Common Mistakes in Personal Finance [Part 2]

POSTED BY manish ON April 23, 2010 COMMENTS (99)

Unrealistic returns

Risk free returns, in our country are amongst the highest in the world. In countries like US, the interest rates are 1-2%. Equity markets in our country continue to provide 12-15% annual returns (Find Why) . But how much do investors expect from equity these days? A lot! No one is ready to settle below 20-25%? 12% is abusive to them, & makes them feel like they are cheated. A reader told me that he earned 100% this year from equity (2009) and he will be happy with even 25% next time! LOL! This happens when you look at short-term returns.  Investors who started in 2004 started thinking that they are all “Warren Buffet” and can leave their jobs in some years! Whereas all investors who started in 2007 end or 2008 start compare equity with their mother-in-laws, they just can’t stand it.

Think long-term, and timing will just not matter much. For retirement and child education, which is 15-20+ years away, just start a SIP in an Index fund and then go into a COMA, come back once in a while and just review it every 6 months to a year. That’s all.

Feeling special when it comes to Life or Health Insurance

I’m not sure why, but some people feel that they are god gifted. They feel good health is a good excuse to skip Health Insurance and just because they don’t drive carelessly, it makes them “Accident proof”. They don’t realise that most people die in accidents not because they don’t drive well; it’s because the other person does not. Probability of dying is almost the same for everyone, but everyone feels that they have better chances, of not being part of an accident or an attack.

Be realistic; especially in bigger cities the chances of accident is higher than smaller cities. Most and more casualties happen in bigger cities. Take adequate Life and Health cover.

Excessive Leverage and careless spending

In recent times, we spend like there’s no tomorrow. Easy available credit for home loan & the tax breaks available on them, EMIs available as an option for buying almost anything these days; all these easy means for laying hands on money has suddenly changed the way we see “Acquiring Assets” and “Spending”. Unlike our parents and grandparents, we are spending money, which we haven’t even earned. We buy houses, cars, vacations etc., and then pay the cost for the rest of our working lives. In some cases, it might make sense, but a large section of society just lives beyond their means (See this eye-opener from Subrmoney) .

Research shows, that we feel less guilty when we pay with our credit cards rather than cash. When we use cards, we don’t see money going out; there’s just a consolidated bill at the end. Nothing can be done (or undone) then, you just pay it. Imagine you are paying cash every time you are buying something you really do not need. We buy unwanted clothes, & unnecessary gadgets we can do without. How many of us claim, sometimes that we just can’t survive without a certain device, or feel that we can’t enjoy our life without certain doodads? Didn’t our parents and the old generation live without them or with limited quantities ?

Why have we all suddenly shifted to plasma TV rather than the old TV we have used in our childhood? Of course, technological changes should happen and we should always move forward, but buying a Plasma TV just because it looks cool in your drawing-room, does not make sense at all; that too, if you haven’t yet planned for your retirement or taken care of all the important goals in life. If it’s really your need , then go ahead , I would encourage , but most of the time people buy it out of comparison with friends and relatives. Once your other priorities have been achieved , you can go for it, But not at the cost of something more important .

I’ve heard horror stories of people who have bought homes and are crying today. Their home prices are moving up, but the quality of life has drastically decreased. They suffer horrible amounts of stress because now, even small things in life which gave them happiness, look unaffordable… all because that 2 BHK Flat’s EMI has to go through next month (A close look at Real Estate Returns in India).

No quality trips & vacations, heavy stress because of insecurities of jobs. Imagine a double income family with income of more than Rs 1 lac,  who belongs to top 1 percentile of the highest earners in the country, but not leading a happy life because of excessive debt they have taken on all the loans and not enjoying little things in life because of these issues . Whats the point of earning so well then ? Don’t try to be over ambitious at the cost of your current lifestyle and happiness! If you can’t manage your life successfully and happily, then the car, and the house, and all that financial planning is just a waste. (Read What is the goal of Financial Planning)

Short vision

Close your eyes and try to imagine your retirement, child education & marriage related expenses, and health care costs after 30 years. Can you predict your grocery bills after retirement? Living in present is great, but planning your future is critical now. Let us do a small exercise to show you what your dietary (food & eating) expenses at home after retirement will be.

Consider a 30 years old couple today… How much do they need to eat a decent breakfast, lunch and dinner at home? Even if you consider a meal at Rs 25, that’s Rs 150 for 3 meals/2 person a day, thats Rs 4,500 per month. I guess that’s what the grocery bill of most married couples in their 30’s would look like (I am unmarried, as yet). Now, Rs 4,500 per month today, means 25,000 per month after 30 yrs, which is 3 lacs per year just for groceries. Forget inflation for now, if you live for 30 yrs after retirement (worst case), that’s 30 years X 3 lacs = 90 lacs just for your breakfast, lunch and dinner and this, doesn’t even consider inflation. Some people think they would need 1 crore for their retirement , LOL !! . You will require at least 10-15 crores, start working on it NOW !! . Pray to God, you don’t live longer than that, else it would be really painful!

Not ready to pay for Advice

This is in our culture & our genes, it seems. The very idea of paying for advice is anathema to us. We rely on “free” advice most of the time. If we can get the top 10 mutual funds from valueresearchonline.com, then why pay someone for advice? When we know term insurance is best, and we have a good formula to calculate life insurance requirement, then why do we need a financial planner to tell us how much Insurance we need? If we have so many personal finance websites and magazines then why do we need financial planner, we can do it all by ourselves? We are a DYI (do it yourself) country! . I get many questions over email and comments, Imagine me asking for money for giving personalised advice, How many people will consider paying or will even accept that its fine ?

We must understand, however, that there are situations where you just can’t match professionals in some areas. The other thing is some advice can be general. For example “top 10 mutual funds” might not work for you, & might not be suitable for your situation. A different set of mutual funds might work in your case and to analyse your situation,  an investment consultant can be helpful. You have to take a call on whether its worth doing it all yourself or pay the fees & have a pro handle it.

Take large real estate transactions for example; I am amazed to see many people mailing me questions on complicated real estate deals, they are doing themselves, which actually might need a CA attention or professional advice to deal with. But why pay the CA that extra 10k or 15k he will ask for? They then, make mistakes and in long run lose a big amount of money just because of ignorance and not having optimized the whole deal.

Read Part 1 of Common Mistakes in Personal Finance

Comments Please , What are your views on these mistakes , which was the real eye-opener for you ? Do you want more of these kind of articles ?

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99 replies on this article “Common Mistakes in Personal Finance [Part 2]”

  1. Pratik says:

    Hi Manish.. Brilliant article I must say.. Just want a more explanation on the following point.

    “If we can get the top 10 mutual funds from valueresearchonline.com, then why pay someone for advice?

    The other thing is some advice can be general. For example “top 10 mutual funds” might not work for you, & might not be suitable for your situation. A different set of mutual funds might work in your case and to analyse your situation, an investment consultant can be helpful. ”

    I am not able to understand why the same BEST funds according to VRO won’t work for me considering I have appropriate time horizon? Can you please give an example and explain ?

    1. Good question Pratik. Note that VRO or any other website who does the ranking do the ranking based on some parameter which is their own designed. And truly speaking the top funds they provide are GOOD ENOUGH 🙂

      But ask yourself one thing , does the top 10 funds given by VRO after 1/2/3/4 yrs be those top 10 funds which were on TOP when it came to performance ? Not likely always. If you think that mutual fund invest is all about PICKING funds and putting money into it, I must tell you that its the END ACTION. Before that you need to build a portfolio as per your risk and expected return along with time horizon etc .

      I am not getting into this as I dont want it to be like a marketing comment, but if you feel that the only support you need is PICKING of FUND NAMES, then VRO is a good enough solution 🙂

      Manish

  2. Amit says:

    Kaushik,
    If you have find good and reliable CFP please mail his details to my ID amitnkshirsagar@rediffmail.com…..Thanks in advance

  3. Kaushik says:

    You had talked about paying for financial consultant. You have truly said that India is a DIY country. Also I agree that we don’t want to pay for something which can’t be seen, felt or kept at home. It’s very true. However its not always the fault of people when they don’t go for professional consultancy. There is always in their mind about the correctness of the advice he will receive. They fear that the advisor will work on something which will benefit them rather than the person who goes for advice. Take example from real life. If we go to high end hospital/doctor the probability that the doc/hospital will look for their own gain is much higher. I agree that they will cure them but will over bill them, or make them buy expensive medicine when there is a cheaper alternative available. And what I am saying is very practical. Similarly lawyers will make sure that they squeeze you if you go for law related advice to them. These things might not be true always but the probability is high. So people visit them only if they can’t avoid visiting them. These things have made India a DIY country. Thus when we think we can avoid going to professional for financial consultants we do. I will tell you a personal experience when a employee of a reputed bank called me for financial advice on the amount I wanted to invest he/she was more interested in selling me a ULIP rather than giving me good financial advice. Don’t you think these make us stay away from professional financial consultants?

    1. Kaushik

      Yes, you are right , and its very sensible to keep distance through them . But who has asked you to go to these kind of advisors , planners who want to sell you anything ..

      If a planner tells you that you have to buy things from him , then you should run .

      But you can go to a planner , who does not sell you anything other than his advice . In case he is not selling you and has no control over from where will you buy prouducts , he has no reason to recommend you things which are costly and has high commission , unless he is working for the whole Advisor community or you married his girlfriend .

      So go to some one who tells you things in the same way as if he is living your financial life , he should be true to you as if he was giving advice to himself .

      Good advice is like great health , you should have the best ! . We at jagoinvestor have the same advice model of working with our clients , There has been cases where some clients have shown interest in investing through us , but wanted us to lowet the advice charges . Its a damage investors do to themselves by asking these kind of cheap questions … will some one ask a doctor to charge Rs 50 less because he will buy medicines from near by shops ?

      Guess what happened , those clients never came , and we are glad we didnt have to deal with clients who compromise on their financial future for these petty issues 🙂

      Manish

      1. Kaushik says:

        The problem is to find those kinds of investment/financial consultants. Can you kindly suggest where to find them in Pune? And from your reply it seems you too have financial consultancy services. Can you kindly suggest how to contact you for the same staying in Pune?

  4. JayaprakashReddy Kanreddy says:

    pattu, can I have that excel sheet? I’ve done my own but I dont think that’s perfect or correct. I want to see how much close I’m and may be follow the one you have. please send it to me at kanreddyjp at gmail dot com.

  5. raju says:

    Hi Manish,

    I am follower of your articles,
    I need a clarification on one thing, how a guy with 1-5k(may be less) savings per month can afford an financial advisor?
    How much you need to pay to an advisor?
    how to choose an advisor and about his credibility for best advice?
    Isn’t it better to learn from blogs or web portals?
    Even though personal finance varies from person to person!!

    I have seen many blogs/websites suggesting to have a financial advisor.
    As I know people who they claim financial advisors suggest the ULIPs,Endowment LIC policies as a good investment options.

    How do you choose a financial advisor to suit your needs and your budget.
    Why can’t you write an article on this?

    Regards,
    Raju

    1. Raju

      One thing is financial advisory is a profession and the more better advisor you seek for , the more will be his fees for advice . Incase you are saving less than 5k , suppose 2k per month , and if fees of advisor is 10k . Then you have to decide if you want to pay him 10k and do not do your investments for next 5 months , Its your decision if you think its worth to do this or not .

      You can learn from blogs/website/magazines very limited , and its more for awareness and basic planning , Replacing a planner itself is not possible unless you are ready to really go deep and learn things. You can mail me at manish@jagoinvestor.com for more .

      Manish

    2. pattu says:

      Someone with 5k savings cannot afford a planner unless the CFP gives you a huge discount or is your long lost uncle! Besides what Manish wrote here are two other options:

      1.http://www.raagvamdatt.com/
      offers you a plan at around 5-6K.

      2. I have an excel written by a CFP (certified financial planner)* which gives a pretty detailed startup financial plan. I would be happy to give to you (no charge!). Let me know in the comments section if you need this.

      In fact I would be happy to share this with anyone. I strongly believe that everyone should learn to do basic financial planning on their own.
      This would ensure CFPs work hard for their money.

      * certifiable(!) financial planner!

      1. naveen says:

        Hi Pattu,

        Can I have that excel sheet ? Im interesting in that.
        Thanks in advance.

        Naveen

        1. pattu says:

          Naveen,

          I would need your email!

          1. naveen says:

            Hi Pattu,

            Pls send it to naveensg at yahoo dot com

          2. Alok says:

            Pls send the excel to me too – alok9anand at yahoo dot com

          3. Alok says:

            Hi Pattu
            Pls send the excel to me too – alok9anand at yahoo dot com

      2. Suneil Gandhi says:

        Hi Pattu,

        Could you please email me that excel sheet as well?.. Would be highly obliged.. thanks.. my email is suneilgandhi at yahoo dot com

        Suneil…

      3. Vino Varghese says:

        Hi,

        I would be happy if you could share a copy of the startup financial plan. Appreciate your willingness to share the doc.

        I can be emailed on varghesevino@gmail.com

      4. Sunnydoc says:

        Hi Pattu, could you please email that excel sheet to me.. my email is suneilgandhi at yahoo.com

  6. saurabh says:

    hey manish you are doing great job man.
    due to your site i get the knowledge to move ahead with my financial planning.
    i was a dummy in this field and now after few days i am much confident about those jargons.
    i learned a lot from your blogs.
    thanks a lot.
    keep the good work going.

    1. Saurabh

      Wonderful to get your comments , looks like you have done some of the mistakes mentioned in this article ? Is it ?

      Manish

      1. saurabh says:

        no no man
        i have got job few months back and i am planning for my investment.
        yesterday for the whole day i was reading your WHOLE site and at this blog i was amazed about your writing skills and dedication.
        so i just put up the comment here .(sorry it was not particulary related to this post)
        i am still today on this site for the things which remained unread yesterday.

        i have also mailed you about one query which i felt. if you like you can make this as your new topic.

        another thing, when reading topic the natural human tendency is to jump to next topic and not read comments which as mentioned by you are very useful. if you find some query as good and which can be make as new topic, post it as new topic.
        the best thing to do is to add up this in FAQ list of particular topic.
        also see that they have proper heading like “when is good time to invest in mutual fund”/”FAQ on mutual fund” instead of “some good finding”/”reply to one query”

        1. Saurabh

          Nice to see that you are reading so much , my suggestion would be to not rush , take 2-3 posts in a week and read it along with comments, slow is beautiful 🙂

          Manish

          1. saurabh says:

            ok thanks manish

  7. Anil says:

    Hi Manish,
    I am a 24 yrs old IT Professional earning about 25K.
    I was financially illitrate about till a year back but due to my own interest and aspirations i have studied things and now i consider myself more literate than average people.
    I have chosen my Mutual Fund investments on my own and i invest in stocks..there is no debt investment as of now..
    reading ur articles i think i fall in the imbalanced asset allocation category right now..
    I am willing to pay for the services of a proper financial advisor but donot know how can i find one.
    There is one agent whom all of my family and relatives look at as a real expert but after learning things i find him pathetic to be honest.

    Can you Please let me know how should i progress in finding the right person and if i am elligible at all for financial advices as i am not among the high earners yet?

    1. Anil

      If you are good at learning and have already learned things , then I would say for now do your basic planning . get proper insurance , make sure what your goals are and plan for it and start investing good amount heavily in the starting of career . Hiring a good planner is not easy and definately not for smaller fee . You can wait for the time right now .

      Manish

      1. Anil says:

        Thanks Manish for your very prompt Reply.
        as per your suggestion,
        i am and i will keep investing 50% of my salary in equities only
        (SIP and direct stock) and will continue to do so on long term basis.
        Then when this grows to substantial amount probably i will think of planner as suggested by you.
        And once again thanks for the prompt reply,
        I have sent queries to many websites but never got such a prompt reply..thanks

  8. Prakash Daga says:

    I have just started reading your blog. I appreciate you taking time to write such basic idea about financial planning and it would help people who try to run away from financial planning.

    One thing I hate about financial advisor is that they are not financial advisers. They just pass on very common knowledge and perhaps the information which they provide is already freely available. I am yet to meet a true professional financial advisor who knows what he is doing/suggesting.

    1. Prakash

      yes , I agree . The Financial advisor you are talking about are all agents or some seller , true planners are very rare .

      Manish

  9. Very rightly said Manish, “Think long-term, and timing will just not matter much.”

    We share the views on this… People always try to time the markets and are always forced to take critical decisions over the movements in the market indices. They should never allow Sensex to guide their senses and “Time in the market should be given more weightage than timing the markets” and one will be at the least risk…

    1. Amandeep Singh

      Thanks for the comment

      Manish

  10. Rakesh Goyal says:

    It recalls me of a book ” Rich dad ,Poor Dad ” i read long back,, it diffrentiate between Weathy and Rich……..but y dnt u insist on earning more rather than reducing the expenditure….cost cutting is also good but after all whut s the money for…

    1. Rakesh

      I would consider “reducing expenses” is more easy for anyone compared to “Earning more” . Obviously both these things are two sides of a rubber band , which should move in opposite direction . However one has to decide which side they can pull more .

      Also , reducing expenditure is something with internal control , for earning more we need to rely on external things , which is tough to control . Do you have ideas for this ?

      Manish

  11. subramanyam says:

    Who is to judge the quality of advice given by financial planners? Will they ever suggest real estate (unless they are agents themselves? L O L). The competence and independence of a fp is a big worry. When I pay Rs. 550 for a coffee at least I know that is a 5* hotel. In financial services I know, the higher the charges, LOWER the returns. I found a planner who had suggested Ulips, mutual funds, etc. I played a trick. I told the client tell the planner that he would pay the planner’s fees (Rs. 25,000) BUT buy exactly the same products from another agent….would the plan still stand? The planner was almost furious. The OTHER agent was willing to pass back Rs. 29,000 – needless to say the client did not take any more calls from the planner. He lost 25K + 29k + trail. L O L. Now if he reads this he must be cursing my reader :).

    1. Subra

      Great example , Even this the CFP’s certification coming in India and financial planning being the buzz word , quality planners have no correlation with CFP certification atleast in India , I would say commissions encourage planners to dilute the advice , also the competence as you said is hard to get .

      Manish

  12. Pradeep says:

    Excellent one Manish!!
    I thought about 1 hour about my expenditures after these two articles about personal finance which I never did so seriously till date.
    Need more info related to this article on best way of saving little money(lets say 7-10 % of net income) in a good way that comes handful whenever required…
    Also in the case of a newly married person, how to include his/her wife/husband in the finance side like getting insurance, Bonds on the partners name…etc. I think you got my point..

    1. Pradeep

      How to invest will mostly not depend on how are you investing . the strategy will not depend on amount. So if you invest 1 lacs or 10k per month , the strategy is same

  13. dr kishan says:

    manish
    very enlightening indeed. all the points made by u are very relevant. each one of them. especially the math. imagine we have spend about one crore over thirty years for just the groceries if we live upto 100 years. the life expectancy of the average indian is increasing day by day thanks to technological advances in medicine and increasing awareness of people which means we must really plan very well for the future, if we have to lead a decent life in our old age too.
    ur link to the eyeopener from subramoney was a very nice one.
    pattu has made a nice point that the services of a CFP cannot be afforded by all the people and there fore they have to educate themselves for financial planning.

    i am eagerly waiting for more parts of “Common Mistakes in Personal Finance ” if there are any.

    dr kishan

    1. dr kishan

      lets see when i write more on this 🙂 .. Give some ideas

  14. Manish,

    A financial planner may work for those who can afford her (afterall she too needs to survive and believe me no one would like to work with a poor financial planner) but financial planning is for every one; whether they can afford a planner or not, because it is almost universal and scientific.

    The following link may provide useful perspective to your readers:

    http://blogs.inquirer.net/moneysmarts/2008/02/19/is-financial-planning-only-for-the-rich/

    Regards,
    Narendra

    1. Narendra

      I agree with you , but how much fees (range) can be expected from a planner ? also for people with lower income like 10-20k , how much % of it should be pay ? Or its always fixed in monitory sum ? Because if thats the case then there will be a large section of India which will never come forward to have it .

      Its something like doctors subsidising their service for people who can not afford too much , is there some thing like social financial planning ?

      Manish

      1. Manish,

        There are several ways this can be worked out. In my office I have never said no to anyone who is willing to go through financial planning process, fees or no fees.

        If a person is earning 10-15K per month with a saving potential of 5 K per month, financial planning can still be done. In this situation, it is not important that the investor has a 30 page plan with him to look in to the future, but the mind to stick with a saving plan first and foremost. Realistically, one must understand the difference between savings and investment. For saving one does not really need a complex financial plan.

        It would be interesting to analyse if it is the fee for the planner that is putting off the decision or something else. Look at the number of tier 2 accounts opened under New Pension Scheme in spite of Govt of India announcing a subsidy of Rs.1000/- for a savings of Rs.12000/- per annum. It is 8.33% subsidy. Last time I saw, only about 400 and odd accounts were in operation, hold your breath, across India! So, I would like to see a day when people insist on financial planning even when they buy NSC, PPF, Endowment plan, Chit fund, credit card, personal loan and so on.

        One must understand the psychology here. An investor, even if it is 5K investible surplus would not like to go to an inferior planner. Similarly, a CFP who handles HNIs would be reluctant spend time with an investor with 5K pm saving potential. This is reality of life and making money is serious capitalism for both.

        I would like to know from your readers which of the following option they would prefer:

        Option 1: ULIP or Endowment Plan with a premium of Rs.12000/- per annum with roughly Rs.4800/- as embedded charges.

        Option 2: Term Insurance + A saving or investment instrument without load/charges + approximate financial planning fee of Rs.4800/-

        You see the answer is here .It is all about priorities in life and the mindset to pay for quality advice.

        There is a legitimate pro-bono process elsewhere. In India, it may take some time to set in formally. Till then, happy savings..

        Regards,
        Narendra

        1. Narendra

          Good points , I agree that we do not need those 30 page plans as a “Financial plan” . Most of them are out of understanding for most of the clients without Financial planner making him understand anyways .

          A most comprehensive plan can be something where one takes care of Insurace needs , Top most goals in life like Retirement, Child related expenses (education + marriage) and giving general advice for saving + investing . Sticking to the plan and regularly visiting the plan once a year or 6 months , I think this is what should be done by each and every Indian anyways . A planner can work on this plan with more speed and can cover more clients .

          What do you think is the fair price to pay for this kind of plan ? This will take not more than 2-3 hours for a financial planner given all the formula’s are stuffed in excel sheet already .

          Regarding your question of choice about option 1 and 2 , its pretty obvious which one will they choose 🙂 , otherwise I would take a poll 🙂

          Manish

        2. BTW, your readers are intelligent enough to know if someone invests in a investment linked insurance plan of let us say Rs.100,000/- per annum they are likely to pay in the least 10-15 k as embedded charges (there are instances where it go as high as 40K also – ask any LIC agent what is her first year’s commission on let us say 20 year Jeevan Anand or Jeevan Tarang and then you will know). So what is wrong if a financial planner asks for fee for an advice worth many many times of that amount in terms of opportunities lost or gained?

          1. Narendra

            Advice from financial planners is out of this article scope , we are only discussing about non-value provider plain mutual funds sellers who take signatures and then do not give much service , they missell on high trail paying mutual funds .

            I am always in an agreement with quality advice from CFP’s (infact i am pursuing CFP myself) or any non-CFP also who is a general consultant .

            btw, Next article is on Insurance commissions 🙂 , Would love to have your views on that .

            Manish

            1. Have it your way Manish, No problems. You are welcome to join the CFP club. Would be interesting to see how your readers would react when you ask for fees though!

              No profession in India is an exception to free-lunch seekers. This will go on as long as the saver/investor does not realise what ‘value’ she must seek.

            2. Yup 🙂

              Lets see when I complete it , No time to give study and exam , doing it slowly 🙂

              Manish

  15. Puneet Gupta says:

    Great! this is the very reason I have never been comfortable with any kind of loans.
    Defining ones financial goals is easy (may be not!) ….but we also need to to prioritize our goals..
    Living in a rented accommodation…still trying to focus on other important goals (retirement ect) .. basically stress free without loans 🙂

    1. Puneet

      Good to hear that, how did you manage to convince others like wife , parents that living in rented is fine 🙂

      Manish

      1. Puneet Gupta says:

        I don’t have to convince my wife..it’s always a collective decision always.

        And believe me, (your reply proves you are not married), it’s almost impossible to convince you better half…

  16. vazanth says:

    Hi,

    As usual another superlative post. keep it up. I have a question to ask….i cant find the ask me section… I am married for the past year and my spouse is a housewife. No one is financially dependent on her. I am planning to opt for term insurance for her for a cover of 5 lacs. Can i go ahead with it or no? Ur valuable suggestion is highly appreciated. Tx in advance.

    1. vazanth

      why do you want to ensure her ? What financial impact will happen if she is not present ?

      Manish

  17. Praveen says:

    Excellent Excellent article.
    I am following all your articles and even making my friends, colleagues and cousins read. Thanks a lot…

    1. Praveen

      Thanks , keep commenting 🙂

      Manish

  18. pattu says:

    Manish,

    Regarding “Not ready to pay for Advice”

    1. A CFPs fees are typically high (Rs. 15-20 k). The Fee only CFP who resides on the right hand side of your blog could confirm this. A person for whom this fee represents 10% of monthly salary can afford it. What about about someone with say Rs. 10,000 monthly salary? Will a CFP do a COMPREHENSIVE plan for a proportionately lower fee? If yes then CFPs can benefit many. If no then they can only serve a smaller populace and people with a low salary have to plan for themselves.

    2. Many CFP sites offer wide range of products/plans of different degree. Obviously the comprehensive plan is the most useful one. The others can be handled with some foresight and common sense. In fact I have seen many sample financial plans and if one has puts in the effort one can come up with a similar and pretty decent plan if not as efficient as a CFPs.

    3. A CFP is a doctor for the couch potato. For the awake investor he is merely an adviser. If advice is sought then financial health would be tweaked. It would still be in pretty good shape even otherwise

    4. I detest articles written by CFPs (related to my previous comment) simply because they write useful ideas and end up saying “which is why a CFP is necessary”. The articles main intention is to advertise rather than educate.

    1. Hitesh says:

      I agree….

    2. Pattu

      Indeed there are CFP’s or any planner who charges in range from 15k – 20k . there are planners who take 8-10k too , but then I am not sure how good they are . I am sure CFP’s would work on comprehensive plans too which would cost 4-5k , these kind of plans would be very beneficial for lower salaried class .

      As you said , for a very active and informed investor , we just need ad advisor or a counsellor and not exactly a planner . most of the stuff can be done by themselves if they are ready to put time and effort .

      Good points you made .

      Manish

  19. Thought of making a list of things what I can’t and can do it myself. Here they are:

    I just can’t do it myself when,

    a) Blood is spilling from a cut finger in the kitchen
    b) My child is feverish, I waited for couple of days but fever is not subsiding
    c) I receive a notice from Income Tax Dept seeking hefty tax demand
    d) Title to a property I own is under dispute and I have to attend court hearings
    e) I want to construct a house
    f) I want the electrical wiring, plumbing done
    g) I want to service & repair my vehicle
    h) I want the geyser, gas stove, mixer, fridge serviced and repaired
    i) I want an apartment for rent

    I just can do it myself when,

    a) I shop for grocery & vegetables
    b) I shop for medicines from a prescription
    c) I wish provide myself with adequate risk cover
    d) I want to launder my clothes & iron them
    e) I want to invest for my child’s future
    f) I want to plan for my retirement
    g) I want to buy a complex investment product
    h) I want to buy a new handset
    i) I want to build my dream portfolio
    j) I want to choose the best college for my child
    k) I want to buy my dream home

    BTW, I am a practicing CFP so my opinion is biased!

    1. Good list

      Indeed your list is little biased because not all people can plan for their own retirement and build dream portfolio , most of them have the idea of what they want but would require professional help in how to get there with risk alligned to theirs

      Manish

  20. Tirthankar Mukherjee says:

    Great article again !
    But as you pointed out finding out able financial adviser is tough … I don’t see much around me, in Kolkata , may be I am unaware of them. Do you know some of them who will do financial planning for me (average middle class office goer ).

    1. Roopesh Majeti says:

      Hi Tirthankar,
      If you go through all the articles in Jagoinvestor…. you will be a kind of financial planner for yourself [Just kidding 🙂 ].
      But seriously, if we list down the spendings/savings for each month and how we can increase the savings bucket [ by reducing spendings as well as investments ] and if we practice it for couple of months, it is nothing but financial planning.
      I was like you, 2 years back, thinking that i could not get a proper financial planning adviser. Today i can say that i dont need one. I can list down the things mentioned above and can properly manage the funds. This is my personal opinion [ might be biased ].
      You can ask as many questions you like, on financial planning, to get your doubts cleared, in this forum.

      1. Tirthankar Mukherjee says:

        Yes I love this forum !
        I would like to know ,
        1) that Manish says you cant expect a return more than 12-15% from MF, but when I see the past performance for 10 years for few funds is almost 20% to 30%, is that performance not enough to judge for the next 25 to 30 years.
        http://new.valueresearchonline.com/funds/h2_fund_select.asp?mode=performancelong&mininitinvestment=Any&risk=Any&NetAsset=Any&Type=1&objectivesec=All&returns=R5Year&Percentage=0.1&rating3=3&rating4=4&rating5=5

        2) Our salary increases with time so if a person dont go for fixed SIP to achieve his target, rather than investing more with time and continues till 15 or 16 years and then keeps the money for rest of the 15 years to grow, can this target be achieved ? (need some analysis)

        NB : My parents both are Central Govt. employees, and salaries increased by 100 times their joining salary. Actually the data is valid for every govt. employee where the salary has increased by 90 %to 115%.

    2. Tirthankar

      There will be many CFP’s around , but I am not sure if there will be quality people around or just the one who are throwing some charts and tables created out of a software 🙂 and not force you to buy products through them 🙂 . what are your expectations from FP and the kind of fees you are comfortable with (min and max)

      Manish

      1. Tirthankar Mukherjee says:

        Hi Manish,
        I dont know if my expectations are high or low, but may be a 3% to 30% of the profit for 120% to 200% return, as I also wish to go into direct equity with 15% of my savings. If he can help me to select the next Sesa Goa 🙂 the % can go way high . I can provide a fixed charge of around 2k-3k for rest of the financial planning (debt,gold, insurance, Tax).

        If you go through above comment of mine can you please answer question no. 1
        Can you also come up with some article , how to choose from mid cap stocks.

        Regards
        Tirtha

        1. Tirtha

          I would say you are expecting too much. No one is going to help you get 120-200% returns . a good value investor himself expect to beat index by 6-7% . thats all . thats what fund manager tries to do .

          2-3k for rest financial planning is again underestimating its value .

          Manish

        2. Rajni Kant says:

          Dear Tirthankar….

          Its not ur prob….its indian human mentality to except much more than the reality……..u r talking about 120 to 200% return….i have seen more than 2000% return from equity…….one of my uncle bought ALLAHABAD BANK share during its IPO time…..at a rate of Rs. 10. and u knw current price is 260+……..

          Any way its good that u 15% of ur salary saving in direct equity…..
          for this select 3 to 4 stock of strong fundamentals…..use STOCK SIP.

          As u asked about 12% to 15% return…. we in personal finance use this type of return on conservative side… return above that is ur bonus.

          And u knw one thing people working in govt. have mind set like that they are ready to pay more than 10k as a hidden charges for any opportunity suggested by any people……bcz their mindset now structured as a “SAB APNE SAMAY PE HO JAAYEGA”….

          They people took advise from COMPOUNDER friend at free of cost for any illness and took medicines which pays high COMMISSION to that COMPOUNDER for recommending that medicine ….. but they are not willing to pay for GOOD ADVISE @ VALUABLE PRICE….which helps that people solve problem for lifetime…….

          Anyway u can free to take advise from any of ur friend…..and don’t forget to give treat from that 2k-3k to them…

          ENJOY

          Rajni

  21. Roopesh Majeti says:

    Hi Manish,
    A good article again !!!!!
    Regarding MF investment, we should always target for retirement and not for immediate returns, which MOST of the people do. This is always a wrong decission. Personally, i started SIP in 2006 and targetted for 2030 [ where i will complete my 60 years though 😉 ].It is always a good idea to have a long term goal than a short/lucarative goal.
    Regarding health insurance, YES, you are right. We should always be health covered as well as life covered. This will help our dependent in unforeseen circumstances. But people generally prefer to go with gauranteed return [ even in LIC ] which i feel little wrong. This is because, we pay hefty EMI for less cover, which eliminates the basic reason of life/health cover. Personally, i prefer the Term policy, which ofcourse, doesnot gaurantee any final return, But surely assure that you are covered for big sum [ atleast 30-40 lacs ] for a nominal 10k per year.

    1. Roopesh

      “Term insurance does not guarantee Any return” , they are not suppose to the premium you pay is for your cover, if you need return , you can buy return of premium term insurance , but then it will be costly .

      Manish

      1. Roopesh Majeti says:

        I agree/know that Term Insurance doesnot give any return. BUT i still prefer it. Because, we, generally mix insurance with investment, which is TOTALLY wrong.
        Term Insurance helps us in two ways. 1) The premium is less [ though non-refundable ] 2) The insurance amount is very high, which is infact, real help, in case of demise.

  22. Mayank Khanwalker says:

    Hi Manish,
    Credit cards are a double edged sword. They are a great convenience and these days you *cannot* avoid using them; so the trick is to use them to your advantage.

    The good thing is that most Credit card companies will give you a free lifetime gold/platinum/blah blah card AND if you don’t default…
    1 ) You don’t pay any interest.
    2) Build a good credit history.

    Here’s what I do :
    * Anytime I purchase something, I consider that money as spent. I always know the amount in the following month’s credit card bill and also the amount in my savings account (CC bill must always be a fraction of the money in the savings account, if not, you’re in DEEP SHIT !).
    * I know the statement generation date, so that sometimes when there is a large transaction to be done, I do it 1-2 days after the statement generation date. This results in maximum interest free period.

    The key thing is to make sure you never default. Equate money spent on the CC as if spent in cash and you’ll do just fine 🙂

    Cheers,
    Mayank

    1. Mayank

      Yup .. What you say is correct, but not all can be at par with you and me , thats the reason company’s run on , there is alwyas some % per people who will default (because of their carelessness or whatever) , suppose its 5% , then these 95% people will not default but these 5% people will default and pay enough interest to company so that company can afford to service this 95% good customers 🙂

      Thanks for putting your thoughts 🙂

      Manish

      1. NKanani says:

        “Research shows, that we feel less guilty when we pay with our credit cards rather than cash.” Good one! I am one of those who feel less guilty when I pay with credit card! Since, I feel less guilty when I pay with credit card rather than cash – it indicates I am spending on something I didn’t need anyway! Otherwise, why should I feel guilty about it!!

        I have 3 credit cards and try not to default them (as mentioned by Mayank), I might have defaulted once or twice in 3 years. For genuine needs, it is good to have an “manage” credit cards.

  23. khalid says:

    Hi
    very nice article once again, points you raised are really making every body thinking. EMI’s are good as well as are bad if you cross your limits, so every one should calculate his limits. And you are awakening the common man by your articles, thanks for sharing.

    1. Khalid

      You said the exact point i wanted to . The problem is not EMI , the problem is not controlling the debt and taking unwanted Debt and then leading a misearable life . What do you say ? How much should be EMI outgo for a person ? 40% ?

      Manish

      1. partha iyengar says:

        Khalid,

        You are right.. the emis put together should not cross 40% of the net income..
        the balance net income [net income = gross income -taxes] is approximately spread among a family of 3 or 4 as follows :

        30% – food, personal expenses, entertainment etc.
        10% – child education and related expenses
        10% – savings [cash and pre-dominantly for tax savings purposes]
        5-10% – fuel expenses

        Of course, this number could vary among individuals depending upon child’s or children’s age, cost of living in particular city the person stays, etc..

  24. TS GNANADEV says:

    hi!
    very useful article !!!
    same thing happening in
    most of the families today!
    EMI’s taking the happiness from families!

    1. TS GNANADEV

      nice to read this point “EMI’s taking the happiness from families!” , do you have any experience from real life ? please share

      Manish

      1. Kunal says:

        in this context i want to put EMI’s full form as
        Earn Money from Idiots

        1. Good one 🙂

          How about “Emotion mey investment 🙂 ”

          Manish

  25. Shiva says:

    Hi Manish

    “Probability of dying is almost the same for everyone, but everyone feels that they have better chances, of not being part of an accident or an attack”

    Well said. People in India have a syndrome called “It Won’t Happen to Me” syndrome. Almost everyone as Ive seen so far have this.We definitely need personal financial discipline and you are one of those angels hovering around to save the few (compared to the general population) people following this blog.

    If some one in our company loses their job we believe we will not lose ours.
    If our neighbor’s bike is stolen we believe ours will not be stolen.
    so and so and so

    I agree we need to have a positive attitude of life. But what i am trying to convey here is we never plan for hardships or try to secure ourselves until things happen to us. Because we always believe that It wont happen to us. I think Financial Ignorance (Nobody taught this to us when we grew) and the way we were brought up are 2 main causes for this.

    People like you need to save the ignorant toiling hard working mass of India

    1. Shiva

      good comment, Unless people start believing that anything can happen to them just like an average person , things will get better . what do you think the reason for not getting this point is not understanding probability and other mathematical concepts ? Or it should be intutive ?

      Manish

      1. Shiva says:

        Manish
        Nearly 60% (Cannot prove this. Have read in different sources) of worlds and India’s money makers didn’t cross school or have a formal degree (Bill Gates, Steve Jobs, Dhirubhai Ambani etc etc). So we can leave out math or altogether education out of this.

        I think Intuition as a factor can only be felt but cannot be proved. Everyone has some sort of inner feeling (euphoria) that things might get good or wrong. This will work sometimes but not always. Also only after something happens to us, will we correlate the feeling with the happening and confirm to ourselves that we were forewarned from the inside. Again no one’s going to believe us if we tell them that we knew this would happen to us before itself.

        But here what i can say if you ask me. Only way to make people realize this truth is they have to experience this either directly (they are directly involved) or indirectly (whom they love are involved).

        I definitely don’t say that either they or whom they love needs to meet with an accident for example. But this is the truth in ground reality. Lets hop on to lighter examples which doesn’t deal with loss of life.

        I had this syndrome. I (along with 34000 people in my company) lost my job on the same day (Outside India BTW) . Until the day before our company fired everyone we didn’t have any slightest idea (No body even got a sign of the impending disaster).

        Now since I was a victim I began understanding the ground rules that this can happen to everyone. If we extrapolate this to every sort of occurrence on both sides of the graph (becoming a millionaire, on the positive side and losing our life in a accident, on the negative side) this rule will fit perfectly good.

        So experience (You or some one you love have to experience this) matters if you ask me.

        How about you? How did you get this attitude. Perhaps I can attribute one more explanation. You might fit into that. “Common Sense” and seeing life from reality perspective rather than from a fantasy point.

        1. Shiva

          Correct, I am more of reality person , I like to be emotional where ever is demands 🙂 .

          Nice to hear your experience and how you learnt from it.

          Manish

  26. Pradeep says:

    Hi Manish,
    Once again a great article. In fact most of the people tend to so, just madly follow other without knowing their limit. Take example of share market when it was on high, or the example of various LIC policies, without knowledge and understanding just invest their hard earned money thinking they will make thousands into lac’s in short span of time.

    Nice Article.

    Pradeep

    1. Pradeep

      Great to hear your views. Regarding LIC policies I am not sure ,as its happening from last many decades . Stock markets are a good examples of bad decision because of excitement 🙂 . Which mistake do you think is the most prevalent in India ?

      Manish

      1. Pradeeep says:

        Hi Manish,

        The biggest mistake that we make is to follow others without using our brain and knowledge. We just didn’t think that it is not the way, if the other person earned profit, it is not mandatory that we will also earn the same profit. It depends on the time, situation and the limit of other person as how much he can handle the loss if any.
        Regards

        1. Pradeeep

          Yea .. I agree .. most of the people do not understand that we are all different and things will work in a different way 🙂 , This is not limited to finance btw 😉

          Manish

  27. Kunal says:

    Awesome article
    an eye opener for younger people
    keep it up

    1. Kunal

      Thanks , which one is the most prevalent mistake out of all the 5 I have given ? can you put your views on that as per your experience ?

      Manish

      1. Kunal says:

        i must say that short vision is the most prevalent one due to which others have high tendency to occur. if a person have a long vision then he will make himself educative and try to overcome other mistakes.

        1. Kunal

          Yup .. Mostly careless spending happens one does not have clear idea about future plans .

          Manish

          1. rohit says:

            I agree with you & subra on the same
            always better to rent rather than buy , have multiple flexibilities

            Neighbourr is not good , change
            job chnages , other reasons , chnage the location ,rather than stuck & commute 4 hours daily in metros
            difference (66% -example 30lakh flat -10K rent , 30k emi) of rent & emi judiciously invest in market & sky is the limit ( else SIP can assure 15% without brain)
            above difference -growth amount -retire & can live in small peacefull places ( there is not a shortage of hill statioons – shimla , manali , nainitaol ,ok pantnagar will also do )

            lot of peace things not work out as per planned future (tenure of 20 years of loans ) can have bettr options rather than stuck in bought flat which after purchas I am not sure whether will get even 15 lakhs also:)

            1. Rohit

              Yup .. agreed . however there can be cases when you really want to buy house , renting is not an option in every case 🙂

              Manish

            2. rohit says:

              yeah manish

              But first comes financial nirvana , than cash surplus , than buy 🙂

              not the reverse way around -be whatever scenario

  28. Kaushik says:

    WoW! A very good article indeed I would say. Would read it again … even I see neighbours around me who take everything on loan and then work late nights thinking they have to pay the EMI’s. Worst is when both Husband and wife work and taking the combined salary the couple goes in for bigger loans. Later they are forced to work thinking only about the high EMIs. And not to forget underlying high tensions in family life. I ask what is the need? Can’t we have a peaceful life with less loans? And as I personally believe money is something which we will always need more irrespective of how much salary we get. So let’s be content and lead a happy life with what ever we earn.

    1. Kaushik

      So true , at the end , being content in life has a big role to play , but dont we all understand this from inside but still do it . btw who doesnt need car , big house , expensive vacations , somewhere we feel that its mandatory to run after these things, if one is married one should start looking for “buying house” ? Dont you think its psychological ?

      Manish

  29. Pavan says:

    Unrealistic returns – I still remember how people went crazy after shares like RNRL and RPL way back in 2007 where the share prices were on its all time high.. above 200-250 levels.. All of them are still repenting !
    btw Manish nice to read about careless spending. This is what I meant in my post to Part 1.

    1. Pavan

      Thanks , did your friends try to average the price of shares they bought ? I am sure they did and later they again repented 🙂 , no ?

      Manish

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