Tag: Beginner Investors

Arogya Sanjeevani Policy – A uniform health insurance plan (REVIEW)

Posted on by Jagoinvestor

IRDA has recently announced the launch of health insurance policy called “Arogya Sanjeevani Policy” (official link) which will have standard features which are required by a common man for his health insurance requirement.

IRDA thought of a standard policy which will be exactly same across insurers with similar features. In this review, I plan to give you details of this policy.

Arogya sanjeevani health insurance policy review

What is Arogya Sanjeevani Policy?

It’s a standard health insurance policy for a common man with standard features. It will be offered by all health insurance companies in India starting from 1st April, 2020 onwards. The name of the policy will be ‘Arogya Sanjeevani Policy – Insurance company name’. The premium, however, may be set by the insurers on their own.

The existing health insurance policies in market are quite complex at times with fancy features and differ from each other so much that a normal investor finds it very tough to choose a suitable policy. Hence IRDA came with this policy.

Who can buy the policy and for whom?

Any person whose age is between 18 and 65 yrs can take this policy. Either the person can buy an individual policy or buy the family floater option if one wants to cover other family members.

“Family” here means

  • Spouse
  • Parents
  • Parents-In-Law
  • Dependent children between 3 months to 25 years (natural or adopted)

Note that any children who are above 18 yrs and financially independent will not be eligible for family floater.

Features Arogya Sanjeevani Policy

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Feature

Explanation
Sum Assured The minimum sum assured is Rs 1 Lac and maximum sum assured is Rs 5 Lacs (in the multiple of 50,000)
Premium Payment Frequency Premiums can be paid on a monthly, quarterly, half-yearly and on a yearly basis. It will be a 1 yr policy renewable each year
Cashless Benefit Yes, there is cashless benefit under this policy
Maternity Benefit Not Available
Renewability Lifetime renewability is available in this policy.
Minimum & Maximum Age The minimum entry age for the principal insured is 18 years and the maximum entry age is 65 years.
Waiting Period 30 days of waiting period. Hence no claim will be paid in first 30 days after buying policy
Co-payment A fixed copay for 5% is applicable for all ages in this policy.
Portability Yes, the policy offers the portability option to other health insurance companies
Ambulance Charges Max Rs. 2000 per hospitalization
Pre & post Hospitalization 30 days Pre Hospitalization & 60 days Post Hospitalization expenses
Ayush Treatment Yes, it’s Available.

AYUSH means all treatments related to Ayurvedic, Yoga, and Naturopathy, Unani, Siddha, Homeopathy
Waiting Periods There are 2 types of waiting periods, 24 months and 48 months.

Most of the illness have only 24 months of waiting period, but two of them have 48 months of waiting period.
Sub Limits
  • For hospitalization expenses like room, boarding, nursing expenses up to 2% of Sum Assured or a maximum of Rs.5,000 per day.
  • ICU/ICCU expenses will also be provided up to 5% of sum assured or a maximum of Rs.10,000 per day.
  • Sub-limits of cataract surgery are equal to actual expenses i.e. 25% sum assured or Rs 4 lakhs, whichever is lower.
NCB (No Claim Bonus) NCB (No Claim Bonus) of 5% for each year up to 50% of the sum assured is covered.
Riders Not Available

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Policy Cancellation and Refunds

You can cancel the policy subject to following refund options

  • If you cancel within 30 days, you will get 75% premiums back
  • If you cancel from 31 to 90 days, then you get 50% premiums back
  • If you cancel between 3 months to 6 months, then you get 25% premiums back
  • After 6 months, you get NO refund

Is there any grace period in the policy?

Yes, For a yearly premium payment, 30 days grace period is allowed and for other modes of premium payment 15 days grace period is allowed.

Will the premium depend on my city or the zone?

No, it will be same across India. Note that some policies have zone-based premiums model

What are some exclusion of the policy.

The main exclusion is the maternity treatment expenses, but even treatments related to weight loss, change of gender, plastic surgery, hazardous adventure sports, breach of law or due to war, etc are excluded from the policy.

Good points of Arogya Sanjeevani Policy

  • All main features are available in the policy which is required by any investor
  • The policy has standard features, so no chance of getting confused when comparing the premiums of different companies
  • It’s my guess, but the premiums of this policy would not be very high as copay is there in this policy and no complicated features exist. Also there is a very large market for this policy hence all insurance companies will compete with each other to keep premiums down
  • Its a no brainer policy for someone who wants to buy a “decent policy”
  • You can buy multiple Arogya Sanjeevani Policy from different insurers

Should you buy Arogya Sanjeevani Policy?

At the end, let me answer this important question.

Health Insurance is a long term product, and if you can afford the permission, you should go for a base policy which is very strong overall. I suggest one to go for a 10-15 lacs of base cover and extend the cover using super top up policies beyond that.

Overall Arogya sanjeevani policy is decent for a common man who wants a good enough health insurance policy which works. It’s like the Jan Dhan account which has all the decent features. However there are few things which are the issues

  • 5% copay
  • Sub limits of room rent
  • Maximum Sum assured limit of Rs 5 lacs
  • 30 days of waiting period

Hence, I would suggest to explore other health insurance policies which give option to take a higher sum assured and may also not have copay limits.

We also need to wait for couple of more months to see how this policy launch turns out to be and what kind of premiums will be charged by various companies. Overall, it’s a very positive development in health insurance space and this policy will give an opportunity to people from lower sections of society to buy a good enough health insurance policy.

Retirement Time Bomb (60 min video discussion)

Posted on by Jagoinvestor

Here is a 1-hour deep discussion on the topic of Retirement Planning and how India is set to have a massive problem in the coming times (and it’s still going on).

In this video, I talk with Mr. PV Subramanyam (also called as Subra) who is a retirement expert and has also authored a best selling book called “Retire Rich – Invest Rs 40 a day”

What is covered in this video talk?

Here are the discussions which are part of this 60 min talk.

  • What is Retirement (it’s not what you think)?
  • Investors attitude towards retirement
  • Retirement Time Bomb – The future of India
  • Job Opportunities which can be created if Govt address Retirement issue
  • Top mistakes investors do in their retirement planning
  • Where to invest for your Retirement?
  • Why retirement planning has become famous these days
  • How “bad retirement” puts the burden on children
  • A quick and simple way of estimating your retirement corpus
  • Early Retirement – What it means and is it possible?
  • Suggestions for someone who is already late for retirement!

It was a fun-filled talk I did in Pune, and I plan to do more of these talks with various other people in Industry. So keep a watch on it.

Do subscribe to our youtube channel, if you don’t want to miss out on the upcoming videos. Do let us know what you feel about the video and also share your views about retirement planning.

Manish

Why Investors are from Mars and Financial Advisors are from Venus

Posted on by Jagoinvestor

This article is a must read for every investor and financial advisor. The best part of this article is that it is about YOU (the investor) and it is about them (financial advisors). I and Nandish always discuss how financial advisors cant live without investors and vice-versa, but still their world are very different from each other. Both Investors and Advisors think very differently. It is extremely important for both to understand each other’s world and that is what today’s article is all about.

Right now I think advisors and investors both share love and hate relationship and the world of investment is structured in such a way, that they are inseparable. Even if they want, they can’t avoid having interaction or association with each other. Their thought process are at times very different, they view the game of investment from completely different place. Just imagine How magical the world can become if these two entities engage powerfully?. What can happen if they come on the same page and start to respect each other’s world. Such oneness can spread prosperity all over.

Before I write further, I want to make one thing clear that the world right now is full of good and bad financial advisors and investors both.

Step into Each Other World

Unless both Investor and Advisor step into each other world, its really not possible for help and co-exist with each other in a happy way from long term basis. This article is like ticket for both advisor’s and investors to step into each other’s world, it is an opportunity to embrace each other’s world and to accept their mistakes or the damage that they have done to each other’s world.

From last few months, We have closely observing and interacting with both advisor’s and investors community and have come-up with some differentiation. Some of the observations, you might agree and some of you might not. No need to react to them, but just see if you agree to them or not.

Investors and Advisors difference

The intention of this article is to help you get in touch with each other’s world. Let us know what you think about this ?

How prepared are you for these 4 bad situation in your financial life?

Posted on by Jagoinvestor

Are you ready for the bad phase in your life which might come anytime? How prepared are you? We should not be pessimistic in life and always look forward to thinking positive, but that does not mean, we should not be prepared for bad times. Bad things happen in life and you must have seen many bad things happening in others’ lives. We don’t prepare for these bad times, because we have somewhere believed that we are more lucky or privileged than others (if you don’t agree, ask yourself what are changing of your accident, and you will surely say, much lower than 95% of other people on earth).

are you ready in financial life urgent situations

Are you ready for these 4 situations?

When something bad happens in our life (or financial life), we suffer, our families suffer, lots of confusion arises (and many times we are not there to fix it back) and if we are alive, we regret about not preparing for small things which could have eased the situation. So let’s see how much prepared, are you? I want you to not just read, just keep asking at every point if it’s true in your financial life or not?

Situation 1 – What if you die?

Someone asked me a few months back to not use such direct words, but unless I do that, no one reads seriously. Now ask yourself

Does your family know how to take out money from your bank accounts? Do they know your ATM password? Will they be able to access everything you have in your head right now from passwords to remember how much money you need to get back from a friend, to where exactly your whole net-worth lies? Will they be able to arrange for the next 1 yrs of expenses if you are gone? What about the next 30 yrs? Have you prepared a BlackBox emergency kit for your family?

Situation 2 – If you lose the job?

I want you to imagine you lost your job right now at this moment. Now – Can you pay your next 6 months EMI? Will you have the guts to take your family out for a late-night movie and a nice dinner costing 3k Or will you tell them – “Its a flop movie, we can watch on a laptop ?”. Can you sleep well after you are rejected in your new interview ? Will you be able to say – “Sorry, I am forced to take this job because … “. What if the job does not match your liking, will you still have that power to say NO to the next job? Now your answer for all these things can be YES or NO, and its a clear indication of how well prepared are you for these situations. Its time to think about it?

Situation 3 – If you need Rs 5 lacs suddenly?

Lots of people I know cant arrange Rs 1 lac given some emergency situation, can you? If yes, then what about Rs 5 lacs? If I give you 24 hours or 1-month deadline, then can you do it? Have you been preparing for this kind of nasty situation in your life? Now, why would you need 5 lacs? There can be many things which can happen like – some medical emergency situations in the family, or because you found your dream home and have to make down-payment.

So, If you cant arrange for 5 lacs, then ask yourself how much you can? 3 lacs ? 1 lac ? Rs 50,000 ? The good news is that you don’t need 5 lacs at the moment, but the situation can come anytime? Start working on it.

Situation 4 – If you were to be hospitalized?

If you were to meet an accident and hospitalized, things would still be in control, if you are conscious, because you can guide your family on what is to be done and from where to arrange for money and where are your health insurance documents, but Imagine you are unconscious and can’t communicate to your family – Does your family know how to arrange for few thousand rupees to start with ? Do they know where is your health insurance card or how to access your emergency fund? Do they even know the name of your health insurance company, how about the TPA phone numbers? Have you ever stored an ambulance service number on their mobile or , your mobile which takes not more than 1 min exactly!?

Do you have any black box kit prepared for your family which has some useful information for them in financial life which makes their life easy? In my 2nd book – “How to be your own financial planner in 10 steps“, In the last chapter, I have discussed this matter at length and also told the importance of documentation for a stronger financial life, do order it right now, just takes few hundreds of bucks.

Are you getting ready now?

You don’t have to feel overwhelmed because you are not ready, A lot of others are also in the same position, you are lucky to realize this now and have lots of times on your side to work on it. Do not look for perfection and strive to complete 100% of what is asked, but at-least identify core issues in your financial life and situations which you feel you should be ready with?

By the way, how many months can you survive without a job? Tell me in the comments section and how you feel about it?

Term plan or Health Insurance ? Which is more Important if you have limited money ?

Posted on by Jagoinvestor

Few weeks back, I posted an interesting question on our Facebook Page asking – “Given limited money – which is more important product to buy from security point of view – Term Insurance or Health Insurance ?” .

life insurance or health insurance

Lets say there is a guy – who wants both a term plan and a health insurance for his family and he only has Rs 10,000 per annum left with him, now he can either buy a 1 crore term plan for his family or buy a 5 lacs cover for his family. But he will be able to get only one of them from this Rs 10,000 left with him, then which out of term plan and health insurance is makes sense for family and is more useful? Lets see some points, raised by our facebook fans, which will help us to think about it.

1. Death is less probable compared to hospitalization

One of the argument is that, there are far greater chances of getting hospitalized because of some reason then dying. So if you look at this problem from probability point of view, you can be almost sure that in next 5-10 yrs, you or one of your family member will be hospitalized for some or the other reason – big or small. But meeting death is very less likely in comparison. So a lot of people argued that Health insurance is much more important than term plan, if you have limited money.

2. Premiums are increasing fast in Health Insurance and its can be claim every year

Another argument in favor of health insurance over a term plan was that, its a product where you can claim every year and protects your financial life from regular attacks of money sucking illnesses and accidents and anyways premiums are increasing very fast for health insurance (or would increase in future) because of the health care inflation. However for term plan the premiums are coming down over the years (now we might be close to saturation) .

3. Hospitalization Costs can be arranged in worst case

Now some people said that term plan is more important than health insurance and the biggest reason for it was that health insurance expenses are somehow manageable in worst case. You can take a loan, swipe a credit card, ask your friends and relatives or in worst case, sell some of your home stuff.

Life will again be on track somehow. But if you ignore term plan, its a very big risk for your family future, because the amount required by your family cant be arranged by asking it from someone (just imagine you die and now your family would need their monthly expenses for lifetime , your children expenses for current and future, their whole life is at stake now). It would generally run into several lacs or few crores.

life or health insurance

High Probability – Low Impact

So its very clear that term plan has a very high impact on your financial life, but less probability of its occurrence , however health insurance has low impact on your financial life (compared to term plan) , but is high on probability and its has potential to occur multiple times in your lifetime.

Balancing both Health and Life Insurance Costs

Another workable option is to divide the money into premiums for both term plan and health insurance, but in this case you will compromise with the cover amount of both the things however small it is. This way you will have both the things in your financial life, even if its small . Do you think its a workable solution ?

What is your opinion about this question ?

Simple vs Complex Financial Products – Which are more powerful ?

Posted on by Jagoinvestor

I was talking to one of my distant relatives and told him this – “When you want to increase sales of a financial product, make it complex, and if you want sales to boost a bit more, increase the complexity a bit more!”. Because the moment a financial product is “complex”, investors perceive them to be more valuable and worth investing. When a product is simple, it does not look powerful to them. Let me break this myth to you today.

If you look at any financial product, it will either be simple product or a complex product. Let’s see what they are

Simple vs Complex Financial Products

1. Simple Products

Simple Products are those which are very very focused, with one intention and true to focus, they are easy to understand. Some examples are Fixed Deposits, Term Insurance, Mutual Funds, Health Insurance, Motor Insurance, Recurring Deposits, Govt Bonds etc.

2. Complex Products 

Complex products on the other hand are those kind of financial products, which are built by combining two or more Simple products functionalities. Some of the examples are ULIPs, Endowment or Money-back plans, Fixed Maturity Plans, Child Plans , ULHP (unit linked health plans) etc. You will see that its much easier to sell complex products because they offer more than one feature and people feel that they are such an excellent products with some magic, but the truth is that they just have features of more than one Simple product.

For example if you take a ULIP, its just offers the functionality of term insurance and mutual funds. You can get life cover and also enjoy market linked investments, & just like that a endowment plan or money-back plan also offers the functionality of a term plan and a bond.

Simple Products are Powerful

If you have been a regular reader of this blog from some years, you would have realized by now that simple is powerful and that holds true for financial products also. All you need are simple things like a term plan, a health insurance policy, a SIP in mutual funds and an emergency fund and you are pretty much have completed your financial planning. You don’t need much more than these simple products. In my 1st book – “16 personal finance principles every investor should know” , I have stressed upon several simple concepts, which will how you how easy is the game of personal finance.

Complex Products have high CHARGES

I am not commenting on the usefulness of complex products, because they can also offer a great way of investing your money, but the one thing that’s really clear is that a complex product can charge higher fees just because someone has taken the pain of creating those complex products. Now because customers feel they are special, they will also be ready to pay high fees … and that’s exactly what happens. When you perceive something as powerful (complex seems to be powerful to many), you will be more ready to pay higher fees.

Do not look beyond Simple Products

For a common investor, I would say that most of the times Simple products are enough. When they come across a financial product, they should see how simple it is and what core functionality it provides. If it tries to do a lot of things and you are lost in its features, its probably a time to say NO to it and move on.

A lot of people have created more wealth by wrongly investing in Simple products that those who correctly invested in complex products. A simple law of Design is that “simple is powerful” and it’s true for most everywhere, including personal finance.that this article does not mean to say that all the complex products are bad and are not worth looking, we are just talking about a general principle!

What do you think about this simple principle and do you also observe the same thing?

Example of mis-leading financial product advertisement

Posted on by Jagoinvestor

Does False and Misleading Advertisements come under the heading of “Mis-Selling” ? Have you ever saw a financial product advertisement where numbers are tweaked and framed in such a way, that the financial product looks very attractive and not-to-miss deal ?

You see the advertisement and nothing looks wrong to you and you just concentrate on numbers like 15% or 17.45%, as advertised ! . What about mis-selling by big financial institutions who are considered to be too-big-to-fail?

I came across the following advertisement (printed here only partly) in several media including the Company’s website.  Even before that, one of our investors, was also flummoxed by the high yield indicated and asked us to explain how it is possible?

Well, a bit of creativity and lot of embellishment seems to have achieved the desired results.

Below is the snap shot of that advertisement which shows the amazing effective yield of the product.

SBI-Fixed-Deposit-advertisement

This advertisement in question is about a 5-year deposit from one of the biggest PSU banks in India, which is also eligible for exemption under section 80C of Income tax act. No wonder, tax saving season has just arrived!.

Tax Saving Fixed Deposits, lets you invest a certain amount, on which you will receive tax exemption subject to maximum of Rs.1 Lakh.  This would translate to reduction in your tax out go, depending on the tax bracket in which you will fall under – it may be either 10% or 20% or 30% and the cess applicable thereon.

A simple and straightforward situation.

Since it is a bank deposit, it is perceived to be safe.  There is an additional layer of safety, because the bank in question may be bracketed under the category of government owned (major share) and it is too-big-to-fail.

What is the problem with this advertisement?

There are so many of these kind of advertisements, enticing you to invest in them because it is the tax planning season.  In your interest, if there is little bit of embellishment of the numbers what is wrong with that?

Anyway, you need to be ‘sold’ something, otherwise you will end up paying lot of tax to the same Govt. Instead, just listen to the advertiser and put the moolah where the message belongs to.

At this juncture, let me make it clear the meaning of mis-selling and quote from one of the recent regulations by SEBI Securities Exchange Board of India.

For the purpose of this clause, “mis-selling” means sale of units of a mutual fund scheme by any person, directly or indirectly, by –

a) making a false or misleading statement, or
b) concealing or omitting material facts of the scheme, or
c) concealing the associated risk factors of the scheme, or
d) not taking reasonable care to ensure suitability of the scheme to the buyer.”

If we go by this definition of mis-selling, let us see where does the subject advertisement stands.

1. The advertisement does seem to make a false or misleading statement. While calculating the effective yield at 16.64% or 17.39%, it does not adjust the effective yield for income tax. Even though it says the return is pre-tax, it just stops there.

Why is it important to adjust the return to taxation?  Because to arrive at Effective Annual Yield, it has assumed that the investor falls in the category of 30% marginal tax rate and hence he or she is eligible for “B. Immediate Tax Savings” of Rs.3,090/- which is 30% + 3% Cess thereon on Rs.10,000/- deposit.

When such being the case, how the advertisement can conveniently ignore the taxation on the interest income? Interest on bank deposits is taxable as “Income from other sources” either on cash/receipt basis or on accrual basis depending on the method of accounting followed by the investor.

It is a convenient forgetfulness on the part of the advertiser.

2. The advertisement appears to attempt concealing or omitting material fact such as taxability of interest income earned by the investor.  It has also not highlighted the tax deduction at source applicability in case the interest income is beyond a certain threshold.

3. The advertisement (in its full form) also has not highlighted the risk factor of possible default or delay in payment of interest in time and the capital.  Since bank deposits need no rating, no one bothers about the underlying risks.

4. The advertisement (in its full form) does not highlight the suitability of the scheme to the buyer.  It brings in to its fold all investors under the category “Others”.

Therefore, it fails by all the four counts that are applicable for lesser mortals, such as mutual fund manufacturers and advisers.  Of course, you can not apply one regulator’s dictum on others in letter; what about the spirit? Just because RBI is the regulators for bank, should bank not follow what is in interest of investors ?

What about Bank Social responsibility ?

What would be the state of mind of the investor, when she sees such a highly enticing advertisement?  In the absence of a super-regulator or dialogue between various regulators, different regulators seem to have different yardsticks about mis-selling or mis-representation. But who cares as long as it is a big govt. owned entity?

It used to be the same case when govt was running a mutual fund business from early 1960s till late 1990s.  The mutual fund scheme was also guaranteed by the Govt (remember UTI), was eligible for tax exemption and the fund house was considered to be too-big-to-fail in its time, even though such a coinage was not fashionable in that period.

Finally the mutual fund business did collapse under its own weight and thousands of investors lost their hard earned money.  Even though the government stepped in to arrest a free fall, the sheen of guarantee was lost.  No lesson seems to have been learned from then to now.

What is the actual situation therefore in the present instance?

Below are the various possible scenarios:

SBI Fixed Deposit Returns tweaked to fool and mislead investors

As you can see the effective annual yield in all the above scenarios is nowhere near the one mentioned in the advertisement the moment you take in to account the taxability of the interest income.

How many of the investors who are already in the marginal tax bracket of 30% would have the limit left to invest in this fixed deposit scheme and also would be able to receive tax exempt interest income?

They will be definitely in minority or possibly no one would meet both the conditions at the same time.  What can one say about the tactics of highlighting a scenario applicable in minority cases to all investors?

Misleading or partially true advertisements

Why should you as an investor and we as financial planners be worried about such misleading advertisements?  Are we not immune to such misleading illustrations by many of the financial products manufacturers already?

In fact recently the Finance Minister of the country mildly chided one type of financial product manufacturer not to mis-sell the products.  He attributed the consistent fall in the market share of such a product to the past sales practices.

Herein lies the crux of the problem that investors are floating in a sea of distrust and when very big names keep publishing such misleading or partially true advertisements,  the distrust would keep growing and that is not good for the saver or investor and in turn to the economy.

Already some of the insurance products and mutual funds have become the victims of mis-selling, perceived or otherwise. I am really surprised that such a big institution is indulging in a highly embellished communication of doubtful veracity when there is no need for such gimmicks.  I am also worried because I and my family have our banking relationship with this too-big-to-fail entity.

About the Author – The article is written by Narendra N Kondajji, A bangalore based CERTIFIED FINANCIAL PLANNERCM (CFP) . His website is  www.procyonfp.com and this article was originally appeared on his blog here

How a newcomer should start his financial life – 4 steps

Posted on by Jagoinvestor

Today we will talk about how a newcomer or a fresh investor start his investment journey. We will see 4 steps which a newcomer can follow to start his invstments. I see a lot of new people on the blog asking things like

Hey Manish

I am totally new to this world of investing, I just joined job 3 months back and it seems like I have no idea how to start. I can see my friends who have been in job already, but they have messed up so much in their financial life. I do not want to be that way and want to do best. Can you tell me where should I invest?

In today’s world of over communication and an environment where things look complex it’s no wonder, a new person is confused. While there cant be a one strategy that fits everyone, we can still propose a generic 4 step rule, which can help most of the fresh candidates and these 4 steps becomes more important these days because most of the people mess up hugely in the first 5 yrs of their financial life and they have no idea how important starting years are in financial life. So today, here’s a look at the 4 steps, I feel will be applicable for most of the people.

How a New investor can invest

Step 1. Enjoy for the first year – Spend !

Almost everyone who starts a new job has this feeling for a long time  – “Once I start earning, I will buy things for my parents! I will buy a bike! I will roam places! . I will buy that awesomely cool mobile which I could not afford when I was a student! . I will do this! . I will do that! I will go here! I will go there!” . Everyone goes through that feeling and when I started my first job, even I had those same kind of excitement.

You know what? This is totally acceptable and a 100% correct!

The moment we enter the world, we become the part of the rat race (remember 3 Idiots?)  We get good grades, we get into best school, study hard to get into college, and then finally land at job, assuming its the end of the race. At this point, if someone tells you – “Start Investments Early!”, what would be your reaction ? I would say that as a statement, its a great thought, but to a young guy (or girl), who is yet to get comfortable with the environment, it’s a foolish statement, distant from reality and kinda crushing the emotional side for their ‘desire to spend’ .

The only thing which makes sense at this point is to let all those wishes come true! Let the guy spend!. Let him or her spend on those things which he or she ever wanted. Let them splurge! . Buy things which they dreamt about for years . Let them travel! . Buy gadgets! . Shop for clothes and phones and whatever they wish to! .

I’d say, go for it!. Let it happen for the full 1 year in the start. After a year, the person should have done most of what he or she wanted, in that time, he or she should be more settled in the first job. He/she would have got a taste of “earning money” . Now! This is the good time to talk to him about finances.

Step 2. Start a Recurring Deposit and Start learning

The next step is to get started, to get into the process… The biggest issue which I feel with newcomers is that they do not have this habit of “regular investing” . Lots of people, when they start their financial life, want amazing returns immediately! . They hear about SIP from media, they hear about stock markets and real estate markets and suddenly the only thing that plays in their mind is “high returns”.

First, they need to work on their “habit of investing.” They should first understand, what it means to save regularly, they should first get a feel of how money grows over time. A person is mostly raw  in the beginning and needs some serious understanding of basic concepts and how everything works!  The need of the hour is “habit” and “education”. For anyone new to investing and who has just started his career, should read my first book “Jagoinvestor” where I talk about few fundamental principles of personal finance. From most of the people who have read it, they told me that it was an eyeopenor for them. If you want to get a understanding of what it looks like download this sample 1st chapter of my book and read it . It also has tons of reviews from other people who have read it already.

So coming to the point, what can this new investor do at this step once he is ready to take the plunge ?

I can think about 3 things here.

a) First, open a Recurring Deposit in your bank for a big amount which you can save. It can be 10,000 , 20,000 or even 50,000 depends on how much are you saving! . This will make sure that a part of your salary is now getting invested in a Recurring Deposit on a regular basis for next few months atleast. You can see some money regularly invested and get a feel of how money grows over some months. The money will also be safe.

b) This is also a serious time to start exploring and learning about the other kind of investment options. You can learn from all kind of websites, blogs and books written on personal finance and more. Ask questions if you have any doubts on our Q&A platform (we already have 4,000 questions and 20,000 answers on it). This phase will act like the preparation for rest of your life. The clearer the concepts and fundamentals to you, better it is. At this point, you should concentrate on learning things. Your money is getting accumulated anyway in the recurring deposit and is safe. So nothing to worry about there.

c) Apart from the above points, you can also start the background documentation & processes which will be required in the future. You can apply for your PAN Card incase you dont have, start a demat account, get your KYC done for mutual funds investing. If some document is missing, apply for it, & open more bank accounts if you think you would need them. It’s like, you’re getting all your weapons ready for the future.

For those newcomers who like to learn through Video’s – we have a 37 min course called Basic Concepts of Personal Finance on our Jagoinvestor Welath Club.

Step 3. Complete Most Important and Primary Tasks First

Now, you are ready & educated, have a good understanding of everything, gotten a taste of investing money and are ready for the next step. Now in any financial journey, there are few steps which you should take right at the beginning. These are like the “first things first” tasks. I see people on this blog, who have not completed these important early tasks even after 5-10 years of their first job. There are few things like

These are mostly one time tasks. Once you complete them, They are complete ! . You might have to pay a regular premium for few products, but the main task of taking actions in those areas are complete, which most of the people struggle with. Understand that, if you delay these most important tasks, they will just get pushed for “future” and it will take ages to complete those when you actually need them.

Remember, these one time activities complete a major part of your financial life. After this, you mainly have to just review these each year from time to time, and mostly concentrate on your “investments part”.  After you have completed these tasks, your primary objective is wealth creation. A lot of people I see are still lost in these primary, first level tasks even after years and years , just because they didnt do it in start and now when its time for concentrating on their wealth creation, they are still stuck in these primary level tasks.

By this time, you will be more comfortable investing in new avenues like Equity mutual funds, Real estate, ETFs, Stocks, and other investments. To start with and to get a taste of mutual fund investing, start SIPs in a a balanced fund like HDFC Prudence or HDFC Balanced or if you are too risk averse, you can also start SIP in Montly income plans (MIP’s) or some debt mutual fund.

4. Design your financial life and explore more

In the end, after  you’ve completed the 3 steps mentioned above, you can see, how easy it would be to extend your actions. I’d say the above 3 steps will take anywhere around 2-3 years depending on what kind of person you are and your circumstances. In those 2-3 years, you must have accomplished these things

  • You must have done a good amount of spending and fulfilled most of your wishes
  • You must be educated well about financial matters and have good clarity about your future.
  • You must have completed the primary level of basic tasks which any financial life needs
  • You must have saved a respectable amount through recurring deposits and other investments.

At this moment, you can plan the next 5-10 years of your financial life. Clearly define and prioritize your financial goals in life, and start investing aggressively for your wealth creation. Even if you feel like applying for a loan to buy home or car, you should be able to handle it in a much better way after the first 3 steps. Because you know about his future premiums outgo, & your aspirations more clearly. At this step, if you feel you need some kind of external help to get a better clarity, you can also hire a financial planner for yourself and work with him to get more clarity. A small investment for your financial life can prove to be worth.

You can see that with these 4 steps, the actions one will take will be more defined and realistic, rather than the random events, that push you & which gives an unwanted shape to your financial life.

Conclusion

You can see that these 4 steps are just about giving more meaning and a better shape to any financial life. It focuses on slowing down and then slowly moving forward in your financial life. Any new person is very excited about his life ahead and there are great chances to mess up. These 4 steps will help a person to move forward in his financial life. Good luck!

First 5 yrs of your earning life – Does it matter ?

Posted on by Jagoinvestor

A lot of people complain that they do not have much wealth in their life despite earning from many years. This brings an important point in question. What did they do in the first 5 yrs of their earning life? It’s very clear that the first 5 yrs of your earning life leaves a very big impact on your future financial life. Your financial life shapes a lot due to the first 5 yrs of your financial life.

There are 3 possibilities

  • A person has saved & invested a maximum of his earned money in first 5 yrs
  • A person has spent a lot of his earnings in the first 5 yrs.
  • A person has kept a balance between his spending and investments/saving in the first 5 yrs.

Are you one of those who started young with a nice paying job, but did not focus on your first 5 yrs or are not focusing on it right now. You feel the future is so promising and your abilities/expertise are so great that you don’t need to worry so much. It happens because at times people are seriously unaware and ignorant that life turns out very differently then they think. There are many events which demand money and attention at any cost. These are some times unplanned or just popup in life if you had not planned for it before – like Job loss, Marriage, Sudden health-related expenses, etc. The moment these events happen or come near, then you realize – “Oh my god – I never planned for it or I underestimated how much money I will need”.

In my book Jagoinvestor there is a chapter where I explain how your first 5 yrs investments, out of a 30 yrs period make the 50% final corpus and rest another 25 yrs makes another 50% corpus. That means the initial 16% tenure makes 50% corpus and later 84% tenure builds rest 50% corpus – (read sample pages)

So if you are 5 yrs late in saving and investing for your retirement – You will end up with 50% less in your retirement – This might not sound too scary, but it is. This could mean looking for a part-time job compared to an enjoyable retirement without much tension. There is a big difference between what 50% less corpus can do. It’s like earning Rs 30,000 per month from next month compared to Rs 60,000 right now, imagine your life from next month.

Early years of your earning life

 Spending Maximum vs Investing Maximum

Let’s talk about the first two possibilities mentioned above – “Spending Maximum” vs “Investing Maximum” . Let’s say there are two guys who earn 75,000 per month. Both are unmarried (we all are, at the time of getting a job and next few years, possibly 4-5 yrs) and have similar conditions.

The first guy operates from the mindset of  “Life happens now and this is the time to spend, who knows about future“ , however, the other guy operates from the mindset of “Life is uncertain, I can save today so that I can protect my future now”. Both are ideologies and the way you think, but it can have a drastic impact on your life. Because your financial life operates like a chain reaction. What you do in the first year, has some impact on 2nd year, what you do in 2nd year affects your 3rd year and so on, obviously assuming that your pay rise is natural and not shoots from 3 lacs per annum to 13 lacs per annum in short term.

If you are struggling to make a down-payment for your dream house TODAY, you can clearly see your early 5 yrs have been and identify that point where you could have been more responsible, where you could have given your financial life a new direction and shape. If you are not able to fulfill your big goals coming soon, it’s a clear indication that you have done something wrong in the first 5-6 yrs of your financial life or early years. In the same way if you are at peace today, you can clearly identify what right things you did at the start of your career.

Real-Life Experience of Saving Early in Life

One of the readers Ashish shares his experience about how he saved early in life and how his life is right now.

After completing my study in 2004, I started my career in IT industry. Three thing was clearly injected in my mind by my father :-

1) Always maintain the cash for emergency. As in emergency cash is primary and relation is secondary.
2) Never go for loan. If you need money, first check with your relative and don’t mind paying interest on the money you owe from them. It will always be cheaper then bank. If no help available, consider the thing is not worth to invest.

3) Respect your money.

Though I am not obedient son of my father but “Money matters”. So I started maintaining one excel sheet about my expanse. I must say with my experience that daily expanse is not cost you more if you spend smartly. So at the start of my career, I compromised on my comfort level. Instead of staying in separate house, I searched for shared accommodation or PG which really helped in saving a lot. Instead of buying bike, I calculated my per-day travel expanse and tried my best to minimize it by sometime taking lift with office colleague :)

Travel and Stay is the biggest expanse as per my experience and this clicked me an idea of buying a house. I was not capable enough to buy the house, so instead of taking loan from bank I knocked my father’s door and able to convince him on 4% interest rate(following papa’s advice). No need to say that I paid 4% or not, but he is happy to see the value of that flat on today’s rate. But I was not able to stay in that house for more than a year as I changed my job very frequently(at least once or twice in a year) and happily rented so far.

I travelled from Gurgaon–hydbd–Noida–Pune–Mumbai and then finally got chance for onsite UK in 2008. I applied the same logic and maintained at least 1 lac saving per month. And the story continued since then on saving more and spending less. With this, I am able to manage to renovate my own house for my parents (which they call now as my house officially :) )

Then I married in 2009 on my own expanse and came back to India last year when we both thought that there is no place better than India on this earth. And it get proved as well, when my wife also got the job in same company and same building :) . Before coming to india, I showed no interest in paper form investment except ppf and property investment. But after becoming the member of JagoInvestor and reading some well written and advices article, I did another smart investment. 60 + 40 lac term insurance for me an my wife from two different company. One personal accident insurance of 40 lac from LnT for myself.

SIP of 8k per month in different MFs , which I considered after reading one of the article on jagoinvestor where the comparison was made with child plan and other investments and purchased one villa plot in Bangalore. So far no Loan :) . So far the story is this but adding new pages everyday… I know there are more happy family out there but just want to say that “Saving does help not hurt”.

I would say your life has a constant amount of comfort in your financial life, it’s your choice when you want to have it, at the start of later years or keep a balance in start and end. The best approach I feel is to 1st year your earning life to yourself, enjoy, spend and do what you always wanted. After the first year just get damn serious ! .. What do you think?

Is looking for perfection killing your financial life ?

Posted on by Jagoinvestor

Do you know that looking for perfection for everything in your financial life can be one big reason why your financial life is a mess! . If you dont think so, read the story below.

The Perfect Woman

Once upon a time, an intelligent, attractive, self-sufficient woman in her late twenties decided that she wanted to settle down and find a husband.  So she journeyed out into the world to search for the perfect man.

She met him in New York City at a bar in fancy hotel lobby.  He was handsome and well spoken.  In fact, she had a hard time keeping her eyes off of him.  He intrigued her.  It was the curves of his cheek bones, the confidence in his voice, and the comfort of his warm, steady hands.  But after only a short time, she broke things off.  “We just didn’t share the same religious views,” she said.  So she continued on her journey.

She met him again in Austin a few months later.  This time, he was an entrepreneur who owned a small, successful record label that assisted local musicians with booking gigs and promoting their music.  And she learned, during an unforgettable night, that not only did they share the same religious views, he could also make her laugh for hours on end.  “But I just wasn’t emotionally attracted to him,” she said.  So she continued on her journey.

She met him again in Miami at a beachside café.  He was a sports medicine doctor for the Miami Dolphins, but he easily could have been an underwear model for Calvin Klein.  For a little while, she was certain that he was the one.  And all of her friends loved him.  “He’s the perfect catch,” they told her.  “But we didn’t hang in the same social circle, and his high profile job consumed too much of his time,” she said.  So she cut things off and continued on her journey.

Finally, at a corporate business conference in San Diego, she met the perfect man.  He possessed every quality she had been searching for.  Intelligent, handsome, spiritual, similar social circles, and a strong emotional connection – perfect.  She was ready to spend the rest of her life with him.  “But unfortunately, he was looking for the perfect woman,” she said.

Just like the story above, we all are looking for the “best” and the “perfect” financial products, services and financial life, which does not exist in reality. As we don’t get perfection in most of the things we are looking for till the extent we want, we don’t take any action. We keep on searching that perfect financial product which has no defect and which is better than it’s competitors and gives us the maximum benefit.

Perfect Financial Life

Let me share with you couple of instances which happen in real life

Imagine a guy who wants to buy a term plan. He wants a term plan which is cheapest in the premium, he wants a term plan with best customer support, he finds few options. He was going to buy it but then suddenly he read that there is something called “claim settlement ratio” and the best of premium and customer support is of no use if this “claim settlement ratio” is not high. 3 months are gone.

He again gets on net and then concludes that the company with best settlement ratio’s have high premiums and only 2 companies are with good settlement ratio and low premiums, but he has seen 2 people complaining on jagoinvestor.com about the bad customer service. He decides to wait for some other company which fits in his criteria. 2 yrs passed by .. he never took any term plan.

Now imagine a guy who wants to go for a fixed deposit for 3 yrs. He is so excited with high interest rates that he decided to put some extra money then he planned for. But then came the issue, there are smaller banks which are offering 0.25% higher interest rate than his bank and he does not want to “loose” the free interest money. After all, all the banks are same. Then some one advises him that never go for pvt banks because they are all “chor”, but PSU banks especially the big one’s which his father approves are not giving that high interest rates. While all this as going on suddenly banks have now dropped the rates back and all his plans are dropped. His money kept lying in saving banks only.

Now again imagine this guy wanting to hire a financial planner, The planner he wants to hire comes on TV , writes few articles on few websites and also educates everyone. The financial planner charges Rs 20,000, but this guy “feels” that the fees is too high for him and that planner is not giving him sample plan also and the planner is not ready to give a free consultation too! . So there are few things which didnt match his expectation and he decided to give himself some more time. And this guy had 20 lacs in saving bank account which remained there for next 3 yrs because he didnt know where to invest it for best returns.

Is looking for perfection stopping your financial life to grow?

Now coming to the real point, what I want to say is that we all are looking for perfection in our financial lives, mutual funds, term plans, financial planners, bank deposits, relationships, education, marriage etc etc. This looking for perfection is somewhere not helping us grow. Its stopping us from taking decisions which can be much much better than not taking any decision because we didnt find that perfect thing.

90% Perfection Rule

I will say that the only solution to this problem is to look for only 90% perfection in whatever you do and let 10% go. Focus on the next step, that’s taking action because 10% of it will be things you will neither be able to find out, nor it will be totally constant. So as soon as you start getting a feel that you have understood 90% of something and 10% of things are remaining, focus your mindset on taking action, choose things based on that 90% knowledge itself. While this 90% is subjective, you can choose 95% of 85% , but make sure its not 100%, because then it does not serve you.

What do you think about this?