Author: Jagoinvestor

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Want to buy health insurance with small premium? – Use super topup policies?

Posted on by Jagoinvestor

Do you want to know how you can take a high health insurance coverage at a cheaper premium, without compromising on the benefits and features? Today I am going to share how you can do that using top-up health insurance policies.

Gone are the day’s when Rs 2-3 lacs of health cover was considered a good cover, its not even average cover these days. With rising health care cost, a health cover below 5 lacs is just not sufficient for most of the people. I am confident on that, because in last 6 months, we have helped more than 1000+ people to take their health insurance and majority of them ended up with a coverage in range of 5-20 lacs.

I know, a lot of investors understand the importance of high health insurance cover, but they are unable to afford a high premium. So what is the alternative?

Use Super Topup Policies to increase your health cover at lower premiums

The solution is Super topup policies.

You can use Super Top-up health insurance policies to upgrade your health cover by paying a lower premium. Super Topup plans are the health insurance plans which pays only when a certain threshold is crossed.

For example, consider a super top-up plan for Rs 20 lacs with deductible of Rs 5 lacs.

In this case, the policy will pay only when the initial Rs 5 lacs is paid off and they will pay the additional amount above Rs 5 lacs. So if the claim amount is Rs 12 lacs. The policy will only pay Rs 7 lacs (over and above 5 lacs deductible. If you are new to this concept, we have already explained the topic of super top up in detail here, please read it first.

So how can you use super top up to take a higher cover?

Instead of taking a full cover of X+Y amount, you can take a base cover for Rs X and take a Super topup plan for Y amount with X as deductible. This way you will be covered upto X amount by the base policy and for any claim above Rs X, the super top-up policy will get triggered and come to your rescue.

The main benefit here is that the Super Top-up policies come very cheap and overall your premium will be small.

Example of 3 member family (2 adults below 35 yrs + 1 kid)

Suppose you want to take a high cover like 20 lacs for your family (3 member family). Here you have two choices

Choice 1 : You can take a stand-alone policy of Rs 20 lacs here. If we take an example of Optima Restore Family Floater, the yearly premium would be Rs 23,527.

Choice 2 : As 2nd choice, suppose you the same take the same Optima Restore Family Floater for Rs 5 lacs, which will cost you Rs 12,513 and on top of it, you take a 20 lacs super topup from L&T Medisure Super Top Up with 5 lacs deductible, for which the premium would be Rs 4,389. So the total premium in this choice will be 16,902.

That’s a saving of 28% in premium.

However, note that both the choices will differ with each other, because from features point of view there are a lot of differences in both the choices.

So for those who already have a 5 lacs cover already and wanting to increase their cover to 15 lacs total, below I have listed down some companies top up cover plans and the extra premiums they will have to pay.

Below is an example of how you can increase your health cover from 5 lacs to 15 lacs (or take 15 lacs cover).

super topup plan example

Do you have a small health cover right now?

So, ask this question to yourself? Do you have a small health cover of 2 lacs, 3 lacs or max 5 lacs and you want to upgrade it to a big number like 15 lacs or 20 lacs?

For the sake of explanation, let me take an example of 5 lacs existing cover and lets see how you can increase it to 15 lacs for a small premium increase. So all you need to do is take a super top-up cover of 15 lacs with 5 lacs deductible. Below are some plans with the premium amount for a single individual of age 35 yrs.

Premium for different Super top up plans in market

Comparison of Super Top-up Plans in Market?

Below I am sharing the comparison of various super top up plans in the market and how they differ from each other on various parameters.

Top up policies comparision

Why Super top up premium is less?

I am sure many investors will have this question in mind that “Why is the premium for a super top up plan so less?“. The answer is that the probability of a super top up getting triggerred is statistically very less and hence the risk for the insurer is not that high.

Think about it this way. If you have a large cover of 15 lacs right now, what  would be the hospital bill on an average? Most of the times, it would be in range of 50,000 to 1 lacs if you get hospitalized for a minor case and few lacs if there is some accident or some major issue.

Only in a very very fatal case or if you are highly unlucky, your bills will run over in the range of 10-15 lacs and thats going to happen once or twice in your lifetime. So the chances for a company paying for a claim above a certain threshold is very less. That’s the reason the premium for a top up plan is less. Higher the deductible, lower the premium.

Is it advisable to buy the base plan and super top-up from the same company ?

The answer is YES. If your base plan and the super top up plans are from the same company, it would surely help because you have to deal with the same company for both the claims. The documentation process is more simple and the communication is smooth. The company will not find any issues because it has all the records with them.

However note that even if you have it from different companies, it’s ok. You ultimately have to look at the features and what combination works best for you and if the total premium is affordable to you or not.

What are Convertible Top-up plans ?

Lately, a new kind of top up called as convertible topup plans are coming up in market.

“Some companies offer Super Topup plans with an additional feature that allows the plan to be converted into a base plan. This is done by buying out the Deductible in the plan.

For instance, if you have your company health insurance for Rs. 3 Lakhs you could buy a Topup of Rs. 15 Lakhs with a deductible of Rs. 3 Lakhs. In case you leave this employer, and/or are without cover, you can apply for buying out the deductible at the time of renewal by paying additional premium. There are certain conditions/triggers based on which this feature gets activated into the plan.

This is an excellent feature for people who feel that they would be working with employers who will provide health insurance cover all their working life, without any break.

For instance,

In case of Religare Enhance – The convertible feature gets activated after 4 continuous renewals. The plan has a waiting period of 1 year for Pre-existing diseases

In case of Apollo Optima Super – The option is available for customers who have bought the policy before crossing the age of 50 years. The option can be opted between the age of 55 and 60 years at the time of renewal by paying additional premium, if the policy has been renewed continuously without break. “

Who all should buy a super top up plan ?

  • Those who are having a small cover by themselves or a group cover through their employer and want to increase their cover (ideally you should have a base policy for a minimum amount)
  • Those who are right now having a small cover and want to upgrade it
  • Those who can take care of small medical bills themselves (like up to 2-3 lacs) and only want help in case of bills beyond that number by paying a small premium

Other Important Points related to Super top-up plan

  1. A super top up policy can be taken stand alone – A super top up policy can be taken without a base policy. There is no compulsion that you should hold a base policy.
  2. Premiums will rise as per age slab – You should be aware that just like a normal health insurance plan, a super top up plan premium will also rise as per age slab in coming years, so even if the premiums look very small right now, it’s bound to increase later
  3. No Claim Benefit not present – Generally super top up plans do not offer No Claim Bonus (NCB) . This is the primary difference between taking a base cover of a high amount and combining a small cover with top up cover, because then you loose on the benefits of a No Claim Bonus over the years.
  4. Not always a great option – Just because the premium is less, it does not mean that combining a small base cover with a super top up is always the best plan. Depending on situation, you need to find out if its a good option in your case or not. It might happen that you might loose out on some benefit and feature on the top up plans

I hope this article helped you to understand how you can increase your health cover at a small premium. Please ask your questions if any below in comments section

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

Posted on by Jagoinvestor

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

The answer is – LACK OF CLARITY!

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

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

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

Some examples of decisions which investors have to make !

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

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

4 point Decision Making Framework

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

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

decision making framework

What is decision-making framework?

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

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

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

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

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

Its happens because of instant gratification problem !

The first home loan is allowed!

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

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

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

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

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

Is debt free always a good option ?

Real life example when it becomes tough to choose

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

BANG!

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

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

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

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

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

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

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

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

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

simple or lavish financial life

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

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

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

Why choosing your theme is important?

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

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

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

Its not about show-off

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

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

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

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

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

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

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

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

Some investors like Liquid money !

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

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

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

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

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

Should you block your money in various assets

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

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

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

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

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

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

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

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

Kids Education and Retirement

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

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

But things are changing !

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

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

Spending culture in increasing

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

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

for whom should I-earn

You have to complete your responsibilities in life

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

Will this decision-making framework help you ?

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

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

financial framework

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

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

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

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

my personal framework

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

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

Jagoinvestor is coming to Hyderabad – 1st Nov 2015 (Workshop)

Posted on by Jagoinvestor

Hyderabad – We are coming !

Finally, we are doing our 1st investors workshop in Hyderabad on 1st Nov 2015 (SUNDAY). We started doing workshops few years back, till now we were doing programs in Pune, Mumbai and Bangalore and have trained around 500+ investors till date. It’s time we expand and include more cities, we are excited for our Hyderabad event.

Why you should spend 1 full day with us ?

We always love spending full day with participants, having some amazing conversations around money, how to plan their financial life and how to make  things more simple and robust.This one day can bring a real turnaround in any person’s financial life and it can help you get started as an investor. It is our promise you will walk out of the room with a new level of energy and vision as an investor.

Note that no personal finance knowledge is required to be part of this workshop.

You can just skip this article and directly register for the workshop (early bird tickets available at discount)

Why we conduct these workshops ?

We do offline workshops so that we can connect with some of our readers at a deeper level, round the year we write articles, reply to thousands of comments and work with a few hundred investors one on one and in that process we learn, grow and expand as an individual.

Workshop gives us an opportunity to share outrageously all the knowledge and experiences that we acquire round the year. The program is an opportunity to get our readers more and more action oriented.

Why you should come for this workshop?

  • You will learn how to improve your financial life with your current set of resources and income.
  • You will learn how to plan for your financial life goals
  • You will interact and learn from other’s people’s financial life
  • You will dedicate one full day to get better with money management
  • You will learn to add new dimensions to your financial life
  • To understand that personal finance can also be fun
  • To give a whole new direction to your financial life

Below are some of the pictures from our Mumbai Workshop we did recently

mumbai-workshop-2015-4

mumbai workshop 2015

mumbai-workshop-2015-3

mumbai-workshop-2015-1

It’s time at add Jagoinvestor workshop to your financial journey

It has been a few years now conducting “Design your financial life” workshop and the experience has been amazing. It is a wonderful space to be in, in which the group learns and starts to fall in love with the process of wealth creation.  We do not teach tricks and tips to build wealth in fact we help you to discover your own personal process of creating wealth.

This time we want more and more couples to participate so that they can get on same page when it comes to personal finance. It is extremely important that husband and wife both take equal interest when it comes to money management. We are offering special discount to those who want to come with their partner. (You can even come with your parents, siblings or friends and can claim the discount)

The workshop we conduct are highly interactive, it has lots of activities and fun exercises which helps you to discover your relationship with money. The sessions are interactive and very easy to grasp for any kind of investor, beginner or advanced. In short there is something for everyone in this workshop.

Register for Hyderabad workshop on 1st Nov, 2015 (SUNDAY)

Earlybird Ticket
(Last 1 ticket remaining)		 Rs 3,700 + Service tax @14% Buy Earlybird Ticket
Single Ticket Rs 4,200 + Service tax @14% Buy Single Ticket
Couple Ticket Rs 8,000 + Service tax @14% Buy Couple Ticket
Venue and Timing Details

8:30 am - 6:00 pm , 1st Nov (Sunday) , 2015
BEST WESTERN Ashoka
6-1-70, Lakdi-ka-pul,
Hyderabad – 500 004

Check Map
Detailed Directions

  • The hotel is 5 in walk from Lakdi Ka Pul Railway Station
  • Lunch and Breakfast is included in the program fees

We invite you to join and participate in Hyderabad workshop. Come alone or with your spouse or parents, siblings or friends but see that you do not miss this opportunity. Do not let time or money to get in your way and book your seat at the earliest because we will be taking only limited participants and registration will close after some days.

This workshop is strictly for investors and not for advisors or finance professionals. If you have never participated in any personal finance workshop let this be your first experience.  If you have any questions you can write in the comments section or you can mail us.

9 ultimate checklist to know if your financial life is on track or not?

Posted on by Jagoinvestor

Let’s quickly see today what I call as a good checklist to find out if your financial life is on track? Are you doing well? When can you say that your financial life is an ideal financial life?

What are those parameters? 

  • Is high income good?
  • Is having low expenses great?
  • Is having 50 lacs in saving’s great?

A lot of investors do not even know if they are doing good, bad or just average.

checklist of good financial life

I know its very subjective to say if someone is doing well or not and no one other than you should make the final judgement, but still lets look at some high level points which should be present in a good financial life. Atleast you can get a sense of how you are doing on few parameters.

Lets see how many of these are true for you.

1. You have positive surplus each month

The first indicator I think is very simple and very important – “Are you left with a positive surplus by the end of the month or not?”. Its as simple as that. Unless you are left with some surplus (income – expenses), it makes no sense just to brag about your salary itself. What will matter is if you are having a good positive surplus each month or not.

And I am talking about a decent surplus, like 20-30% at least. So if you are earning Rs 80,000 a month, but you are left with just 2-3k by the end of the month, please don’t say you are left with surplus. It should be at least 15-20k, because this is what will help you in building your wealth. If can surely say that you earn a lot and spend like a king and enjoy life like anything. Well that’s great and its surely a great thing. But not having a surplus is surely a big negative point.

Did you pass this check or not?

2. Your net worth is going up on yearly basis

Is your net worth increasing on yearly basis? Are you getting wealthier over years or not?

  • Are you wealthier as compared to 5 yrs back?
  • Are you wealthier as compared to 3 yrs back?
  • Are you wealthier as compared to 1 yr back?

I am not saying that be highly rigid about 1 yr. It’s totally fine if your graph is a bit down for few months or last 1 yr, but as a general rule, it should be moving up over the years (especially if you are young and moving towards your retirement)

If the answer is YES, then fine – you are doing great, else there is something you need to fix. Your net worth would keep going up and up in two cases. First is when your investments are doing well and the interests and returns you earn on it add up, this happens mostly in later part of your life, when money already have reached to a level and now the compounding.

The other case is when you keep investing out of your surplus each month and its very important in initial years of your life, because only when your net worth reaches a respectable level, you will be able to feel the power of compounding and its effect on your net worth.

Did you pass this check ?

3. You are not heavily dependent on loans to pay your bills?

If I take away your credit cards with the condition that it will be returned to you only after 3 months, will you panic?

I am sure many investors will panic and start wondering how they will manage now. Note that said “heavily dependent” and not “heavily using”. Personally I use credit card a lot and frequently, but you can take away my credit card and never return to me and I will not even care for a minute (after I block it).

However, some people are so dependent on credit card, like its oxygen for them. Apart from credit card, a lot of people get into this cycle of

  • Need money for some purpose
  • Take personal loan
  • Keep paying the EMI to clear off the loan
  • Need money for some purpose
  • REPEAT !

This is a very unhealthy sign in your financial life and you should just not be doing this because its messing up your credit report and it will cause you insane amount of trouble getting future loans

Did you pass this check?

4. Are you protected by external risks which will destroy your wealth

In technical language, I mean to ask if you have taken life insurance, health insurance, added life insurance if you have home loan or not.

Imagine, that you are saving money for your down payment of your dream house, but you don’t have a health insurance (here is a checklist on how to buy health insurance) and suddenly some accident occurs which requires hospitalization, what is going to happen?

All your money which you have accumulated over the years for your dream home will just disappear and you will be back to square one, wondering how will you achieve your goal now?

If you didn’t take sufficient life insurance and you have a home loan EMI, then you are completely gone!, then your family will either have to pay the money from somewhere or vacate the house.

As per a rough calculation, if a male aged 30-35 yrs earning 10 lacs a year, wants to take sufficient life and health insurance, he can get a 1 crore worth of term plan and a 5 lac health insurance for around Rs 20,000 a year easily. Thats just 2% of his yearly salary. I think you should calculate, and judge if its worth covering these risks or not. By the way taking your life and health insurance is a one time task.

Do you pass this check or not?

5. You will be able to handle sudden surprise expenses without external help

Do you have enough resources to handle surprise expenses or any unplanned expenses? Imagine following scenario’s

  • Your father needs 75,000 by tomorrow
  • You spouse needs Rs 1 lac which will come back after a 1 month.

Are you in a situation to arrange this money instantly (at least 2 months of salary) or not?

By instantly, I didn’t mean that it should be lying in your saving bank account, but can you at least arrange for this amount yourself without any external support or not is the main question.

Many people I know will have NO as the answer, because they either have locked the money in financial products because of tax saving or they just don’t have it. So this point actually tests how you have managed liquidity in your financial life.

Are you able to pass this check or not?

6. You are investing a minimum of 10% of your income consistently

This is related to the first point. But still lets give a better framework to it. Are you investing at least 10% of your income consistently or not? Ideally it should be maximum but can you afford to invest, lets give a number which looks possible for everyone.

So if you earn Rs 50,000 per month, you should at least be saving Rs 5,000 a month, that too consistently.

Please don’t say you started a recurring deposit of Rs 5,000 few months back, BUT later stopped it because your kids school fees had to be arranged. That does not qualify!

I think any investor has to first learn and experience what it feels to regularly invest and next comes the conversation of mutual funds, generating high returns and all that.

That’s why, I think once you start your career, you should atleast open a recurring deposit and let it run for a year. First see how the wealth accumulation looks like, and how does it feel your wealth growing.

This will give a good base to start your wealth creation journey.

Anyways, Did you pass this check or not ?

7. You are not over-leveraged beyond the danger levels

What percentage of your income goes into paying EMI’s?

The higher it is, higher is the leverage. And beyond a level, its highly dangerous. Imagine a family whose total income is Rs 1 lac a month, but they are paying an EMI of Rs 72,000 and managing everything else in the rest amount.

Imagine what all can go wrong with this situation?

A lot of people commit themselves to too much debt which looks manageable in that moment, but in long term they are a big pain.

Double Income, No kids families with too much debt

The best example I can give are double income couples, who take the loan considering that both husband and wife will keep earning and the incomes will keep rising.

However few years down the line, if wife stops working due to the new born kid (most of the cases), it becomes very tough for them to manage the EMI, and other expenses.

What is the problem here?

They planned for the “best case” and not the “worst care”. So when you plan your loans, the future looks rosy, everything looks perfect – but life is not like that. You have to consider all angles possible and in advance think about all things which can happen in general and then position yourself towards it.

As a thumb rule (which obviously does not make sense in every situation) is that one should not be paying more than 40% of their income in EMI. Keep a lot of breathing space in between. This is not applicable to you, if you are highly adventurous.

Did you pass this check or not?

8. You are earning real return in positive number

Are you earning positive real return on your investments? Which means that your post tax returns are beating inflation.

It makes no sense to earn 8% in a fixed deposit, out of which 30% will be deducted as tax (if you are in 30% tax bracket), and left with 5.5-6% return at the end of the day, whereas prices of all things are going up by 9% inflation.

So when you tell yourself –  “I have invested in FD”, in reality you have only earned a positive absolute return, but a negative real return.

Its exactly like, you can buy apples for Rs 150/KG near your home, but you went to that favorite shop 5 km away here you get it cheaper at Rs 135, only to realise later, that you spend Rs 40 in petrol.

So as a good practice, keep limited amount in saving bank, fixed deposits (especially if you are in higher tax bracket) and more and more in asset classes which will give you higher return (with high volatility, not risk) like Equity mutual funds, stocks or real estate.

Did you pass this check or not?

9. You are on a high level clear what you want from your financial life

This is one parameter which I like and its not related to numbers.

So here is my question to you – “Do you have clarity on where you are headed in your financial life?”

You have been working from last many years, and you are saving money properly and everything is in place, but what is your game? Where are you headed towards?

Let me explain you with an example

When I called one of our clients from Bangalore, just few days back – he told me he is headed towards creating his ONE crore networth in next 4-5 yrs and he is already 40% done.

I loved this, because what he has done for himself is that he is kept all the clutter out and he is highly focused on what is wants out of his money. He knows his game !

  • So are you headed towards becoming “Debt free” and working towards it?
  • Are you headed towards buying a house in next 5 yr?
  • Are you headed towards building a regular income of Rs 40,000 per month in next few years?
  • Are you headed towards spending 50% of your income each month and enjoy your life to fullest without worrying for future?
  • Are you headed towards setting up a business along with your job?

So whatever it is, it has to be very clear. Don’t go in silence when I ask you where are you headed? A lot of investors face this problem of not knowing what are they doing, why are they doing it, what they want to achieve ultimately, everything is vague and very unclear. Don’t be like that.

Are you able to pass this check?

How much did you score?

Out of these 9 points, I would like to know how much did you score and if you are happy with it? Where can you improve and whats your plan towards it? Do you think this is a good checklist which you should look each year once and ask yourself about it.

Please share your views about this article in comments section.

What are Arbitrage mutual funds and how they are safe and tax efficient ?

Posted on by Jagoinvestor

Do you want to invest in a mutual fund which has near zero-risk, offers returns in range of 6-9% with high liquidity and at the same time, they are tax efficient? Welcome to the world of “Arbitrage Mutual Funds”.

arbitrage mutual funds

Arbitrage mutual funds are a category of mutual funds which are comparable to liquid funds or a pure debt fund whose returns are in range of 6-9% per annum, but from taxation perspective they are treated like equity mutual funds. These arbitrage funds have suddenly become very famous with investors after this tax budget, because the taxation on debt funds changed and became unattractive compared to past.

How does an Arbitrage mutual fund work ?

You should first understand the word “arbitrage”. In short arbitrage means – “simultaneous purchase and sale of an asset in order to profit from a difference in the price”.

Let me give you an example

  • Imagine that a person wants to buy a second hand phone and is ready to pay Rs 2,000 for it. You go to OLX and see that the same phone is selling at Rs 1,200 there. You then buy the phone at 1200 and sell it at 2000 and make the profit of Rs 800 . This is one example of arbitrage
  • Another example is gold. Gold prices are different in various cities. So there is a possibility that gold can be cheaper in bangalore compared to chennai and a gold dealer buys it from Bangalore and sells it in Chennai. This is another example of arbitrage

In the examples above, the problem is that the buy and selling happens at two different times, and hence there is small risk.

But what will happen if you are able to buy and sell at the same time? In that case, there is no risk, because instantly you are locking the profits (the difference price)

This is exactly what happens in Arbitrage mutual funds

In case of arbitrage mutual funds, the funds explore the arbitrage opportunities where the same stock is quoting at two different prices at BSE and NSE at the same time and they buy and sell in different markets and make the profits.

The other thing which an arbitrage fund does is use cash and derivative markets. For example, a stock might be available at Rs 100 on stock market, but it might be selling at Rs 104 in future’s market (if you dont understand derivative markets, thats ok , dont worry) and they make the difference as profits.

Lets not go to much into detail of how they work, as of now just understand that arbitrage funds use the arbitrage technique to earn the profits from the gaps in markets and its almost risk free.

Arbitrage funds returns are tax free after a year

So lets come to the biggest plus point of an arbitrage fund.

The biggest advantage of arbitrage funds is that they are treated as equity mutual funds, when it comes to taxation. Hence any return you earn after holding it for 12 months is tax free, and incase you hold it for less than 12 montsh and make any profits, the taxation is 15% (short term capital gains tax).

So, return wise arbitrage funds can be compared to a liquid fund and the returns potential are in range of 6-9% depending on the time frame and the yield of the instruments they have invested into.

Now think about this scenario

If you want to park a big sum of money for some months or approx one year, but you dont want to take a lot of risk on the capital and at the same time want a highly tax optimized solution, what are your options?

FD is not that great option, because if you are in 30% tax bracket, you will be paying tax at the rate of 30% and if you break your FD in between before maturity, you will also pay penalty. In that case, these arbitrage funds can be a very good alternative, because they can give decent returns, high liquidity and lower tax (no tax if held for more than a yr)

Below you can see some of arbitrage mutual funds and their performance over the last 1 yr (as on sep, 2015)

arbitrage funds in India - some examples

You will see that the returns from these funds have been in the range on 8%, which is quite good and comparable to Fixed deposits and liquid funds.

Are there any risk in Arbitrage Funds?

Yes, But more then risk, I would say these are some points which every investor should be aware about before they invest in arbitrage funds.

You should understand that arbitrage opportunities must exist if arbitrage funds have to perform better, means if the markets are uncertain, then good opportunities will exist for arbitrage funds and they will give decent profits, but if markets are not volatile enough, it might happen that the returns from arbitrage funds are unattractive.

If you look at past 3 yrs returns, you will find that the returns have been very good, but if you go a bit in history you will see that they have not give the same kind of return always. See the chart below for Kotak Equity Arbitrage fund, a very good fund in that category

arbitrage mutual-fund performance and risk

You will see that in the year 2009 and 2010, the fund has not performed well like it did in earliar years or after 2011. So be very clear that you cant expect them to return in the range of 8-9% always. There will be times when they will return 4% or 5%, but that happens rarely.

How liquid are Arbitrage funds ?

Lets talk about liquidity factor now.

You will often hear that arbitrage funds can be compared to liquid funds as they are highly liquid and risk free. So some extent this is very true, but if you go deeper, there are few differences.

  1. Arbitrage funds redemption can take 3-4 days : An arbitrage fund redemption can take 3-4 days compared to just 1 day in case of liquid fund, so if your requirement is that the money should come back to you the next day if you want to redeem, then arbitrage funds are not the right choice.
  2. Arbitrage funds have exit load for 90 days – Most of the arbitrage funds have a small exit load anywhere from 0.25% to 0.5% if you take out the money before 90 days. If compared to liquid funds, there does not exist any exit load and you can take out the money even in a week without any loads. For example, incase of ICICI Prudential Equity arbitrage fund, its exit load is 0.25% if redemption before 30 days

The above two points conclude, that one should ideally choose arbitrage funds if one is looking to park funds anywhere from 3 months to 2 yrs. Also someone who is falling under a lower tax slab, will not benefit too much from investing in arbitrage fund because anyways their tax slab is less.

Comparing Arbitrage fund with Fixed deposit and Liquid fund

Finally, let me give a rough comparision of arbitrage fund with bank FD and liquid funds, which will make you more clear. The comparision chart below shows various criteria and how these products compare.

comparision of arbitrage mutual funds vs fixed deposit vs liquid fund

So shall you invest in arbitrage funds?

I think based on the above information, you can now take the call if you want to invest in arbitrage funds or not. Let me know what you are going to do and what comes to your mind about this category of mutual funds.

Here are the 5 most important things to know before you Submit Investment proofs for tax saving

Posted on by Jagoinvestor

Do you know everything regarding investment proofs which you provide to your employer at the time of tax-saving season? If your answer is NO, then this article will help you understand a lot of things which you don’t know or partially know about.

So, I will talk about some of the common things you should take care while giving your investment proofs to your employer for tax saving purpose.

investment proof for tax saving

1. Investment declaration helps employer to deduct appropriate tax

The first and most basic thing, that you as an employee should know is that your employer is supposed to deduct your income tax on monthly basis and deposit it with govt on 7th of the following month.

For this, the employer should calculate your taxable salary and it can only happen if you before hand give him an idea about how you are planning to save tax, and apart from that how much of  HRA, LTA, Medical reimbursements you are entitled for.

For this purpose, your employer asks you to declare your various investments in the start of the year itself, so that they can compute your net taxable salary and then pay your salaries accordingly, after deducting TDS from your salaries.

And then, finally around Dec/Jan, they start asking you to provide them the actual proofs of your investments and receipts so that they can match things with their initial calculations and if there are any difference they have 2-3 months in hand to handle the discrepancies. Below is a small example of it

investment proofs importance

What If you failed to submit investment proofs?

If you failed to submit your investments proofs (you declared them, but didn’t invest in reality), in that case you are liable to pay higher income tax, but employer has not deducted it and hence they get a 2-3 months of extra time to adjust it from your salary.

Following things are required by employer as investment proofs.

  • To claim LTA, you need to provide Travel receipts (flight boarding pass, train tickets)
  • Home loan certificates if you want to claim deductions under principal and interest repayment
  • ELSS investments proofs or any other 80C investments
  • Life insurance and health insurance premium receipts
  • Various donations receipts
  • Rent receipts to claim HRA

2. You can also share your saving bank interest, FD interest with employer

A lot of people do not know this, but you can share your saving bank interest, FD/RD interest earned during year, any capital gains from shares or mutual fund, rental income and other kind of incomes with your employer, so that they get a complete picture of your taxable salary and deduct your income tax which will be more accurate.

If you do not disclose these additional incomes to your employer, in that case – you will have to separately pay additional income tax yourself and then take these things into account while filing your income tax returns.

Note that another advantage of declaring these additional income with employer is that you will not have to pay any penalty which might arise due to not paying advance tax on time.

Also, you won’t have to take the burden of paying the additional tax at the end of the year, the tax will get distributed almost equally throughout the year.

3. Didn’t submit income tax proofs to employer? You can claim things later

A lot of investors have this myth, that if they didn’t do their investment proof submission to employer, they will never be able to claim the deductions and will have to pay higher income tax. This is not true.

Yes, it’s a good practice to give the investments proof to your employer on time, and that will save you a lot of headache later while filing the returns.

But for some reason, if you fail to provide the investment proofs (example, like you don’t have money in the month of Jan and you decided to buy a life insurance policy only in Mar), in that case – your employer will deduct the income tax, but then at the time of filing your tax returns you can claim the tax refund, if you finally managed to invest in tax saving products later.

Here is a chart which will give you a better idea

investment proof work for tax saving

Here is another detailed example of how it happens

  • Ajay has the salary of 12 lacs a year, and he declares to his employer that he will invest Rs 1.5 lacs in 80C products
  • Employer based on Ajay declaration will calculate that Ajay taxable salary is 10.5 lacs and will be based on that suppose the total income tax for the year is 60k (just for example) . So Ajay final salary will be 10.5 lacs – 60k = 9.9 lacs. This 9.9 lacs divided by 12 will be 82500 which he will get on monthly basis and the employer will deposit Rs 5,000 as his tax to govt on monthly basis
  • Now in Jan, when the employer asks Ajay to give them the investment proof, suppose Ajay realizes that he forgot to make the investments and does not have money to invest 1.5 lacs in 80C products. But he will do it in Mar himself. And he fails to provide the income tax proofs to his employer.
  • Now his employer will come to know that Ajay real taxable salary is 12 lacs and not 10.5 lacs as declared by him and lets say on this his income tax is 1 lac, so additional 40k is to be recovered from Ajay, which will be adjusted from Ajay’s salary in Feb/Mar
  • Ajay then invests 1.5 lacs in Mar and finally his taxable income should be just 60k , as per the planning (because his taxable income is 10.5 lacs as declared in the start). However his employer has deducted 1 lac in total from his salary and paid to govt.
  • Now Ajay can declare in his tax returns that he has invested in 80C products and he is liable to get refund of Rs 40,000 which he will get in next few months.

In the example above, you can see that not giving investment proofs on time has resulted in some inconvenience for Ajay, but that does not mean that he will lose out on his tax benefits. One can always invest around the end of the year and then claim back the tax refund later.

However, there is one exemption here

Few exemptions are made only at employer level, like LTA and medical reimbursements. So if you fail to provide LTA and Medical reimbursements proof to your employer on time, then you lose the benefit. You can’t claim it back at the time of filing returns.

4. You DONT need to submit any proofs while filing your tax returns

Another important point you should remember is that while filing income tax returns, you just have to furnish the information about your investments, and not attach any investment proof.

Please do not attach xerox copies at all. It’s not required.

Its required by the employer because they are deducting the TDS and as a third party they need the documents for verification purpose.

But if you are claiming at all the benefits yourself at the end of the year, you just need to declare things. However note that you should keep the receipts and all the required documents with you for some years, because if their is any scrutiny later, you need to be prepared to answer income tax authorities along with documentary evidence.

Which means that you should never lie about your investments which you have not done in reality. Always provide true information.

5. You need to give “proposed investment” proofs for the month of Feb and March

A lot of people are confused on how will they provide the investment proofs for the month of Feb and Mar in Jan itself, when the employer asks for investment proofs. It might happen that your life insurance premium is due in Mar or if you are doing SIP in ELSS funds, you still don’t have the statements showing the investments.

In those cases, you have to provide a declaration that you are going to make the investments for Feb/Mar and based on that declaration, your employer will process the TDS.

All the employers provide you with the declaration form. You just need to write there that you promise to do the investments for tax saving in next 2 months and your exemptions should be given to you based on your declaration.

Let me know if you have any questions or if you want to share some important information on this topic

8 unbelievable tricks real estate agents play when you visit the project

Posted on by Jagoinvestor

I recently inquired about one of the plot schemes near Pune and finally visited their project. They sent a car to pick me up. When I reached the site, the staff there sounded very professional compared to some other experiences I have had in past.

While I had a good experience interacting with the sales person on the last project I visited, I realized that often that does not happen with many people. A lot of education needs to happen on this topic, because many investors who go to meet brokers for the first time or to do site visit are lured by some tricks and fooled a lot of times.

real estate tricks by agents

So I have created a list of points, which I want to share with all the prospective home/plot buyers. Some of these points are tricks played by agents, and some points are suggestions on what you should do when you meet a builder, broker, agent or sales executive who is showing you or explaining about a project.

Here are those points one by one. Detailed description of these tricks can be seen after this table.

[su_table responsive=”yes” alternate=”no”]

Trick #1

They create artificial scarcity and try to rush you

 Trick #2

Don’t show the eagerness to buy
Trick #3

Don’t get mesmerized by Sample flat or Jazzy brochure’s

 Trick #4

Ask for the legal documents and regarding the basic amenities
Trick #5

Say that you are seeing other nearby projects as well

 Trick #6

Don’t be tempted with awesome deals and discounts, they are well designed
Trick #7

Ask which all banks have approved the project

 Trick #8

Don’t get over obsessed with the “upcoming infrastructure”

[/su_table]

1. They create artificial scarcity and try to rush you

An year back, I got an email from one of the builders with the list of available flats, area, price per square feet and final price of the flat. Out of 600 flats in the project, Around 90% of them were marked as “SOLD” or “BOOKED” .

Just by looking at that, I got a “left out” feeling. It appeared as if everyone in this world is owning the plots and flats and its just me, who will be left behind. A voice from inside said – “Go, book that plot NOW, else you will regret all your life”

I had no way to verify if they were really sold or booked by someone. I just had to rely on what the excel sheet told me. This created a sense of emergency. The feeling I got was – “I need to hurry, else I will lose out on the opportunity”. Almost 80% of the time, this is artificially created by the sales executives.

See the table – 

sample cost sheet builder

If a sales executive tells you that you have a week’s time, multiply it by 10. That’s the time you generally have in real life. Some of the things you will hear from sales executive will be as follows

  • Sir, All the 2 BHK are sold except 3 units. You will either have to book it in next 10 days or go for a 3 BHK (they know you don’t have the budget for 3 bhk)
  • Sir, 58 flats are booked already in the pre-launch. This price is only for this Diwali after, which it will go up by Rs 300 per sq
  • This price is only available for this exhibition because of pre-launch offer, once the “actual” launch happens, the rate would be at least Rs 100 more per sqft.

At times, you might really lose on some good opportunity in real life, but maximum number of times – its a sales trick. This is exactly the reason why they generally ask you to come along with cheque book, so that in order to not lose the opportunity, you will book the property right there and then by paying a token amount.

Note that this trick of creating emergency is a general sales trick and applies everywhere.

2. Don’t show the eagerness to buy

If you are seriously looking forward to buy the property and want to get a good deal, then do not show your eagerness to buy. Hide that over enthusiastic and needy person inside you.

Hide your temptation and do not show that you are dying to buy the property. The moment they sense, that you are already sold out in the game, it will be very hard for you to negotiate on pricing and other things, because they are very sure that you will not be stopped by minute points.

The agents/sales executives are paid commission on closing the deal and they will go to an extra mile to close the deal with you. Show them that you are not in hurry and your life does not depend on the property. Show them that you are a serious buyer who is not in hurry and if they have to win you, you will require a good incentive to invest money.

They will ask you for booking amount, token amount, they will give you “last date”. But don’t take a decision in hurry. Do all your investigation, scrutiny, and think on how you will arrange the money. Here is a nice comment from someone on the Indian real estate forum

Fully agree. Don't negotiate with fear in mind that this is your last chance, and so far nothing worked for you (frankly, if you have this fear, would suggest don't even bother to negotiate, and more so don't get into RE market). Be prepared to walk away right from the beginning. Don't buy builder claims that they are going to increase rates, all flats except one sold out, they have enough cash, etc.
Show them you are not emotionally attached and this is one of the many options. Also, don't close deal in first meeting (if you do, most probably that means you did not negotiate enough). Last but not least, you have all the negotiation power before handing over the money, once you pay them, your negotiation power is zero.
In general one who pays should be enjoying greater power, in reality we don't see that in RE market, more so in Pune RE. That was easy said than done, have tried it, and it works, key is patience.
As I said in the first point, most of the times the emergency is not real, its often the created one!. However, this does not mean that you delay things beyond limit, thinking they will come back to you all the times. If there are other leads who are ready to buy the property, you will not be contacted beyond the point. So keep a balance

3. Don’t get mesmerized by Sample flat or Jazzy brochure’s

Human visualize and fantasize about everything in life

This is the reason when you see jazzy brochure’s, the lush greenery, clean atmosphere and a world beyond reality, you visualize yourself living in the serene beautiful place which has no traffic, no tension and a all perfect life. I am yet to meet anyone with whom it has really happened 🙂

Please, do not do any booking only on the basis of the brochure, some presentation or looking at a sample flat.

Make sure you visit the actual project site and see the location, how well connected the area is city, how are the roads, what’s nearby the place and other important factors. A lot of people book properties in real estate expo and exhibition, which I don’t think is a good idea at all.

Real life example

I once met a sales representative who came to explain me about a project in WAI (near Panchgani, Maharashtra) and he sold a story which looked so amazing, that my inner self-was ready to book the property right then and there. I was so excited to take a look at the site.

However after a week, when I actually visited the site, all my excitement died because the reality was so different than what I had visualized. I must mention that it was not the sales executive fault here and he had not given any wrong information. In fact, he was a brilliant sales person and very professional.

The problem was me myself. I have over-estimated the greatness of the project and its location, because of the jazzy brochure.

jazzy real estate brochure

In case of residential flats, remember that the jazzy brochure and the sample flats are created to exploit the human imagination and sell you dreams. What you actually get in reality will not be exactly like sample flats you see.

You won’t believe, but there are professionals who are hired by builders to give mesmerizing presentations to prospective buyers, especially NRI. Presentations are arranged in 5-star hotels and bills are paid in lacs of rupees. Here is one gentlemen explaining how it happens. Please see the video below

I am not saying that brochure’s are not important. They surely play a big role in marketing and you get a very good idea of what is the project all about, but go beyond that.

Judging a property by just looking at brochure is exactly like hiring an employee by just looking at resume.

4. Ask for the legal documents and regarding the basic amenities

You are probably doing one of the biggest investment of your life-time. Right?

If your buy something which is junk, you will regret it all your life. There are millions of people in India, who are dealing with legal issues today because the land they bought is disputed, the required sanctions were not taken and many other issues. So just don’t feel shy about asking legal documents. There is no hurry in doing the agreement.

Simply ask the sales representative to provide you all the legal documents, sample agreement copy and all approval related documents. For god sake, take the documents to a property lawyer and pay Rs 10-20k fees to consult him, before you buy that 75 lacs flat!.

The lawyer will check the documents and help you understand, if the project is totally fine or has some big trouble. Then you can take the decision of moving ahead or not.

It will save you a lot of money and energy in future. It’s not a very healthy sign if the sales person is constantly avoiding the conversation regarding legal documents or if he is hesitant in providing you a copy of the agreement.

Ask about surrounding area and the development coming up

Apart from the legalities of the project, you also need to inquire in detail about the surrounding area and what all development is coming up in future. Ask things like

  • Is some flyover planned?
  • Is some college coming up?
  • What kind of markets are nearby?
  • How far is bus stand?
  • How far is the main highway
  • From where will the water connection come?
  • What about electricity connection?

While you might not be able to verify a lot of things, but at least you can know about the basic amenities. Things like water is really a cause of concern

5. Say that you are seeing other nearby projects as well

Before you go to the project site, inquire about the other projects near by. At least, go to the websites of those projects and memorize the names, location etc. If possible inquire on phone about their rates.

Then, when you are talking to sales representative, share with him about all this. Let him know that you are an informed investor and if he has to win you as customer, you should be offered a good deal.

I can assure you, there is always a possibility of Rs 25-50 per square feet discount if you ask for it 3-4 times. Tell them that you had heard about the lower rate from one of your friends or tell them that someone else from their sales team had called them and shared about the lower rate few weeks back and that’s the reason you are inquiring. The sales person always has that much margin in his hands.

The big boss always tells them – “If you see that customer will go away, offer him up to Rs 25-75 discount per sqft, but only in worst case”. There is nothing wrong in asking, the worst case is that you will not get it.

6. Don’t be tempted with awesome deals and discounts, they are well designed

So the builder is giving you are modular kitchen included in the flat? WOW .. Who is paying for it? Definitely not you! . Come on! .

It’s all included in the price. Instead of 49.5 lacs, he is charging you 50 lacs and giving away the free modular kitchen worth Rs 50,000. What’s so great about it?

Some builders in premium segment also offer a car along with the house. Book a Villa and get a car. Sadly, that means “My project is not able to sell, here is my last trick on you by offering you a bait”

Trust me, If I were a builder who is selling a 4.5 crore villa, I can also come up with such offers. Increase the price and give the car along with it. At the end, its the customer who pays the price.

offers and discounts in given by builders

Understand that whatever you are getting is funded by your money only. No one in their right mind, will give any kind of discounts or offers because they have a big heart. It’s all money game. It’s just a way to emotionally exploit you and make sure you feel great about yourself. Just because its bundled offer, it looks very good.

7. Ask which all banks have approved the project

A good way to filter a good project from a bad project is to see if its approved by many lenders or not. If all major lenders have approved the project, its a sign that the basic level checks are done by lenders and you can now trust the project more. It does not mean that you should not do your homework further, but the primary level of investigation is done.

If a project is not approved by any lender or some not so famous lender has approved it (just a single one), there is a possibility that something is fishy.

Probably some approval is not taken care of, or may be the land is disputed. You should also ask them if they have a good crisil rating. Go and check the pdf on crisil website for that project.

I lot of small time builders offer their own EMI scheme like pay 20% now and rest in EMI for 5 yrs . This happens a lot in plots especially very far from city. I am not saying that they are bad always, but you should be a bit cautious with them on legality factor.

8. Don’t get over obsessed with the “upcoming infrastructure”

There will be lots of promises (real and fake) made to you. You will listen about the lots of development projects, the ring road passing from that area, the grand temple coming up, the new wide road which is planned and many such things. Some of them might happen in reality, but not always.

real estate promises

A lot of plots schemes are sold as “Proposed NA” status (which means soon it will be approved for residential purpose) and the agents will tell you that they have put an application to convert the land from agricultural to Residential which will take just 1-2 yrs.

But don’t believe them blindly. Converting a land status is a big task and in most of the cases, it might take 10-20 yrs time or it might never happen. A lot of investors are stuck with the plots paying huge money which they cant use. Don’t take decision in hurry.

Take your decision with caution

Real estate is a complicated investment and a lot of factors decide if you are making a right investment or a wrong one. As its one of your life biggest financial decisions, make sure you do not hurry and take your time. Everyone is there to make money out of you.

I would like to hear about your experience and what you have faced in life with different real estate agents and builders. Please share your unique learning which can help someone else. I would like to keep adding more and more experiences and tricks which you will share with me here in comments section.

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

Posted on by Jagoinvestor

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

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

Are you RiCH

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

How much Income makes you RICH ?

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

RICH in India - by Income

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

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

globalrichlist ranking for India

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

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

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

Are you RICH india by networth

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

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

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

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

How rich are you because of your networth

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

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

- Credit Suisse Report 2013

But feeling RICH is a state of mind

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

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

Most of the people are not happy with their current status

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

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

Guess what was the result?

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

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

income and happiness

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

You are doing well at absolute level

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

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

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

You are way ahead of majority. Congratulations for that.

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

16 incredible money saving tips for online shopping

Posted on by Jagoinvestor

I am sure you must have shopped online very recently. In last 5 yrs, the whole dynamics of shopping has changed, We have more online for most of the things ranging from electronics, clothes, groceries and even movies ticket booking :).

We are fascinated with the discounts and offers we get online. However I am sure even if you know a lot of tips of saving money online, still you might not be exploring its full potential.

tricks for saving money when online shopping in India

Hence, I am going to list down various points and how you can save more money. Detailed description of these points is after this table.

[su_table responsive=”yes” alternate=”no”]

Tip #1

Install Buyhatke extension

 Tip #2

Go a bit extra mile in search for Coupons
Tip #3

Get cashback with specific credit cards and debit cards

 Tip #4

Wait for the special days like Diwali and New year
Tip #5

Use Comparison Websites to find the best offer

 Tip #6

Set Price Alerts
Tip #7

Leave items in your cart and wait for few days

 Tip #8

Use wallet payment methods like paytm, mobikwik and payumoney
Tip #9

Use different emails for Shopping

 Tip #10

Get extra cashback using Cashkaro.com
Tip #11

Industries like airlines and hotels give huge discount to there old customers

 Tip #12

For used products you can get huge discounts on OLX, Quikr websites
Tip #13

Check prices on website pricebaba.com to know which brand is selling at discounted price or on MRP

 Tip #14

To get the best deals keep checking the offer section of all website before you shop
Tip #15

Register on websites where users post great deals & discounts from here and there

 Tip #16

Don’t get into the trap

[/su_table]

1. Install Buyhatke extension

There is this website called Buyhatke.com which offers a chrome extension, which shows you the other website where you can get the best deal while you are looking at some product.

You just need to install it in your chrome as extension. This way, you will be able to see the price offered by some other website.

Below you can clearly see, when I went to Snapdeal to find the price of its one of the LED tv, the price it showed me was Rs 17,568. However, the buyhatke extension at the top showed me that the same product is available for Rs 15,990 on Flipkart.

I didn’t had to go anywhere to compare the price. The extension automatically searches the best deal and show it to me. You can also compare the prices of the product by clicking on “Compare Prices” tab on the top right.

buyhatke extention online shopping

However note that the extension does not take into consideration all the coupons and cash back. So take the decision after factoring in all those points.

Another amazing feature of this extension is the historical PRICE changes which you can see on the same page a bit below the product description (automatically it comes when you use the extension). You will be able to see how the price has changed over previous few months. You can see the maximum and minimum and judge if the current price might fall further in coming days or it can do up.

buyhatke price history chart

2. Go a bit extra mile in search for Coupons

This is the most basic thing you need to do when you are buying online. Sellers know that coupons are a great way to excite customers and make a faster sale by making buyers feel that this is the best moment to buy. Given the huge competition in the e-commerce space, every other company wants to give you a great deal somehow. Either the web site from where you are buying something may show you the coupon or you can find it on coupon sites.

On an average, I have always found some of the other kind of coupon which reduces the price by at least 5-10% . Some websites can have a variety of coupons depending on various categories (20 category = 20 different type of coupons). Something like “Buy above Rs 1,999 and get 20% discount” applicable on furniture.

coupons online shopping

Then there are websites like Ebay, which have generic coupons like “Buy above 750 and get 7.5% discount”, These coupons are easily available on the majority of the coupon websites.

I know most of the people who buy online do search for coupons, but I don’t think a lot of them go an extra mile to search for the best coupon and settle with the first one which they get. If you are buying an item with a high price, it’s worth the effort to spend extra 5 min to search for the best coupon available. You can keep applying 3-4 coupons and see which is giving you the best deal.

3. Get cashback with specific credit cards and debit cards

At times, you can get a good cashback or discount on paying from a specific bank credit or debit card. Banks tie up with the website, so that maximum payments go through their channel. This can be for marketing purpose or just to increase the sales of a particular credit or debit card.

Like Amazon may be giving a 10% cashback when you purchase by an SBI debit card or Snapdeal providing an additional 5% cashback on HDFC debit card

debit card online shopping

 

4. Wait for the special days like Diwali and New year

There are extra discounts and offers during Diwali, New year and many other Indian festivals. If you can wait and postpone your shopping, its always recommended to wait for these days, especially Diwali. Its a known fact that people in India buy high ticket items because of the auspicious festival. You might get a much better deal and cash back offers given the cut-throat competition between e-commerce companies in India.

diwali shopping online

Also, there are events like GOSF (great Indian shopping festival) where you can get good deals (not always). Last year, I made the same mistake. I upgraded my TV in the month of Aug and didn’t wait for Diwali and saw the same TV selling at 15-20% extra discount. If you can wait a bit, it’s always better to plan your purchases, especially high ticket purchases.

Another great benefit of waiting for some weeks or month is that you may realize that you actually don’t really need the product and it was a decision in haste to buy the product.

5. Use Comparison Websites to find the best offer

There are various websites like Junglee.com, mysmartprice.com and shopmania.in (and many others) where you can compare the prices of a product on various websites at one single place. You can see their shipping cost, estimated delivery time and also the rating of the seller.

It’s one window from where you can choose the website you want to buy from. At times, there is some mismatch in the main price on the website and the one shown on the comparison website. Below is how it looks like..

compare prices online on junglee

Mysmartprice gives a comprehensive comparison with various details and also the facility to set the price alert at the website level. It also gives section for price history, specification etc in a single page. Here is the snapshot

mysmartprice compare prices online

Scandid and pricebaba are some other good comparison websites you might want to try.

6. Set Price Alerts

At times, you are not in a hurry to buy some product, but you never know when the price of a product was reduced to a level where you become highly interested in purchasing the product. So in that case, you can set a price alert for a particular product and when it touches that price limit, you will be informed about it over an email

For example, if you want to buy a product which costs Rs 5,000 at the moment, but you are very sure that its price will come down to Rs 4700 and that time you would buy it, then you can set the alert and you will be informed about it.

How to set up the price alert?

  • You can use cheapass.in to set the alert. Just paste the url or the product and your email and your price alert will be set up
  • The other way is to use this google docs tool created by Amit Agarwal. It will notify you on email on any drop in prices.
  • You can find the product you want to track on Junglee.com. You will see a “Set price Alert” link just near the product name.

7. Leave items in your cart and wait for few days

This trick might be working only with few websites and not all, but it’s still worth the try. You can first add all your items in the cart and then don’t check out. Just leave the items there in the cart. This is a big issue for e-commerce websites where the customers add the products to the cart, but at the final stage do not make payment and leave.

In technical term, this is called “shopping cart abandonment” and for most of the websites, its one of the biggest pain point, because a huge amount of sales is stuck there in the abandoned cart. As per the business insider report, globally out of every Rs 100 worth of products which is added to cart 71% is abandoned, means more than 2/3rd sales which can potentially happen, do not happen.

So, various companies in order to close that pending sale, will remind you about your cart and ask you to complete the sale. And some of them will often try to lure you with some extra discount with coupons etc. In the best case, you will be able to save a bit more and in the worst case, you won’t save anything extra.

Below is a sample email from pepperfry which was sent to some customer who didn’t complete the sale.

pepperfry email left cart

(image source)

Note that this trick will mostly work for new customers who have recently created their account, because companies are in the race to acquire new customers to show it to their VC on how they are growing. So do not expect this will well know and big websites where you are already buying from many months or years.

8. Use wallet payment methods like paytm, mobikwik and payumoney

On top of your regular discounts which comes from coupons, you can also get additional discounts if you use the e-wallets these days. If not discount, you will surely get some kind of cash back. The best example, I can provide is from bookmyshow website where you get the extra discount when you use movie tickets.

Pro TIP for Bookmyshow: If you want to book X tickets and each ticket cost is as high as Rs 200-250, book 1 ticket X times, that way you get maximum cashback :). Just that you need to make sure you be fast enough to book all tickets you need.

wallet discounts

9. Use different emails for Shopping

Almost all the companies offer some kind of discounts to new users. A lot of them offer coupons codes on email when you register for the first time. You can see this clearly on Foodpanda or Ola Cabs, where you get huge discount being a new user or get a FREE benefit for the first time.

A lot of companies are now offering the bigger discount if you order things using their mobile app, but you can’t use multiple phone number’s unlike emails, so that’s not easy enough. But if you have many people at home with smartphone’s, you can take this benefit too, for some limited time.

10. Get extra cashback using Cashkaro.com

On top of all the discounts you get, you can also get some cashback if you buy things from cashkaro.com links. Its a website where you have to create an account and then use their links to visit the actual website where you want to buy things.

This way, cashkaro website gets the commission from the seller and they share a part with you and it accumulates there. You can take the money in your bank account via NEFT once it crosses a limit. Below is a simple video which shows you how it works.

You can register on CashKaro using this link

 

5 more tips when buying online (tip number 11-15)

  • There are some industries like airlines and hotels which shows dynamic pricing to their old customers based on their history and location using your cookies. So if you use Incognito mode in the browser, they will not come to know that you are an old user and treat as a new customer.
  • At times, you might want to check websites like Olx and quikr because you can get the same product at a very heavy discount, but for a used product. In some cases, it might fit your requirement and you will save a good amount
  • You might want to try out websites like pricebaba.com which can find out a better deal for you from an offline store. so you can compare prices online and then inquire for prices offline. This would work out for those products, where you are not getting any kind of discount online and its selling near its MRP.
  • You can register on the website called Desidime.com, where real users post great deals and discounts they find here and there. You can also interact, ask questions to other users.

Last and more important tip – Don’t get into the trap (16th)

Now the last and the final point. All the tips which are mentioned above would be helpful and in your interest if you don’t lose control over yourself and be a responsible buying. Only buy things which you really need. These discounts and coupons are just extra benefits.

Don’t let these coupons and discounts become the carrot for you to buy things which you just don’t need. The sad reality is that, even though you feel that coupons are benefitting you, it’s actually helping sellers more.

These coupons and discounts are often funded and sourced by the sellers only to make sure they increase their revenue’s. Yes, in some cases, it will surely benefit the customer’s, but at a higher level these are mainly the marketing tricks of the seller and nothing more than that.

Let me take an example of Foodpanda, If you had to order food from outside, then foodpanda coupons are the added discount you get. But a lot of people are now using foodpanda on those days, when they didn’t had to order from outside, but just used it because there was a discount. Can you see how these deals manipulate your behavior and your way of spending?

Don’t browse for fun

Doing time pass on e-commerce websites is not good for your wallet :). The basic principle of economics is that “Supply creates its own demand” and with the mobile apps retailers are trying to create an ecosystem where you can purchase on just one click. With discounts, they are creating an environment of instant gratification and by giving money back guarantee and replacement guarantee, they are removing the fear for online shopping.

But the at end due to all these factors, people are buying things which they just don’t need at all and creating the big pile of junk at their home. So just make sure you do not browse for fun, because you will surely come up with some reason on why you need that product you just saw.

Let me know what do you think about this article? Also share some more tips which you personally use and you think can be shared with others as well 🙂

4 early life mistakes which investors should avoid at any cost

Posted on by Jagoinvestor

We see most of the investors having a complex and bad financial life mainly because they have done a lot of mistakes when they started their financial life, which I think should be minimized by learning from other investors mistakes.

So we are listing down 4 common mistakes which most of the new investors make when they start their financial life.

personal finance mistakes of new employee

Mistake #1 – Buying products only for “saving tax”

I have experienced the power of “tax-saving” season in an investor’s financial life. When I was into my first job, the cafeteria and the reception area was filled with my employee’s sitting with some agent or advisor with various kind of forms all over the table.

The tax season was on and all the people were busy “arranging for the investment proof” and not investing their money. Especially the new employee’s who had no idea about anything and they followed the herd to save tax.

Below is the google trend showing you, how most the people starting thinking about the “tax saving” only in the month of Jan/Feb/Mar when they got emails from their employers. The search trend clearly shows that.

tax saving search trend india

Only after many years, people realize that they have not done great justice to their money and invested mainly for instant gratification of saving tax. If you are a new investor, I suggest do not get carried away and only think about saving tax.

I know tax saving is important and one has to do it, but do it meaningfully.

Explore what all options you have and which one them will align well with your long-term goals and then invest in those products.

Mistake #2 – Waiting for the “right time” to invest

When we work with our clients, we observe that one of the biggest regrets, they have is that they didn’t start their investments early in life and lost the valuable time. A person in India spends close to 20 yrs in school/college and most of the students have seen a lot of struggle around money, because of which all their early life, they suppress their desires. They never freely spend money on anything and keep waiting for that D-day when they will have no restrictions around money. The first salary is nothing less than a big jackpot.

right time never comes when one can start investing but to invest right time is created

The first few months when they see a lot of money in their account, is the time of celebration and fulfilling all their wishes they had from years. There is nothing wrong about splurging, spending and enjoying it all. But some people extend it over many years and over-do it. When it comes to investing their money, they say that they dont save enough after their expenses and once their salary increase, they will invest then.

In short, they keep waiting for the “right time” and it never arrives. Because the nature of money is such that, the more you earn, the more you will spend and your lifestyle will keep changing its shape to fit in your salary.

1 out of 3 investors wait for 5 yrs before making first investments

I ran a survey on this topic, which was taken by 208 investors and as much as 37% of investors said that they made their first investments after 5 yrs of their career. Think about this , around 1/3rd investors wait for 5 yrs before they make their first investment. Thats quite high. If you see the same survey results below, almost 8% investors didn’t invest anything for first 10 yrs of their earning life.

investment late tenure

This makes them loose valuable time, and for many years they do not accumulate any wealth and get into the mode of living on paycheck to paycheck. Even if they had started a recurring deposit of Rs 2,000 per month, even that would be a great thing, because they are atleast getting into that habit of saving some money regularly and later its just about increasing it.

So if you have just joined your first job, I would suggest start a recurring deposit RIGHT NOW, not for a big amount, but just Rs 500 atleast.

Mistake #3 – Getting high on debt, early in life

Debt is not a problem in itself, if you handle it carefully and responsibly. I do not come from a class of people, who suggest that one should not take loans or avoid debt 100%, because thats not possible for a majority of people and its not practical in today’s times.

However, rore and more people are embracing the EMI culture and we are turning into an EMI nation. Everything is available on EMI ranging from gym memberships to Mobile Phones, from vacations to jeans to even flight tickets. Because of EMI, one can afford anything and everything.

So most and more people are buying not so important things TODAY, for which they have to pay in FUTURE.

Are you getting my point?

This is a perfect recipe to get into the never ending debt cycle. There are many investors for whom EMI payments is going on for years and years. For many years, they have never consumed 100% of their monthly salary themselves.

Below is a bit old study by Indicus Analytics on how leveraged are urban Indians, and you will be surprised to know that around 61% of residents in Bangalore have some or the other kind of debt. For Mumbai its 50% . Below is a snapshot of their finding’s.

debt trend indian cities

So if you are young, try to see that you control your desires beyond a point else you will get into huge trouble later in life. Use the credit card and personal loans only and only if you really need it and you have no other options of borrowing and even then pay back the money as soon as possible.

Mistake #4 – Over relying on relatives, friends and parents for your financial decisions

Parents, friends and relatives can bring in a lot of experience and life lessons for us. But a lot of youngsters instead of learning about money, prefer to hand over their overall financial life to their parents. Parents have seen more life then their kids, but then times have changed a lot compared to last 1-2 decades and the many rules don’t apply today.

Also their way of thinking about risk, opportunities, returns etc might differ from you. Hence its not always a good idea to over-rely on parents advice. Mr Anand shares his view about this point in one of my old article

The times have changed so we have to change with the times. In most of the families, it is the ego of the parents which is finally ending with the suffering for the children. Parents feel that the children are incapable of handling money or they may get spoilt if the money is in their name. Also in some families it has become a question of pride saying – My children are so obedient that they are handling over their income to us.

The so called elderly, experienced people do not want to learn the new things and change and their beliefs are passed on to their children also. If we look around many Government employees, we can easily make out this. They are afraid to tell the children about the investments.

Relatives and friends role in your financial life

Also a lot of investors are influenced by their relatives and friends advice. A lot of them turn out to be life insurance agents who want to take advantage of the relation to meet their business targets. Out of 100 people I have come across, 95 people surely have an LIC policy sold by their relative, relative friend, friends relative, parents friend, or someone close.

As per our survey, 1 out of every 4 investors financial life is messed up because of their relatives and friends who sold them some financial product or advice on something and they could not deny them.

relatives role personal finance

We recently found that one of our client who recently joined job is paying close to 40% of his yearly salary in 6 life insurance policies. When we enquired more, we found that it were taken by his father for him 3 yrs back, and now as he has started earning, his father has passed the premium paying responsibility to him. The policies were sold by his father’s sister son’ who was behind his yearly targets

I would suggest learning things in the start of your career and not over relying on advice of your friends/ relatives and even parents. You could do many things like read personal finance books, attend workshops on money (we have next workshop in Bangalore on 2nd Aug, 2015) or just surf internet and ready various things.

How should an investor start his financial life at the start of his/her career ?

When a person joins a job, its a special moment in his life and a very crucial point. Taking good care at this point will be helpful for his whole life and many years worth of mistakes will not happen which happens with millions of people. Hence below is a very crisp checklist of what a new investor can start with.

  • See how much term plan you need and take it
  • See that you buy a good health insurance policy
  • See that you have started a recurring deposit or SIP in mutual funds for a minimum amount you are sure will not stop for next 5 yrs
  • Keep 2 months worth of expenses on the side in a saving account which you generally do not touch
  • Make sure you are meaningfully saving your taxes
  • Hire a good CA or Financial advisor if you feel you need handholding

Wish you best of luck for your financial life. Would like to hear your views on this topic