they still run around all day each month trying to earn enough to meet the ends meet, because they can’t sell their lands just to enjoy life.

“What will people say”- is what holds them!

Asset Poor, Income Rich

Now comes the third category where 24.44% of people fall. These are mostly those people who have recently upgraded from the middle class to the higher middle class when it comes to income.

They are earning good salaries like 1/2/3 lacs per month (mostly in the IT industry), but they are still struggling to own a house of their own or to create any sizable wealth. Even if they own a house, it’s on a huge bank loan which ultimately makes them just rich on the left side of the balance sheet, but not in totality!

This category finds it very hard to build assets because their expenses are very high because of their lifestyle. As per this article which says “America is full of high-earning poor people”, most people earn a decent income, but they fail to save enough money to build wealth. I think many people in big Indian cities are going on the same path.

Why people think of others as asset rich

Asset Rich, Income Rich

This is simply the people who are at the higher end of the pyramid. With their several years of experience and discipline, they have created good wealth and also earn decent money each month. They are free from debt now (mostly)

A very high-level description for these people would be those who have

  • A house of their own without any loan
  • A good car without a loan
  • A stable and secure income stream of upwards of 1-2 lacs per month
  • Enough money lying in bank accounts or mutual funds/stocks

So what makes you Poor or Rich?

It’s all about how you structure your financial life and what shape you give it over the years. There is a big difference in the cash flow of Poor people and Rich people and the below diagram shows it in a very simple way.

Difference between cashflow of poor, middle class and rich people

Poor people – Earn and simple Spend that money on expenses, they keep doing this all their life and never build any assets

Middle Class – While middle class earns better income compared to poor people, still, they create enough liabilities which eat up all their income, if anything left after expenses

Rich People – Rich people do something different, they focus on creating assets that generate income for them over the years. It can be dividends from stocks, mutual funds or building real estate which gives income. I recently came across a very example of how rich mindset works and here is an example from Quora, where a guy “Varghese Thomas” is sharing his personal life example.

Example of a person explaining his best financial decision on quora
I know he is an NRI and some people might say that because he is an NRI, it’s easy for him to think like that, but still it’s all about the mindset and how far your thinking goes.

How to become “Asset Rich”?

While this is a topic which calls for a separate book, I will want to give an attempt to talk about it briefly.

To become Asset Rich, you need to first become Income Rich. There is no other option here, unless you have a rich relative who might leave his fortune to you 🙂

So you need to first move to the “Income Rich” category from “Income Poor” . When I say Income Rich, I mean you earn enough money each month, which helps you to save good amount of money after all your expenses and EMI’s. Because unless you keep investing good amount of money each month, becoming rich will be tough.

Even if you are generating very good returns like (12% or 15%), you will not build enough wealth if you do a SIP of Rs 3,000 per month. I hope you get my point.

The amount or quantum of money you put in each month is highly important.

So you need to upgrade your skills, work on increasing your income, save a good amount of it with discipline and take decisions which at least doesn’t lose you money, if not make wealth for you. I don’t want to go into details here, because this is a big topic.

What are Assets and Liability?

I really feel you should once watch this 2 min video from Robert Kiosaki where he explains about Assets and Liabilities. This will give you some really good background to start thinking how you want your financial life to shape up.

I hope you got some good insights into how people think about themselves and their financial situation. We would like to know what is your plan for moving to the upper category in the future? Please share more insights on this topic in the comments section.

Why most investors struggle to save money every month & how to fix it?

Posted on by Jagoinvestor

Recently, I came across one interesting short story on quora, which I found interesting and worth sharing with all the readers. This story will help you understand why you are not able to save enough money by the end of the month. You will get to know why your hard-earned money is spent into useless things and you don’t have enough control over it.

Lady: Do you smoke?
Guy: Yes I do.
Lady: How many packs a day?
Guy: 3 packs.
Lady: How much per pack?
Guy: $10.00 per pack.
Lady: And how long have you been smoking?
Guy: 15 years
Lady: So 1 pack is $10.00 and you have been smoking 3 packs a day which puts your spending per month at $900. In 1 year, it would have been $10,800. Correct?
Guy: Correct.
Lady: If 1 year you spend $10,800, not accounting for inflation, the past 15 years puts your spending total at $162,000. Correct?
Guy: Correct.
Lady: Do you know if you hadn’t smoke, that money could have been put in a step-up interest savings account and after accounting for compound interest for the past 15 years, you could have by now bought a Ferrari?
Guy: Oh. Do you smoke?
Lady: No.
Guy: Then where’s your fucking Ferrari?

The story above sounds funny. The lady did not smoke, so that money must have got accumulated and she should have owned a Ferrari as per the logic. But that did not happen in reality.

Why?

The answer is – “Ferrari was never on her mind”

Her money was not put on the purpose of buying the Ferrari someday. She did not spend the money on a cigarette but then that same money kept getting consumed on some other things which came in small chunks.

Life kept throwing small and tempting desires and she fell for it without realizing it. And finally at the end, did neither have the money, nor the Ferrari.

You are the biggest enemy of your financial life

If you leave your money in the saving bank account without giving it a strong purpose. Then the lifestyle today is such that no amount of money is enough to meet your short term desires.

Life will throw all kinds of requirements and if your money is available right in front of you, you will keep trying to handle those requirements without much analysis.

Justifying the expenses becomes very easy when you have the money sitting in front of you, waiting to spend. Investors are generally over-confident about their saving abilities and there are tons of research to prove that.

Take out the manual mode of investing from your life

Here is the rule – “Lesser the money available in front of your eyes, higher the chances that you will restrict your useless spending.”.

You need to take out the manual mode of saving money out of your life and take the help of automation. There has to be some way, where some part of your salary leaves your bank account and gets invested on its own. Because the more you leave the decision making to yourself, it’s not going to happen on a consistent basis. Humans are designed to take the path of least resistance. Machines don’t make mistakes.

Let some automated way to save your money, and it will happen consistently, without fail. No one will

The best example of this is your EPF

Your employer deducts a part of your salary and that gets accumulated over months and years. That small deduction becomes a very big amount, if you leave it just like that and don’t disturb it. EPF does not earn very high interest, but still, it accumulates a decent amount.

Now just imagine this, Your employer tells you that they will not deduct that amount and you have to save money each month. It’s fully in your control now.

You should feel great that you have EPF and some form of automatic saving. If you were given the freedom to choose the EPF, it would be a bad thing. Because most investors won’t have chosen it. Here is a similar study from the US, where employees were asked to enroll for the 401K program (similar to EPF in India). However, the catch was that they had a choice to not opt.

When the enrollment was made a compulsory thing as a default choice, with an option to opt-out if one wants, the enrollments more than doubled. Why did it happen? Because enrollment happened automatic!

power of default saving

So coming back to EPF example, Will you save money equal to your EPF each month if it were not taken out of your salary automatically?

Are you really confident that you have the determination and commitment and control over yourself to save that money month after month, year after year without fail?

Are you understanding what I am trying to tell you here? The point is, YOU are your own enemy when it comes to saving. Take your manual judgment and your decision making out of saving each month. Let it happen on its own, automatic.

My personal Experience

Around 6 months back, my wife wanted to start a recurring deposit.

She started a recurring deposit of Rs 15,000 per month for 1 yr period. After 8 months, when she checked the bank accounts, she could see the 1.2 lacs in the deposit account. Suddenly she felt – “How this money did came there?”.

The point is – it was automatic saving. It all happened in the background and didn’t give her any scope of judging the decision again and again. She always saw her salary minus 15k in her bank account.

All her expenses, shoppings, indulges, bills had to happen out of the money which she saw in her account and it happened. The expenses fit themselves in the amount available. It’s the nature of money, and I will share more about it in some time.

Don’t trust yourself for saving money

Don’t trust yourself, when it comes to systematic saving. Your intelligence can be your big enemy. If you decided that each month you will carefully set aside some part of your money yourself, after all the expenses are done, then it’s going to be a tough time for you.

Do this simple exercise

Take a sheet of paper (or open an excel sheet). One the left side write down your income each month and one the right side, write down all the expenses per month.

Now subtract your expenses out of your income, and you get your monthly surplus. So each month after all your expenses are made, you should be saving that surplus amount. Correct?

Is that happening? Did I hear NO

do you really save enough

Why does it happen? Why are you not able to save the money equivalent to your surplus each month?

MONEY is like flowing WATER

Have you ever wondered why you are not able to save enough money, even though your salary has kept increasing in the last many years? Your expenses keep on matching with your expenses.

Even if you are saving some money, are you reaching your full potential? I guess NO

Why?

It’s because money is like flowing water. If you do not give it some direction, then it will find out its own direction.

When you do not automate saving money, then all the money will get consumed into “something”. Life will keep throwing various kind of expenses, desires and requirements, and if money is easily available in your bank account, then trust me, you will always come up with strong reasons why you can’t avoid those expenses.

money is like water

Some of our clients get shocked when they fill up the datasheet we send them. The most common complain is – “I am not saving anywhere close to what my income – expenses is showing up”, where is it all going?

The answer is – “Its getting consumed into things which looks important and urgent in short term, but in reality, they are not”

My friend real life case

Few months back, I was talking to one of my close friends. He told me how he is not able to save anything by the end of the month. He was very confident that it’s very tough for him to save anything. After all, if he had any surplus, why it’s not there at the end of the month?

I asked him a simple question – “If his income increases by Rs 1,000 per month. Will it remain in the bank account after all his expenses?”

This one single question was a game changer.

He told me that he is very sure that even if his income increases by Rs 1,000 per month. His life would be same, it will surely get consumed somewhere.

I told him – “In that case, if your income drops by Rs 1,000, your situation will be same”

So why not set aside that Rs 1,000 in the starting of the month itself, and see fewer months in the bank account. Trust me, your financial life will figure out something, it will adjust. It will surely try to fit it.

And that’s exactly what happened. I helped him in starting his first SIP of Rs 5,000 per month.

Just a few days back, the first auto debit happened. I can almost guarantee that by the end of the year, these Rs 60,000 which was getting consumed somewhere, will “automatically” get saved in mutual funds.

So what is the worst case?

Ok fine, your financial life is really in bad shape & you can’t save even a penny. Let’s say, you show some courage and start a recurring deposit of Rs 1,000 per month, even though you know you will need that 1k later.

What is the worst case?

You would need that money back in some time again? Right?

Solution – It that happens, then break the Recurring deposit and use the money …

Or you could start a SIP of Rs 1,000 and incase you needed it, you can always redeem it and take back your money.

But you know what, you will not take it back. You will not redeem it. Because like most of the investors, you are lazy when it comes to money. It’s easier to adjust rather than take that pain to go to the bank and sign that paper for redemption.

We humans take the path of least resistance. You don’t know how amazing human laziness can be for your financial life. Ask those who bought IT stocks and never cared to think about what to do with it. Its only their laziness, which has made them millionaires, because they still hold the stocks

Most of the people are living with this myth that they will not be able to save even a penny by the end of the month. It’s not true. For 95% of investors, it’s a self-created illusion.

They have just not tried enough in the right manner. Let me share with you this in detail

Income – Expenses = Saving

For most of the investors, the default equation each month is “Income – Expenses = Saving” . This equation looks very natural and logical. First, you take care of expenses because they need to be handled NOW, and then if something if left, you will save it. This is how any normal person will think like. But that’s the root of the problem.

If you are not able to save enough money each month, I am ready to bet that this is the equation that is destroying your financial life. Let me guess how it looks like.

Each month, you must be earning some money, then you take care of various expenses, some fixed and some random surprises and if you get lucky, you must be having some surplus money in a bank account each month.

But wait, The money is still in your bank account. It’s still “easily available”. You decide that you will do something about it very soon. You decide that once it becomes a big amount, you will create an FD out of it.

Next month, again you have some surplus and more money got accumulated in your saving bank account. Suddenly in the third month, your spouse tells you that she wants to upgrade the washing machine. After all, anyways its Diwali time and she deserves it.

And why not? After all, you have the money available in your bank account. What’s the problem then?

Your timing is also perfect, the thought of upgrading the washing machine has come up just when Flipkart sale is round the corner. I am sure it’s a coincidence.

How expenses take shape

No , it’s no coincidence.

The point is – the money found its own direction and that’s because you didn’t gave it any direction beforehand.

For a moment, think what would have happened if the additional surplus was not available easily. It was there in a recurring account or was into SIP in some mutual fund or ELSS (locked for 3 yrs). It’s hard to imagine that you would have said – “Let’s stop our RD or SIP in mutual funds and upgrade the Washing Machine”.

Can you see how everything changed in both the situation?

Or imagine you would have created an FD out of that money before hand for paying the school fees for your kid at the of the year. Would you break your kid’s related FD to upgrade the washing machine? Generally not.

I am not against the expenses

Trust me, In no way, I am judging the urgency of your needs or desires. They might be genuine and very much reasonable. Please go and upgrade your washing machine, if it’s really needed. I am not even against taking a loan for that, but just assure that your requirement is genuine and not a made up one.

Just 1 yr back, I bought a sports cycle out of impulse and you should have met me just before I purchased it. I would have convinced you that I need the cycle more than I need oxygen. Plus, I had the money with me at that time. Today I am not using it enough to justify my buying decision.

I can tell you – this false belief of “I need it so much” and the availability of money in your bank account is such a deadly combination.

So what do you do ?

Change the equation to “Income – Saving = Expenses”

Few changes in life give a new direction to life. Everything changes.

Trust me, this is one such change if you really understand it well. If you decide to change your saving equation to “Income – Saving = Expenses”, it can drastically impact your financial life in positive way.

Here is now you implement it.

  1. Find out what is the minimum amount you think can save each month. Is it 10%, 20% or 30%. Take a lower amount at the start, else it won’t be sustainable in the long run.
  2. If your salary arrives in your saving bank account on date X, then, setup a recurring deposit or a SIP in mutual funds on date X+2 or X+3
  3. Trust automation, it will do wonders for you
  4. And in the worst case, if you really need the money, you can redeem it back and use it or stop the RD or SIP.

If you can take this first step, then you have already won the big part of the battle. Other things like great returns, advice, controlling risk, finding the best financial product and all that will be taken care of later. But the first step it this – changing the equation

If you can spare 20 min, you should watch this amazing video by Shlomo Benartzi, on the topic of Saving for tomorrow, tomorrow. You will understand the impact of automatic saving in a better way in this video

And you don’t have to compromise

Don’t confuse automatic saving with compromising on your expenses and fun. We are not asking to stop eating out or cut on your entertainment in life. A lot of investors live in this myth that financial planning is all about compromising your desires and spendings. No, it’s not.

It’s all about giving a meaningful structure to your financial life and exploring various possibilities to make your financial life awesome. That all.

I would love to hear what you think about this idea of changing the equation. Do you think that this single thing is really a very important parameter to live a good financial life? Please share your own saving habit in the comments section

The secret of taking better financial decisions in your life – 4 point decision making framework

Posted on by Jagoinvestor

Do you know, which is the one thing – which is responsible for making financial lives complex these days?

The answer is – LACK OF CLARITY!

Most of the investors take wrong decisions in their financial lives and regret later about it. However, I want to assure you that by the time you complete reading this article, you will learn how to take better financial decisions and lead a simpler financial life.

Each financial decision you take has some pros and cos and some advantage or disadvantage. Some decisions will put pressure on your cash flow and some will make you rich in eyes of society, while some will create assets for you and some will destroy your net worth.

And finally, decisions will give you peace of mind and some make your life hell.

Some examples of decisions which investors have to make !

  • Should I prepay the home loan or invest it?
  • Should I buy that plot or not?
  • Should I take 2nd property or put the money in mutual funds?
  • Should I buy the higher end model of the car or the lower one?
  • Should I change my job for higher salary or be in my comfort zone?
  • Should I give 1 lac to my friend as loan or make some excuse?
  • Should I buy the 2 bhk or 3 bhk?
  • Should I keep so much money in FD or invest in the 2nd house?
  • Should I save for my kids education right now or leave it to fate?
  • Is it fine to spend money on outings so much?
  • Did I make a mistake by spending so much on myself? Am I selfish?

I must acknowledge that its always going to be tough, to take a decision. But can we do something which can simplify the process of decision making and give us a framework using which we can quickly decide and take things to next level.

4 point Decision Making Framework

Let me introduce you to the concept of “decision-making framework”, which I recently invented and to test its effectiveness, I ran a survey which was taken by around 132+ people online. I will share the results with you below shortly.

Below are the 4 points which I have included in the decision-making framework.

decision making framework

What is decision-making framework?

Like you saw above, a decision-making framework is nothing but few choices which you make before hand. So whenever you need to take some major financial decision involving money, you can check if it’s aligned with your overall decision-making framework and vision for yourself. You can check if the decision will take you closer to your goals in life or take you farther!

So now, let’s dive deeper into each point and you decide for yourself which side you fall into.

1. Debt Free or With Debt – What is your priority ?

The first point in your decision-making framework is if you want to lead a debt free life or if you are comfortable with debt and side by side you are creating your wealth.

This question is very important to answer because debt trap has destroyed many lives and made some really amazing people slaves in today’s world. So a person wanting to be debt free asap, keeps getting into debt because each opportunity looks so promising that they are attracted towards it and even though it does match with his vision in life, they still fall in.

Its happens because of instant gratification problem !

The first home loan is allowed!

Note that I am not taking about the first home loan you take in your life. No matter how much logic I put in, I think in today’s times, there is a very high chance that most of the people will end up with a home loan at least even if they want to be debt free. So for the sake of this 1st point in the framework, we will allow one home loan and nothing more than that.

So if you look at the other side, a lot of people after they have taken the first home loan, keep taking additional loans for 2nd house, 2nd car, plot loan, loan against property or topup loan and keep giving away their salary in EMI and keep making assets on the side.

While this is not an issue as such, but the problem happens when you realise that you wanted to debt free long back, but have spent all your life living in the pressure of EMI’s and never felt that independence of not having debt on your head.

Let’s see what most of the people choose out of the two choices.

As per the survey, it was a big tie between the two choices and almost 50% people said that they want to take the route of debt free life asap, but the other half were fine with the debt in their life while they create the wealth on the side. I am sure these are the investors who have a strong predictable income structures and safe job which gives them the confidence to say that. Below are the results

Is debt free always a good option ?

Real life example when it becomes tough to choose

Imagine you have taken a home loan which is 50% complete. You are regularly taking all the efforts to prepay your loan and because of your extreme focus, the loan will soon complete (in few years). You also have few lacs in your bank account accumulated from last few years which you wanted to keep as surplus funds and are now planning to repay the home loan further and that will almost make you debt free.

BANG!

Now suddenly you come across an amazing flat/plot which sounds like an amazing opportunity and you start visualizing how this can be an amazing addition to your portfolio. How after few years you will make 100% profit on it. You visit the site, the sales guy tells you about the amenities, location, the future prospects of the property and now you don’t want to miss the offer.

Your spouse is already happy and proud of you making further real estate investment.

You were closer to get debt free, but you again get into that debt trap, because this offer comes and now you are on the way to take another loan to fund the purchase of a new property. On one side, you are so happy, but on the back of your mind, you are worried if something happens to your job, will you be able to handle the EMI for another so many years? You are worried if the new property didn’t turn out to be that great, then what?

You are worried, if it really really makes sense to buy something which you will use after many years? What if it didn’t fetch you good rent? 

Truly speaking, there is no right or wrong decision of the above problem, but your decision has to align with what you wanted in your life and hence you should before hand if leading a debt free life is bigger priority or not.

2. Simple or Luxurious – What will be theme of your lifestyle?

The next thing which I feel should be part of your decision-making framework is a clear choice between what kind of lifestyle do you want to lead? Will it be simple, plain, minimilistic or a lavish and luxurious one?

I know some people will say, they want a balanced life which has a mix of simplicity and luxury both? I get that !. But there is always one of these dominating one, which will be the major part, we are talking about that here. Its totally ok to choose to live a simple life, which occasionally has luxury in it or vice versa. But the theme has to be clearly defined for you and your family.

When I asked this same question in our survey, around 66% people said that their life theme has to be simple and minimalistic and 34% said they wanted it to be lavish and luxurious.

simple or lavish financial life

Let’s not judge people on this parameter. I am sure a lot of people who want to choose luxury theme deserve it and are working hard for it. It’s a choice of leading a life, after all it’s one life and when will you not live like a king if not right now at this moment.

On the other hand, there are people who are very uncomfortable with lavishness and want their life to be simple and plain. These people also spend a lot of money on few things they love and they become spendthrift at various points of their life. I am on of them.

Both the themes discussed above are RIGHT, and we never know why people choose the theme they are choosing. It all depends on how they have lived their lives till date, what is their outlook towards life, their past experience with money, the struggles they have seen in their life and what kind of people they associate with. There are too many dimensions to it

Why choosing your theme is important?

So that when a big purchase comes, you can see if it fits your theme or not?

  • So that you can choose which car to buy?
  • So that you can choose how much furnishing to do at your newly bought home?
  • So that you can decide if you want to buy a premium villa or a normal 2 bhk house.
  • So that you can decide where you want to give the kids birthday party.

I am associated with both type of people in my life. One of my friends bought 70 lacs home and did a 25 lacs of interior (his house is awesome), while the other friend bought a 35 lacs home and bought minimal furniture and setup, but he has bought a high-end camera which is very very expensive.

Its not about show-off

A lot of people might feel that those who want to lead a life of luxury want to impress others and show off, but let me make it clear that it’s not like that. It is how those people want to spend their life on this planet which is anyways limited and its very natural. Just because you are not like that, does not make the other person wrong.

So, if you have made the choice of lavish living as your theme, then “to hell” with those friends who keep saying why you should save for future. Spend yourself like a king, earn more and spend more on yourself, buy awesome clothes, go on exotic tours, travel like there is no tomorrow. But be clear that you wanted it 🙂 and the best part is that you will not be guilty about it. After all, you have chosen your life to be that way.

3. Blocked Assets vs Liquid Networth – What excites you?

For those who think a lot of money will solve their struggles, you will be amazed to hear that there are many investors with net worth of 2-3 crores depend on a personal loan if they suddenly need 8 lacs of money and if they suddenly loose their job, they will panic like anyone else, because they are not sure from where the next month EMI is coming up.

Why is it so when their networth is 2-3 crores? 

Because, its all blocked and locked in assets which is highly illiquid. If they want to take out the money, it will take many months and years to get the best deal. These investors choose to spread their money across various assets (especially real estate like plot and houses) and anytime they have some cash in their FD or mutual funds, they feel it should be diverted to something concrete which they can touch and feel (even gold is one asset class).

So they keep increasing their networth, but are always low on liquidity. The biggest problem which I feel with these investors is that if some great opportunity comes and knocks their doors, they are so low on liquid money that they cant take advantage of the opportunity and have to take help of loans.

The worst part is that a lot of these investors never wanted things to be like that. But because they never slowed down in their financial lives to think of how it should eventually look like, their financial life took the shape on their own based on circumstances.

Some investors like Liquid money !

Liquid money means the money which can be redeemed very soon, but with fair and decent returns. So A lot of money in mutual funds, fixed deposits and limited money in real estate is what I call as “liquid networth”. In our financial planning terms, Me and Nandish think that having 1 crore in liquid networth has to be one of the primary milestone of every investor.

You will find many investors who are having networth of a crore, but all of it will go away if you take out real estate out of the equation.

So the main question comes – “What excites you more?”

Do you want to create high networth comprising of liquid networth (stocks, mutual funds, FD,Cash + 1 real estate for living purpose) OR you want to be high on real estate, various properties, plots, businesses etc and lower on the liquid networth?

Whatever choice you make, it will help you to take further decision in life which you have to decide where should that Rs 5 lac go which you got as bonus!. I was surprised that 73% people in our survey said that they want high liquid networth (not sure if its because real estate is not doing so well from last 1-2 yrs). Below are the results.

Should you block your money in various assets

It would be a good exercise to see if your current networth is aligned to your theme or not ?

4. Yourself vs Others – For whom are you creating wealth for?

This point if the decision-making framework can be a bit uncomfortable for many investors, because now we are going to be a bit selfish in life here. And the tough question for you all is – “For whom are you earning this money?”

  • Mainly Yourself + a bit for others in your life (kids, parents, others in life)
  • OR Mainly Others + a bit for yourself

Our parents created wealth primarily for us – their kids. They earned all their live, but never enjoyed the fruits of their labour. They never gave priority to their desires in life. They never owned a car, so that we can have a bike. They never created their retirement fund, because they were busy funding our post-graduation. They never went for any lavish vacations despite having money because their daughter’s wedding had to be planned years before and the money was to be accumulated.

But this story is taking a new shape in last many years. 

I am constantly seeing the shift in mindset. From last 10-15 yrs, the mindset has shifted on “them” to “Me”. from “their needs” to “my wants”. The aspirations have gone 10X  high and we want to consume, spend, enjoy, live life in a very different way compared to our past generations.

We have seen many of our clients focusing more on their “Retirement goal” rather their “kids education” or “kids marriage” and to some level I think they are going right.

Kids Education and Retirement

In old days “Kids Education” means “Retirement goal”

You will find various parents today who have hit retirement, have nothing great in networth to talk about and don’t have a penny to feed themselves and there is no help coming from their kids as well for whom they spend all their wealth till date. A lot of parents secretly wonder, if they did the right thing to over think about their kids and others and never thought about their own retirement or aspirations.

But things are changing !

Today, you have to plan both the goals separately and for most of the people its not possible to reach both the goals easily. Kids today have many options like taking education loan (if they are highly smart and crack good institute) or first take a basic job go for higher education few years later using their own money. In fact, many parents are now taking the route of education loan (they help taking it), but finally ask the kids to repay it themselves.

Already a lot of kids are guilty these days that their parents have to spend on their weddings and they want to arrange it all themselves. I know this is a sensitive topic, but this always keeps hiding in every investors mind and no one talks about it.

Spending culture in increasing

These days more and more people are going on exotic vacations abroad and within India, spending more and more money on entertainment, eating out, having great experiences, and spending on possessions. But some people are not able to do that because they are not yet clear if its morally right to do it or not.

Here comes the biggest surprise. Almost half number of people who took the survey chose themselves over others and the other half choose others over themselves.

for whom should I-earn

You have to complete your responsibilities in life

In no way, I mean to say that someone who is choosing themselves as the primary beneficiary of their wealth are running away from their responsibility. You still have to pay your kids school fees, clothes, your parents health expenses. Do all that!, but when you have to choice do a SIP for your retirement and another option is to pay EMI of a second house which you think will help you kids in future, you have to make a clear choice on who will get a bigger pie.

Will this decision-making framework help you ?

Truly speaking, YES and NO both are the answers. This whole exercise is nothing but bringing out your subconscious mindset on paper and make it clear to yourself on what you want your future to be like and how you would like to lead your financial life. You will not get robotic about your decisions, and obviously deviate from these points which you decide by yourself, but at least this will give you a structure to think and act.

At least 69% people who took the survey said that just by answering these 4 questions and choosing their answers helped them realise what really they wanted in life and how they should take their future decisions.

financial framework

I also now realize, that why we should not think why others don’t act like us and why some are materialistic and others don’t, why some people spend too much on their comfort and some live frugally. Why some people buy too much of real estate and others don’t. Why some people are in rush to close their loans while you might be thinking that they are not taking right decisions.

SO what works for you might not be others priority and does not fit others life. Its important to understand this point and brings maturity in your thinking.

So what is my personal answers for my decision-making framework ?

I thought I will share with you all about my personal answers for these questions above and how I think about my own financial life. Below they are

my personal framework

Understand that the above points are my personal points based on my life experiences and my mindset, you should think that they are better than yours or anyone else. Because of my clarity on above 4 points, I will decide in following manner.

I would like to hear what do you think about this idea and does it make sense to you. Do you feel something like this simplifies the decision making or not? Also please share your personal decision-making framework. What are your answers on these 4 points?

When can you call yourself RICH in India? [SURVEY of 381 people]

Posted on by Jagoinvestor

Are you RICH or not? Do you have enough income or networth, so that others will consider you RICH in India? This is all this post is about.

I was day dreaming about get RICH few days back (I do it every week) and visualising how much should I earn so that I can call myself as RICH and how much net worth I should have, so that people would start considering me RICH? Is it 1 crore or 10 crore ? Is income of 5 lacs a year or 20 lacs will make me look RICH in others eyes?

Are you RiCH

So, I created a survey around this topic and 381 people took that survey. But before I share the survey results below, note that the group which took this survey does not represent the common man on street. This survey is mostly taken by net-savvy high-income earners, which only represents the higher income group. These people are on web, work in big companies and are considered to be doing very well in life by society.

How much Income makes you RICH ?

One of the questions asked in the survey was – “In India, How much yearly income one should earn, so that you will call him RICH ?” . Below are the results

RICH in India - by Income

As you can see above, only if you are earning more than 20 lacs a year, most of the people will consider you as RICH, otherwise you will be seen as middle class which is a very big range and not defined at all in our society. People earning 1 lac a year, 5 lac a year and 12 lac a year – they all call themselves as “Middle class”. Let me share some important stats with you on income.

As per a website www.globalrichlist.com if you earn the income of 10 lacs a year, you would be in top 0.22% of the population globally. Can you believe that !

globalrichlist ranking for India

This means that if there are around 1000 people in the world, almost 997 people earn less than you if you earn Rs 10 lacs a year. Hence, you should be quite happy about this fact, but obviously we don’t think that way. We look at people above us and keep cursing how bad we are doing in life.

What networth makes you RICH in India in other’s eyes?

The next question I asked was – “In India, How much networth a person should have, so that you can call him RICH ?”. Below were the results

Are you RICH india by networth

If you look at the chart above, only 1 out of 4 people will call you RICH if you have 2 crores of networth in today’s value. 48% people who took the survey feel that anything above 2-10 crores is a good networth to be called RICH. Some even said 50 crores and 100 crores.

Forget crores! . What if you have a net worth of 100,000 Dollars or just approx Rs 60 lacs in wealth ? How rich are you?

As per a research published in 2013 by Credit Suisse, if your net worth is above Rs 60 lacs, you are among the richest 8% in the world and richest 0.4% in India. Think once again !

Out of every 1000 people in country, 995 people are below you in terms of net worth. I know some will say, that there is black money and many are there who do not disclose their income. Yes – that’s true, but we can’t find out how many are there like that. Even if you consider that, still you would be doing very very well.  Below is the snapshot from the report.

How rich are you because of your networth

Note that – we are not talking about ASSETS here, but Networth, which is ASSETS – LIABILITIES. A lot of people hold real-estate whose value they consider, but they forget to account for the home loan and other liabilities. So a lot of people who feel they have high net worth actually don’t have it.

Along with most countries in the developing world, personal wealth in India is heavily skewed towards property and other real assets, which make up 86% of household assets. 

- Credit Suisse Report 2013

But feeling RICH is a state of mind

I know a lot of people will say that “feeling rich” is a state of mind and we should not just evaluate it with money. Agree to that. I am of the same opinion that it’s not others who will decide if you are RICH or not, but only YOU.

But thats not this article is all about. We are purely look at how others perceive your RICHNESS by income and your wealth.

Most of the people are not happy with their current status

Let me give us some interesting information. If you have low income or networth and you are not happy about it. You should know that majority are like you only, even though they are on high income.

I asked another question in the survey – “Are you happy with your current Salary and Networth ?”

Guess what was the result?

On an average, most of the people are not happy if they are earning less than 10 lacs a year. I can understand that 10 lacs a year is not a very high income these days, especially in big cities. And if you consider the expenses, home loan EMI, education costs and lifestyle expenses, a lot of people are literally struggling to keep pace with rising expenses.

What looks a great salary to people in small cities, is not that amazing in big cities these days. Here is the result of survey, showing you how many people are happy or unhappy about their current income and net worth.

income and happiness

If you see people in higher income bracket which is more than 10 lacs a year, almost half of the people said that they are happy and another half said they are not. But one thing is very visible that in the higher range of income, most people said they are happy (I am not sure if they are really happy or not, but they said they are) compared to the people in lower range of income. To some level, we all can relate to it.

You are doing well at absolute level

After I did this article, I got a feeling how much our lives have got messed up due to money. We are literally lost in this world with the sole objective of earning money. You should be more happy about what you have achieved and not be unhappy about what you have not earned.

I am not saying that you should not be aspirational. Surely, you should have a higher target each year, but dont feel unhappy about what you have created till date. Let’s slow down a bit.

Wealth is important, very important, but also cherish and be proud of how you have done well till date compared to millions of others who are struggling in life due to money issues

You are way ahead of majority. Congratulations for that.

Let us know what you think about this whole article. What are your thoughts on who is RICH? What’s you definition of RICH in your own terms?

Gift to Family members – 3 awesome tips to save income tax legally

Posted on by Jagoinvestor

Most of the people in India try to save income tax by investing the money in their spouse, children and parents name. We are going to explore this topic more deeper and help you understand the exact rules applicable and how you can save more tax legally, by gifting money to your family members.

Majority of people, just transfer the money to their family member account and invest that money, thinking that they will not be paying tax on that amount and it’s a smart way of gifting the money and avoid paying the tax. But that’s not correct. I have already written in detail about what is gift tax and certain exemptions when one don’t have to pay any tax on gifts received.

gift tax rules in India

What most of the people do in real life is that, they just transfer the money to their family member bank account and invest that money in their name, assuming that by default it will help them in saving tax, because they have gifted away that money and because their family member has income below exemption limit, they also don’t have to pay any tax. However, it’s not that simple.

Now, let’s understand the tax implications of various people involved when a gift is given and what is the right way to save tax by gifting money.

Let’s take an example – where husband earns Rs 10 lacs per annum, gifts Rs. 1 lakh out of that to his wife, who is a homemaker. Wife, then invests this Rs 1 lac in a Bank FD at the rate of say 10% interest per annum and earns Rs 10,000 as income.

This transaction has three parts and the tax implications as follows

  • Tax Implication on GIVER (husband) for the amount gifted
  • Tax Implication on receiver (Wife) for the amount received
  • Tax Implication on the income earned, when the gifted money is invested.

Tax Implication on GIVER (husband) for the amount gifted

Let’s first talk about the tax implication for the person giving the gift.

The person, who gives the gift can never claim any income tax deduction or exemption from his/her income. Most of the people confuse the entire gifting implication and assume that the money which they have gifted to somebody will be reduced from their total taxable income and they have to pay tax only on the balance income. But that is not correct.

In the above example, the husband earns Rs 10 lacs per annum and should ideally pay tax on that full amount after deducting any income tax exemption they get from various sections like 80C and others.

How most of the people think?

Now husband can argue that the Rs. 1 lac which was gifted to his wife should be reduced from his total taxable income and he should be paying taxes only on Rs. 9 lacs. But this is simply not allowed!

Because – if this is allowed, then everyone will gift all their salary or business income to wife or parents and no one will pay tax at all, because they don’t have any income now as the entire income is gifted. That does not make any logical sense.

So in the above example, husband has to pay tax on his income of Rs 10 lacs subject to all the benefits as available to him under various sections of the IT act and let’s say that his total tax after all tax deductions (80C) comes to Rs. 75000/- and his post-tax income is Rs. 9.25 lacs. He can gift whatever he wants out of this post-tax income.

Tax Implication on Reciever (Wife) for the amount received

Now let’s take the tax implication for wife, who got the money in our example. Will she pay income tax on this gift received or not?

The answer is NO

Because this is a gift from her husband, who comes under the specified list of relatives who are exempt under the income tax act from gift tax liability. If she had got this 1 lacs from her friend or some random person, who is unrelated to her. In that case, this 1 lac would be considered her income for the year and taxed in her hands, but here she will not pay any tax on this 1 lac.

Below is the list of relations from whom if one gets any gift, they don’t need to pay any tax.

  • Your spouse
  • Your brother or sister
  • Brother or sister of your spouse
  • Brother or sister of either of your parents
  • Any of your lineal ascendants or descendants
  • Any lineal ascendant or descendant of your spouse
  • Spouse of the persons referred in above points

So the point is that, if one gets a gift from close family members, like spouse, parents, siblings etc, the receiver does not pay any income tax on the money received.

Tax Implication on the income earned, when the gifted money is invested

Now the tricky part comes in.

What happens when the gifted money is invested in products like FD’s or shares? Let’s say that the wife invests this Rs. 1 lacs in a bank FD and earns an interest @10% annually, ie Rs 10,000.

Now who will pay the tax on this interest of Rs 10,000?

Husband or Wife?

I know most of the people will think that its wife, because once she gets the gift, now its her money and she is 100% owner of that money and any income generated from that should also be her own income and she should pay the income tax on that amount. So here in this case, if wife does not have any other income apart from this Rs 10,000 , then her total income for the year will be Rs 10,000 only and as its lower than the exemption limit, so she will not be paying any tax and won’t be required to file any income tax returns.

However in real life, this is not how it works.

In this case, IT department clearly knows that people will gift the money to their spouse who does not have any income, so that the whole income generated become’s tax-free. To combat this, there is something called as Income Clubbing provisions, which adds the income of one person in other income in certain cases, and that will apply in this case.

So in the above example, this interest income of Rs. 10,000 would not go tax-free and will be clubbed with husband’s income and he has to pay tax based as per the applicable tax slab.

So if, husband earned Rs 10 lacs a year, now this Rs 10,000 will be his additional income making his total yearly income as Rs 10.1 lacs.

But Income earned from the income earned is not clubbed

One interesting point to note is that any further income generated from the income is not clubbed further and that will be 100% income of the person who got the gift.

So in above example, when wife gets Rs 1 lacs as gift, and earns Rs 10,000 as the income, that Rs 10,000 will be clubbed with income of husband, but when this Rs 10,000 is further invested into FD again and earns Rs 1,000 income, this time – it will be wife’s income and not husband.

So now, how you can apply this rule in real life? Here is a tip !

Let’s say you have Rs 10 lacs with you. If you invest this money in your name, you will earn Rs 1 lac as income from it and pay tax on it, but next time again when you invest this 1 lac, you will earn Rs 10,000 and then again have to pay tax on it because it will be your own income.

What is the alternative way ?

What you can do here is that, you can invest Rs. 10 Lakhs in your wife’s name and earn an interest of Rs. 1 lac. This Rs. 1,00,000 will be clubbed in your income for the computation of income tax; which was going to happen anyways. however, when your wife further invests this 1

However, when your wife further invests this 1 lac in another FD and earns Rs. 10,000 (assuming 10% interest) as interest on it, this time it will be considered as her income and will not be clubbed with your income. Assuming husband in 30% tax bracket, it’s a saving of Rs 3,000. Might look small, but its one of the ways to save the tax by Rs 3,000 in a legal way.

The image below shows you the rules and how the tax implication will apply in various cases explained above

income tax on gifted money

3 tricks to save more tax legally by investing in family members name?

Now you are clear about the tax implication on person giving the gift, on person who is taking the gift and on the income generated from the investment done by the gifted money.

Now let’s see some things, which an investor can do to legally save tax in a more smart manner by involving their family members and that too in a 100% legal manner.

Trick #1 – Invest the gifting money into tax-exempt or low-tax instruments 

Clubbing provisions will not apply when the gifted money is invested in any investment option which are tax exempt by default. Or one can invest in lower tax options.

For example – rather than a normal FD, if the money is invested in shares of a listed company and sold after 1 yr or an ELSS mutual fund, and sold after 3 yrs lock in period, then in that case the profits which attract on 10% tax as equity taxation after recent budget is only 10% without indexation, that too above Rs 1 lac limit

Trick #2 – Invest money in your parents name

You can save taxes by gifting money or by giving loans to your parents or in-laws because clubbing provisions does not apply in these cases. This is because any income generated on the gifted or loaned money to parents is purely parents income and will be taxed in their hands only.

Let’s see an example.

Assume that you have Rs 40 lacs in your hand which you want to invest and your father and mother are both senior citizen and have no income from any source. Now what you can do is, gift Rs 20 lacs to each parent and let it get invested in a bank FD at an interest rate of 10% (just an assumption)

Now both of them will get 2 lacs as the interest income individually and this is their only income in a year and will be below the exemption limit (Rs 3 lacs for senior citizens) . So there won’t be any income tax to be paid by them.

This way you have invested Rs 40 lacs in family name itself with ZERO income tax.

On the other hand if this 40 lacs was invested in FD on a main bread-winner name who is into 30% bracket, he would have paid 30% income tax on 4 lacs of interest, which is Rs 1.2 lacs. This whole 1.2 lacs is saved.

tax saving by investing in parents name

Even if parents are having additional source of income, it’s still beneficial to gift the money to them as it would lower the income tax outgo, because of the lower slab rates and applicable exemption limit.

You can apply the same logic and invest in property in parents name and let the income come to them and enjoy the tax-free income subject to exemption limits.

Trick #3 – Invest money on Major Children Name

In the same way, even the money gifted to major children (above 18 yrs) will not be clubbed in your hand. So in case you have children who are 18 years or older who are either studying or earning at a lower tax slab than you, then gifting your surplus money and investing in their name will neither attract gift tax nor clubbing of income will apply.

Income earned out of investments made by your major Children out of the gifts given by you will be taxed in their hands only.

This is really a great thing because if you are going to pay for some upcoming children education goal or marriage goal, then instead of investing the money in your name and funding the goal later, why not just gift the money to the child and invest it in their name itself. When the goal arrives, the money can then be used, but for years there will be no tax liability (or lower tax) and you will save a good amount of income tax.

You may even consider giving interest-free loans to your children as it is lawful and can help you save you more taxes. However when the children are minor then clubbing provision will attract except in cases where the income is earned by the child due to his or her skill or talent.

Plan your Income Tax with help of a CA

There are lots of ways one can save income tax by restructuring their investments in family members name. Generally people do not have much time to plan all this and for years they pay higher income tax and never optimize it. If you really want to work on this. I suggest hire a good CA for his consultancy services. This can be your family CA or some friend if you want or some external person whom you can trust.

Let me know what new ideas are coming to your mind right now after reading this article? What are your views on this? Please share it on comments section.

This article is guest post by Rishabh Parakh, a Chartered Accountant by Profession & Founder Director of Money Plant Consulting, which provides services related to income tax filing, scrutiny cases and various other CA related services with operations in Pune, Mumbai and expanding to other regions.