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Are you the one who used piggy banks in your childhood to store all the money gifted to you by your relatives? Do you also remember getting happy at unexpected big amount of money you managed to save?

For most of us, the simple piggy bank was our first exposure to the concept of savings. Today, probably in the digital age, the piggy bank is seemingly lost somewhere. The world has changed and children today have much more exposure to finances and money. Teens today are one of the most sought after consumers for a large market, not just toys but things like clothes, entertainment, education, consumables, gadgets, games and so on. In such a world, our intent of exposing them to the basic personal finance principles and building good habits towards finance is a big challenge.

Its time for us too to upgrade our approach. During the adolescent and character building years of children, it becomes very important that we also build good money management habits and understanding amongst our children. The broad objectives for us as parents can be to:

1. Give understanding on the importance of money 
2. Make them comfortable and confidently in handling money 
3. Make them capable of managing money safely 
4. Make them financially responsible 
5. Develop enthusiasm for them to learn more and start saving for future 

As parents who also happen to be investors, we surely can do a lot on this front with out children, especially when the usual academic education does no justice to this very critical aspect of life. Here are a few ideas on how we can pursue our objectives on money matters with our growing children…

Pocket money:

In many ways, the pocket money to children is not different than the salary you earn. This simple understanding opens up to a lot of things which can be done with the pocket money. Pocket money is often the first taste of financial responsibility for many people. Giving your child a set amount of money on a regular basis, as well as the responsibility of paying for something they want, allows them to good money management habit. With pocket money, we can imbibe the principles of budgeting, savings, planning for big expenses, being disciplined & responsible, and so on. So the next time you think of giving pocket money, also think of so much more you can give along with just the money.

Budgets & Pocket money:

Understanding the value of money is crucial during the growing years. With most parents affluent today, they tend to pamper their child and fulfil most of their demands. Doing so, the child may not value money and the effort you have done to earn the same. We can always seek participation of children while planning for household expenses /monthly budgets for the family. You can also encourage them to do some household activities or tasks to earn some extra money besides the pocket money. How about asking them to properly wash your car say once a week and show how much the regular car washer is earning? With digital skills, you can also reward them for completing courses or doing some digital activities on your behalf. Making them understand the value of money will surely impact a lot of other money related behaviour.

Spending Money:

There is no limit to how much children can spend today. From entertainment to dining out, to travel, to electronics, and so on. Monitoring their spending and asking them to limit their expenditure to a set budget is crucial here. As parents, we should also learn to say ‘No’ to a lot of unreasonable demands which children place on us. We can also help our children to learn from our own habits and money behaviour while planning our own /household expenses. So the next time you decide to a buy an phone, why not just have a random talk with your child and ask for inputs? If we show discipline in spending ourselves, the children will surely learn a lot more than preaching them something.

Working with Money:

Handling and dealing with money is another great skill to have. You can ask your children to go and open bank account for themselves. Transfer a bit of money to the bank account and let them manage /handle their money digitally. You may also give them pre-loaded money cards instead of hard cash. Ask them to track their expenses online with budget apps. Having a bank account and letting your children manage it on their own is a real time skill required to be learnt soon.

Investing Money:

Seeing money grow gives a very different level of learning to children. Experience is the best teacher and we should expose our growing children to some real investment /wealth management experience. Share with them how and where you are investing and let them listen to your discussions with financial advisor /MF distributor. It would be the best if we can actually open an online mutual fund investment account for your children along with a bank account and ask them to invest regularly with SIPs. Let them make some saving and investment decisions themselves and let them learn. Ask them to present and discuss with you on their investment choices and performance from time to time. Real-time experience on savings can really make a huge difference to their attitude towards money.

Being careful about money

Last but not the least, with the benefits of digital world, there is a dark side where all types of online frauds and scams are prevalent. A lot of children get addicted to games and there have been cases of spending absurd amounts on such online games. Further, with constant online exposure, children also need to be learn on how to be safe online not just with money but also with privacy and a lot of other things which are very risky. Teach them of all different types and ways of fraud, cheating, scams happening online. Digital security is something that needs to be put on the top of your list as parents of growing children.

Conclusion:

As parents, we wish the best for our children and wish them to build skills, knowledge and behaviour that are essential to be successful in life. We do not wish our children to be attracted to money or materialistic life but a the same time, we should teach them how to smartly use money as a limited resource so that it does not become a problem in life. Learning the virtues of contentment, happiness, sharing, caring, self-reliance, discipline and delayed gratification are the true lessons we should teach our children beyond just money management skills. We are sure, with little efforts and planning, your children will surely be thankful to you for life for what you teach them during these growing years.

Investing is a risk-versus-reward game. Where some have made millions, many more have lost. What are the characteristics that differentiate a successful investor? Successful and exceptional investors, such as Warren Buffet, Benjamin Graham, and Rakesh Jhunjhunwala, exhibit critical character traits that set them apart from the crowd. Have you ever thought about what all great and successful investors share in common? What distinguishing characteristics do these investors possess that you do not?

Successful investors aren’t necessarily the brightest people on the planet. Being successful in your investments may have little to do with intellectual prowess and almost everything to with your investing mindset. Let’s take a look at the key personality traits you’ll need to be a successful investor.

1. Patience 

Patience is an essential trait of successful investors. When they decide to invest, they do so by keeping the long-term picture in mind rather than making quick gains. Some of the investments may not perform at all for quite some time but if one is confident in the fundamentals, sooner or later, results will follow. In the long term, the prices will eventually follow and catch up with the profits. Even the corollary is true. We get tempted for a very high-performing stock where the fundamentals may not be that strong. There is a test here too. However, many of us fail the test of patience. All we need is some patience and the ability to remain calm in the face of turbulence.

2. Passion and Determination

The road to success in investments is paved and simple, yet difficult to follow. One of the key differentiating trait is consistency in what you are doing. All successful investors have their own science which they have practised over and over again and perfected over the years so that it now looks more like an art. One has to be committed and stay focused to practice your approach towards investments. Keep learning and improving your investment approach. If you are investing in say mutual funds, you may have saved a lot of time and effort in analysing stocks. However, still there is a need for you to be passionate about and focused on wealth creation and to follow your investment objectives /asset allocation regularly, with discipline.

3. Keep Emotions in Check

Sentiments are always present in the stock market. The stronger they are, the sharper is the market movement moves. Sentiments can cause a financial storm in the investment world. . That is why the risk of getting sucked into the market ‘mood’ is as dangerous as it is real. Beware of the two most powerful emotions in the market – Fear and Greed. Successful investors though can identify and differentiate the real from the hype and see beyond these emotions. They tend to get very active at such times since the market throws up many opportunities during this time and they act decisively during such irrational times and make the most of their investments. To be a successful investor, you must be emotionally neutral when it comes to winning and losing what. Winning and losing are just part of the game.

4. Understand and accept volatility

There are two way of dealing with volatility. One, the trader’s mindset which drives people to react to the volatility. Second, is the investor’s mindset where you avoid the volatility altogether. Many investors become concerned during volatile times and begin to question their long-term investment strategies. This is especially true for new investors. Experienced investors know that market volatility is unavoidable and designed to move up and down in the short term. More importantly, it is extremely difficult to time the market. Riding the volatility waves while staying afloat without getting wet is what would differentiate the successful investors from the novice ones.

5. Avoid Speculation

A speculation is a guess or a hope of something happening which is not well researched. Such speculations can be in form of tips from friends and from so called social media experts which we find floating around almost everyday. This should be taken with extra bit of caution as it can possibly be to lure unknowing investors. The opposite of speculation would be well-researched, future projections based on sound fundamentals and good assumptions. One can’t really replace speculation with such a well-researched projections. Successful investors do not engage in speculation and see it more like a gamble with a known outcome with time. Some novice investors may get excitement and fun in speculating but, it is a sure way of losing both peace of mind and money.

6. Ask Questions

Good investors understand that it’s better to ask a few additional questions than to regret or be locked into a bad investment. They are inquisitive and ensure that they understand all of the “fine print” of any investment product or asset. Any financial /investment product has its’ own positive and negative factors. Should it meet your expectations, needs, risk appetite, liquidity needs and costs, is something you must question. Before making any decision, successful investors ask questions and consult with unbiased sources. To put it another way, they educate themselves and invest only in products which they are very familiar with.

7. Listen to what is important!

Good investors keep themselves updated just enough on the major economic, geopolitical undercurrents that may impact the markets on the long run. There is no need to track daily movements of markets and listen to every little noise happening on a daily basis in the market. With experience, successful investors learn to pick up only the meaning information and avoid the rest as just noise. With information so easily available and in such a huge quantum, this is an essential skill we should master.

Bottom Line

Becoming a successful investor takes time, patience, efforts and learning. There is no shortcut to success but knowing the mindset and the characteristics of successful investors can surely help us in our journey. Surely, even we can and be as successful as our investment gurus, at least by our own standards.

Saving and investing is a big part of your financial plans. Sometimes, even planning for your cash outflows becomes a vital component of your financial plan. If you are looking for regular and predictable cash flow from your investments then the automatic choice for most of us would be the traditional avenues like bank FDs and postal deposits. However, the falling /low-interest rates on these schemes and inflation have made people worry about their future. The big questions are, will the cashflows it be sufficient and how long will the investment last?

Against this backdrop, Systematic Withdrawal Plans (SWPs) offered by mutual funds are increasingly gaining popularity and can be a great choice for investors looking to generate cash flow from their investments at a regular frequency. In this article, we shall dig deeper to know more about SWPs.

What is SWP?

Most of us are aware of SIP (Systematic Investment Plan) for creating long-term wealth. The SWP (Systematic Withdrawal Plan) is like the reverse of SIP wherein instead of investing money at regular intervals, investors withdraw/redeem a fixed amount from a scheme in an automated way.

The SWP serves as a perfect tool for planning for that phase in your life where you are dependent on cash inflows, for whatever reason. Here, the investor would usually make an initial investment in the chosen fund and then plan for SWP, either immediately or starting at a later date. The investor has the flexibility to customize the amount, the withdrawal frequency and the period of withdrawal – fixed instalments or till the balance is available in the fund. The investment lying in the fund would continue to grow, generating wealth for the investor, helping beat inflation and making sure that the fund lasts longer and the SWP continues for a longer period of time. The SWP is also a smarter and more tax-friendly way of withdrawing money. 

When can SWP be used?

1] Retirement planning /creating own pension 

A very common use of SWP is in retirement planning. Here, a part of the retirement corpus is invested in a hybrid scheme, with a mix of both asset classes – equity and debt, giving the best of both worlds. The equity is for the long term, for that extra boost of growth and the debt is usually for short-term safety. The choice of the fund category and scheme, however, depends on your needs, the risk profile, and the investment horizon, before the start of SWP. 

2] Creating a secondary source of income

A SWP can also be started in financial situations where there is a temporary need to supplement your income, like the recent pandemic. If you have adequate investments, an SWP could be used to meet your temporary financial needs. Also, instead of withdrawing a big amount in one go, one can smartly use SWP to maintain some stability in your spending. Note that in times when you have surplus cash inflows, aggressive savings should be done using SIP instead of withdrawing with SWP. 

3] Meeting specific cashflow needs for someone 

Another smart use of SWP would be in scenarios where you invest and dedicate a corpus for a specific objective/regular expense and an SWP is created to finance the same. The corpus would keep growing slowly while small withdrawal amounts would be credited to the bank account and from this, the intended expenses would be met. Even these expenses can be automated to ease your life. As an investor, you would only need to keep track of the fund balance from time to time and replenish it, if required. There can be many scenarios where such an approach can be used in financial planning. A few examples are cited below.

• Investing on behalf of children and then having SWP for education fees and pocket money 
• Investing on behalf of the wife and then having SWP for monthly household expenses, etc.
• Investing on behalf of dependent parents and then having SWP for meeting their expenses 

The right withdrawal rate:

This is an interesting question. What should be your sustainable or safe rate of withdrawal in order to make sure that your fund lasts for the required period of time and even longer? A complementary question would be, what should be my investment corpus to have the desired stream of money last for the required period of time? This is in fact at the heart of everyone trying to retire early and for those who are reaching retirement soon. 

The withdrawal rate is the percentage of corpus you intend to withdraw every year. So a 4% rate on a corpus of Rs.25 lakhs would mean that you are withdrawing Rs.1,00,000 every year (Rs.8,333 monthly). Obviously, the lower the withdrawal rate and the higher the investment corpus, the better. Also, the expected returns from the fund also matter in replenishing itself and growing to finance withdrawals for a longer period of time. While a rate of up to 3-4% may be considered safe, a lower rate can help account for market volatility, uncertainties and lifestyle improvements. The withdrawal rate should be as per your need – a higher rate would mean that your corpus gets exhausted early and a lower rate would be insufficient.

Benefits of SWP: 

a] Rupee Cost Averaging: Just like SIP bring discipline in investing, SWP brings discipline in withdrawals. You also benefit from rupee cost averaging with SWP, since a fixed amount is redeemed on a regular basis and one is not too much concerned about market volatility. With SWP, redemptions will be spread out evenly and it will protect you when redeeming a large amount at a time when markets are low. 

b] Tax Benefits: The amount withdrawn in an SWP consists of the original investment and the capital gains, on which there is tax liability. The capital gains tax is payable only on the portion withdrawn, unlike traditional investments where the entire interest generated on the investment is taxable on an accrual basis. Further, there is no TDS deduction on SWP withdrawals. With mutual funds, you can enjoy better tax treatment compared to traditional investments. 

To Conclude

SWP is an efficient and optimal way to plan for regular cash inflows. However, one must be careful and keep the financial objectives in mind. Remember, unplanned and unnecessary SWPs can cut short your wealth-creation journey. Get in touch with your mutual fund distributor today, to plan the right investment strategy, suited to your needs. Happy investing!

As you grow in life your needs and wants also grow. When you get your annual salary increment, the first thought always tends to be about your increased spending and borrowing capacity. With more money comes the added temptation to spend more and upgrade your lifestyle. This is human nature to want more when we have the means. Rarely does one think that with increased income, you can save more too! Almost everyone tends to ignore regular increases in investments and savings in the same proportion as your income growth.

While you may have allocated a fixed amount for investments such as mutual funds via SIPs, it is also important to increase the amount to match the hike in your income. More money in your hands not only means an increase in the ability to spend. It also means the responsibility to save and invest more.

However, it would be an additional task to increase your investments every year manually. The answer to this is the top-up or step-up facility available for SIPs. A SIP top-up allows you to increase the SIP amount at a pre-determined interval. For most fund houses, the interval is half-yearly or annually. The SIP top-up amount can be specified as a fixed amount at the set frequency over the original SIP amount. 

Wealth Creation with Top-Up:

Increasing your mutual fund SIP even by a small amount will help you to make more money in the long run. Let’s see the comparative results for a period of 15 years and an assumed return of 12%. 

As is visible, the wealth created more than doubles for the given horizon. Even small changes in the top-up amounts can lead to significant impacts in longer investment horizons. 

How Top-up SIPs can be helpful to you?

Some of the significant benefits of stepping up your SIP amount or increasing them periodically are as follows:

1. Convenient way to fight inflation: Inflation, or rising prices, erodes the purchasing power of our hard-earned money. A fixed SIP over the years means that you are saving less and less, as the value of money decreases. Further, the amounts that seem substantial to fulfil a financial goal today may not be a few years down the line as your status /living standards improve. Top-up SIP helps you counter inflation and keep you on track to match the impact of inflation on your overall financial plans. It is advisable to raise the SIP contributions equivalent to the inflation rate or more, just to maintain the real value of savings with time. 

2. Achieving bigger and faster goals: Regular growth of SIPs can help you reach your financial goals faster as you can accumulate the target amount earlier than the planned maturity date. The more you invest, the more you can accumulate with the power of compounding. Further, If your goals have a fixed maturity date, then you will have a higher accumulated wealth giving you more choices. 

3. Safety net for lower returns: At times, it may happen that the markets haven’t delivered the expected returns and/or at the time of goal maturity, the markets are in a bear phase. During such times, if you have increased your SIP more than initially planned, then it is likely that this risk is reduced. With additional wealth created with that extra top-up /new SIPs, you will have a margin of safety for market volatilities.

4. Better use of your increased income

When you get an annual increment, you may not immediately think of increasing your investments. But, if you top-up your SIPs annually by the expected increase in your income, you will automatically make prudent use of part of your risen income. Auto debits ensure you save and invest regularly. The proportion of your savings grows along with the rise in income and cost of living and maintains your overall savings ratio.

How to boost your SIP?

There are two ways to step-up your SIPs every year. 

1. Start a fresh SIP and decide how much more money per month you’d like to invest. You can do that either in the same scheme (the SIPs won’t get clubbed) or in another scheme in the same folio.
2. If you have an existing SIP and you want to increase your contribution, very few fund houses allow you to do that midway. However, most fund houses allow you to decide the top-up amount right at the time when you start your SIP, before you pay your first instalment. So, it is better to opt for a top-up SIP while starting your SIP.

Conclusion

SIPs help you become financially disciplined through regular investments. SIP top-up further ensures that you save and invest your disposable income to keep pace with inflation and growing income. It helps you build a superior corpus faster and accelerate the journey to reach your goals sooner. As a habit or a practice, always try and have top-up registered with your SIP the next time you start one. Every extra rupee saved, will add more towards your financial well-being. 

Setting financial goals is the most important aspect that every person should think of. It is an important step towards becoming financially secure. Whether it is related to career, marriage, retirement or anything else, a clear awareness of resources and thorough planning is necessary. A goal sets you off in a certain direction and crystallises your aims, making it easier to visualise something that could be very far away, giving you focus and motivation.

But, most of us completely ignore this part and do not set financial goals due to a lack of clarity in financial planning. If you don’t have any specific financial goal to work on, you’re more inclined to spend more than you should. Later, when you get unexpected expenses, you might get stuck in the vicious cycle of loans. Eventually, you feel like you never had enough cash to save.

Even the most prudent person can’t prepare for every crisis, as the world learned in the pandemic. What thinking ahead does is give you a chance to work through things that could happen and do your best to prepare for them. Financial goals will help you change your mindset, your habits and your life. You’ll start to see how every decision you make matters to your greater financial health. Knowing your goals enables you to work out roughly how much money you might need to save in order to achieve them.

It can be hard to narrow down which financial goals are right for you. Here are some common, must-have financial goals that everyone should make a priority in their lives.

1. Emergency Fund: Emergencies can derail our financial health if we’re not adequately prepared for them. Maintaining an adequate emergency fund will give you a stronger sense of security and ensure that emergencies are easier to manage when they strike as you have a cash reserve to fall back on, if necessary. These funds would help you tackle unexpected events such as job loss, a large medical expense and so on. It is advised that your emergency fund should be at least three to six times your current income.

2. Comprehensive Insurance Umbrella: Do you have a family who is dependent on your income? Do you want to be financially protected against risks to life and health? If so, you need to pay attention to your insurance needs. Having insurance is another important financial goal that will save you and your family from unexpected financial setbacks. It is also important that your cover /protection must be adequate for the purpose it is meant for. The must-have covers to consider are – life, health and personal accident. Health protection should be there for every individual in the family. Beyond this, you can also explore products like critical illness, top-up /super top-up health covers to enhance your health protection and a comprehensive home insurance. All this put together acts a big umbrella against the most common uncertainties we face in life. 

3. Being Debt Free: Debt makes it almost impossible to effectively save for the future as a major part of your income will go on paying off debt along with the interest. But, not all debt is the same. Debt taken for depreciating assets and for consumables /expenses /holidays, etc are especially bad and a strict no-no. If you can’t afford to pay for such expenses as a down-payment, then probably you don’t deserve it. Before deciding to repay loans, identify the type of debt i.e. good debts and bad debts you have. Good debt like home loans can help you achieve goals and tend to have lower interest rates. Bad debt like credit card dues, car loans, personal loans drag down your financial situation with high interest rates. So, focus on paying expensive debt first to better your financial standing. This allows you to save more money and redirect funds to other financial goals. 

4. Retirement Planning: For most of us “retirement” could mean relaxing at home or enjoying life with passions. But, are these things possible without money and peace of mind? No, right. So, planning and saving for retirement is paramount. For most Indians, their kids are like their retirement planning. Is it fair and wise? To have financial independence and self-sustenance in retirement, regular savings is a must. Generally, people get serious about retirement planning only when they are about to reach their 50s. It’s like running a marathon race and getting serious about winning when you enter the last mile. Start investing for retirement as early as possible. It should have started right when you started earning. The sooner you plan for your retirement the less you need to save and power will be the time available for power of compounding. When you start saving early, you have sufficient time to accumulate required funds for retirement. Thus, the task of building a large retirement corpus for your retired life becomes just a bit easier.

5. Budgeting: More than a financial goal, this is like a financial habit or behaviour. No matter how small the income or expense, you should keep track of it. Many people tend to spend without thinking, which results in overspending, financial stress and hardship. Creating and adhering to a budget will allow you to track everything you spend and question yourself where did you fall short in your saving goal and where is your money leaking through your fingers. This will also help you to avoid unnecessary expenses and become financially smart.

The Bottom Line

Reaching a point of financial well-being in life has nothing to do with luck or magic. It’s simply a matter of setting should financial goals and having a concrete plan as to how you will achieve them. By setting (and achieving) the above financial goals you can make the right start and before you move on to the more in-depth exercise of identifying and planning for other life goals. Till then, lets’ at least focus on these five must-have financial goals in life. 

As informed investors, we should be familiar with the different investment routes or facility of investing offered by mutual funds. You may already be aware of SIP but likewise, there are also other facilities offered by mutual funds to invest, redeem or switch between investments, which are relatively unknown.

We have explored the SWP in one of our previous issues. This month, we would be exploring the STP or Systematic Transfer Plan in detail.

Thanks to the consistent marketing efforts by the industry, today SIP or Systematic Investment Plan have become a familiar term for investors. More people are now beginning to explore the savings route through SIPs. But as an investor, one should know that SIP is just one route or facility of investing. Likewise, there are also other facilities offered by mutual funds to investors to invest, redeem or switch between investments, which are relatively unknown. We shall be exploring these facilities in detail in the future newsletter issues. In this issue, we will talk about Systematic Withdrawal Plan or SWP.

What is SWP?

A SWP is a facility that allows an investor to withdraw money (redeem units) from an existing mutual fund scheme at defined time intervals. Thus, the SWP is something opposite or reverse of a SIP where periodic investments are made into the scheme. The SWPs are used by investors to create a regular flow of income from their investments for meeting various life objectives.

SWP Options:

There are certain additional options offered by mutual funds within SWP. As far as time intervals are concerned, the frequency options generally available to withdraw are on monthly, quarterly or annual period basis. In terms of the nature/type of withdrawal possible, investors normally have two options to choose from…

Fixed Withdrawal: Wherein specific amount of money can be withdrawn.
Appreciation Withdrawal: Wherein amount of appreciation only can be withdrawn.

Ways how you can use SWP in your lives:

SWP can help meet your cash-flow requirements for achieving any temporary or long term objective. It is one of the many ways available for planning regular income from savings. The following real life situations can help you realise the ways in which SWP can be planned

1. Mr. Amitabh will be retiring very soon. Post retirement he wants a steady income flow into his account.
2. Mrs. Kavita plans to take a break from work for a year to bring up her first child. She is exited and wants a steady inflow from her investments during this period.
3. Mr. Kishore has recently married and wants to create a perpetual cash flow for his wife while keep investment capital intact.
4. Mr. Banerjee is planning an investment in his son’s name with regular withdrawals to fund his regular pocket money and tuition fees needs.

As we can see, SWP can be a very powerful facility which can be used smartly to meet your cash flow needs. It can potentially play a very critical role as part of a holistic financial planning for your family.

SWP: Tool for Investment Strategy

There are specific ways in which SWP can be smartly used to manage your wealth as well as cash flow requirement. If we can carefully manage the amount of SWP with the returns or appreciation expectation, we can strike a smart balance between periodic cash flow on one hand and capital appreciation/ reduction on the other hand. For financial planners, its a great tool to play with…

Stategy 1: Regular cash-flow keeping Principal Intact:

This is the simple strategy where the the option of ‘appreciation withdrawal’ is exercised for SWP. Thus, the withdrawal amount changes to adjust for the “appreciation” or gain made on the amount invested. In this way your capital stays invested while you continue to enjoy the gains periodically.

For example: Amount Invested R5 lac. Expected returns 9%. Monthly withdrawal option: Appreciation only meaning any amount over 5 lac will be to the investor on the selected periodic intervals. The main investment remains intact.

Strategy 2: Creating Perpetual Cash-flow:

This is the advanced version of strategy, wherein a ‘fixed’ withdrawal amount is kept lower than the expected returns or appreciation. So if expected returns is say 9%, you will be withdrawing below 9% every year. This way, a perpetual cash flow is ensured with lump-sum capital staying intact.

For example, if scheme “X” : Amount Invested R5 lac. Expected returns 9%. Monthly withdrawal: R3,000/- short of 9% yearly. This would create a perpetual cash flow of R3,000/- with invested capital staying intact or increasing slightly. An extension to this strategy is that if you have a big investment capital and mush smaller withdrawals, you may be able to increase your withdrawal amount every year and still continue to enjoy outflow for a longer period of time. A real life scenario for such a case would be retirement where the growing annuity would be needed to adjust for inflation. The other option would be to keep withdrawal constant, then you would be able to increase the value of your investment.

Comparison with other products:

Let us now compare the SWP option with some of the other products in market which offer regular income option.

Unfortunately, looking at the above comparisons, we can confidently say that there is not enough savings products or options available that is worth comparing to the SWP option in a mutual fund scheme. The popular SCSS and POMIS products may offer fixed returns but they also have limitations in terms of amount, period, mode of holding along with the inconvenience and operational hassles. Mutual funds which also offer debt and money market schemes can potentially deliver better post tax-returns, in addition to the many other advantages.

Way forward:

Times are changing. As investors, we need to take efforts to understand the options /facilities available to us and be open to incorporating these ideas to manage our wealth and our lives in a better way. SWP is one strategy that really helps you meet your consumption or cash-flow needs. Perhaps SWP is as important a tool for managing redemption or withdrawal of money as SIP is important for investing. We hope, the next time you are thinking of withdrawals, the idea of SWP shall cross your mind.

India is a blessed land where gurus have preached the path of self-realisation and enlightenment for aeons. Lord Budhha, the revered founder of Buddhism, is one such name from ancient India who spent nearly 45 years spreading his teachings. These teachings are timeless and are as relevant today as they have ever been.

Interestingly, the lessons of living and life, are even relevant to investors. Beyond the world of financial jargon, technicalities, strategies and plans, there exists a world full of rich spiritual wisdom which can be applied to the investing world. In this article, we look at some of the Buddha’s words as guiding lights on investment matters.

On Discipline:

• “A jug fills drop by drop.” Small, regular and consistent investments go a long way in building wealth.
• “The trouble is, you think you have time.” The smart investors do not procrastinate and always act with a sense of urgency.
• “The person who masters himself through self-control and discipline is truly undefeatable.” Truly, a dedicated person with control on his spendings and discipline to follow his investment plans can overcome any financial challenges.
• “If you are facing in the right direction, all you need to do is keep on walking.” Having the right financial plan or investment strategy is the most important, all that remains after that is following it diligently.

On Behaviour:

• “Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment.” Any financial decision has to be based on your present scenario, not past event or future predictions.
• “The root of suffering is attachment.” The biggest of the losses to investors come from their own biases and opinions, leading to irrational decisions, based on emotions.
• “Believe nothing, no matter where you read it, or who said it, no matter if I have said it, unless it agrees with your own reason and your own common sense.” The investor should always follow his own plans and not be affected by market noise, herd behaviour, avoid FOMO (fear of missing out) or what others say unless there is sound reasoning for the same.
• “What lies behind us and what lies before us are tiny matters compared to what lies within us.” Clearly, our potential to build our financial well-being is much more than probably what we have achieved or what we think we can achieve.
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On Action:

• “Work out your own salvation. Do not depend on others.” Clearly, one has to avoid debt and be financially independent. One should strive for his own financial well-being and not expect others will take care of you, even your children, especially in old age.
• “An idea that is developed and put into action is more important than an idea that exists only as an idea.” No virtual plans or strategies or dreams hold any value till the time action is initiated for the same. Working towards your plans and having timely execution is the key.
• “What you think, you become. What you feel, you attract. What you imagine, you create.” Before actions, come thoughts, ideas and imagination. Having the right kind of thinking and the right set of people you interact with will also impact your actions and ultimately your success.

On Success:

• “There are no secrets to success. It is the result of preparation, hard work and learning from failure.” The quality of your plans, your knowledge, your learnings from your past experiences and actions that you take would help determine your success.
• “It is better to travel well than to arrive.” The financial well-being is not a destination but a journey to be enjoyed. Even if one achieves a targetted amount of wealth, that is not the end of it as one has to manage the same.
• “To conquer oneself is a greater task than conquering others.” There is no standard for success and one can only be seen as a success or failure according to his own expectations. We should all aim for our own personal level of success and happiness rather than compare the targets which others have set for themselves.
• “Health is the greatest gift, contentment the greatest wealth, faithfulness the best relationship.” Any amount of absolute wealth may not add anything to your happiness. One who lives within his means and is content is wealthy. True happiness can come when you are healthy and you share your life’s journey with people whom you trust.

Final words:

The title Budhha, meaning ‘Awakened One’ or the ‘Enlightened One’, was bestowed on Gautama as he taught from his insights into ‘dukhha’ (suffering) and the end of same, by achieving a state of ‘nirvana’. Buddha, in turn, is derived from the words “buddhi” which literally means ‘intellect’, ‘intelligence’ or ‘wisdom’. It would be wise as investors if we also learn from this wisdom and apply them to in our lives as we walk the small path of our own financial independence or nirvana.

Budgeting is simply creating a plan to spend your money. This plan is the “budget” which allows you to determine in advance how much will you spend, where will you spend, and if you will be left with enough money by the end of it all. In simple words, budgeting is simply balancing your expenses with your income or cash outflows with your cash inflows.

Needless to say, budgeting is the single biggest tool you have to take control of your money, achieve your financial goals, and set yourself up for long-term success. You must already have been advised many a time to follow a proper, detailed budget. But do you? It is very rare to find any person who religiously follows budgeting. Perhaps only one in hundred may do some sort of budgeting exercise on paper every month. Is there a better, much easier way? In this article, we will attempt to take a short-cut to the entire budgeting exercise to encourage you to start on the path…

The guiding rules:

The idea is to create simple money boxes to bifurcate your spendings. To begin with, keep the boxes simple and easy to understand and bifurcate. As you progress and enjoy the journey, you may go into details and increase the type or number of boxes.

You may ask, how to manage? Well, to begin with, you may simply allocate money to the boxes in your mind. You may also keep a rough track of the boxes on paper – just to ensure that you are not way off the mark. In the starting month, you may skip minor expenses and record only major ones. However, the proper way to do will be to put your expenses on paper, at least once a week under different boxes. In the first month, you may also skip pre-deciding the allocation into different boxes and simply observe your expenses and then decide allocation from the new month onwards.

Remember, it is not important how elaborate plans you have made. What is more important is what you can track religiously. It is like running a marathon, your timing, speed is not important, what is important is that you cross the finish line.

Spending Boxes:

Let us start by making four simple boxes to account for all your cash outflows.

1. Box One: What you Owe:

Perhaps the challenge for most households would be payments towards your monthly commitments. This is the box you cannot avoid and has to be accounted for anyhow. This would include your home rent, home /car /personal care EMIs, society maintenance, etc. Consider yourself lucky if such expenses are below 20% of your income. However, you are in the red zone if it is over 50%! If it is so, you will need to immediately start thinking of reducing your loan burden and/or look at increasing your income sources over time.

2. Box One: Living Expenses:

Next comes the living expenses which again one may not compromise. School fees, groceries, utility bills, medical care, maid salary, tuition fees, mobile/cable/internet recharges, etc are the expenses falling under this box. These expenses are relatively stagnant /fixed for the month and do not change often or by a big margin. This box should ideally not take more than 20-30% of your cash inflows. Again, if it is more, it would simply mean you are living beyond your means.

3. Box Three: Savings:

Next in priority would be all your cash outflows towards the non-expenses, ie., insurance and investment payments. Club all your yearly /monthly expenses together to arrive at a fixed allocation every month and save accordingly. This would include your life /health /motor insurance premiums, mutual fund SIPs, bank /post office recurring, PPF savings, etc.

Among investments and insurance, priority should go to insurance as protection is for today’s financial security and survival while wealth creation is for tomorrow’s financial well-being. Ideally, everything left after the first two boxes should fall into this last box. A minimum of 20% allocation should be made to this box and if it is over 50%, consider yourself fit for the next level of planning. 

4. Box Four: Optional Expenses /Discretionary:

Now we have reached the most interesting question. How much is left in your pocket by the month-end?

Ideally, if you have allocated all your money smartly, less than 10% would have been left. If it is more, there is a clear indication that more allocation needs to go to the Savings box. Ideally, 5-10% would be sufficient for you to spend on entertainment and other things. Simply put, if you are earning a lakh rupees, not more than Rs.5,000 should be spent on food or movies or shopping, etc every month. You can stretch it to max 10,000 but only if your savings box is over 50%.

If you have exhausted all your cash flow and are in fact in the negative, it is a big red zone! You need to immediately sit with your financial guide /advisor and find out how you can plan your finances better.

Saving Boxes:

If you feel you are putting a good amount of money into this box, it should be interesting to peep inside and try to further define another set of boxes within this savings box. Why? Because the savings box is a very important box which is directly associated with your continued and future financial well-being. This box deserves a further breakup to ensure that you have covered all aspects of your financial well-being adequately.

1. Box One: Insurance /Protection

The most import box comes first. Ideally, if you are saving over 20-30% of your income and out of that insurance premiums are over 30% (of savings) then perhaps your choice of insurance policies needs to be seen closely.

Traditional life insurance plans (like endowment /money-back /return of premium + bonus plans, etc) offer little in terms of protection cover /sum assured and but comes at a very heavy cost of low returns on the heavy premiums you pay. A good insurance portfolio would comprise of Pure Term plan + Health Cover + Personal Accident Cover + Critical Illness cover. Sit with your financial advisor today sort out this box

2. Box Two: Long-term wealth creation

This is the box, where your ‘real savings’ for a better, secure future where you desire to spend towards your life goals like marriage for children, home purchase, second home and most importantly – towards your peaceful and financially secure retirement. Needless to say, the more you save, the better it is. Ideally, you should at least aim to save 20% of your income towards this box.

The best way to plan for this box is to go into reverse! Start by first identifying your life /financial goals and then by estimating how much of mutual fund SIP would you need to fulfil those goals? That should be your allocation to the box – it should be pre-decided and not left as the result or output after everything else. Ideally, it should be over 60% of your savings box.

3. Box Three: Short-Term money deployment

Finally, we come to the box wherein you would like to keep some money handy. These would count your cash holdings at holding, bank balance, savings towards emergency fund (if planned), etc. This should also cover money you wish to keep aside for upcoming big expenses like purchase of electronics /holidays /festivals /family events and so on.

Instead of dipping into your long-term savings, which is a strict ‘no’, to meet such expenses, we highly recommended that you plan in advance and save in parts in the preceding months before the expense happens. This is help you do two things – (a) avoid cutting your long-term money tree when they are young and (b) avoid taking loans /credit. Ideally, 10-20% of your savings box may be allocated to this box.

Conclusion:

Those who fail to plan, plan to fail. The money box approach is a good way to begin planning your finances in an interesting and easy fashion. Again, what is important is that you actually begin, do this consistently for a few months, develop the ‘budgeting’ habit and then move on to detailed plans, if required. We are confident that such an exercise will surely help you understand your own status and also help you set targets to achieve in the coming months.

Most parents think that they do not need to teach their children how to manage money and the value of managing money in the right manner. They believe that this will be taught to the children as part of their curriculum in schools. The reality is very different. Personal finance is not taught in schools and by the time children reach college it may be too late to correct this mistake. Therefore, the onus falls on parents to teach their children this critical skill. As parents, we have to see ourselves as the primary source of financial education for our children. The earlier we start educating our children, the better the chance of ensuring that our children grow up to become financially literate and responsible people.

We are listing down some strategies that parents can use to share knowledge of money management:

Lessons should be unique if you want the message to sink in. To start with, parents need to sit down with their children at eye-level either at a table or in the child’s room. Keep the mobile phone and other distractions aside for some time and start by emphasizing the importance of the conversation. It needs to happen at their own level and in language that they understand. Irrespective of how young the child is, the effort of making this conversation happen is worth every rupee.

Money mistakes made by parents in the past can serve as a good guidance for teaching children about money. Past mistakes is not a disqualification for teaching but can in fact help to get your point across to children. Parents can explain how the mistakes could have been avoided and provide documentary proof as a support. Children will grasp the learning much faster if have actual figures to refer to; parents can explain how much money was lost because of the mistakes.

Reinforce your Teaching constantly: Make it a point to involve your kids in any transaction where you have any opportunity to save. Even if it is saving of only 5% – 7% on account of a cash back offer from your debit or credit card, it can go a long way in reinforcing the benefits of saving money.

Encourage children to save more money by opening a bank account for them. Even though the bank a/c may not earn much interest, it will go a long way in making your children appreciate the benefits of saving money for the future.

Budget pocket money or allowance: First of all, it is a good idea to give an allowance to your kids on a defined frequency. There can be various options to consider on how to pay an allowance to your child, namely:

1. “Earn money for tasks” allowance: The child is expected to complete certain house work or tasks on a regular basis and is paid for his efforts. The child will see a direct correlation between the effort and the money he or she receives. If for any reason, the task is not completed, then the child is not given spending money.
2. “Pay as needed” allowance: Children do not receive an allowance on a regular basis but request their parents for money as and when required. Here the child may or may not be helping the parents with household tasks. Secondly, as this money does not come on a regular basis, the child may not be able to save for future expenses.
3. Unconditional allowance: The parents give a fixed amount to the child on a weekly or monthly basis without any precondition of doing any tasks. This method allows the child to manage money on a regular basis similar to a salary payment. The downside of this method is there is no correlation between efforts and the payment made.
4. Hybrid allowance: Here this child is expected to do certain basic tasks for free as a contributing member of the family. The child will be paid for completing larger tasks like cleaning the fans, windows or cupboards. Whenever the child wants more money, he or she can take up a task or job and receive payment on completion of it. This method teaches the child that the harder he works, the more money they can earn. This is of course, very similar to our real world.

Whichever method you as a parent choose to pay an allowance to your child, encourage them to create a budget before they receive the money. For e.g., if the weekly allowance is R1000, you can suggest that R200 should be saved, R 200 can go for charity (a very important concept your child needs to learn from a young age) and the balance can spent as they like. This budgeting will help them plan for their future purchases and also help them manage their finances when they become full grown adults and earn their independent incomes.

Let us know put down some action plans for execution of the above strategies. As Steve Jobs once said, “To me, ideas are worth nothing unless executed. They are just a multiplier . Execution is worth millions.”

Let’s start with shopping for your groceries at your nearest supermarket. Shopping with kids can be a nightmare; or a great way to teach them about budgeting, if you can spare some extra time:

Create a food plan followed by a shopping list: Get your children to help create a food plan for a week; then create the shopping list to fit your weekly grocery budget. This will teach your kids about budgeting, planning ahead and checking out any discounts being offered.

Getting the best price: Comparison shopping is a great way to teach kids about money and how to get the best value for your rupee. You can help improve your child’s math skills by challenging them to identify the best deal based on the product quantity or number or servings.

Making smart choices: Encourage your child to decide between several competing brands including the store brand. You may end up saving a lot of money provided you are comfortable with the product quality of the store brand, if you decide to buy it.

Matching discounts and sales with your shopping list: It may be worth your while to check out the discounts and sales offers the supermarket is offering. This will help your child to develop bargain – hunting skills.

Give your child a budget to spend on his treats and snacks. This will teach them to spend on their treats within their budget and not go overboard. Children love it when they are given the freedom to decide some part of their life. Now let’s move onto banking which is slowly and steadily moving the online route especially with younger generation.

Though a visit to the bank is still required if you want to deposit a cheque, fill a nomination form or meet the branch manager. It is a good idea to take your child along so they can better understand in person how a bank works.

Deposit savings: Children should be encouraged to deposit their piggy bank savings into their savings a/c on a regular basis. You can create savings milestones with your child which if reached within a particular time frame can be enjoyed with a small celebration or gift for the child.

Show your child the money: Children are fast learners by nature and very keen observers. Teach them how to deposit and withdraw money, how to fill up a deposit slip, how to operate the ATM etc. This will go a long way in making them understand the basics of money management.

Education literature: Check with your personal banker if they have any programs or literature for teaching children about basic banking. Banks may also provide you with educational coloring or story books which can used for learning and fun.

Finally, let’s talk about the large retail chains like Star Bazaar or Croma. These stores not only offer loads of electronic gadgetry but also plenty of stuff that your kids may wants like clothes, toys, games etc. A nightmare for all parents surely, but also a silver lining… opportunity to teach our children.

Economy and money: This is good place to teach your child about the working of the economy starting with why businesses are set up, how they grow and prosper, how the owners or shareholders are rewarded etc. Why does the store sell so many items, why is it organized the way it is?

Sales and discounts: Retail chains are famous for offering discounts and sales around festivals like Diwali, Holi etc. They also offer discounts on electronic items like TVs during the IPL season. Children can be taught how shopping smartly for electronics and other items during such events can help save a lot of money. On the other hand, just because a particular item is available at a huge discount is no reason to buy it.

Needs vs. Wants. Before buying any item, teach your child to check if the item(s) passes the following conditions:

1. Have they compared the prices with other retail shops and online shopping websites, especially for high priced items?
2. Is the item a need or want? Wants are discretionary.
3. Are there any discounts you can avail off (through your credit or debit card)?

If your are willing to teach your children about money, you can find a way irrespective of the choice of venue. Be creative in your approach and help your children understand why savings and budgeting techniques are critical real-life skills for them to learn. These skills will last them a lifetime and they will remember you for taking the time and efforts to impart them.

To conclude, can you rewind back to the times when you were young and your parents took the time to teach you about money management? If you are finding it difficult to remember, then this is the time to make up and put your children on the right path. The average Indian is struggling today as they have not saved sufficiently for critical goals like retirement and child’s education. There is a constant struggle to manage monthly expenses as the basics of budgeting were not learned in their young age. Please do not let your children commit the same mistakes when they become adults.

Albert Einstein had once called power of compounding as the eighth wonder of the world.This is one investment principle which makes money making simple. There are two facets of power of compounding which if you follow as an investor, creating wealth becomes easy. First is to start investing early and giving time to your investment and second stay invested, do not withdraw money in between and let it grow.

In simple terms compounding is nothing but reinvestment of interest/income earned at the same rate so that interest/income earned also generates additional return at the same rate in future. Let me explain this with simple example :
If you invested Rs. 1,000/- in an instrument giving 10% return in a year. At the end of year 1, value will go to Rs. 1,100 and in year 2 you will earn return on Rs. 1,100 and not on original investment of Rs. 1,000/-.

But why is it so important in world of investment and how can it create wealth for investors ?
Let’s try to understand this with simple story of chess & grain. Chess was invented by Grand Vizier Sissa and then he gave it to a king in India. The king offered anything in return; Vizier said that he would be happy merely to have some wheat: one grain for the first square of the chessboard, two grains for the second square, four for the third, eight for fourth and so on. The king was amused by the ‘small thinking’ of Vizier but the king could not fulfill the desire of the inventor of chess. Why? The number of grains for the whole board = 18,446,744,073,709,551,615. This is more wheat than in the entire world; in fact, it would fill a building 40 km long, 40 km wide, and 300 meters tall. So, the moral is if one uses the ‘Power of compounding’ smartly, then becoming rich is not a dream.

Let me explain the same concept in investment parlance. Let us understand a story of a tortoise and hare. The hare saves Rs. 10,000 every year for the first 10 years. After that he saves nothing. However, he compounds his money at the rate of 15% for 30 years. The tortoise starts at the year 11 and keeps saving Rs. 20,000 every year (double of what hare saved) for the next 20 years. Like the hare, he too compounds his savings at 15% every year. So hare invests only Rs. 1 lakh and tortoise invests Rs. 4 lakhs. Let’s tally the score at the end of 30 years. Tortoise makes a respectable Rs. 23,56,202 whereas the hare makes Rs. 38,21,468! This is nothing but power of compounding for hare and cost of s15.5 lakh for starting late for tortoise.

So there are two simple logic of generating compounding impact on your portfolio:

1. Start investing early in life. No matter how small that investment is but start investing whatever small amount you can save. Ideally starting point should be 1st month of pay cheque of your life. So as soon as one starts earning, he/she should start investing.

2. Let your investment grow consistently without doing unnecessary withdrawals in between.

The same logic of compounding applies to retail investors approach. No matter how small you start with, important is to start investing early so that your money gets time to compound over a period of time. As investor starts early and has time on his side, he can look at higher return potential asset class like equity to generate positive real return and create wealth over a period of time. Important is not how much you invest, more important is for how long you stay invested.

Rule of 72 might help you in understanding this concept. Rule of 72 gives you doubling period. In short it explains how long your investment will take to double. This rule says that to know doubling period you divide compound rate of return into 72 and you get doubling period in number of years. e.g. if your investment generates 12% return then 72/12 = 6 is the number of years require to double your money.

So if you park your money in fixed deposit giving 9% return you will require 72/9 = 8 years to double your money whereas if you park your money in mutual funds generating 15% return you can double your money in 4.8 years.

(Initial investment of Rs. 1 lakh)

Year End Value @ 9% Value @ 15% 1 Rs. 109,000 Rs. 115,000 2 Rs. 118,810 Rs. 132,250 3 Rs. 129,205 Rs. 152,088 4 Rs. 141,158 Rs. 174,901 5 Rs. 153,862 Rs. 201,136 6 Rs. 167,710 Rs. 231,306 7 Rs. 182,804 Rs. 266,002 8 Rs. 199,256 Rs. 305902 9 Rs. 217,189 Rs. 351,788 10 Rs. 236,736 Rs. 404,556

As you can see from the above graph, investment of Rs. 1 lakh will grow above Rs. 2 lakh by 5th year at 15% compounding while it takes 8 years in compounding at 9%.

As Albert Einstein said, ‘compounding is something one who understands earns it and one who doesn’t understand pays it’. Remember compounding works best with equity asset. That may be the reason why world’s richest men list include people who have created wealth by taking advantage of compounding with their equity investment.

“Do you think there are any specific habits that make some people more successful with money than others?” This is a question that a lot of clients ask us.Initially, we avoided saying much as we did not want to make any general statements. As we moved around the country and met a lot of successful clients, we realized that there are certainly some differences in how financially successful people manage money vis-a-vis the not so successful. We came across a lot of people earning high salaries but who were always short of money as well as people with average salaries but always had money on hand. We were able to discern certain patterns which we would like to share with you:

1. Surround themselves with positive people. They tend to stay away from negative people and negative thoughts and do not listen to reasons why something cannot be done. They spend most of their time with people with a can-do attitude who find ways to make things happen.

2. Are not held back by failures. They use their mistakes and failures as stepping stones to success rather than obstacles or reasons to stop trying. Rather than running behind achievement, they spend a lot of time putting in the necessary efforts towards achieving their goals. Too much achievement can result in fear of failure.

3. Manage their time effectively. Hours, minutes and seconds are non-renewable and precious resources. They set their priorities and passionately focus on them. Successful people tend to limit their screen time (TV, video games) compared to unsuccessful people. There is nothing inherently wrong with watching TV but it tends to take up a time which can be better spent exercising, reading or learning something new.

4. Ignore the opinions of others. There is no compulsion to keep up with the neighbors. Limited exposure to mass media and advertising allows them to be more productive and not get influenced by cultural norms. They do not follow the herd while taking investment decisions. Warren Buffett, one of the richest people in the world, stays in a 5 BHK house bought in 1958 for $31,500 and currently valued at $700,000. People with trendy lifestyles and the latest fashions tend to be usually short of money.

5. Have a sense of direction. There is purpose to their actions. There is a reason why they work hard, save money and invest wisely. Their daily actions are aligned with their long term dreams and goals. People who are always struggling with money have no direction and idea of what they want from life.

6. Focus on the big wins. They pay attention to the details and develop smart saving habits, but are not paisa wise and rupee foolish. While they may save money on the small things, they do not sacrifice on critical wants like housing, food and income. While the not-so-successful people end up wasting away their paisa and rupees.

7. Do difficult things. They work harder, longer and smarter than other not so successful people. They are willing to sacrifice today’s small comforts for tomorrow’s gratification and big rewards

8. Make their own luck. They keep their eyes and ears open and are constantly aware of what’s happening around them. They recognize opportunities as and when they come and boldly seize and act on them before the others do.

9. Believe they are responsible for their own future. Any given situation, whether difficult or easy, is nobody’s fault and may be beyond one’s control. What is controllable though is how you respond to it. Successful people do not react to any given situation but respond pro actively and productively.

10. Grow and change over time. They are willing to adapt, evolve and appreciate different points of view. They are constantly acquiring knowledge and learning from their experiences with a view to change and mold their minds in the right direction.

Most people (including most of us) practice only a few of the above mentioned habits but not all. The most successful people we have meet practice all of them and the not-so-successful people do none.

To conclude, people who are successful with money and life take what they do very seriously. They treat their life as a business and behave as the CEO and CFO with the goal of “growing their business” over time. Your personal wealth is your real business, everything else is supplementary and supportive. Please nurture your business very carefully.

We all want to give the best to our children. We feel that our children do not need to go through the same experiences, difficulties and compromises we had when we were children. And true to our wishes, our children have experienced a very comfortable life where things have been very easy for them. They have been exposed to social media and television at a very early age and have huge aspirations and dreams.

Perhaps one concern we all have is that real life is tough and our children need to realise that. They need to realise the amount of hard work and effort that goes into earning money. As parents, we all wish that our children are much more sensible and careful when it comes to dealing with money. However, this is not something that will be easy for you. Inculcating the right understanding, respect and value for money and developing the right habits from an early age will take time and patience on your part, perhaps many months and even years. In this article, we will explore a few of the ways we can let our child on the path to financial literacy and right habits.

Things to do …

1. Recording: The first step which everyone should do is to ask and teach the child to record all his/her spendings. Please do not comment or make any negative observations here as the child may stop recording those things or hide them from you. Let them record everything without fear. There are many mobile apps which help record expenses or instead this can be done the old way – pen & paper or diary.

   Motivate them to keep track of their spendings and give them pocket money with the small condition of maintaining the records and sharing it with you for next pocket money. Once there is a track of spendings over a few weeks /months, ask them to make observations. Take a back seat and let them self learn.

2. Budgeting: Once the children are habituated to keeping records, budgeting should come naturally. Follow a fix periodical pocket money /budget for them. To begin with, this can be for say a few days for small kids, then for every week and slowly progressing to å monthly allowance for more mature children. Once the children are habituated to keeping records, budgeting will be very easy as they know they have to live within that budget for the rest of the period. Just ask them their daily balance without making any judgements or comments. Your role should only be to be strict while giving your pocket money. Ask your children for any major events in advance and adjust your pocket money in advance but not post the event.

3. Patience: An essential element of learning is patience and this has to be inculcated slowly. There can be many ways of teaching this. For example, if your child has asked for any particular toy or gift, let them wait for it. You may either give an appropriate future date for the same. Alternatively, you may divide the money and pay them equally over many days while asking them to save the same. Eg. If a toy costs say Rs.2,000, pay them Rs.100 daily for 20 days and make them wait slowly till the full amount is accumulated.

4. Saving: Savings is the most important habit one should focus on developing. With basic habits of recording and budgeting, savings should come easy with patience. Show them how they can cut few corners /spendings and save more. Motivate them for saving with some extra rewards from your end once their savings targets are achieved. For eg., if they manage to save 20% of their pocket money, reward them with say extra 20%. Motivate your children to save larger amounts for bigger and bigger gifts/events. For eg., if they have managed to save say Rs.3,000 for one item/gift, instead of going out and spending, show them better options of say Rs.5,000 and ask them if they would like to have that. Put in your rewards as well. Let them take pride in saving big and then spending. From toys to cycles to electronics to even bikes, this habit can be great learning for your child.

5. Responsibility: Letting children learn with some real responsibility is a good way to teach them great values. One can begin with small responsibilities like caring for toys, asking one to get repairs for broken toys, caring for small pets like fishes in your aquarium or birds or other big pets like dogs for teenagers. Pets can be a very good way to develop empathy as well. Put as much responsibility on them as you can. Try not to interfere even if things may start looking bad, let your children take responsibilities and learn the consequences of not doing what is needed. Of course, you can lend a helping hand when the child is doing something. You may even give the responsibility to say buying food and other things for your pets to the children and allocate a budget for the same.

6. Participating: As your child grows and learns, start involving them in planning your household expenses. Let them also have their own share of inputs on things like outings, entertainment, purchase of electronics, holidays, etc. Value their inputs and discuss options. For eg., if they want holidays at some premium location, ask them if they are ready to forego /cut some spendings and wait longer? Also start to involve them in sharing and monitoring things like investments and insurance. Teach them as and when you start sharing. Slowly ask them to maintain all your financial records and documentation. Also let them participate in your meetings with your financial advisors /insurance advisors /tax consultants, etc.

Lessons and habits learnt at an early age stay for a long time in our lives. For our children who are exposed to a virtual world almost all the time, the realities of life need to be taught within our comforts as parents. Early lessons in money management and instilling the values of understanding of the importance of money, money’s real value, patience, delayed gratification, etc will lay a strong foundation for financial well-being in life. This is of utmost importance for your child, even more than any educational course he/she may wish to pursue.

Over the last few years, the term “financial planning” has been very often used and heard by many of us. In this article, we explore as to what this term means and why it is important for us all.

What is financial planning:

Simply put, financial planning is the process of meeting your life goals through the proper management of your finances. The life (read financial) goals can include buying a home, saving for your child’s education & marriage or planning for your retirement or protecting your family. It is a process whereby a qualified financial advisor will consider your entire financial situation and goals and provide you with appropriate action steps to fulfil your goals and better manage your finances. It is not a one-time process but is continuous in nature as your life situations and finances change over time. You also need to regularly review your financial plans & your investments to ensure that you are well on track to meeting your financial goals/objectives.

Why financial planning is needed?

Given the nature of today’s life, with growing uncertainty, rising aspirations and increasing costs of living, doing thorough financial planning have become a must for each of us. It is also better to plan and be ready for any situation rather than be passive and wait for things to happen before doing anything about it. A special case to mention is of Retirement planning, which has become very critical since the average life expectancy has increased and appropriate planning is needed to ensure that your 20-30 years of your life after retirement is dignified, peaceful and self-reliant. 

In the absence of proper financial planning, the following are the risks faced by a client.

• Continued lack of understanding of your financial situation

• Delay and wastage of critical time for planning for goals

• Continued exposure to financial risks in life to you and family

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The financial planning process:

The financial planning process is a logical, six-step procedure from the perspective of a client.

1. Establish and define the relationship: The first step is establishing a relationship with the financial advisor/expert. The client should inquire about the services offered and the process. The client should also inquire about the professional’s competencies and experience. The client should also enquire about any fees and how the advisor would be remunerated from the same. The client should make clear any expectations he/she has with the advisor/expert.

2. Sharing of information: The next step would be the identification of your personal and financial objectives, needs and priorities that are relevant to the scope of the engagement before making and/or implementing any recommendations. The financial expert would request sufficient quantitative and qualitative information and documents from you relevant to the scope of the engagement before making and/or implementing any recommendations.

3. Analysis and assessment of your financial status: The next step would now be to analyse your information, subject to the scope of the engagement, to gain an understanding of your financial situation. The step involves assessment of strengths and weaknesses of your current financial situation and compares them to your objectives, needs and priorities.

4. Development of financial plan recommendations and presentation: The next step involves the financial planning expert considering one or more strategies relevant to your current situation that could reasonably meet your objectives, needs and priorities. Then the financial planning recommendations based on the selected strategies will be developed and presented to you. You may seek to understand the supporting rationale in a way that allows you to make an informed decision.

5. Implementation of recommendations: Once you have understood and given your approval to the recommendations, the execution will happen. Note that the expert would expect your agreement on implementation responsibilities that are consistent with the scope of the engagement. Based on the scope of the engagement, the expert identifies and presents the appropriate product(s) and service(s) that are consistent with the recommendations accepted by you.

6. Review your financial situation: The expert and you would then mutually define and agree on terms for reviewing and reevaluating your situation, including goals, risk profile, lifestyle and other relevant changes. While conducting the period review, the expert along with you will review your situation to assess progress toward achievement of the objectives of the recommendations, determine if they are still appropriate, and confirm any revisions mutually considered necessary.

Advantages of financial planning:

To summarise, the following are the key reasons or benefits that you would get from financial planning.

• Proper understanding of your financial situation

• Finalisation of the financial goals and knowing what it would take to achieve the same

• Understanding your insurance needs and ensuring financial security

• Understanding how your financial decisions and choices will impact your financial well-being

• Having a path laid out for you and your family’s long term financial well-being

Most of us do not have adequate information about financial planning and only in recent years has there been some growing awareness about it. Most of us though still believe that they are knowledgeable and smart enough to decide upon their finances on their own ignoring the fact that this is a very broad subject that requires professional expertise. We are ready to visit and pay an accountant, doctor, lawyer or any other professional but are shy when it comes to asking for a financial plan from financial experts. A better, secured financial life is a dream for all of us which, with proper financial planning, can become a reality. The need is to understand this crucial part of our life and give it the importance and priority it deserves.

Systematic Investment Plan or SIP as it is commonly known, is an investment plan (methodology) offered by Mutual Funds wherein one could invest a fixed amount in a mutual fund Scheme periodically at fixed intervals – say once a month instead of making a lump-sum investment. The SIP, as we popularly know it, is the ideal way to invest in mutual funds, especially for retail investors. Over the years, it has proved itself as the preferred and the best way to create long-term wealth, without affecting their day-to-day lives.

 Why SIP?

The benefits of having a SIP are well-known among investors today and you are not alone. As per the latest available figures from Association of Mutual Funds of India, popularly known as AMFI), an industry body, there are about 2.98 crore or nearly 3 crores SIP accounts in India through which investors regularly invest in Indian Mutual Fund schemes. The SIP method of investing has been gaining immense popularity in the recent years.

 AMFI data shows that the mutual fund industry had added, on an average, 9.55 lacs SIP accounts each month during the last financial year (FY2019-20), with an average SIP size of about ₹2,850 per SIP account. Today investors are investing about ₹.8,518 crores per month in mutual funds through SIP route. In April 2016 this figure was only about ₹.3,122 crores. That’s a growth of nearly 2.7 times!

 The reasons why almost every prudent investor is today thinking of SIP route are multiple. The primary advantage being that helps in Rupee Cost Averaging. In simple terms the Rupee Cost Averaging means that you are investing a fixed amount of money at regular intervals ensuring that you buy more shares of an investment when prices are low and less when they are high. Think of it as buying say gold every month of a fixed amount. As gold prices fluctuate, you will be buying less or more of gold every time. When you do this for a long period of time, your average purchase price of gold per gram or tola will be much lower to the prevalent market prices in future. That leads to better returns over time.

 Another reason why people prefer SIPs is because it help in investing in a disciplined manner without worrying about market volatility and timing the market. SIP also offer great convenience. The SIP instalment amount could be as small as ₹500 per month. There is also the option of choosing the right frequency – say weekly, monthly or quarter and also the preferred SIP date from the multiple date options given by fund houses. As compared to lump sum investment directly in an equity fund at any particular date, SIP is better since that risk of market fluctuation is reduced. However, this is subject to market conditions and also individual investment horizon.

 What is Step-Up SIP and why is it needed?

 Step-up SIP, also popularly known as top-up SIP, is an automated facility through which SIP contribution can be increased by a predetermined fixed amount, or a fixed percentage, at periodic intervals. Thus, with a step-up SIP, the SIP amount increases automatically at a pre-defined rate and period. For example, a person who is investing ₹10,000 every month via a SIP can opt for a step-up plan and ask the fund house to increase his SIP amount by say Rs.1,000 every year.

In a normal SIP done today, of say Rs.10,000, will remain at Rs.10,000 even after say 5 or 10 years. But during this time your savings potential and your goals /aspirations would have also increased. Since most people are too lazy, to voluntarily increase their SIP investment contributions very year, their SIP contributions will likely remain stagnant. They would fail to integrate their income growth with their investment plan. And one fine day the investor will realise that he has lost on the golden opportunity to save more through SIP in past so many years. This is where step-up SIP steps in as an automated function and facilitates long-term wealth creation. Over time, as your circumstances change and your income grows, you are likely to have more money available to invest. The step-up SIP will take care of your growing savings potential and evolving financial goals with time. 

In short, if you continue investing with a fixed SIP amount, then you are not taking a wise move and loosing out on the wealth creation opportunity in equities in long term. You need to opt for a Step-up SIP. 

SIP Step-up can be done quarterly, half-yearly or annually. It can also be planned as a fixed amount of increase or a fixed percentage of SIP amount. For example, you can either increase it by say Rs.5,000 every half year or say 10% every year. The increase in the SIP amount should ideally is based on your expected rise in income and your requirement for achieving your financial goals. Just to add, even big financial goals, which look unachievable today or command very high fixed SIP amount today, can be expected to be achieved with a smaller but a rising SIP.  A Step-up SIP is necessary to fulfil goals faster, with a bigger corpus than planned and also get returns that counter inflation.

 Why much can I benefit?

 Step-up SIP incorporates the power of compounding so that the investors can reach their financial goals sooner. It works wonderfully well in long term. Here is a simple comparison for how much wealth can be potentially created with step-up SIP. We consider that the starting SIP is of Rs.10,000 monthly and the expected returns is of 12% annualised. Step up

As you can clearly see, the step-up SIP can greatly benefit wealth creation and will give compounded benefits especially over long term. The difference over a normal fixed SIP is staggering in long term.

  Just to summarise, topping up an SIP offers the following advantages:

• Adapts to your rising income – you can plan an increase in SIP in line with your income and savings potential increase every year – either in fixed amount or percentage. We would prefer you decide on a fixed percentage rather than an amount.
• Achieve goals faster – step up SIP would bring big financial goals within your reach and/or help them achieve faster.
• Helps fight inflation – Many investors choose to increase their contributions to stay in line with inflation. As inflation consistently erodes the value of your money it may be wise to raise contributions to an investment plan for the long-term.
• Allows you to keep investing in an existing plan rather than open a new one – This facility also saves you from the hassle of managing multiple SIPs. A rise in income need to be systematically invested. But looking for a new investment opportunity is tedious and time-consuming. Instead, topping up an existing investment could be the most efficient option.

How to start Step-up SIP?

SIP is a very convenient method of investing in mutual funds through standing instructions to debit your bank account every month, without the hassle of having to write out a cheque each time. The step-up SIP works in similar fashion. While starting a new SIP, an investor can choose the step-up option. While completing the form, the investor is required to enter the initial amount, step-up amount, step-up frequency. This is operationally very convenient and easy so let us not bother too much about same.

However, we would suggest that you talk to your financial advisor /mutual fund distributor today on your financial goals and your investment plans to not only start a normal SIP but a step-up SIP.

Happy investing.

As families seek to improve their financial situation and develop plans for the future, a logical first step is to determine their present financial position. A common tool used to determine same is the net worth statement which is a personal balance sheet listing the assets and liabilities of the household, with total net worth being the difference between the two. However, there is a lot we can know about our portfolio than just this measure. We would encourage investors to do an annual assessment of their financial situation to understand the same and to also chalk out a plan for progress for the future. In this issue, we will talk about the wealth of information which can be gleaned from a personal financial statement than just the bottom line.

Usage:

Application of the ratio analysis technique to personal financial offers potential in expanding insight into specific strengths and weaknesses of a family’s financial situation. The ratios are presented below with indications of how each ratio might be used to assess liquidity, solvency, or the general financial position of a particular investor/family. The information should provide more specific directions in assisting the client to develop financial goals. A ratio typically expresses a relationship between two or more data points /information /parts of the financial statement and provides a context in which to evaluate various aspects of the financial situation.

Key Ratios:

1. Emergency Funds – Liquid assets / monthly expenses: Liquid assets are those assets which can be easily sold/liquidated and quickly converted to cash without any loss of value. This ratio provides insight into the adequacy of liquid asset holdings to cover monthly expenses if the family experiences a sudden loss of income due to loss of income for any reason. This ratio may be modified to include financial assets which are not in ready liquid form but could be easily redeemed and converted in cash.

   Financial experts typically suggest at least 3 to 6 months of coverage depending on the situation, assets covered, income stability, the number of dependents, and so on. The higher the ratio, the better it is for families.

2. Debt Exposure – Assets /total debt: This ratio examines the relationship between assets and the total debt obligation of the family. Please note that which assets to be included here is of primary concern. If you only include liquid assets, the ratio will indicate how easily you could close off and repay all your debt. However, you could also include all your redeemable financial assets in addition to liquid assets. In such a case, it would show a different picture of your debt ratio. Together these ratios help in determining whether the family has overextended itself or has maintained a debt level within reasonable limits given the family’s level of assets.

   Experts suggest that a ratio of say at least 10% (assets as % of the debt) and above should be comfortable when only liquid assets are considered. When total financial assets are considered, then 30% may be considered a minimum level to indicate a healthy financial situation. If you are only considering long-term asset creating debt like home loans, then again the ratio of 10% should be acceptable.

3. Net Debt Position – Total debt/ Net worth: Normally the debt position of a family is not evaluated unless the situation is extreme. This ratio expands our understanding in assessing the debt position of the family by relating total liabilities to total net worth value. Experts recommend that families should keep this measure below 1.0 or 100% meaning that that total debt should never be more than your total net worth. However, if a family has recently purchased a long-term debt, like home loan, this ratio may go a bit higher in initial years. During such times, you could exclude that home loan debt and other such asset-creating long term debt and look at the ratio again. Experts suggest that in such a case, your debt should not be more than 40% of your net worth.

4. Debt servicing ratio – Monthly debt liabilities / Net income: The debt servicing ratio measures how easily you can service your debt. In other words, it is the ratio of your EMI to the net income. You must never let the total debt obligation cross 40% of your net income. The less it is the better. The idea is that the rest of the 60% has to be adequately saved for consumption and savings. However, this ratio for most individuals living in urban areas may touch dangerous levels of even over 80%. Increase in EMIs compromises your lifestyle and your ability to secure a better future through savings. One should aim to move from a situation of high debt and low savings to a situation of no debt and high savings as your age/income increases.

5. Liquidity of Portfolio: Liquid Assets/Net Worth: This measures the proportion of total net worth held in liquid form. This type of net worth component ratio should be evaluated after considering the family’s financial goals rather than as an objective standard. If the majority of the goals are of short term or near to maturity, then the proportion of liquid assets should be higher. However, if you are having long term goals not anywhere near to maturity, your assets should be held largely in non-liquid assets like say equities. The reason being that such assets will provide better returns than liquid assets. Thus, it is up to the financial advisor /family to ascertain the right/optimum portion of liquid assets in your net worth.

   One can further modify this ratio to also include all financial assets in addition to liquid assets as part of the total net worth. This ratio would indicate if you are investing too much in non-liquid and financial assets like gold, property, etc. One may think of ensuring a good balance between financial and non-financial assets with more bias to the former.

6. Savings Ratio – Savings / Net income: This ratio is used to show you how much money you are saving over a specified period. It is strongly advised to have a savings rate of at least 10% to 20% of your net income. The higher the number, the better it should be. In times when you do not have any debt EMIs or other expenses, one should be shrewd enough to let this ratio grow as much at possible. The equation should be calculated as income (-) savings = expenses whenever you are planning your monthly budget. Making the most of your available cash-flow and directing it towards savings is very essential as times may change in future when savings may not be that easy.

Conclusion: While there may be many more ratios for understanding personal finance, the above ratios are the key ones that help you understand your portfolio construction, your security and your savings behaviour better. Do not just stop at looking at net worth or the current value of your investments. Go beyond, take some time out, at least a couple of hours every month to calculate and track the trend of your personal finance ratio. Believe us, it will do wonders to your knowledge and your financial situation.

Have you ever asked yourself – what has all the technology advancement and development around brought us? Has it really added value to our lives? Has it added happiness, contentment and sense of security to us?

It would be a true eye-opener if we could ask this question to us every now and then. Those past their 30s would fondly remember the good old days when we had little possessions but also little to worry about so many things in life. We had plenty of friends, relatives and time to enjoy life. Were we not happier then?

Recently, there was a whatsapp forward which made me wonder about these things in life. Of course, there are many advantages of modern life which we could even dream off few decades back. Technology advancement and development and impacted every bit of our lives, be it medical care, communication, entertainment, education, travel, work or the daily comforts in our life. It has surely made our lives more comfortable and without boundaries.

The past few decades have also seen an alarming change. Wealth and income inequality has increased anywhere in the world despite substantial geographical differences. Today, the richest 1% are twice as wealthy as the poorest 50% put together globally. Unfortunately, the rising income disparity is true even for India. There is much evidence that rich are getting richer and poor are getting poorer, everywhere.

There is a visible change in our society happening in the past few decades. Families are growing smaller and more distant. We are becoming more commercial in our social dealings and there is much materialism which is evident in almost all aspects of our lives. True, the income opportunities may have increased for many but only a few have managed to increase their wealth substantially. In this article, we will focus only on this critical aspect of the modern life which has direct, tangible and measurable impact on our financial well-being.

Why are we not getting rich?

The Savings trap:

Post economic liberalisation in 1991, India pursued a path which encouraged open market and privatisation and capitalism. A change from the socialistic approach which was followed for many decades without visible growth in economy or the standard of living. Post this change, many new industries and markets took birth and prospered. The people who participated in this growth saw their wealth growth. However, a majority of the people did not participate in this economic growth of India.

Between 1979 (base year for Sensex launched in 1986) and now, the Sensex has grown from 100 to 41,150 in 40 years. That’s gives us an annualised growth of 16.25% without counting dividends! Your money would have multiplied more than 411 times during this period. However, the only people who benefitted where those were the industrialists, entrepreneurs and the equity shareholders from this growth. Be it due to traditions or culture or awareness or lack of proper markets, a lot of us and our parents avoided equities. We gave our money to banks and government savings plans which gave us a paltry single digit returns.

Even today, equity savings culture has not growth substantially. A lot of us are looking at sovereign or guaranteed investment options which give us negative real returns after tax (real returns is returns less retail inflation). This simply means that even though we feel we are saving money, the fact is that we are eroding or slowing burning our money. The unfortunate irony is that we are happy to get that.

Here is a short example to get this message home. You get returns of 7%. Tax rate applicable is 30%. Your net returns is 4.9%. Inflation in December, 2019 was 7.35% as against 5.54% in November 2019. Even if we consider an average of 5%, for all practical purpose, we are loosing our money by 0.1% yearly.

In short, even though we are earning more than before and saving even more, we are not really creating wealth over time. This is the savings trap we need to break. Think over it.

The Security trap

We don’t have adequate social security in India. That’s an unpleasant and unfortunate fact. Even if available, often it is grossly inadequate. It is just about enough to cater to the ‘poor segment’ of the population but inadequate as far as the middle class is concerned. There is no debate that events like accidents, sickness, diseases, disability, death etc carry a huge burden on us and often give us unbearable financial shocks. I am not even counting things like theft, fire, etc for properties here.

There was an alarming report published in June 2018 by experts from Public Health Foundation of India. The report said that 55 million Indians were pushed into poverty in a single year because of having to fund their own healthcare and 38 million of them fell below the poverty line due to spending on medicines alone.

Most of us do not have the full required range of insurance of ourselves. Life, health and personal accident insurance are the three critical insurance policies we should have but most of don’t. Even for those who have the same, most of the times there is underinsurance. A lot of insurance agents who sold traditional life insurance policies which promised nominal returns at the cost of insurance coverage, did grave injustice to investors. The investors neither got adequate insurance nor created wealth. Pure term insurance products was rarely sold till only recently when there was demand for same from investors.

The Spending trap:

In the past few years, we have undergone a cultural and behavioural change when it comes to our spending habits. As kids, we used to buy new clothes and shoes only on Diwali. We spend little on electronics, ate outside very rarely and went on holidays like on budget trips (by today’s standards). We bought things only when we had money and we rarely borrowed as it was considered not good in our upbringing.

Cut to today. There is a popular line which says ‘today we spend money which we don’t have on things which we don’t need to please people who we don’t know’. We have replaced what we need with what we desire and what we can afford the most, by stretching our budgets. We buy the best gadgets we can even though the old ones are working fine. We buy cloths, watches, shoes, cars as a status symbol. We holiday in exotic locations to post pictures on Facebook and get happy on the likes. Today our celebrations for birthdays, anniversaries, marriages are grand and lavish. We are buying things on loans which are based on our current /projected income growth.

Unless we break this spending trap, we will not realise the full opportunity of saving and investing in growth assets. Every time we spend unnecessarily, we are sacrificing future wealth for our immediate gratification. This has to be controlled and if possible, stopped.

Conclusion:

It is not possible for ‘all’ of us to become very very rich in our lifetime. To be honest, most us avoid taking risks and/or do not have the necessary skills or talent or opportunities to do so. But we can all strive for a much better future for us and our families and we can become rich by our present standards. At the worse, we should avoid stagnating at our current levels of wealth (in real terms) while making sure that we never fall down from our present levels. Remember, it is not just important to become rich but also stay rich.

The clear message is that we need to get over the three traps mentioned in this article. How? We need to [1] save and invest in growth assets that give us real returns in long term [2] get adequate insurance to protect ourselves from any unfortunate events that can wipe out a life time of our savings and [3] control our arbitrary spendings and reduce debt. These simple things are very simple and easy to execute and possible for everyone of us.

As we start a new decade of 2020s, let us also pledge to make this decade a decade dedicated for our family’s prosperity and financial well-being.

“He that is good for making excuses is seldom good for anything else.” – Benjamin Franklin

Most people have many reasons ‘not’ to invest. Even those who do save, little is saved in new investment vehicles. A large part of the income is understandably spent on meeting needs, repaying loans and leisure/entertainment only a very little part is left with most of us. However, many have adequate income today to invest meaningfully. It is really unfortunate that even then people find excuses not to save and invest. In this article we will talk about the most common excuses people have to avoid making investments. Most of these excuses are ungrounded, not true even though the person may believe them so. will also unmask the fact and truth behind these excuses.

I Don’t Have Enough Money

This is the most common reason quoted by people. Let us dissect the truth behind it.

• You can start with any amount: When we say we don’t have enough money do we have an amount in mind? Most people do not think of what amount they can invest and hope that they will start saving once they have enough. However, this is futile exercise and quite often it only delays your savings till you regret it. To be honest, there is no minimum amount for saving and you can even start by saving Rs.500 per month if the intent is really there.

• You can always prioritise spending: Those you find it difficult to save would be better off having a closer look at where the money is being spent. It can be quite surprising how much you could save if you would only be paying attention. Petty expenses on dining out, movies, ordering food, impulsive shopping online, etc can go a long way when diverted to investments. Only the right intent is needed.

• It may because of lack of intent: Intent or rather the lack of it as we now see is perhaps the true reason you have the excuse of not having money. Surely, those who despise saving and believe in only living to the fullest in life openly declare their lack of intent. It may suit you if you have enough wealth to retire and take care of your family. But what if not? Surely, there has to be a balance and a good reason and space for the intent to save.

• If you can’t save, it is an alarm to talk to your advisor: If you have the genuine intent and still do not have adequate money to save, there is a severe problem. You need to consult a financial advisor to really understand your financial situation and guide you further.

I Am In Debt

This can be a genuine excuse which is not impossible to handle. Let us see what we can do if you find it really hard to save because of huge debt.

• You need to have a plan: The first thing you need is a better understanding of your situation – how much you are earning, how much you own and owe, what is the cost of servicing each loan and so on. Perhaps the plans can unravel ways you can still manage to save a bit by cutting corners in other areas.

• You need to pay off expensive debts: It is also advisable if we can dilute some of our assets and pay off expensive loans and find space to divert the EMIs saved towards real savings and wealth creation.

• You may restructure the loans: When you think things have reached a point of no return and it is impossible to manage your affairs, there is still a way out. We would suggest you restructure your loans, leverage your good credit rating to negotiate with the lenders. Perhaps there may be a way out still, if you really wish to pursue it.

I Don’t Have Time:

Call it procrastination, laziness or just simple lack of interest. Lack of time is a common excuse. Let us unmask the truth behind this.

Why this may not be true?

• Account opening is now digital: Gone are the days of physical transactions. Now everything is digital and so is the first step is to open an online account. Thankfully, the account opening process is entirely online. You may chose the right financial advisor, distributor, broker and open the account online yourself.

• Transactions are done digitally: Often we hate to do the paper work for transactions. We also hate depending on our advisor /distributor to bring in the papers and submit them to the operational offices. Good news is that transactions in most financial products, especially mutual funds, can be today done completely online, any time any where.

• Goal planning tools readily available: If you think you need too much time to plan for your finances and these things bore you, well you are mistaken. There are many user friendly tools available today which can help you plan for your financial goals. This can be an option for you if you do not wish to talk to your advisor. Explore these tools which hardly take few minutes and you will know how much SIP or lump sum you need to save to fulfil your financial goals in life.

• Ask your advisor: Some may find the investment topic boring. Finding and approaching a good advisor can make a huge difference in such a situation. However we do not recommend you start online investments all by yourself unless you have a good amount of experience and knowledge to handle things.

These are just three of the most common excuses for not saving. There could be many more and you may even have a hundred excuses, however, there is only one reason to save – financial well-being. If you have the foresight and the common sense but lack bank balance to retire, savings is the way forward, without excuse. You would do well to remember a famous quote from Florence Nightingale –“I attribute my success to this – I never gave or took an excuse.” Happy saving and investing.