Author: Jagoinvestor

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Are you ready to deal with a job loss?

Posted on by Jagoinvestor

Job loss is a scary situation because it’s a big disruption in your life. If you lose your job, you need to suddenly look for another job quickly because you have to meet your household expenses and also deal with the emotional crisis.

In case of a layoff, you also lose self-confidence and start doubting yourself and keep wondering what the future is going to be now. Look at these news headlines which talk about so many job losses in India. While all the sectors have layoffs, these headlines are more from the IT sector.

layoff headlines india

Are you prepared enough for a job loss?

Have you ever thought about this situation? Have you ever visualized about losing the job?

We all are so confident subconsciously that something like a job loss is never going to happen with us. We hear that it has happened in someone else life, but we consider ourselves so lucky for no reason.

Our lives are smooth and our planning for the future is perfect, but it’s critical to check if you can take the bad news of job loss? Is your financial life strong enough to handle that situation?

Have you ever thought about this?

Have you ever thought about how you will be paying your EMI’s, your kid’s school fees, rent, various other household expenses and how you will deal with stress and the insecurity which will come with the job loss. If we pick the software industry, there is enough bad news coming in from the last many years.

The industry is going through tough times (and even good times) and it’s not very uncommon to hear that thousands of employees got a pink slip and lost their jobs!

If we talk about you, are you skilled enough to find a new job in the same industry with the same pay package? Can you afford a lower salary? Do you have enough savings to deal with the stress of living without a paycheck for the next 6 months?

I found some real-life experience of people who are sharing about their job loss and how they felt about it. Please read them to understand how it feels and what it means.

Story #1 – How Ganesh felt when he lost the job in a startup

Below is an experience of Mr. Ganesh who shares how he lost the job and had to face issues in his life.

Real life example of job loss in India

Story #2 – How a software engineer felt after a job loss

Here is another experience of a quora user who worked for Symantec and lost a job when his wife was 5 months pregnant.

Another example of a software engineer loosing job at IT company in India

How to prepare for bad times?

We don’t wear a helmet while driving because we want the accident to happen. We wear it so to make sure we are protected if something goes bad accidentally.

In the same way, we should design our lives in such a way that even if we lose our jobs, the impact is limited and the emotional and financial loss is in control.

I know losing a job is not a great thing. Most of the wake up when they actually lose the job and start thing on what to do.

Don’t be that guy!

While you can’t stop someone from fire us, you always have control over what you can do to face that situation. So let’s talk about a few things you can and should do today to be ready for that scenario.

Action #1 – Have 6 months worth expenses in an emergency fund

When you lose the job, the immediate question which comes to your mind is – “How will I pay my bills?”

You have EMI’s, household expenses and many more things to deal with. You already know how messy it can get. I don’t want to get into details of it, but you need to pay all the bills. At best you will be able to stop a few things for a while, but how long?

Impact of job loss on your financial life

You should have enough liquid money with you which can last for a few months. It’s like the emergency fuel (6-month expenses) you need in your car to reach the petrol station (new job).

One more reason why you need to have enough emergency funds with you is that it gives you more power to choose your next job.

If you do not have money at your end to last another month, you are too scared. It’s a panic situation which forces you to choose any job which comes next. It’s like being desperate for marriage and then saying YES to the first person you meet. Not a good thing for the long term.

Action for you: Just multiply your expenses by 6 and keep that amount invested somewhere which can be available at short notice (like few days). The focus has to be more on availability and not returns. You can choose a debt mutual fund or a simple fixed deposit for this.

Action #2 – Don’t have a neck to neck expenses

A good habit for any investor is to make sure that their income is 1.5 times of their expenses. You should not be living a life where every penny you earn is getting spent.

I know it’s easier said than done for many people, but at least start taking action towards this.

There are two benefits here.

Benefit #1 – You will have good surplus each month which you can invest in for the future. It keeps you worry-free and you also can save good amount.

Benefit #2 – When you lose your job someday, you at least have an option to take up a job that is paying you less. Imagine you are earning Rs 1 lac per month. In case your expenses are neck to neck, you will not be able to accept a job that is offering you Rs 80,000 a month. Can you?

I strongly suggest that your total expenses (including EMI and everything) should not cross 60% of your income. It’s a good habit to practice in your financial life.

Action for you: Find out the ratio between your income and expenses. How much are you saving each month right now? If it’s less than 40%, focus your energy on earning more income. If not immediately, give yourself 2-3 yrs of time when you will increase your income to the next level.

Action #3 – Be awesome in what you do

Don’t be mediocre in what you do. Don’t be average in what you do.

Are you a java developer? Then be the one who knows everything inside out and make sure you are among the top 5% in the entire world

Are you a marketing guy? Then make sure you are the one who can really transform the marketing of a company if you take that task in your hand.

Are you a chef? Then make sure you are worth inviting to master chef show!

Whatever you are doing right now in your life, just make sure you are ONE OF THE BEST.

Be awesome in what you do

I am not saying that you should do something extra ordinary in life, but whatever you are doing, strive to be one of the best in that field.

If you focus on this, then you probably will never lose your job. And even if you do, you will quickly get another, And if you don’t get another job quickly, you will at least be calmer and composed than others who know that it’s just a matter of time. Your panic level will be low.

Action for you: Make a list of things you need to do to go to the next level in your profession. List down which are the training you need to attend, list down which all certifications you need to complete. List down if you need to change your job to learn new skills? List down if you want to ask for help from someone more awesome than you. List down all the points and complete that in the next 12 months.

Action #4 – Start saving money and build a good portfolio

There is this concept of human capital and money capital.

Human capital is our ability to work and earn money, it’s about the potential and how much you will bring in the future.

Money capital is your portfolio which gets build over time, you keep earning money and save from it and start increasing your money capital.

When we start our career, we are high on human capital and zero on money capital. When we retire, we have money capital and very low human capital (maximum cases).

Start building a good portfolio

Focus on investing and saving money from a long term perspective. It’s better to lose a job with 50 lacs lying in your mutual funds and deposits in the bank. It’s a much better panic situation compared to just having some money in your bank account.

I know it’s very tough to have any portfolio at the start of the career but do whatever best you can do. Focus on creating your first 1 lac, then first 10 lacs, then first 50 lacs.

But at least take actions to reach there.

If you have good amount in your portfolio it feels safe. You can fall back on something which can last you for many years in the worst case. Imagine not having much in your portfolio and losing a job. Even Rs 10,000 invested per month can give you 25 lacs in 10 yrs if done in the proper way.

Saving money for future

So ask yourself, if you have enough money capital as per your situation? Have you built and saved your money capital or not?

In the case of job loss, most of the people who are in extreme panic are those who have no sufficient money capital and human capital. Even if you save 10% of your money income on a consistent basis over your working life, it’s going to be a very huge amount. But most of the people even fail there.

Action for you: First slow down. Then see how much is your monthly surplus each month? Are you investing that money on a regular basis? If not, it’s time for you to start your SIP (our team will help you in building wealth in a systematic manner).

Don’t make these 5 mistakes at your work

Let’s quickly look at a few points which lead to a job loss. Many people just do wrong things at work and expect to never get fired. If the points below are true for you, its time you relook at your approach and take corrective steps.

  • Not updated yourself as per job requirement – Are you still acting as if you are in 2007? Are you refusing to learn new skills that are required in your job? Are you into that comfort zone? If yes, it’s a signal that you may lose your job because you are getting stale day by day.
  • Not able to work with others – Are you a team person? Any work is done by a group of people and not a single guy. Make sure you know how to have good relations with your teammates and work with others. If you are not a team guy, you might not be part of the team soon.
  • Failure to do your work – This is a no brainer. Are you consistently failing in the work assigned to you? Are you not able to complete it in a given time and with the expected results? Get more trained, ask for help from others if that’s the case. It’s ok to fail once in a while, but if it’s happening very frequently you are on a list of non-performers and you might get a pink slip very soon.
  • Failure to take initiative – Are you just doing what you are supposed to do? That’s all? Are you taking new initiatives yourself and showing that eagerness to go out of your way and surprise your employer? Remember, the pyramid is smaller at the top and you want to move to the top like many others. You will be the first tree to get cut if things get ugly.
  • Failure to demonstrate productivity – Are you busy or productive? A lot of people do lots of things at work only to produce very little at the end of the day. Make sure you are doing more and highly useful productive work. Also, make sure you show that to your employer. Get it noticed and recorded.

I hope I was able to reignite your thoughts on these points. Do let me know how many marks out of 100 will you give to yourself on preparedness for job loss?

If you are 100% prepared and ready to cope up with it, you score 100/100, else 0/100 at the extreme end. I would like to hear about this from you and what you are going to do about it.

Buying Term Insurance Plan? Here are 20 Critical things to keep in mind

Posted on by Jagoinvestor

If you are planning to buy a term insurance plan in coming weeks, then you are at the right place, because today I will share dozens of points which any term plan buyer should know before they buy the cover.

So, if you have no idea of how does term insurance work, and if you have asked yourself – “Which term plan should I buy?”, then you are at the right place today.

Most of the buyers who are new to term insurance plans do not understand various critical facts and points which they should consider while they are buying the policy and because of that, I came up with this checklist which will help you.

Let look at each point in detail.

buy term plan checklist

1. Earlier you buy a term insurance plan, better it is

There is no minimum or maximum age for term insurance. Earlier you purchase the policy better it is.

Do not be very late because as time passes, your premium amount will also increase depending on your age and also if you develop any illness or disease, it will get tougher to get the policy later. So once you are clear that you require a certain amount of life cover, go ahead and complete the action within a few months.

2. Buy the term insurance policy only till your retirement age

Till what age should you buy a term plan? Should a 30 yrs old guy buy a term plan up to 80 yrs? The answer is NO.

You should not buy it for the longest tenure possible because you only need life insurance policy till your retirement and not beyond that. This is because not many family members will be financially dependent on you beyond your retirement age.

When we are young, we have more financial responsibilities, and hence it makes sense to take a big cover. But as our age increases, our assets will grow and at the same time, we will be moving towards the retirement age, at which point we no longer remain provider for our families.

3. Don’t get mislead by “per day premium” marketing gimmick

A lot of insurance companies have started to advertise their term insurance plans by sharing the cost per day basis, like for example – “Buy 1 crore term plan just for Rs 25/day”. However, note that these numbers might be applicable only for a certain age group and tenure of the policy.

Like it might happen that the advertised premium per day is only for the clients around 25 yrs and for a policy of 40 yrs.

cheap term plan premium

Your case will be different and the premiums might differ for you, so don’t get trapped by the lure of cheaper premiums.

4. Don’t buy single premium policies

At times, you have to choose between single premiums vs. regular premium while purchasing a life insurance policy. A lot of people think that just because they can afford to pay a onetime premium, it makes sense, but it’s not true.

Other than some cases, it does not make much sense to pay a one-time premium (single premium) while buying a term plan. The best option which will work for most people is the yearly premium. So if your agent is trying to explain to you how a one-time payment will help you save the cost, run away and don’t fall for it.

5. Take an increase in premiums in a positive manner

This is a big one which is critical to understand.

When you buy a term plan (or even health insurance), sometimes your premiums can increase after your medicals are done and you may be asked to pay an extra premium. This increase in premium is due to health issues and it’s very valid to ask you to pay this extra premium.

Most of the buyers are very critical of the premium increase and choose to not move ahead or postpone their decision of buying the plan.

However you should understand that the premiums increase is a natural thing to happen if you are of the high-risk category (like a smoker, alcoholic or if some past illness). It’s actually a good thing that the company is beforehand checking the facts and still offering you the plan, though at a little high premium which is very fair from their point of view.

If you are still not clear on this, you should learn how insurance companies work and what is their model?

At that point, rather than postponing the decision, the best thing is to go ahead and buy the policy.

6. Don’t get over-excited by term insurance riders

“Riders” are great add on with a term insurance plan, but only if you really require them or if they are specific to your case. Don’t add them just because it’s available and gives you a sense of more security. I mean if you do a lot of travel and are most of the time in your case, the risk of dying in an accident is higher for you, so in that case, you can add an accidental rider. Here are various types of term plan riders

  • Accidental Death Rider
  • Permanent & Partial Disability
  • Critical Illness
  • Waiver of Premium
  • Income Benefit Rider

In the same way, if you feel that you want to cover the risk of some critical illness in the future and don’t want to buy a separate policy, then you can add critical cover. But don’t add any term insurance riders for the sake of it.

7. Buy the basic version of the term insurance plan

A term plan comes into various flavors nowadays. The most basic one is the one which pays you a lump sum on death. However, there are other variations now which also gives you income for 10/20 yrs along with the main cover, or pays only the income for the next 10/20 yrs and a small lump sum at the time of claim.

I think one should just choose the base policy in most of the cases. Most of the other options are designed for very specific situations and they are not “better” or “bad” compared to the base policy. To check this, you can go to any term insurance premium calculator and find out the premium with rider and without a rider.

8. Tell them if you are smoker/alcoholic

One of the worst things you can do while purchasing any life insurance plan is to hide the fact that you are a smoker or consume alcohol. Please don’t hide it. There is nothing like a best term insurance plan for smokers in India at the moment.

Your premium calculation happens based on this critical information and if you hide these facts, then you are actually breaching the contract with the company and almost always your claim will be rejected at the end. Also, don’t think that just because you smoke just once in a while does not make you a non-smoker.

Below is some data from economic times on the rising number of claim rejections because of the hiding of information.

Claim rejections in life insurance

If you smoke (even though every fewer number of times), you are a smoker in the eyes of the life insurance company. Same is the case with those who take alcohol.

Make sure you fill your own form because there have been cases when an agent just mentions the policyholder as non-smoker or non-alcoholic to make sure the policy is easily issued.

9. Don’t hide your health information

Another grave mistake done by policy buyers is to hide any critical health information while purchasing the policy. If you have any health issues or have gone through any major operations/surgeries then you should clearly communicate that to the insurance company. One of the reasons for term insurance claim rejection is hiding important facts while purchasing the policy.

Please don’t wait for the insurance form to ask you the exact details.

An insurance policy is actually a proposal from your end in the eyes of law where you have to disclose all the facts and the company will accept your case or reject it. So the bonus of providing all the information is on you.

10. Don’t hide your family health history

Even your family health history matters. If your parents or siblings have some illness, then even that should be shared by you. Please don’t hide it because even that information impacts your premium.

Many people think that just because their parents had diabetes, it does not matter at all. That’s not true.

11. Don’t take small insurance cover (like 10-20 lacs)

Do you know that the average sum assured per India is in the range of Rs 90,000 to 1 lac only? Indians on average are highly uninsured, however, that’s mostly true for those who do not have term plans. But even those who have term plan try to cut the corners and eventually take less term insurance cover.

The most favorite number nowadays is Rs 1 crore. I see most of the people just taking a 1 crore term insurance plan thinking that it’s the right number. No, it’s not the case.

life insurance formula

With the rising costs and lots of aspirations, Rs 1 crore might not be enough for most of the families all their life. I suggest you should take a good enough cover which gives you enough peace of mind.

Make sure you add up all your liabilities, 300 times of your monthly expenses and some more amount which can help your family reach your other financial goals and take at least that much cover.

If your life insurance requirement is Rs 1.3 crore, better than a 1.5 crore and not 1 crore.

12. Don’t overanalyze and delay your decision

Do you see that ad these days on TV where a lady shouts on her dead husband for forgetting to buy the life insurance even though they had decided to take it

“Kya, tum term insurance Lena bhul gaye, ab Ghar ka kharcha Kaise chalega”?

One of the biggest issues with most of the potential policy buyers is that they want to buy the best term insurance policy and don’t want to make any mistake. They are aware that they need a life cover, they also start searching for the policy, do the term insurance comparison, but then start to over-analyze the policy, its features, the premium comparison and what no.

Finally, they just don’t take any decision because of the analysis paralysis. They postpone the decision and think that they will “soon” buy it.

Don’t do this

But a decent term plan asap. Do some study, but don’t get into that zone where you are just stuck because of small points. It’s better to have a good term cover with any company, rather than having no cover trying to search for the best company.

13. Don’t forget adding nominee name

While filling the insurance form, make sure you carefully put the nominee name. But who can be a nominee in insurance? Ideally, it should be wife, children or someone whom you want to pass the term plan money. But try to avoid very old people as the nominee (in general).

Also make sure you mention this fact in your WILL too, or if you are not going to create a WILL right now, you can take the life insurance policy under MWP Act, so that your nominee will be the final person (it can only be wife and kids if you add MWP) who gets the money.

If you have bought the term plan long back and now your preference has changed, it’s better to change the nominee name.

14. Don’t take more than 1-2 policy

You should ideally have 1 term plan policy in your life insurance portfolio, the max can be 2 policies. But nothing more than that.

I have seen some people dividing their 2 crores of the cover into 4 policies of 50 lacs each with 4 different companies and it’s a little bit of stretch. In almost all cases, 1 single policy of a big amount is good enough.

However, if you still feel that you want to break it into two policies, that’s the maximum you should do. Also, some people who are buying another term plan after a couple of years should not note this point that they should eventually not have more than 2 policies.

15. Disclose the old insurance policy

When you buy any life insurance policy, it’s mandatory as per their rules to disclose the old insurance policy you already have. In most the cases, when people buy a term plan for the first time, they already have a couple of traditional insurance plans, but they fail to declare that.

I suggest you don’t do that because as per life insurance policies, a company should know how much coverage you already have and only based on that they will offer you additional cover.

One should disclose old insurance policy while purchasing new insurance policy

If you have already bought a term plan without mentioning your old policies, you should reach the customer care of your term plan company and share with them about your old policies.

16. Be open to try online brokers

There are various online brokers which are building a long term business in the insurance space and provide various extra benefits to their customers like fast service, claim settlement assistance without you (customer) incurring extra cost, because they get compensated by the insurer (without putting any additional cost on your pocket).

The premium for you is the same if you buy it from the company directly only or through these brokers. These brokers give you various options to choose from and help you buy the policy which you want.

You can approach these brokers if you really feel they will add value to your transaction. I am not saying that online brokers are the only way to buy. If you are very critical of them or are old fashioned, then you can directly reach to company or your neighborhood broker.

17. Check the policy papers once you get it

One of the things which you should immediately do after receiving the policy is to check all the fine points and a copy of your medical examination. Nowadays, the policy papers have your medical records.

Kindly go through each point and make sure things like your age, name, blood group, address and other important things are mentioned correctly.

There have been cases, where the information has been wrong. If things are wrong, you can reach out to their company customer care to get it corrected.

18. Don’t fall for “10 times of Income” marketing

Almost all the call center marketing people try to sell you the cover equal to 10 times your yearly income. This often is a very simplified way of finding your life insurance coverage.

A better way to find out your coverage is to find out 300 times your monthly expenses and add up your outstanding liabilities to it. In the end, you can include 30-40 lacs more into the final number to take care of your other financial goals in future like kid’s education, etc.

For example, a guy with monthly expenses of Rs 50,000 per month and with 60 lacs of the outstanding loan will need 300 x 50,000 + 60 lacs = 2.1 crores at the minimum. So he can take a 2.5 crore term plan for himself.

However much life insurance you should take is a function of your expenses and liabilities and not your income. What if a person earns 6 lacs a month, but a modest Rs 50,000 month expenses with no liability?’

How to calculate life insurance cover value?

The “10 times of your income” marketing will say that he should buy a 6 crore term plan, whereas his right number would be in the range of 1.5 to 2 crore only.

19. Choose a strong and good brand while choosing Insurer

There are 24 life insurance companies in India (the year 2017) right now. Do you think each of them are equal in terms of surviving, claim settlement experience (not ratio), dealing with clients, depth of medical examinations, integrity in conducting business and what not?

Here are the list of all the life insurance companies in India as of 2017.

  • AEGON Life Insurance
  • Aviva Life Insurance
  • Bajaj Allianz Life Insurance
  • Bharti AXA Life Insurance
  • Birla Sun Life Insurance
  • Canara HSBC OBC Life Insurance
  • DHFL Pramerica Life Insurance
  • Edelweiss Tokio Life Insurance
  • Exide Life Insurance
  • Future Generali India Life Insurance
  • HDFC Standard Life Insurance
  • ICICI Prudential Life Insurance
  • IDBI Federal Life Insurance
  • IndiaFirst Life Insurance Company Ltd – India First
  • Kotak Life Insurance
  • Life Insurance Corporation of India (LIC)
  • Max Newyork Life Insurance
  • PNB MetLife Insurance
  • Reliance Life Insurance
  • Sahara Life Insurance
  • SBI Life Insurance
  • Shriram Life Insurance
  • Star Union Dai-ichi Life Insurance
  • Tata AIA Life Insurance

When you choose a life insurance company, you should make sure you choose the one which has a strong presence, along with a good brand (not the biggest). Read reviews online and check their data and read about them.

20. Communicate to your family that you bought a term plan

You should share about buying the term plan with your family immediately along with the policy papers and the contact number of the insurer.

You can also write down the claim process on paper and keep that at a safe location and share it with family. I know it’s not an easy conversation to do even though it’s a logical thing to do. But at least communicate with your family about the important things they should be aware about.

20 things to know before buying a term plan

Steps to follow while buying the term insurance plan online

  • Understand your requirement first, find out how much insurance cover you are looking for
  • Go to various term insurance premium calculators on the web, and see what is the premium amount
  • If the premium is within your budget, then apply for the term plan
  • Make the initial premium payment and start the documentation
  • Medicals will be arranged for you by the term plan company which you should complete on time
  • Once everything is fine, your policy will be issued.

Let us know if you still have any queries?

7 alarming signals that you will not retire RICH in future

Posted on by Jagoinvestor

Will you become RICH in the future?

I know it’s your aim and you want to become rich, but there might be many things you are doing which are increasing your chances of remaining poor or middle class going forward. These are clear indications or signals that you might not become RICH and it’s time to do something about it.

Will you retire Rich or Poor?

I want you to read each point I am going to talk below and check if it’s applicable for you or not. Rather than an intimidating article, I want you to see this article as a wakeup call for yourself and redesign your financial life.

Signal #1 – Your Focus is not on increasing your income

Is your focus on increasing your current income? Do you think about it, fantasize about it and try to take any action? No, it’s fine if you are not succeeding right now, but the main question is – “Is it on the conscious checklist that you need to increase your income?”

Not increasing their income was one of the top most regret of most of the people in our survey

A lot of investors are just going with the flow of life and treat their income increase as fate. They feel they do not have much control over it and hence don’t do anything about it.

Given the way expenses are increasing these days, it’s almost a given that you will not be able to create wealth if you do not work towards an increase in your income.

Signal #2 – You depend too much on credit cards and loans

Are credit cards and personal loans your lifeline?

Are you consuming most of the things like Car, Bike, Vacations, Mobile on EMI? If that’s the case, you are in the EMI trap already and coming out of it is not easy.

Time will keep passing and it will be difficult for you to get out of it. This is a big signal that there is something seriously wrong in your way of life. Other than a home loan and the Education loan, or any emergency personal loan, if you have made taking loans and swiping your credit card every now and then for trivial things, it’s a big signal that you will not end RICH

Signal #3 – You are unable to save anything from last many years

Past performance is not an indicator of future, BUT past indicator is at least signal of what can happen in the future. If you are unable to save much from your salary from the last many years, it’s something to worry about.

There is a great chance that what has happened in past will continue unless you give it a direction yourself.

[clickToTweet tweet=”Once you reach #retirement, your income will stop, but your expenses will not. ” quote=”Once you Retire, your income will stop, but your expenses will not, That’s the reason you should start your retirement planning”]

It’s time to meet a good advisor and work on your financial life. Either you seriously need to work on your income potential or take some drastic steps to reduce your expenses.

There is huge number of investors who think that – “From next year, I will start saving” and this is not happening from the last many years. It’s a signal that you might not get RICH in the coming decades.

Signal #4 – You are already very late in saving

Just because you are late, does not mean that things can’t change now, but the effort you will have to put in will be a lot now. It’s like a game of cricket. If you have to chase a big score and you have lost some wickets before 25 yrs and have not made many runs, now you need to show the extraordinary game to win the match. The run rate required will be quite high.

Let’s take an example of 3 people who started saving at 30 yrs of age, 40 yrs of age and 45 yrs of age and they all want to retire at 60 with Rs 10 crore corpus.

The one who starts saving at 30 yrs, will have to save Rs 35,000 per month throughout his life. However, the one who was late by 10 yrs will have to now save Rs 1.15 lacs, around 3 times more.

And the one who is late by further 5 yrs (at 45 yrs) will have to save Rs 2.25 lacs (almost 7-8 times more).

late investing example

In the same way, in your financial life, if you have lost a good chunk of time already, you will have to save much more and take more risks to reach the goal of wealth creation.

I anyone wants to start their wealth creation, then you can open a FREE mutual fund account with Jagoinvestor.

Signal #5 – Every month-end is a struggle

If every month end a struggle for you financially?

If it’s happening from the last many years, you need to understand that this is not a good sign for the future. You first need to get into a situation, where your month-end is not a struggle, then at the next stage you need to move to a stage where you save some month each month and finally, you need to work towards a situation that you save substantial money each month.

Signal #6 – If your job opportunities are very limited

Are you into a business or a job where it’s very tough to survive to find another job easily? In short, are employed in a sector that does not have enough opportunities? If that’s the case, and if you rank yourself “average”, then you might find it tough to search for other jobs that pay better salaries.

Also if your skillset is limited, your main challenge is of “survival” and that’s not a great aim to have.

Signal #7 – You seek too much “safety” in your investments

Finally, if you are an investor who does not want to take enough risk with their investments, means they just want to get predictable near inflation returns, then it means you are a Fixed deposit or PPF lover. Nothing wrong in that, because it’s your design internally and you have got developed as that kind of investor, but you need to be clear that you are earning only near inflation returns.

Check out the video below where I talk about why investors should avoid fixed deposits for long term investments.

If you invest in FD’s or equivalent products, your corpus will become bigger and bigger in number over the years, but it will not increase your purchasing power. Unless you invest very huge amounts, the corpus you will create will not be enough to be called RICH in the future.

How many signals are present in your financial life?

Out of these signals which we discussed above, how many are true for you? What are your thoughts on the points above? Can you share them in the comments section?

8 Benefits of filing ITR, even when income is below exemption limit

Posted on by Jagoinvestor

Have you filed your income tax return?

Yes /No?

There are many investors who have very low or zero tax liability and therefore they skip filing their income tax return. Then, there are investors who do not file their returns for years and only when something urgent comes up which requires their last few years of ITR, they go to a CA and file their old tax returns.

what are the 8 benefits of filling ITR?

Today, I will share with you why you should file your income tax return, even if you have income below the taxable limit.

Before that, let me share with you what exactly is ITR, for those who are not aware of it.

What is Income Tax Return (ITR) and who should file it?

An Income Tax Return is a form, where a taxpayer discloses details of his/her income, claims applicable deductions and exemptions and taxes that are payable on the taxable income.

As a responsible citizen of India, everyone who has an income should file an ITR, because in this way we are actually declaring all sources of income whether taxable or non-taxable.

The Income Tax Department mandates everyone to file an income tax return if one’s gross total income (before allowing deductions under section 80C to 80U) exceeds Rs. 250,000 in a financial year.

One can also file it even their income is below the taxable limit or its zero (in which case it’s called NIL return). Filing Nil return will act as proof of accumulated funds in your bank accounts or other investments.

Here are the 8 benefits of ITR.

There are various benefits if one files ITR irrespective of their income. Below I have listed a few benefits of filing ITR.

Benefit #1 – Proof of accumulated earnings over the years

It might happen that a person is earning some small income over the years which is below the taxable limit and over the years they accumulate good corpus. Now it may happen that they might get tax scrutiny for some reason after a few years.

If someone has not filed the ITR over the years, it will be a lengthy and tiresome process to explain the sources of earnings over the years. However, with ITR, it will be legal proof of income earned in each year.

Benefit #2 – VISA processing

If you are traveling overseas or planning to travel in the near future, proof of earning is required. If you are salaried than the employer certificate will work but if you are self-employed than income details are needed to be submitted. So, ITR return will work as income-earning proof.

ITR is required as one of the documents for visa application

Benefit #3 – ITR serves as proof of income for Self-employed

Being self-employed does not provide earning proofs such as salary certificate from the employer and form 16. So, having ITR ready with you as proof of income is the most convenient proof.

Benefit #4 – One can Carry forward capital losses

If you have incurred capital losses, the Income Tax Act allows you to carry forward losses for eight consecutive years, and balance it against future gains and income.

To keep a track of your losses, the Income Tax Department has laid out that, Losses for a year cannot be carried forward unless that year’s return has been filed before the due date. So, even if it’s a loss return, you do not have any income to show – do file your return before the due date to declare the capital loss incurred.

Benefit #5 – Helpful for those with very small earnings

There are many people who get some small incomes such as

These people total income might be below the taxable limit and they might feel that they are not supposed to file any tax returns, as they don’t have to pay any tax (because TDS is already deducted). But by filing ITR they will get legal proof of income (in case they need it).

Benefit #6 – Claiming Tax Refund

If you have paid excess tax on your income, then you can file for a refund from the income tax department. In order to get this refund, it is mandatory that you file ITR.

Getting a refund of your taxes feels like getting a paycheck credited. Many salaried people don’t file their ITR as they feel that the tax on their income has already been deducted and they have form 16. But, it might happen that, the employer has paid more tax on your behalf, not taking into consideration your actual house rent, tax-saving investments or insurances. So, in that case, filing of ITR will lead you to ask for a refund from the IT department.

Benefit #7 – Ease of getting loans

If you apply for any loans such as a home loan, car loan, etc., then ITR for the last 2-3 yrs is asked as the mandatory documents. ITR will help your lender to assess your repayment capacity and is an important document. A lot of people who have not filed ITR on time rush at the last minute for these documents, so why not better file it on time?

Benefit #8 – Buying a high life cover

When you buy higher life insurance cover the Insurance company asks for proof of income to assess the cover amount to be provided to you. For this salary slip, bank statements or ITR of the last 3 consecutive assessment years are required.

It might happen that you don’t get a salary receipt or your monthly income is being paid from different groups so bank statements will also not work as strong proof. So, better to have an ITR return filed.

Do you know someone who should file ITR in your circle/family?

I hope the above points will make you understand why it is always preferable to file ITR, even if it might be NIL return. In a lot of families, there are people whose name there are small incomes like dividend income, income from tuition fees, small business income and this article applies.

So make sure you start filing an ITR for them and save yourselves from the future hassles involved.

Do share your views, experiences and ask queries through comments.

5 benefits of investing in auto mode at the start of each month

Posted on by Jagoinvestor

There are two types of investors.

  • Category 1 – Those who invest their money manually at the end of each month
  • Category 2 – Those who auto-invest at the start of each month.

Today we will discuss which option is better than others and what are the benefits of choosing the auto investment mode at the start of the month

Benefits of investing your money at the start of month

While investing at the end of the month manually is very intuitive and sounds comfortable to most of the investors, we think that investing in the auto mode at the start of the month is much better and beneficial for an average investor.

Most people adopt the “Save whatever money is left at the end of the month” approach in their financial life, but there is enough research and proof that it does not work for the larger masses. The best option is to put your investments in auto mode and let it happen automatically each month.

Now let’s looks at the benefits of investing in auto mode at the starting of each month

Benefit #1 – You can manage your lack of discipline

Can you trust yourself in investing each month manually for the next 5-10 yrs?

If you decide to invest Rs 10,000 on the 25th of every month for the next 10 yrs, will you be able to do it consistently for the next 120 months (10 yrs X 12 months)?

Trust me, it’s a lot of work and very hard to act in a robotic fashion.

  • Sometimes, you will postpone it
  • Sometimes, you will feel – “Let’s do it next week”
  • Sometimes, you will skip it for the sake of other expenses
  • Sometimes, you will just be involved in some other tasks
  • Sometimes, you will actually follow it
  • And most of the times, you will just forget it

Compare this will an auto mode, where you have set up your SIP (automatic monthly deduction in mutual funds) or a recurring deposit (for those who don’t think mutual funds are their cup of tea), and the money automatically gets deducted from your bank account (considering you have the balance) and then gets invested without your intervention.

Which one of these options do you feel will be in your interest?

Most people think that each month of a certain date they will invest some X amount on a regular basis, but they are not able to do it on a consistent basis. They either lack in discipline or they are so consumed in other areas of life, that they are not able to follow what they promised themselves.

Due to this, their financial life suffers. The money does not get transferred from the bank to the investments and eventually gets spent.

Trust me, even if you are the KING of indiscipline, the auto investing will create wealth for you!

Benefit #2 – You avoid unwanted expenses

“Supply creates its own demand” – a classic principle of economics. If you have money lying available in your bank account, you will find enough reasons for spending that money.

Hence, if you think – “Let me first spend, if anything is left, I can always save/invest it at the end of the month” , it’s almost guaranteed that you will not find any money at the end (unless your income is very high compared to your expenses)

This is the reason why you should create a structure that takes away some part of your salary from your savings bank account to somewhere else which is not easily visible to you (like PPF, RD, or mutual funds).

I have devised something called a “10% margin system”, which can truly transform the way you manage your cash flow. It’s one trick that will help you save more money each month.

Under this system, you only keep your monthly expenses + 10% more in your bank account and invest everything else at the start of each month. Click here to read more on this 10% margin system.

How to save more money each month

So if you invest at the start of this month, you will shop only limited to your needs, you will not overeat outside, and to a great extent, you save on the unwanted expenses.

The whole idea is to “cut” the excess supply of money to yourself by investing it at the start of the month itself.

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Benefit #3 – It develops the Habit of Saving

One of the biggest challenges for new investors is to develop the “habit of saving” in them.

The world these days is such that it’s very easy to SPEND money on things you don’t really need. You spend on mobiles, gadgets, parties, traveling and consuming various things (nothing wrong in these things). However, beyond a point, you start crossing the limits and you start “wasting” money at the cost of the future.

Most of the investors find themselves not saving any money and living paycheck to paycheck for the simple reason that they never develop the saving habit and eventually end up in the never-ending cycle of earn -> spend -> earn -> spend

You should check this excellent simple video by Brain Tracy on why you should save at least 10% of your salary if you are a beginner investor.

Some time back, I had written an article for beginner investors and how they should manage their financial life. Please go through it.

If a person sets up the auto investing at the start of the month, then at some level the habit of saving starts. If one is able to continue that for a few months, the overall expenses will get adjusted with the leftover money in the bank account. If you are a new investor, the primary reason to start your SIP or RD is not to save money, but to develop the habit of saving.

Benefit #4 – You reduce the risk of investments

If you do not spread your investments across months, then there are good chances that if the markets fall suddenly, its impact will be high on your wealth. In the same way, the upside potential is also high. But let’s focus on the risk part here.

If your investments are happening each month on a regular basis, then your investments are spread over all kind of markets like bull and bear market (assuming your investments are happening in mutual funds SIP)

So if you want to control the risk part, it’s a good idea to let your investments happen on a monthly basis and not a one-time basis. A good example of this is SIP in ELSS vs. One time investment in ELSS for 80C.

For example, consider two friends Ramesh and Dinesh

Case 1 : Ramesh invests Rs 1.5 lacs in one go for tax saving during the month of Feb, but the markets in next one year go up and down and eventually go down by 10% . In this case, the investment done will be having high risk, because all money was invested in one go (which also means that potential returns can also be high if markets do well) and all the ups and downs impact will be on the total money.

Case 2 : However, Dinesh does a SIP of Rs 12,500 per month in ELSS, and in 12 months he invests total of Rs 1.5 lacs. In this approach, the investments are spread over 12 different months and risk (and returns) will be more controlled. If markets go down in the first few months, then it’s only for the amount invested before that event.

Benefit #5 – Guilt-free Spending

This is one benefit that is often not appreciated enough.

When you save your money at the start of the month, then the rest of the money is available for your expenses. Now you can spend it freely, without any guilt.

Most of the people who do not save enough or save at the end of the month, keep worrying and thinking while spending their money. They keep feeling “Bahut Kharcha ho Gaya is Baar” while going for outings or movies etc. This is because they have not allocated money for the future.

So you should start your auto investing (SIP is one of the best way of doing that) and once you have done that, I suggest you adopt the envelope style of expenses where you create few envelopes for each expenses category and put the cash in the envelope and use only that till the end of the month.

Envelope System of saving

However once you setup your automatic investments at the start of the month, you then just have one agenda – “Spend rest of the money” guilt-free.

Are you starting your investments in Auto mode Now?

So what are you waiting for?

If you have not yet started your investments in auto debit mode, you should immediately start your investments. You can either start your SIP with our team or reach out to your trusted advisor who can guide you on this.

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Hey Married Men – Do you know about buying Life Insurance under MWP Act?

Posted on by Jagoinvestor

Do you have any life insurance? And are you really very sure that it will protect your family?

Majority of people who buy life insurance in India, buy it for the sole reason of protecting their family’s future. But is taking the life insurance a sure shot way to protect your family (I mean your immediate family here, which is spouse + kids)?.

protecting family under mwp act

If the primary breadwinner dies because of any reason, the family will have to suffer in absence of a regular income. The spouse will suddenly not get any income and might have to start earning. Your family and kid’s future is also at risk.

Let’s see some risk your family has 

  1. What if you are businessmen and you owe money to someone? After you are dead, the creditors will approach the court and they will get the money out of your life insurance proceeds
  2. Consider you have a big home loan which you have not accounted for while taking a term plan. If you die, the first right will be of the home loan lender because the loan is on your name. The right of the family comes only when your loans are paid off.
  3. What if you have not created your will and there are family members who claim their right in your life insurance proceeds?
  4. What if you yourself change your mind later and don’t want to give the insurance proceeds to your own family?

Are you prepared for this situation? If not then think about it. There is a way which will help you at some points if this such situations appears in-front of your family in your absence and the solution is MWP Act.

Click Here to Buy Term Plan

Have you heared about MWP Act?

MWP means Married Women’s Property Act. This act is prepared by taking into consideration the rights of a married woman on her property. According to MWP Act . the earning of a married woman in India is considered as her own property and this Act Protects the property owned by a woman from Creditors, relatives and even from their husbands.

Buying Life Insurance Policy under MWP Act

MWP Act 1874 under which Section 6 deals with life insurance. If you buy a life insurance under MWP Act, then it will protect the women’s right on the life insurance proceeds money in all the cases. Even the husband can’t do anything about it once the buying is bought under MWP act. This applies to all kind of insurance policies be it a term plan or an endowment/money back plan.

mwp act meaning

Who can be the Beneficiary and Trustee?

When a policy is bought under MWP Act, the policy is treated as a TRUST and its guarantees that the proceeds from life insurance policy are free from any creditors or court attachments.

The first right is of the family only (women and kids). Imagine if you buy an endowment plan which matures in 20 years and you bought it under MWP Act. Once the policy matures, then even the person who started it will not be able to claim anything. The first right will be of the beneficiaries mentioned in the policy.

Beneficiaries can be:

  • The wife alone
  • The child/ children alone (both natural and adopted)
  • Wife and children together or any of them

Trustee can be:

Unlike beneficiaries, having trustee is not mandatory for this MWP Act. The policy holder can mention one or more trusties. Having a Trustee is not compulsory but if the beneficiary is minor then in that case it is compulsory to have a Trustee. The Trustee should not be minor. The Trustee can be change whenever the policy holder wanted. The Trusties can be –

  • A person
  • A bank
  • An institute
  • Beneficiary herself/himself

How will the beneficiaries get benefit ?

When something wrong happens with the policy holder and the insurance is claimed by the family, the creditors can claim for the insurance benefits. In this case the family members will get less benefit of the policy. Or sometimes the other family members can also claim for the part in that policy if the policy holder does not have will.

But if the policy is covered under MWP Act then the whole benefit will go to the wife or kids (whoever the beneficiary is) of the policy holder.

Procedure to buy life insurance under MWP Act

The process is very simple. All you have to do is fill up a MWP addendum form separately at the time of buying the policy. Your agent can help you with that form or talk to the company in case you are directly buying it from the insurer.

However note that it can’t be added separately once you have completed the process of buying the life insurance (means you can’t add the MWP act later)

mwp act addendum while buying life insurance policy

Who can take a Life insurance policy under MWP act ?

Any married man can take a life insurance policy under MWP Act. This includes divorced persons and widowers. The policy can be taken only on one’s own name, i.e., the life assured has to be the proposer himself. Any type of plan can be endorsed to be covered under MWP Act.

Difference – Insurance With MWP and Without MWP

There is not a lot of difference in taking a life insurance under  MWP Act or without MWP Act but we can see some points which shows the difference. See the following picture.

Life Insurance Policy with or without MWP

Are there any disadvantages of buying policy under MWP Act?

Yes, There are disadvantages to signing the MWP addendum as well

  • The Beneficiaries cannot be changed. In case at some point you decide to change the beneficiaries . It won’t be possible if you sign a MWP addendum.
  • Loan cannot be taken on the basis of the policy. The policy could not be used as a security against loan.

That makes it also necessary for loan providers on Life Insurance policies to check before taking it as a mortgage for lending whether the policy does not contain any MWP addendum, as they will not get the benefits from its proceeds.

Let me know if you want to know more about this?

The myth of “Early Retirement” – A real life case study !

Posted on by Jagoinvestor

This article is a guest post by one of our readers Vikram Agarwal, who wanted to share his experience on the concept of “Early Retirement”. Vikram was generous enough to share his story and some of the real-life things which will make you think hard about this concept. Like Vikram, if you feel you can write on jagoinvestor, please click here

Over to Vikram.

—

Most of my friends in my friend circle in late 30’s ask me one question – “How much money I should have now, so that I don’t have to work anymore while maintaining a decent standard throughout of my life, with all the future expenses taken in to account?”

They want to ‘Retire Early’

early retirement

In fact, I also used to be an ardent follower of the concept of ‘Early Retirement’ but now have realized that the concept is more like a mirage, which does not exist in reality and once you reach there, it vanishes.

Moreover – in my view, it is quite dangerous for an individual to run after this concept. In my opinion, you achieve retirement either ‘NOW’ or ‘NEVER’ irrespective of your current level of income or financial state.

Early Retirement is a state of mind

It is a state of mind, rather than a stage achieved. The moment you achieve early retirement as per the physical criteria set by you five years ago taking inflation, life expectancy and all major and minor expenses in your monthly calculations, by the time you achieve retirement as per your old financial definition, all those things become sub-normal or default.

Your mind will have another definition that looks normal for you in today’s context for example for future kids’ education, your house quality, the type of car you own, facilities you desire and all other such expenses.

My personal example

For example, five years before, owing a 2 BHK house in the newly developed area with Marti Dzire hatchback car and with the kids going in a decent school used to be a life I wished for and I had done calculation for the amount required to maintain the same standard throughout rest of my life without working.

And that was ‘Early Retirement’ according to me and as per standard definition.

great future illusion

But, now it seems owing a 3BHK house (one extra room for parents or for guests) in a good location of a metro city, a nice Honda sedan and a ‘good’ school for kids throughout their education duration is ‘Normal’ for me. Now it’s the standard, I would like to maintain before retirement and after retirement.

My next target!

My new “target” might be owing to a villa or bungalow, and a nice SUV and kids in the ‘best’ school of the area. And once I achieve it, I think it will become a new normal with time.

The next level

And who knows, a car for wife will be a standard I will look for in the future, as I will not be able to manage all the household activities on my own and an extra car becomes a necessity. (I did all my retirement planning calculations with taking decent return on investment as 10% which is quite modest in the long term, so as not to fall in the trap of exuberant returns which might be temporary and actual return might spoil all your calculation.)

Even with a slight increase in any of the above ‘wish’ list (like the possibility of sending you kids abroad for his or her graduation) will push you back in time and you will not be able to achieve you ‘wished’ retirement any time and this carrot and stick game continues.

When your desires convert to your “needs”

You would not know when your ‘desires’ got converted into your ‘needs’. And now it looks like there is a meaning in the sayings of wise old man that “There is enough in this world for one’s needs and not for one’s desires”. I can sense the truthfulness in these lines with some financial literacy and practical experiences.

Greed Desires

If at all early retirement could mean anything for a ‘disciplined’ guy is thru’ a windfall gain from lottery or legacy, otherwise if one tries to achieve early retirement from normal gradual process where mind and hard work is involved, his thinking mind will quickly adapt to current situation and will turn the old desired standards in to ‘Normal’ or ‘Below Standard’ life in today’s’ terms.

The word ‘discipline’ need stress here because there is an old saying that irrespective of the size of the pot, if kept isolated all the water will drain out eventually if not refilled on time and only a disciplined life can control this drainage process and can prolong it (Read, why we are overspending these days by Manish)

Or you can become a hermit in deep forest, secluded from this physical world and concepts of ‘Future Expenses’, ‘Inflation’ become meaningless for you, one can think of early retirement stage.

early retirement myth

But, I guess this is practically impossible and this article is not intended for those who might be thinking of this stage as one of their future possibilities.

Story of my seniors – Real-life case

I personally know two of my seniors who after working at very senior positions in the company left their jobs as they thought they had enough money to sustain the rest of their lives and tried to follow new pastures in future life.

But, eventually, they had to join back in their respective jobs in order to meet their monthly bills and continue with their other passions in life.

It is human psychology to get adapted to the current situation and at present it looks like achievable calculations on paper and unreal confidence of being satisfied in case you achieve current target, but in reality it does not happen and by your own nature and human being’s reason of existence, you will always be pushed to work.

Basic foundation of human existence is WORKING

This wish of ‘ Not working’ one day will take you away from ‘Karma Yoga’ which is the basic foundation of human being’s existence. Even in GITA, it is mentioned that all of us have to work one way or other and this is the law of life.

I remember a recent discussion with a prominent businessman in my home town. He told me that he used to ‘struggle’ a lot to book rooms in his locality for any private family functions for his guests they had to ‘adjust’ sometimes as per hotel terms and conditions.

Now, he has built his own guest house and no need to be ‘dependent’ on the hotels any more for bookings, etc. and I was thinking that if this rich man thinks booking rooms in 5 star hotels as per their terms and conditions is a compromise in life, what independence could mean for him ?

Don’t buy anything less than a BMW

A few years ago I was having a discussion with one of my friends and in his views, having something below Mercedes or BMW is a compromise as all other brands do not give importance to safety standards and life is precious more than anything else.

At that time owing a Honda city and maintaining it was the kind of life I wanted to live for all early retirement calculations and now since I can afford Honda City easily, I have a choice, either to keep working to be able to buy Mercedes or BMW one day or put my life always at risk while driving mass-produced cars!

We can retire the day we are BORN

On second thought, I achieved financial freedom years back, the moment I had enough money to be able to afford public transport all through my life. In fact, to take it to one extreme side, we have the potential to retire the day we born and it is only afterward that we enter into the working force in this world, fall into the financial trap and again want to get rid of it.

This wish of ‘Not working one day’ can make you lazy, averse to work and afraid of accepting challenges as in your thought process you are always after something else and it is quite natural that you will not focus on the very basic aspect of life you want to get rid of one day.

Here is a great answer which deals with this issue on quora thread

don’t want to work

These days a lot of people think of retirement at an early stage, some talk about retirement in the late ’30s or early ’40s and there are various articles circulating around to tell how to achieve it.

But, this kind of thinking pattern in today’s youth is preventing them from acquiring skills which can help them in their current job profile and make it interesting.

Story of my father

My father achieved his financial freedom just after his retirement and both of his sons are well settled and living a decent life and he does not have any liability in his life, yet he is always focused on ‘working life’ and whenever he gets any chance of making money with guest lectures etc., he always looks forward to it and that’s what he says is the secret of his healthy life.

Had he focused on early retirement, this ‘fire’ or ‘energy’ inside him would have subsided quite early and he could have attracted many lifestyles related diseases like blood pressure and diabetes etc, which is happening these days even to the young generation.

So, one should not focus on achieving early retirement any time but should think of living a simple, satisfied, and an exemplary life and realize that the ‘Work’ is the only thing that matters in life and for this you need continuous practice for sound physical and mental health to keep your body fit and energetic and let other things come on its own without worrying about it.

Watch this TED video which talks about an experiment of living a simple life in a tiny home.

It is a good idea and in fact a necessity to have the habit of saving and investing, but the idea should come from the need to meet future expenses and not to achieve early retirement.

So what should be your plan in life?

The financial goal in one’s life should be to have sufficient inflation-adjusted funds for all major expenses in the future like owing a house, Kids education funds, children’s marriage funds, emergency funds, and retirement funds in present terms and all funds invested properly.

At large, one can think of a ‘stage’ where he or she will not be worried about ‘Net savings’ from the income and can live a life one desires with his current income from job or business and even If he/she spends all of the earnings he should not be worried financially.

The more one earns, the more facilities one can desire and his current lifestyle will remain in accordance with his income levels and this is what I call real ‘Financial Freedom’.

That is an inherent assumption here that the rise in expenses (with inflation) will be taken care of by salary increments/ job changes or business expansions and for there is no other alternative but to ‘Work’.

What do you think about Early Retirement?

So let us know what you feel about this concept and my points regarding it? Do you agree with them? Is there any point where you can add?

Would you like to share your own story in the comments section and how you have dealt with the concept of early retirement? We would like to thank Vikram for his contribution on this subject on this blog.

Also, if you feel you can write on jagoinvestor and contribute, please click here

1 small trick which can drastically increase your saving rate each month

Posted on by Jagoinvestor

Do you want to save more money each month?

Today, I am going to reveal a secret trick that will help you to increase your monthly investments by some margin. This trick is more of a psychological shift in the way you think about money, emergencies and how much should you invest.

However, this is applicable to only those who are already investing some money on a regular basis each month.

Let’s start …

One small trick which can help investors in saving more money each month

You might be thinking that my secret is nothing but making your savings “automatic”. But no, it’s not the case. Making your investments “automatic” is just the first step, but there is something else that will take your savings to the next level.

Let’s get into it!

Here is how most people invest their money

  • They earn a salary
  • They spend money on their regular expenses (Rent, Grocery, Movies, travel)
  • Some money is left at the end of the month
  • and finally, a partial amount out of that is invested

Did you see that last line?

Only a “partial” amount is invested in the leftover savings at the end of the month is invested, not FULL.

Let’s dig deeper into this …

Take a sheet of paper (or open an excel sheet). Write down the total income you get in a month on the left-hand side, and on the right side, mention all kinds of expenses you have. Put Rent, Groceries, Maid expenses, Travelling, Eating out, movies and whatnot.

Now add up all the expenses and find the total expenses and deduct it from the total income you get each month. You will get your Monthly Surplus!. This is the amount you are left over each month and you should ideally invest this whole amount.

Below is a template which you can use for the calculation

How to calculate monthly surplus>

What is your monthly surplus?

Will you start a Recurring deposit for that amount or start an SIP?

I guess the answer is NO.

As an example, if a person is earning Rs 1 lacs per month and their expenses are around Rs 60,000, their monthly surplus is Rs 40,000 per month.

But this person will probably invest only Rs 15,000-20,000 per month on a regular basis. They will keep the rest as “Margin of Safety” amount which they might need, because what if they suddenly need it?

margin of safety

The margin of safety is a simple concept, it’s just an “extra buffer” for “what if things go wrong” kind of situations.

This is called a traditional style of cash flow handling which is a very intuitive and natural way of thinking. We all do it and it feels right!

But there are some problems with this approach

traditional cash flow planning

But there is one big problem

While this traditional method looks very natural, there is one big issue with it. Here it is!

Once your investments are set, you feel a sudden excitement that now your investments are in shape, but because you have left a big margin of safety (the extra buffer), your expenses will automatically expand and eat away your margin of safety.

The mere availability of the buffer money will create various short term demands in your financial life and you will use that buffer each month.

Suddenly you will start ordering various things online (most of the time things which are not required), your eating outs will increase, upgrading your phone will appear within your budget, etc.

Supply creates its own Demand – Economics 101

The availability of money will create the demands in your expenses and almost all the time you will justify them. So from Rs 60,000 expenses, you will see that automatically it’s reaching Rs 80,000.

And after some time you will be used to Rs 80,000 per month expenses.

Just imagine, if the person had started a Rs 30,000 SIP and left just Rs 10,000 as a margin of safety? Can you see that here the person still has a margin of safety and invests 50% more amount each month?

What about Rs 35,000 SIP and just Rs 5,000 as a margin of safety?

Welcome to 10% margin Cash flow Management System

This is the crux of the system.

We all feel that we need to keep a big margin of safety because in our mind things will go wrong. And they will!

There is no doubt that things can go wrong in some months and some unexpected expenses can come up which can really disturb your regular investments and that’s why most of the people leave a big buffer between expenses and investments.

However, let’s deal with reality.

Most of the times these emergencies are not real emergencies and if we didn’t have enough margin of safety, we would have justified them as “not important” expenses!

Also, you should not depend on your monthly cash flows for emergencies and have a separate fund that can be touched in case a real surprise expense comes up. I call this new system as “10% margin Cash flow System”

10% margin Cash flow system

Here is how you design this cash flow system

Step 1: Write down all your expenses and make sure you put realistic numbers, neither less nor very big.

Step 2: Calculate 10% of your expenses and that’s your margin of safety. If your expenses are Rs 40,000 per month, then your margin of safety is Rs 4,000

Step 3: This margin of safety amount is the only extra money you will keep with you each month apart from your expenses, and even this money should be auto invested in a liquid fund, which can be redeemed on a short term notice of 24 hours.

Step 4: Make sure that before you start your actual investments on a monthly basis, you create enough emergency funds which can be 3X of the size of your monthly expense. Any sudden surprise expenses which are outside of your regular expenses list will be taken care of from this emergency fund and not your monthly surplus.

Step 5: Set up your investments in an automatic mode (like SIP in a mutual fund, or a recurring deposit or a combination of both) for all the money left other than regular expenses and 10% MOS (margin of safety)

Here is how it looks like

Taking the same example of Rs 1 lac income, the guy has Rs 60,000 expenses in total. His margin of safety is Rs 6,000. Rest amount left is Rs 34,000

For the first month, he puts this full 34,000 in a liquid fund. If any additional money is left from the 6,000 MOS then he puts that in an emergency fund, else he can spend it. For next 2 months, he puts 68,000 more in a liquid fund and his total liquid fund amount is around Rs 1 lacs +

Now, this guy will set up his SIP of Rs 34,000 per month.

Now imagine what happens in 4th month

In 4th month, here is how it looks like

  • Rs 34,000 SIP is executed and the money gets invested (make sure the SIP date is in the start of the month)
  • Rs 60,000 is the regular expenses
  • If there is any need of extra spending, then Rs 6,000 extra is already there (most of the months should be like this)
  • If for some reason, some surprise expenses come up, you redeem that much money from liquid fund and use it.
  • Repeat!

Can you see how the whole game changes here?

Margin cash flow planning

I hope you got the whole idea of this new model now.

You can always withdraw the money if a real emergency arises

I tried this concept on one of my friends last year. I asked my friend if he will be able to do any SIP?

He said “NO”.

His expenses were almost equal to his income. However, I said that he should start a small Rs 5,000 SIP. He said that he will not be able to because he is not left with any money at the end of the month.

My simple solution was – “Withdraw the money in a month if you really need it”

His SIP ran for the next 12 months

He finally started his SIP with a lot of reluctance and the SIP ran for 12 months straight ! with 1-2 withdrawals in between. However, my friend was proved wrong.

The mere unavailability of money made sure that he had to fit his expenses into this “visible income”.

So don’t worry and dare to start a bigger SIP then you can handle, in the worst case, you can always STOP it, you can always redeem some money back if you need it. But in my experience in most cases, people are able to handle bigger investments each month compared to what they imagine.

Let us know if you liked this article and if you are going to implement this new model of investing?

Do you really think this unconventional way of cash flow management can bring different in your financial life?

33 mutual funds myths uncovered for first time investors

Posted on by Jagoinvestor

Are you one of those investors who are still away from mutual funds investments because you do not have enough understanding about it or have a lot so myths about them?

Every day we get constant inquiries from several of our readers who want to invest in mutual funds and often they have myths, which make us wonder about those myths.

So in this post, I have listed down 33 various myths related to mutual funds and SIP in general. So if you are totally new to mutual funds, reading this article start to end will make you fully knowledgeable about mutual funds.

So let’s start…

Myth #1 – SIP is the name of an investment product

A lot of people think that “SIP” is the name of some investment products other than mutual funds. So they say – “I want to invest in SIP”. However, SIP means a systematic investment plan, which just means a way to regularly invest only in mutual funds. In this, a pre-fixed amount is automatically deducted from your account and gets invest in mutual funds on a pre-defined date.

For example, if you are doing an SIP of Rs 5,000 in ICICI Pru Discovery mutual fund on the 10th of every month, then on the 10th of each month, Rs 5,000 will get deducted from your bank account and will get invested automatically.

Myth #2 – I can’t stop SIP in between once I start it

Another myth that stops investors from entering mutual funds is that they think starting SIP for X yrs, is a commitment they can’t break in between and they will face some penalty if they stop their investments.

A lot of people do not want to give any PROMISE of regular payment. However, the truth is that once you start the SIP, you can anytime stop the SIP in between. So don’t worry while starting the SIP for the next 5, 10 or 30 yrs. The day you want to stop it, it can be stopped with just one notification!

Myth #3 – All the money from ELSS can be withdrawn after 3 yrs if one is doing SIP

One of the biggest myths of investors is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs, they can withdraw all their money. However, that is not true. Each investment in ELSS is locked for 36 months from the date of investments. This means that the first SIP which goes in March 2017, will be free of lock-in only in April 2020.

SIP in ELSS mutual funds are locked in for 3 yrs

The same is the case with the installment which goes in Apr 2017 (will be free in May 2020)

Myth #4 – Lower NAV is cheaper than higher NAV

Most of the mutual fund’s investors think that a smaller NAV mutual fund is a better deal compared to a higher NAV mutual fund. While this may be sometimes true in case of stocks because a Rs 10 stock has the potential to grow faster than a stock with Rs 10000 stock value.

But in case of mutual funds, NAV has no significance. It’s ZERO!

Because your mutual fund’s appreciation has everything to do with the appreciation in NAV value in percentage terms and not an absolute value. I mean if you invest Rs 10 lacs in a fund with NAV of Rs 10, and if the mutual fund performs great and in the next 5 yrs it doubles in value, then the NAV will rise to Rs 20 and your fund value will rise to Rs 20 lacs.

However, if the NAV was Rs 10,000 per unit, still the effect would be the same for you. The NAV would have increased to Rs 20,000 and your value would have increased to Rs 20 lacs. No difference as such.

So stop thinking that a fund is better (especially NFO’s) just because its NAV is lower.

Myth #5 – Dividend in mutual funds is better than Growth option

When you choose a mutual fund to invest, you have to choose between the Dividend and Growth option. Now a lot of investors think that dividend option is better because they are getting “extra dividend” . However, it’s not true.

Dividends are not extra!, The NAV comes down by that margin after the dividend is paid, on top of it, if the fund is not an equity fund, a dividend distribution tax is first paid by AMC, which lowers the return of the investor. However, in the case of growth option, the money remains in the fund itself.

Difference between growth and dividend mutual funds

For example, imagine a fund XYZ with NAV of Rs 100 and a dividend declaration of Rs 10

  • Now in case of dividend option, Rs 10 will be paid to investors and NAV will come down to Rs 90.
  • However in the case of the Growth option, nothing is paid to the investor, but the NAV is Rs 100.

Myth #6 – Mutual funds means Stock Market

One of the most common myths is that mutual funds are highly risky because they invest in stocks. However, this is half true. Only equity mutual funds invest in stocks and are risky (in fact volatile is the right word, not risky)

Various types of mutual funds

There are other categories of mutual funds called debt mutual funds, which do not invest in equities. They invest in bonds, govt securities, and other secured investments. While debt funds have their own risks and even their returns are not 100% stable, still, debt funds are highly stable when it comes to returns and often provide better tax-adjusted returns then most of the bank fixed deposits.

Myth #7 – You have to invest big amounts in mutual funds

Many small investors stay away from mutual funds and stick to recurring deposits and other products because they think that mutual funds are for big investors and one has to invest big money in it. However, you can start a monthly investment of even Rs 1,000 per month in most of the funds. If you want to invest on the onetime basis, the limit is Rs 5,000.

So someone who is just earning Rs 10,000 per month and wanted to invest 10% of his income, can also start mutual funds SIP.

Myth #8 – Mutual funds are always for long term

Mutual funds are marketing as long term investments most of the time. However, it’s not always the case. There are mutual funds called liquid mutual funds and even short term debt funds which can be used for short term investment horizon like 6 months or 2 yrs.

This article from Economic times talks about some of these funds

short term mutual funds

(Image Source)

Only in case of equity mutual funds, it’s suggested that one should invest from a long term perspective to reap the maximum benefits.

Myth #9 – Mutual funds offer guaranteed returns

No, Not always.

Actually never!

Mutual funds never offer a guaranteed return like a fixed deposit. This is one reason why many investors who are totally in love with “assurity” shy away from investing in mutual funds.

Various categories of mutual funds offer various return range. An equity mutual funds can offer return anywhere from -50% to 100% return in a year (just a high level estimate). Whereas a debt fund can also deliver a return ranging from 5% to 15%. And a liquid fund will mostly give a return in range of 6-8%

So the returns are not guaranteed, but highly probably within a range depending on its category.

Also note that as the investment horizon shifts from 1 yr to 10-20 yrs, the probability of getting a stable return within a range increases.

Myth #10 – I will lose my money if the mutual fund’s company goes bankrupt

This is common thinking, but not true

Mutual funds are highly secured in terms of structure. The way it’s designed and regulated by SEBI, it’s almost impossible for investors to lose money due to a scam or AMC going bankrupt. Your mutual fund’s units does not lie with AMC (it just takes the decision of buying and selling). Units and all the money lies with the custodian and highly secure.

Structure of mutual funds in India

For more on this, you should read this article

Myth #11 – Past returns in mutual funds indicate future returns

Not correct.

While past returns can surely tell you that the fund did very well in the past and there is some probability due to legacy that it will perform well. But it’s not written on stone.

How the fund will perform in future is totally a function of what decisions fund manager takes in future. HDFC Top 200 is a classic example, where the fund who ruled the mutual fund world is now not one of the top 10 funds.

Another example is the SBI Maxgain tax saver which was one of the best ELSS funds some years back but is now replaced by many others.

Here is a study by Yahoo Finance on this topic with respect to funds in the US, which tells that around 92% of top performers do not remain top performers after two years.

Myth #12 – More mutual funds means Diversification

Diversification is an abused word, at least in mutual funds.

Just because you invest in more mutual funds does not always mean that you have achieved diversification. The reason is simple. A mutual fund invests in close to 50-100 stocks. So when you invest in an equity mutual fund, your money is already well diversified across sectors, types of companies, etc.

When you add another mutual fund, most of the stocks might be the same and also in the same proportion, giving you very little extra diversification. When you add 3rd fund and 4th fund, almost no diversification happens. Below is the portfolio of one mutual fund and you can see how much they have diversified already.

This is one reason why it’s of no use to invest in 10-20 mutual funds of the same category. 2-4 funds of a similar category are the maximum one should invest into. You should add more SIP amount or lump sum in the same fund once you have chosen 2-4 funds.

Myth #13 – I need Demat account to invest in mutual funds

No, it was never the case.

A lot of people think that unless they have a Demat Account, they can’t invest in mutual funds. You can invest in mutual funds from your Demat provider also, but it’s not mandatory.

So when you invest from ICICIDirect or HDFC Securities, you are actually investing via a Demat account and the units you get sit in your Demat account.

So if you want to invest in mutual funds, you can invest directly from the fund house or through an advisor.

Myth #14 – I can start SIP and forget it for long term

A lot of investors think that once they have started a SIP investment or even lump sum investment they can just sit back and relax for next 10-20 yrs. This is not suggested.

Mutual funds need constant review every year. So you should at least keep an eye on your fund performance. Do not overdo it and start looking at weekly and monthly returns, but do that in 1-2 yrs.

 

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Myth #15 – You can’t save tax under 80C in mutual funds

Many people who regularly save income tax through PPF or life insurance policies, do not know that even mutual funds have 80C benefits. ELSS or Equity linked saving scheme is the category of mutual funds which gives you 80C benefits up to Rs 1.5 lacs.

Myth #16 – SIP can be done only on a monthly basis

No, An SIP can be done even on a weekly or quarterly basis. While monthly SIP is the most suitable for all (we all get monthly income), but at times if you want to invest on a quarterly basis or weekly basis, even that can be done.

However, note that it depends on a mutual fund if it gives you the facility of weekly/quarterly SIP or not. Most of them do, but at times, some mutual funds might choose to not have that option.

Myth #17 – Mutual funds investments are complicated

While investing in mutual funds is definitely as simple as creating a fixed deposit. But it’s not too complicated. You need to do one-time documentation to start with and once it’s done, After that you can buy/redeem mutual funds online.

One place where you might feel complication is while choosing the funds out of the big pool, but with your own research or with guidance from someone else (like Jagoinvestor), you can get a set of mutual funds to invest in.

Here is a good mutual funds tutorial for beginners by Deepak Shenoy

Myth #18 – I can’t add more lump sum amount in my fund where I do SIP

A lot of investors feel that if they have started a SIP in a fund XYZ, then they can’t add additional money in the same fund under the same folio. It is not true.

When you invest in a fund (either SIP or one time), you get a folio number. This is like an account number. You can anytime add any amount of fund to the same folio. So if you are doing a SIP of Rs 10,000 in Birla Balanced Advantage fund, and now if you want to add another Rs 1,00,000 suddenly, you can do that.

Myth #19 – You need documentation every time you want to invest in mutual funds

Again a big myth.

Once you are done with the first time documentation, after that every time you want to invest and redeem or switch, you can do it online. The documentation comes into picture only when you want to do changes like your email id, phone or address etc.

Myth #20 – Mutual Funds are not for retired investors

This is entirely false.

There are various kind of mutual funds which are suitable for retirement needs. You can invest your hard-earned money in debt funds and keep them secure while it’s growing at a decent return. One can choose an option for a monthly dividend and get an income.

One can also SWP from a fund, and withdraw a fixed amount each month. One can invest in debt-oriented mutual funds, which can have some equity component for some return kick!.

We have helped many clients to plan for their parent’s retirement money deployment.

Myth #21 – I can’t invest in mutual funds because I need high liquidity

Again a myth.

Mutual funds are highly liquid and you can get your money ranging from instant redemption to 3-4 days depending on the fund type. If you want very high liquidity, then you can invest money in liquid funds, from where you can redeem in 24 hours.

Myth #22 – Mutual funds are not that famous among investors

This may be news to many, but the Mutual Fund’s industry will overtake Deposits in Banks very soon (maybe a decade). Right now at the time of writing this article, the money in India mutual funds was around 18 lacs crore, It has doubled in the last 4 yrs, and set to grow very fast in the next decade.

In the US, mutual funds are already several times bigger than Fixed deposits and it’s going to happen in India too over the long term. So if you still think that mutual funds are some alien concept, then you are wrong. It’s very popular now in India and one of the standard investments products.

Myth #23 – Mutual fund redemption needs the permission of a broker or advisor

Your broker or advisor has no control over your mutual funds. You can do redemption on your own by either installing the app of the fund house or through the portal where you have access to.

In the worst case, you can anytime go to the fund house office or CAMS/KARVY office and apply for redemption. This does not need any approval from anyone.

Myth #24 – I can’t skip an SIP payment once started

A lot of people are worried about what will happen if they skip the SIP in a particular month when they are low on funds?

If your bank account does not have sufficient money for a month, then on the SIP date the SIP will not get processed, but from next month it will go fine again. Mutual funds company does not charge any fine or penalty for this, but your bank can levy a small charge for this like Rs 200/300.

I think it’s good, because that way you will be disciplined enough to make sure that your SIP’s go on time, but also does not hurt you too badly in case of emergency

Myth #25 – I should stop my SIP when markets are down

Unless you are an expert in understanding markets and how they will behave (which I think no one knows), it does not make a lot of sense to time your SIP’s. Just let them run in all kinds of markets and focus on your long term goals.

Most of the investors make this mistake that they stop their SIP’s when markets tank. In fact, this is the best time when you should accumulate more Mutual funds units in your portfolio so that when markets are up, you will reap the benefits.

Myth #26 – TDS is applicable when mutual funds are sold and redeemed

Mutual funds are not like Fixed Deposits or Recurring Deposits.

When you sell your mutual funds, there is no TDS which is deducted. You get the full amount in your bank account and then you need to figure out the tax amount and pay it later.

However there is no exception to this. In the case of NRIs, if they redeem their debt funds, then TDS is applicable.

Myth #27 – My money will be locked in mutual funds like other products

Many investors think that in mutual funds their money is locked for a specific period. in case of mutual funds, most of the funds are open-ended funds, which means that you can invest any time and redeem anytime.

There is no lock-in except in ELSS funds (which comes under 80C) and close-ended funds (which specifically tell you the duration for lock-in)

Myth #28 – SIP should not be started when stock markets are very high

Yes, this is actually not a myth, but truth.

But only if you know that stock markets are high. If you are very sure you can figure that out then Yes, it’s better to wait for markets to tank down, and then start SIP. But 95% of the people don’t have time and energy and even expertise to read these signals.

So that’s the reason, why you should not think much when you are starting the SIP. Start your SIP’s irrespective of market conditions. And when markets do down, it’s time to increase your SIP amount

Myth #29 – SIP is always better than Lump sum investments

None of them are better than the other.

SIP’s will outperform the onetime investments in certain conditions and vice versa. SIP’s, however, are more suitable for a common man as it’s a monthly commitment and averages the risk of market volatility.

Here is a good discussion on SIP vs Lumpsum Investments by Monika Halan and Vivek Law in a show called Smart Money

Myth #30 – I can’t switch from one mutual fund to another fund

Many people do not know that it’s possible to move from one fund to another fund across the same fund house. You don’t need to sell the fund, get the money in your account and then again invest in another fund of the same fund house.

So if you have a mutual fund from Birla AMC, you can switch it to another Birla fund without redemption.

Myth #31 – Mutual funds of bigger and trusted brands are always better

Do you know that LIC also has mutual funds business?

However, LIC mutual funds are one of the worst-performing funds across the whole MF industry. LIC mutual funds is not same as LIC insurance.

In the same way, SBI mutual funds should not be confused with SBI bank. A lot of first-time investors in mutual funds investors want to go with trusted brands like LIC, SBI, or HDFC.

Not that mutual funds is a different business, and you need asset management expertise. A small fund house like Motilal Oswal or even Quantum or PPFAS has high-quality funds and should be explored.

Myth #32 – I can’t partially withdraw from mutual funds

Yes, you can. Mutual funds can be redeemed in parts. You just have to choose the number of units you want to redeem or the amount you want to redeem (it will calculate the units required). So that way, it’s a great product. Because in case of deposits it’s either the full amount or none (which is one positive thing also)

Myth #33 – Only humans can invest in mutual funds

Even companies and partnerships can invest in mutual funds. It’s not limited to just humans. So if you are a business owner, you can also go for your business KYC, and then start invest in mutual funds. If you have money lying in current accounts, you can park your excess money in liquid or debt funds and redeem them anytime you want with a single click.

Let us know if you have any more myths or queries related to mutual funds or SIP.

Are you ready to invest in mutual funds?

Are you still waiting to start your mutual fund’s journey? If Yes, then our team at Jagoinvestor can help you start your mutual fund’s journey.

 

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From successful CA to Entrepreneur – Real life Journey of Umesh

Posted on by Jagoinvestor

Here is the real-life story of Umesh, who is one of our long time readers. He agreed to share his life story on how he turned from a successful CA to an Entrepreneur. I am sure it will be an inspiring read for other readers and we all can take some learning’s from his story.

How a CA turned into an entrepreneur - A story

Over to Umesh …

I have been a follower of Jagoinvestor.com for the last few weeks. One post from Manish regarding how he quit his job with Yahoo was catchy and I responded back to him stating that I was happy for him as his story pushed me down the not so distant memory lane of my pursuit to being self-employed.

He has been kind enough to let me share the same with you readers and I hope I can add some value to the time that you will spend in reading the same.

And here it goes

I am a CA with over 25 years of experience. As a child, I had been brought up in the company of CA’s and when I had ceased to be an infant, my father – who is also a CA – joined Air India.

And thanks to his position in the national carrier, from my childhood days, I enjoyed traveling by air, in style and comfort of Maharaja Class… The jumbos of Air India really fascinated me as a child and with each passing year, my interest in them kept on growing. So much so that I decided mentally to become a pilot of one of those 747s.

This guy wanted to become a pilot

But I did not become a Pilot

Man’s wish can only progress towards reality when God concurs. In my case, God gifted me with powerful eyes and a nice pair specs and so my dream of becoming an airline pilot is still a dream.

I scored a distinction in SSC and had an alternate desire to become an Aeronautical Engineer – but the burdensome presence of Maths prevented me from opting for that even though I was getting admission. And then, like thousands of others, I joined Commerce and in due course of time the CA blood prevailed over everything else.

I ended up becoming a CA but airplanes and airlines were still part of my hobbies. Even during CA preparations, I used to read airline magazines!

I sent my resume to Singapore Airlines!

So much was the craving that the first CV that I sent was to Singapore Airlines! Knowing very well that it is unlikely that I will get a call. I was not interested in going in for CA practice as I found Taxation and Statutory Audit really taxing. I wanted to do something different – so in that pursuit, I started looking out for a good job or an assignment that I can manage on my own.

I struggled for several months and then my corporate life made a good and healthy beginning. And within a year and a half, I was able to finally enter the airline world on merit and Jet Airways became my third employer and the first in the airline industry. It was a dream come true for me and I simply liked the job.

I never felt that I was working, as airlines and airplanes were my passion and my work was though related to accounting was off-beat when compared to the typical book-keeping type.

I learned a lot in that company and ended up heading its Revenue Accounting unit as a GM at a very young age in comparison to those who were holding that position at the time with decades of experience. I progressed from there and moved on to head the function for 2 other airlines – one in India and one overseas.

I enjoyed the work even with Work Pressure!

Throughout my tenure in the airlines, I was positive and enjoyed the work though the work pressure was enormous, timelines extremely stringent as airlines being in the service industry have to work 24 X 7.

My wife and son and parents have seen me sometimes on the following calendar day but thanks to my passion, I always felt at home.

The best phase of my life was when I was overseas and working for an airline – the work environment was considered to be the toughest within the industry. However, my base was solid and passion too played its role very well and I felt that it was a lot easier than what was perceived.

It was a good exposure in dealing with people from different cultures, countries, and backgrounds. The flow was smooth – but my son was disappointed with the quality of education there and after due pondering, I chose to give his education priority over my professional satisfaction and we returned to India for good.

How I became an Entrepreneur?

By then, I had completed 2 decades in the industry and in my core specialization as well and I decided to do something different and become independent from the clutches of the employers. I had many tempting offers from the industry within India and overseas but I preferred to go the independent way.

Job vs business - which is better?

My family was with me and backed me solidly – I was in that age frame where if my entrepreneurial attempts fail, I would still have the opportunity to get back with humility to the corporate world. Initially, the going was tough and at times making me wonder if I had taken the right decision.

However, my wife was with and behind me like a rock and I remained committed to getting the first assignment before the bank account reaches alarmingly low.

I got my first assignment

Patience and eternal trust in god always pays and I got my first independent assignment overseas. And all in the house were happy and I was thankful to God for showering his blessings. It lasted for a few months – it was a unique experience as I was the boss of myself and had only the mirror to report to in relation to my work.

It was a great feeling and I still remember the moment when I sent out the first set of FEMA documentation to my bankers to get the inward remittance. Thereafter I have been able to keep the entrepreneurial spirit going with one assignment at a time – though I can manage more than one, I chose to work on my newer passion towards stock markets.

Since the past year, I have again been an active student of stock market and am learning by the day and have been helping a few make money by putting my knowledge to test.

I had my first stint as a trader for 2 years which was full of ups and downs and I had to take a sabbatical from the markets as I got an overseas assignment with my sleep hours slot was the active market hours slot in India.

Once I was back, I invested a significant amount in getting trained by the best in India and have since been working very hard to make this as my next profession – where I do not have to source business as the opportunities come knocking on the doors as long as I ensure that I have capital to take advantage of the opportunities.

Should I work for myself or someone else?

From Automobiles to Stock Market!

So in my career so far, I moved from automobiles to IT to airlines to BPOs to TMCs to stock markets – I have learned a lot from the markets – about stocks and related matters and about myself as well.

My ride thus far may seem like an uneventful and seamless but I went through quite a few rough patches and I always remembered the saying – If it were not for the rocks, the stream would have no song and also – Ships are safer in the harbor but they are not meant for the purpose.

In comparison to the present times, my salary was not that high especially after the 9/11 attacks in the US which changed the game altogether. Airlines turned out to be a good place for its vendors and not its employees.

16 habits which helped me become successful

However, I am thankful to some of my habits which helped me reach where I am today.

Few of these are

  1. I always ensured that I am able to pay off any dues immediately on my salary getting credited. Even if the amount was not due, I used to clear it to have surplus identified.
  2. I started investing in Mutual Funds – in NFOs with Dividend Payout Options. Such investments were made on a monthly basis and where there was no NFO in a month, I used to add to my holdings.
  3. I started a couple of SIPs and these ran for 3-5 years one of them was with Dividend Payout Option and one was the Growth Option – this ensured that when the market was up, the value of my investments would also be up.
  4. My father cultivated in me the habit of making sure that I keep making investments in the PPF account that he had opened in my name and then I opened for my wife and son as well and kept depositing whatever possible.
  5. Intermittently, I kept creating FDs – in companies – when the rate used to be 12-15% and in banks and worked hard not to prematurely break them.
  6. I invested in some shares [this was an unprofitable investment though] thanks to the friendly relative sub-broker who was so sure about the scrips recommended by him. I am still an “investor” in those carrying on a burdensome 5% of its original value!
  7. In the last 7-8 years of my corporate life, I started contributing VPF – additional sums as Voluntary Contributions to PF
  8. I had a car loan and 2 home loans – with hard bargaining, I could get a car loan at Zero Interest over a one year period and that helped me save close to 20-22% of the on-road price.
  9. With my above habits and 2 home loan EMIs, I was now having the real pressure to ensure that I do not end up breaking any of my FDs.
  10. Any increase in pay due to revision or change of job was used to either create FDs for home loan EMIs or to part pre-pay the loan.
  11. Sometimes, MFs used to pay handsome dividends and after retaining some for consumption, I used whatever little was left to make ad-hoc loan payments.
  12. Whenever I made an out of turn loan payment, I opted to cut the duration of the loan and not the EMI amount
  13. In the last couple of years of my corporate life, thanks to good revisions in pay, I increased EMI amounts as well which further accelerated the cut in loan term – obviously, the lending banks did not like me as their disciplined customer!
  14. Before I went on my overseas job, I chose to withdraw PF balance and much to the surprise of all, I made a significant part payment of the loans. I am sure many would have wondered if I was in my senses as PF is usually seen as the last resort for a person to touch – to be encashed only when one is retired from the services.
  15. Using up PF for a loan made a happy dent in the loan duration but the end was still far away – but I was feeling a bit relieved.
  16. Out of my final settlement from my last job, I cleared all the home loan dues and began my journey as an Independent Consultant with no hanging commitments.

The above may sound like a well-written script but the journey through these was tough, challenging and at times tense. There are still many who wonder why I am not working with one of the airlines and encashing my experience and knowledge.

I tell them that I am now used to not listening to anyone but my boss in the mirror and he is a tough guy and would not release me.

Should every salaried person become an Entrepreneur?

I have, in the last few years, counseled many regarding several matters, including why one should ultimately work as self-employed – this in no way undermines those who are in service.

Due credit also goes to some of the airlines/entities in India and overseas with whom I was/am associated as they helped me reach the state of Independence. Only those who are born entrepreneurs with no financial burden can start as a self-employed.

People like me and possibly many of you have to toil hard before even thinking of being on our own. Carefully note that since I am on my own, my insurance [car, health, critical illness, travel, term plan, etc.], welfare, administration, travel, infrastructure, capital expenditure, communication and possibly a few more are all on to myself.

Life as self-employed is not rosy!

So, please do not think that life as a self-employed is rosy. I strongly believe in the adage – ”The grass is greener on the other side.”

We have to learn to look at things from a neutral perspective and learn to remain humble, utmost patient and irrevocable trust in God and in our abilities to do the right things.

When we are looking at our future, we need to keep several things in mind – it is not possible to write about all these now, but suffice to say that such decisions have to be thought through and situations 10-15 years from now should also be considered before concluding on a decision.

My story is nicely covered by this picture which reflects the dream, the then reality and the present:

I hope my journey and my way of doing things gives the readers some idea about how easy / difficult it is to be self-employed and also financially disciplined. Whether or not you end up being self-employed, please be financially disciplined as money is required by all and the times are going to be tougher as we move along the path of this beautiful life.

Stay Blessed and financially safe!

Warm regards,

Umesh

Conclusion from Jagoinvestor

I think it was a fantastic life sharing and there were many lessons which can give you a great insight into decision making. It’s always a great thing to read someone else story, you get lots of inspiration and see how other people handled some situation. You get an idea of how things look like on the other side, you read about their struggles, achievements and eventually add the learning’s in your life.

I thank Mr. Umesh for this contribution and wish him the best of luck!

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