Author: Jagoinvestor

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Why you should take more than 50 lacs of term insurance

Posted on by Jagoinvestor

Are you planning to buy a term insurance for less than 50 lacs of sum assured? I would suggest better take it for more than 50 lacs sum assured and there are two main reasons for it- which I will share with you in a moment. A lot of people who want to split their life insurance cover into 2 policies, split it in such a way that the sum assured of both the companies are below 50 lacs.

For example– If you want to take a cover of 80 lacs, you might want to take 40 lacs from first company and another 40 lacs from some private company, or any similar combination. But did you know that the premium you would be paying can get you much more sum assured than you had imagined. It might be the case that you can take 60 lacs life cover from each company you were planning and still pay the same premium. So now lets see in detail those 2 reasons why you should be taking a sum assured of more than 50 lacs from a particular company term insurance plan.

Reason 1: Discounted Premiums For 50+ lacs Sum Assured

Have you ever noticed how the premiums for online term plan keeps on increasing till you move upto 50 lacs, but the moment you reach 50 lacs and move beyond, the premium suddenly reduces? Now you must be thinking, what logic on this earth makes premium for 60 lacs policy lesser than the premium for 40 lacs? See an example for recently launched Bharti AXA eProtect online Term insurance plan. The premium changes when you change the sum assured from 40 lacs to 60 lacs for 30 yr old make with 30 yrs tenure.

Term Insurance premium for more than 50 lacs

Why the premium reduces when the sum assured increases beyond 50 lacs? Sourav Shah of Aegon Religare helps us to understand this –

At higher insurance rates, the medical tests are compulsory for most companies. Mostly this limit is over 49.99 lakhs. So as such when a customer goes for medicals, the company is sure that they are insuring a better quality of life with a higher life expectancy. As such the risk with insured population of customers undergoing medicals and being issued a policy, is much lower than with customers who opt for lower sum assured and are not required to undergo medicals.

It’s a risk-reward mechanism. The company offers an incentive to the customers to undergo medicals by offering lower charges for higher cover. Only people who do not have enough time to go for medicals opt for life cover of lower amounts where premiums are higher. But this doesn’t mean that customers who do not undergo medicals and pay higher premiums should worry at all. Once they have declared all details correctly to the insurance company and are issued a policy, they are as secured as those customers who have undergone medicals. Also the medical costs are borne by most companies. For instance AEGON Religare bears the cost of medicals for all customers.

So from this statement what I can understand is that if you take the policy for more than 50 lacs, the company makes you go through medicals (mostly all of them) and that way they can sure at the start itself, if they want to issue a policy to you or not. In case you go for lower sum assured, then they charge higher premium because they dont make medicals compulsory! . So this reason for lower premium for more than 50 lacs should be the first reason why you should opt for more than 50 lacs cover. As you can see from the snapshot above, premiums for 40 lacs and 60 lacs are almost same, so why settle for 40 lacs ?

Reason 2: Medicals are compulsory for Term Insurance of more than 50 lacs

It’s mentioned that even those people who do not go for medicals, don’t have to worry about their claims if they are not around, because they are generally paying more premiums, for the reason they don’t have more than 50 lacs of cover. However, personally I think it’s a grey area despite all the regulations. Let’s take a case, suppose you are suffering from high BP, but you are not aware about it and then you take a term plan for 30 lacs where in there are no medicals and in the declaration you mention that you don’t have any illness, because basically you are not aware about your own illness. Now in this case, what difference does it make if you are really aware about it yourself or you are not aware about it. Later on after 5 yrs suppose if you die, then company can prove the point that you had high BP at the time of taking the policy, but how will they prove that you were aware about it or not.

You all know that ICICI iCare has no medicals in their term plan upto sum assured of Rs. 1.5 crores and that’s the reason why their premiums are higher than other companies term plans because they factor in this point that there would be many people with illnesses. Some might be aware about it and some might be not. But today if you have the option of clearing things in black and white and have your medicals done, then its better that you do it, so that tomorrow there is no chance of any confusion and repenting (oh .. you will not be around even).  Even Sourav Shah of Aegon Religare thinks alike .. here is what he says about this “no medicals” term plans.

Yes, you are right. A term plan without medicals will obviously factor in the cost and be planned accordingly. But it dosent mean that there should be problems at the time of a claim. If the customer at the time of taking the policy declares all facts correctly then there shouldn’t be a problem. But as a personal view Yes, I would definitely recommend that a customer goes for medicals and then applies for a term plan as this leaves no room for ambiguity or any doubt that the customer was absolutely healthy when he undertook the plan. But then this is strictly my personal view.

So were you planning to split your term plan and take two term insurance plans for less than 50 lacs? Better take plans for more than 50 lacs each and mostly it will not affect the premiums. What do you think about these 2 points which I have mentioned? Do you agree about these points about term insurance !

Did you start your Health SIP ?

Posted on by Jagoinvestor

I begin each day of my life with a ritual of receiving one sms around 5:30 am from my fitness coach Sanjay. The sms reads “I am coming at 6:00 am so get ready” I take a look at the sms and reply “yes”. Initially, I thought that my ritual is to exercise every day, but my real ritual is saying Yes to my coach because, the moment I say YES to him my laziness goes away, my reasons/excuses disappear and I look up to the ceiling of my room and say to myself “Get ready Nandish it’s time to invest in your fitness.” This ritual has had transformative effect on me. I know it is absolutely no fun to wake up in the dark and push ourselves to go for a tiresome run or to hit the gym. But if you really want to cherish your wealth in later years of your life start forming healthy habit of exercising. One of the best website you can explore to get yourself educated on various exercises and diet is http://exrx.net/.

Health SIP

We have a rule if you do not exercise you can’t become our coaching client no mater how much money you have. It is because health is your true wealth. Let me share what we ask to our coaching clients

One of the Questions that we have asked all the people who have worked with us is

Is your well-being on your priority E.g. Do you Exercise/Go for a walk or play any sports? (If the answer is no this will be the first thing we will ask you to start, this will allow you to enjoy the wealth that you are going to generate in life)

Here are some Real Life answers from real people that I have received; I am sharing this so that you can learn from other people’s sharing

  • Yes, I am health conscious and selfish when it comes to health
  • I don’t exercise regularly
  • I used to. I will be resuming soon
  • Yes, for the past 7-8 months I have been going to gym regularly and have a very balanced diet.
  • To somewhat no. I try to maintain a healthy life-style, but fail occasionally.
  • Yes. I am too occupied to start with any of the activities. I am currently working on this.
  • Yes. My wife is an athlete and she pushes/motivates me to stay healthy. I walk every evening and try to maintain weight. I very strictly believe that Health is wealth. There is no use of money at all if I cannot stay healthy. E.g. – Yuvraj Singh – what will be the use of so much money if cannot be cured.
  • Yes. I go to Yoga in my office, daily. I have started this since last 8 months and doing it regularly<90% attendance>.
  • Sporadic exercise. Swim and play badminton regularly.
  • This is exactly what I don’t do at all. All I need to do is start ASAP.
  • Yes. I used to walk daily till 2 months back. Due to back pain and monsoons now it’s held up for two months.
  • I keep doing exercises on and off. More than 3 months back I have taken up Karate. I do that twice in a week, and I am quite sure that I am not going to quit that
  • I hardly do the above, but I will try to make it as a habit very soon.
  • No. My physical activities have reduced
  • Yes, I believe it is. I have started to go on a diet plan and been on it for a couple of weeks now. I have also started to go to fitness centre (tread mill and weights) for a week now. I hope and believe I can continue this.
  • I thoroughly enjoy sports. I play tennis and walk quite a bit. I also do yoga fairly regularly.JMy biggest priority is stay healthy and fit – a fitness freak, if you will. (I wish I had the same drive for money, ever since started earning!

Here is what one of our clients wrote me – “I have reduced my weight by 12 kgs in 6+ months and my BMI is close to ideal though still a bit above. Feel so much more energetic. How is your health investment doing?”

Some Need Shock Therapy

In one of the readers meet held at pune one of our client shared his life changing experience with the group .Once he had to participate in check-up camp organized in his company. He got his tests done and the doctor gave him a very serious look and told him to move to a separate room and relax there for some time. Doctor came after some time and said everything is going to be fine, with this his tension was at its peak. Our client got restless and asked the doctor “what’s the matter?” and doctor said “Diabetes” Our client’s world got shattered in that moment, his heart sank and his throat got dry.

Doctor saw all this and then said, “You are not having diabetes my friend but you are close to having diabetes and so it was necessary for us to give you some shock Therapy.” Our client bought new shoes the same day and was all geared up to take charge of his health. The next day, even with heavy rains, he was jogging in the park…. Do not wait for important things to get urgent, act today, take the learning’s from this experience.

Here is something that I received from my father a few days back

The Dalai Lama, when asked what surprised him most about humanity, answered, “Man. Because he sacrifices his health to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then he dies having never really lived!”

Start your Fitness SIP

Sharing from my personal life, I avoided doing physical exercise for years. My reasons were bigger than my commitment. I broke my reasons 2 yrs back, I hired a Fitness Coach who comes to my home and makes me do a lot of work-out. The fee that I am paying him for his services, I consider it as my HEALTH-SIP. I am familiar with all the exercises and capable to do them on my own but those 5 extra counts that he makes me do is only possible with him. I take this opportunity to thank my coach Sanjay, his commitment is amazing.

Some people…

  • Take better care of their pet than what they do themselves
  • Take better care of their gadgets than what they do themselves
  • Take better care of their car than what they do themselves

Focus more on your health than buying health insurance

When I coach people I see that people are more committed to buy the right health cover and more laid back on focusing on their health! Your body is the only thing which is going to stay with you for the rest of your life. See that you take care of yourself because it is said that your body is the only place you are going to live in for the rest of your life. Connect with your true wealth first, we have heard this since childhood health is wealth but most of us forget this when we grow –up. Getting health cover is important but do not deviate focus from your health, make a commitment you will live your life in such a way so that you do not have to use your health insurance ever. (Unless it is an accident or some other major health issue)

Health Insurance for parents

We interact with many people who want to buy health cover for their senior citizen parents. It really becomes very difficult in getting health cover after certain age and even if you get cover it comes with high premium. More than health cover start giving time to your parents, put 2-3 lacs aside (you can put even more if you have) for them and you can have your own health cover designed for your parents. All they want is your time, your attention and unconditional love. Encourage your parents in doing light exercises or light yoga . One very powerful meditation is conducted by organization called vipassana Meditation, they have world wide centers http://www.dhamma.org/ . My parents have done the same and I think it is the greatest gift we can give to our parents. Enroll your parents for naturotherapy, see that they have proper intake of fruits and dry fruits. See that your parents are not feeling lonely and they are around their friends. Take steps that make them happy this is far far better than saying I am a responsible son I have bought health cover for my parents.

Conclusion

As people are turning towards term plans a lot of people also turning towards joining gyms, going for a brisk walk, hiring a fitness coach, taking advantage of fitness facilities provided by companies. This is your true wealth. I always tell people that at the age of 55 or 60 you might have a lot of money but what if your body is not aligned to cherish that money? Stay healthy, stay committed and stay FIT. Do share what message you got from this post, if you are one of those who are not exercising simply start from this moment. After you complete reading this article do 5 push-ups, climb a stair, just do something in this moment, take small steps, engage in activities that you enjoy doing and change your relationship with health and fitness.

This article is written by Nandish Desai 

This week action ?

  • Do you exercise? Yes or No
  • Hire a coach or join a gym in this week?
  • What one action you can take to bring more life in your parent’s health?

13 important points from Budget 2012

Posted on by Jagoinvestor

Budget 2012 was out yesterday and within minutes, it was clear that almost all the people were disappointed, but then Sachin’s century made sure that every one was back in mood and were able to sleep happily by the end of the day. I looked at various articles on budget which were flooding every minute. I didn’t hurry to post this article, because I wanted the dust to settle down and then come up with only those major points which you can consume, understand and which really matters to you. So I read this budget memorandum for some points which had confusion and came up with 13 points which really concerns most of you.

Union Budget 2012

The budget did not live upto the expectations of many people because rising inflation had created an expectation among people that this time they will get some major relief from taxation and were expecting exemptions upto 3 lacs income and big raise in 80C limit. But Congress made sure that they lose and waste this last change which they had to give people a small reason to like them. What a waste of this golden opportunity they had. Anyways, lets keep aside things and get to the top most points I extracted for you from the budget 2012.

1. Change in Tax Slabs

The minimum taxable income on which tax has to be paid was increased from 1.8 lacs to 2 lacs, so the new slab is as follows – Nil tax between 0-2 lacs income, 10% tax between 2-5 lacs, 20% tax between 5-10 lacs and 30% tax above 10 lacs income. The taxable limit for men and women is same, which is 2 lacs, but the limit for senior citizens (above 60 yrs) is 2.5 lacs and for very senior citizen (above 80 yrs) is 5 lacs. No change in that. This means that most of the people will save additional Rs 2,000 on tax outgo , thats all . Not a big deal ! .

2. DTC not coming this year, hence ELSS gets one more year

DTC (Direct tax code) will not be implemented this year, which was very obvious – thanks to Anna Hazare, Food security bill and other issues which made sure govt has no time for DTC . What this means is that Tax Saving Mutual funds (ELSS) are still a tax saving option for 2012-2013 and you can invest in them and claim tax benefit next year also.

3. EPF (Provided Fund) Interest cut from 9.5% to 8.25%  

EPF interest rate cut was not part of this Budget 2012, but it happened just one day before Budget, and as this is an important update, you better know that EPF interest rate is reduced from 9.5% to 8.25% now and it will be applicable from next year. Last year itself the EPF interest rate was increased to 9.5% .  This is a very steep cut and really wont make any salaried person happy. Not sure what is the reason to keep it below PPF interest rates. Anyways – you cant do anything about it – Bite the bullet ! .

4. Income tax exemption for health check-ups upto Rs 5,000 under section 80D

A new kind of deduction called “preventive health checkup” is included under section 80D . Till now you were able to claim Rs 15,000 for the medical insurance premium paid for self, spouse and dependent children, but now you can also include health checkup cost upto Rs 5,000. But note that this is included in Rs 15,000 limit and not additional one. You can make cash payments for these checkup’s.

5. Tax exemption for Direct Equity Investments if income is less than 10 lacs

Just like the above point a new tax deduction is introduced for direct equity investments, Its called as “Rajiv Gandhi Equity Saving Scheme” – under which a new equity investor will be able to claim 50% of his investments in direct equity upto the maximum investment limit of 50,000. This investment would be subject to 3 yrs lock in period (just like ELSS) . However this will be available to only those whose taxable income is below 10 lacs. There are 3 questions which I am not clear about and I want to know. a) Is it only for direct stocks or even equity mutual funds ? b) Is it only for those who will invest for the first time in equity because the rule mentions “new retail investor” . c) How will they make sure that a person does not sell his shares before 3 yrs, will this limit be from demat provider ? Will get more clarity on this in coming days ! . Read more on Rajiv Gandhi Equity Saving Scheme from Subra ! 

6. Tax exemptions on Saving bank interest upto Rs 10,000 

Till now all the interest income earned from your saving bank was taxable. However now saving bank interest income upto Rs 10,000 will not be taxed. Not that it is applicable for Saving bank account, Post Office Saving account and all co-operative bank accounts. But I doubt how many people will really be able to take full benefit of it, because to earn 10,000 interest in saving bank, you need to keep anywhere close to 2 lacs or 2.5 lacs, which does not happen with most of the people. A lot of people anyways never paid any tax on the interest from saving bank and might be fearful if some one catches them, now law itself asks them now to pay upto 10,000 , I can see some witty smiling faces 🙂 . Also dont confuse this with interest earned on your Fixed Deposit, that is still taxable!

7. Life Insurance deduction available only if premiums are below 10% of Sum Assured

This is a little hidden clause and not highlighted by media, but as per the budget 2012, any life insurance policy issued on or after 1st Apr 2012, will be eligible for “tax exemption each year [80C] and “no tax on maturity [section 10(10D) ]” only if the yearly premium in all the years are below 10% of Sum Assured. Currently this percentage is 20%. So for example if you buy a life insurance policy with premium of Rs 20,000 for a Sum Assured of Rs 1,00,000, then it will not qualify for tax exemptions because here premium is 20% of sum assured. However existing policy holders dont have to worry about this, their policies wont be affected.

8. Securities Transaction Tax (STT) reduced from 0.125% to 0.1% 

Whenever an equity transaction is done, STT transaction tax is applicable and you have to pay it. It was 1.25% earliar, but now its reduced to 1%. So it means you will have to pay less for your equity transactions. Good for those who buy/sell stocks/mutual funds frequently or in big quantities.

9. Service Tax increased from 10% to 12% 

This move should worry you, because with increase in service tax, your bills for telephone, internet, hotel stay, eating out at restaurants, flying by air and several other kind of services will cost a little more, because we all pay service tax on all these things. So as service tax is increased from 10% to 12%, we will pay 2% more on the bill amount. This will add up to a good enough amount in whole year even though it does not bite you in small installments. Surprise! – Be ready to pay more for your Life Insurance and Health insurance premiums also, because we pay service tax on the premiums too. As per a rough estimate for most of the urban class people like you and me, the additional service tax we will pay due to this will cancel out that Rs 2,000 additional tax saving which happened due to increase in tax limit.

10. TDS @1% at the time of real estate sale above 50 lacs

A lot of people will cry hearing this one and will not appreciate this move by govt, but it’s for good. As per this budget 2012, now whenever you sell your residential flat/house/plot (any kind of real estate) and the selling price is more than 50 lacs, you will have to compulsorily pay TDS @1% . This is actually a big problem, because it might happen that even though the sale value is above 50 lacs, but after indexation and your decision to use the funds in next house purchase, your overall tax out of the transaction might be Zero, but still you will have to pay 1% TDS. So in worst case you will have to claim that tax amount back by filing a return. Note that property registration will not be permitted without proof of deduction and payment of this TDS , so you cant escape it, incase you thought you thought you will escape somehow. All the registration offices across the country will be following this one.

11. Increase in Excise Duty from 10% to 12% 

Excise duty is the tax paid by manufacturers on production of any kind of goods. So now that is increased from 10% to 12%. So it means that manufacturers pay more tax and recover that same additional burden from consumers, which in turn means that a lot of goods will get costlier, it would include daily use items and what we consume in day-to-day life. Anyways – you never realise this as consumer 🙂 because instead of increasing the price, they reduce the weight of the product, I hope you know that the Maggi packs which used to be 100 gms , are now 90 gm from many years and still costs Rs 10 and you were so happy all these days! .

12. For Medical Insurance – Senior citizen age reduced from 65 yrs to 60 yrs

In the last budget the age for senior citizen was reduced from 65 yrs to 60 yrs, but it was not applicable for sec 80D and 80DDB.  Till now people above 65 yrs old were considered as senior citizens in case of medical insurance deduction, but in this budget, that rule is amended and anyone above 60 yrs will be considered as senior citizen. Infact now for all the taxation purposes, senior citizen age is above 60 yrs. In case of Sec 80DDB , the deduction up to Rs. 40,000/- for the medical treatment of a specified disease or ailment is allowed.

13. Tax Benefit on Infrastructure bonds removed

2 yrs back Tax Saving Infrastructure bonds were introduced and apart from 80C (1,00,000), additional 20,000 was eligible for tax exemption. However this year this benefit is not extended and now there is no tax exemption on Infrastructure bonds. However companies are allowed to issue 60,000 crore worth of bonds compared to 30,000 crore worth bond last year. However I doubt if the excitement this time will be very high as it was last year. (source)

Some Other Changes in Budget 2012

  • No Advance Tax for Senior Citizens if no income under head “Income from Business” .
  • The amount of goods you can bring from outside India increased to Rs. 35,000 from the earlier Rs. 25,000 .
  • Tax filing compulsory for any resident who holds a property outside India even if the taxable income in India is below the limit.
  • Under Section 80G, any donation made above 10,000 has to be done by any mode other than cash. Till now you could donate through cash by cash, but now that limit is there.

How do you rate this budget 2012 and are you happy with it ? What as per you was that one thing which budget should have this year ?

Loan Settlement hurts Cibil Report & Score !

Posted on by Jagoinvestor

Did you do any loan settlement in past ? That will surely affect your CIBIL report and score ! . Before we look at that, look at this data – Over 88% of new home loan borrowers in 2011 had a CIBIL score of 750 and above. Do you have a score of 750+ or not ?

So now by default if your CIBIL Score is less than 750, you stand a very low chance of getting any kind of loan to be approved. Most probably your loan application will be rejected. However, today we are going to talk about “Loan Settlement” aspect of any Loan. Lets see more!

CIBIL has really made life worse for a lot of people. A lot of people have misused their credit cards or other kind of loans , on top of it outstanding loans piled up so much over time, that they could not pay it off completely. Banks suddenly told them- “Hey, Don’t worry if you can’t pay off your Rs 3 lac outstanding loan, just go for loan settlement and all you need to pay Rs 60,000. We will send you loan settlement letter or NOC letter after that”. Are you one of those who went for Loan settlement months or years back ?

Loan settlement impacts your credit report negatively

Settlement of Loan is not a solution

A lot of people feel that Settlement of their loan outstanding in case they cant pay it off is a permanent solution to their worries? However, for one and the last time, understand that SETTLEMENT of Loan is just a temporary solution. It’s just a short cut way to get rid of constant reminders from banks and credit recovery agents. Banks do this because they know you are a waste and mostly you will never be able to pay back your 100% dues, so they settle for whatever you can pay! . Atleast they will get something back from you.

This settlement of loan will NOT clear your name in CIBIL report. In fact its a negative sign. It shows that you took loan, happily used it, ballooned it with late charges/interest by not paying on time and finally bank in frustration said – “Fine… Let’s take whatever we can get out of this guy, if we don’t get some part right now, we will not get even a penny later”.

Mak was worried why his name is appearing on CIBIL report as “settled” and his loan application was rejected.

I want to remove my name from Cibil report, I Used to have 2 CC, from HDFC & another from citi bank, I do had personal loan from citi finance, which I settled long 2yrs back for which I have settlement letter as well. Recently when I applied for a Bajaj finance loan for home electronic, It got declined, reason given to me was as my name reflected as a defaulter of Cibil. Please advice me to clear of my name from Cibil.

What Mak has to understand is that Loan settlement is a negative thing, and banks will report this incident to CIBIL and mind you, your status will be marked as “Settled” for next 7 yrs. So forget about getting any kind of loan from any bank for next 7 yrs at least. Once 7 years passes, then the SETTLED status will be removed , however your credit score by that time will be so low , that you will not get any loan even after that point, unless you work on improving your credit score. Now if your score is low at that point, it will again be very difficult for you to get any kind of loan (because of low score). So ultimately, the final conclusion here is that once you settle your loan, it becomes very very negative thing for you and your future and over the years it will not let you get any kind of loan unless you pay off each and every paisa of your loan.

Loan Settlement is Tempting

Loan Settlement gives you instant gratification. It’s something you really want to go for? Obviously, it gives an impression that all your worries will be taken off by the bank, its shown to people as an “opportunity” by banks. And most of the people fall for it. Swetha is one of those people who is confused about the Settlement of her loan

I have a personal loan and i have defaulted , my loan completes in the month of april the collection guys asked me to settle the loan for half the price of the remaining loan amount which is rs 44000 and he said the NOC will be mailed to within 15-20 days and also can i get a loan again . Please guide should i go for the settlement or payoff the whole amount.

No doubt, once you settle the loan and pay the settlement amount, the banks will not bother you anymore by calling and asking you to pay. They will also send you an NOC that this guy has settled his loan of X amount by paying Y amount (Y<X). But please don’t be mistaken that bank will forget you and is so generous that it will show any mercy on you. Bank will make sure your life is hell after that point. You will not get any kind of loan from that bank plus, they will send this information to CIBIL that this guy was not capable of paying off his full amount and hence we showed mercy on him by settling his loan. Please mark him/her as “SETTLED”.

Unless you pay off each and every penny/paisa of your original loan outstanding, your CIBIL report will show status “Settled” and it’s a very bad sign. Finally let me tell you what CIBIL website has to say about “Written Off” or “Settled” status in CIBIL report.

Given that a CIBIL credit report helps a loan provider ascertain your ability to pay additional debt based on your past performance, a ‘’written off’ or ‘’settled’’ account implies that you have not been able to pay your past dues. Hence, Loan providers may view accounts that are reported as ”written off” or “settled” negatively and this may affect your chances of a future loan approvals. – from cibil website

Conclusion

If you have done any kind of loan settlement in past, first check your credit report and see what is your score. If its low (lower than 750) , you will seriously face getting any kind of loan in future, So the only solution is to pay off the loan outstanding. Talk to your bank and pay it off. This will still not improve your score immediately, over next 1-2 yrs , make sure you pay your existing loan/credit card on time and dont misuse your credit capability. Your score will improve over time. Can you share your Loan settlement Story with us ?

Under Construction vs Ready to Move Property – Which is better ?

Posted on by Jagoinvestor

There is absolutely no confusion in saying that everyone wants to buy a house, a dream home which they can call their own. However, one big confusion among buyers is whether to buy an Under-Construction Property or a Ready to move in Property. Each of these options has its own pros and cons and it is extremely important to be aware about the advantages and disadvantages of Under construction and Ready to move property. Lets look at them:

Under Construction vs Ready to move in properties

Negative Points of Under Construction Property

1. Delay in project & Dispute of the Land & Permissions

If you know of any project which was delivered on the exact day that it was promised, its rare! Delay in the project for various reasons is one of the top most issue with under construction properties. On an average 2 years is the deadline given by the builders, but it gets delayed and further delayed most of the times. 2 yrs can turn out to be 4 or 5 yrs of wait in a lot of cases and this adds to the frustration of buyers.

This delay is caused mainly because of the dispute on the land, cash crunch and most of the times incomplete permissions from authorities. Builders start the construction after obtaining most of the required and most important permissions, but at times there might be few permissions which are still going on, but builders start the construction. So it becomes very important thing for a buyer to check all the required permissions and the ownership details of the lands. This is very true for small builders especially.

One important point to note is that even though the house is delayed by just 1-2 yrs and finally comes in your hand, but in a lot of cases promised amenities are given after a long period and some people are still waiting for that swimming pool which was promised in 2001 .

2. You don’t get what you see

The biggest issue, I repeat – the biggest issue of under construction properties is that you never get what you are promised or have seen as sample flat . Sample flats are built-in a way and decorated in a manner that your heart will met down and you will sell your self to grab that opportunity, and over years you will build so much expectations from your under construction house. But when you really get the possession, you will realise that a lot of things are not up to the mark and not as per the promise done. Sometimes layouts are changed & you may not like the new one.

Another issue is over promise in many things. For example – Some builders give false promises that Municipal Corporation Water Supply will be made available in the society after 3-6 months of completion of construction of society, but some builders never fulfill this problem once all the flats in the Society are sold. The builder’s objective of selling the flats is fulfilled and then he is not interested in the problems that people face. A lot of times oral promises are done on many things like cost of parking, extra facilities like swimming pool, gym etc and then they are not fulfilled. And at the end, you are in a situation where you can’t do anything. Either take it or fight a case against the builder and many hassles that come along. Hence please never agree to any oral agreements under any circumstances – Always insist on written agreements with clear delivery milestones etc. One bad experience from T. Ashok is like this

The builder did not construct shelfs and almirahs as promised. He left the house only with walls and lafts. So, I had spent more than 2 lacks for wooden works in kitchen and two bed rooms. Really that was a big burden for me apart from loan amount. So, here after anybody buying house, must ask the builder to mention all in agreements like painting, shelfs, windows, doors,etc., otherwise they may suffer like me.

3. Quality of work may be compromised

Another issue is the quality of work that gets done. The quality of the construction material used, Doors and windows fillings can be compromised with, electrical sockets and switches can be of cheap quality, plumbing can go horribly wrong and even the facilities like parking space, children playing area and other amenities might be below the mark or what you expected and when you complain about all this, there will be all sort of explanations like losses in other schemes, cash flow issues and the cost increase by builders and a new series of promises that it will be done soon. For an example watch this video experience for bad quality of construction and unkept promise by Unitech

4. Income tax claim is headache unless you get the possession certificate

I hope you knew that you can avail for tax benefits only after you get the possession of the house. Saving tax on the EMI’s is one of the big reason why many people plan their house buying, only to realise later that they never thought about this aspect. So if you are going to buy under construction property , be ready to pay rent + EMI and not getting any tax benefit unless you get the possession certificate, and incase the construction gets delayed by few months to 1-2 years, it will be frustrating.

Positive Points of Under Construction Property

1. You start paying slowly & conveniently

The best part of Under construction properties is that it is affordable for most of the people through a home loan. When I say “affordable”, all I mean is that from payment perspective life is easy. You make a down-payment which is generally 20% of the property price and then start making the monthly EMI’s each month and this is how a lot of people are able to own the house. Later after few years , a lot of people feel comfortable as their salaries go up, but the EMI’s value is very much the same. Even if one is not taking a home loan, they can pay the money in parts as it can be construction linked payment.

2. Choices of floor or location are much wider

There are various locations where new projects come up, so the choice in terms of location or which floor you want are generally high. If you are not happy with 12th floor, you can pay more and take the 3rd floor, but in case of ready to move apartments, if 12th is available, then that’s all you have. No choice!

3. Good scope of Price Increase

Under Construction properties are generally in the outer area’s or the non-core part of the city and hence the price appreciation due to future development is good in under construction properties. However this is not true in each and every case. You still have to look at the location and future plans around that area. But the point is that compared to ready to move in apartments, under construction properties have more potential for price increase.

Negatives Points of Ready to Move Property

1. A lot of legal work and documentation

Generally there is a lot of legal work and documentation required in case of Ready to move properties compared to Under construction, because there are no fresh documentation, but a lot of “transfer” documentation.

2. You need to arrange all the money in one shot for down payment, registration etc

In case of Ready to move in properties, all the payment has to be made upfront and all at one time. There is no stages in payment like you have in Under construction properties. So even if you are buying it on home loan, you have to pay all the down-payment, registration charges, stamp duty etc all at one go.

3. Chances of getting duped!

In case of ready to move in properties, there is a big risk of getting duped. You have to make sure that you investigate things very properly. There are cases where same property has been sold to more than 1 person. Make sure you hire a good real estate consultant or a good lawyer who can study the documents well and the fine prints.

4. Inflated Price already

The price appreciation in case of Ready to move properties is generally lower than Under Construction properties from percentage increase point of view (not absolute increase). Most probably the ready to move in properties which are much older than 5 yrs, a lot of development around them has already happened and the price appreciation has taken place for most what is deserves.

Positives Points of Ready to Move Property

1. You buy what you see

When you buy Ready to move properties, you exactly get what you have seen. There is no chances of getting duped at least in those things which you can feel and experience. This is not in the case of Under construction properties , because you never see the actual thing , you see samples or the “projections”. It’s a good idea to talk to the people around or the neighbors about the water/electricity and other things and take their feedback.

2. Immediate relief from Rent & travelling cost

A lot of people who are paying very high rent or travelling very far for their work tend to buy the ready to move houses because they want immediate relief from the high rent or travel cost and one can get it in ready to move properties.

3. You can know what kind of people live around you

This is one big advantage of ready to move houses. You can already see who your neighbours are, what community they belong to , what income level they have and if you would like to be with them or not . In case of under construction houses , you are never sure what kind of people will be around you.

Conclusion

So the final conclusion from various experience is that if you want to buy the house from investment point of view, then buying an under construction house makes sense. However if its mostly from living purpose and you want to consume it for your own purpose, then buying a ready to move house makes more sense. Also all the pros and cons discussed can vary from case to case and the points discussed here are based on a general information and feedback.

Can you share what are your experiences and pros and cons of under construction vs ready to move property !

Income is not Wealth

Posted on by Jagoinvestor

Let me ask you a question. Ajay earns Rs 1 lac per month, and his friend Robert earns Rs 40,000 per month. Who is more rich and in better position ?

In all probabilities most of the people would say Ajay because he earns more than Robert and that too 2.5 times of Robert’s salary. However you can’t give the judgement so fast, because we have not mentioned how much are their expenses, or in other words how much money they burn at the end of the month and what is amount is actually saved. What if Ajay’s expenses are Rs 90,000 and Robert’s expenses are Rs 20,000? In that case Robert would be saving 20,000 per month and his rich friend Ajay would be saving just Rs 10,000 per month. Right ?

High Income or Saving

What matters is Savings, not Income

So you can see that the real thing that matters is the money saved!, not earned. However more income helps in more savings at the end, but its not true always!. The real wealth gets created by your savings and not just by earning big!. So, if you are earning a lot and saving a lot of it parallely each month then you are in a good position. But if you are earning a lot, but spending a LOT too, then in reality you are no better than someone who is earning less and saving less. In that case, from the future aspect, wealth creation will either be too low or it just won’t happen.

Lots of people who have big incomes are actually not very good at saving money – they’re used to having plenty of money coming in, so they don’t pay enough attention to the money going out.

For example – If you and your friend both are saving Rs 20,000 per month and in long run, it’s going to continue that way, it really make no difference for how much you both really earn, because in the long-term, your wealth creation is the function of how much you save and how much of it you actually invest properly.

So this boils down to one big question – “Are you just rich by your Income or are you really rich by savings?”.

A lot of people earn very high salaries, but they end up spending most of it. You can blame this to high standard of life style, high status symbol and all sort of expenses, but your real worth is what you save at the end. I know one friend personally who is a bachelor and he makes around 1 lac per month, but spends 70,000 per month and I know one more friend who earns 70,000 and spends 20,000 per month. Though the first one earns more than the later one, the wealth creation is happening pretty fast for the second guy, even though he is earning lower than the other friend.

Now the question is – How much of your income do you save?. By Saving, I mean any kind of savings which is left with you at the end of the month after expenses + the investments you do in different places (because even that’s part of saving only).

Whats your Saving Ratio?

A good indicator to know is finding a simple ratio called “Savings Ratio”. Just divide your savings at the end of the month by your income and that’s your saving ratio? How much is it? Is it 20%, is it 30% or is it 75%. How much is it?

Lets see an example . Say Ajay makes Rs 50,000 a month and he pays rent of Rs 10,000 , pays another 12,000 in home related expenses, spends another 6,000 in entertainment and outings and at the end of the month is left with Rs 22,000 , thats Rs 22,000 saved with income of Rs 50,000 – which is 44% saving ratio . You can do it on monthly or yearly basis , but put some numbers on table and do this important calculation.

I would personally say that a saving ratio of more than 40% is a good enough number. But if its below 20%, you should really do something about it. So what are your plans about increasing your saving ratio from this point onward? What are your thoughts about this concept of Income Rich and Savings Rich ?

File an RTI application for EPF withdrawal or EPF Transfer Stutus

Posted on by Jagoinvestor

Are you frustrated because of the delay in your EPF withdrawal or EPF transfer? Are you waiting from many months or years at times to get any kind of clarity on your EPF status?

Are you frustrated with your EPF withdrawal or transfer?

I have seen countless number of people on this blog and other forums really getting frustrated with waiting and waiting for years at times for their EPF withdrawal/transfer and they don’t get any information or update on the status. It is only when you personally visit the EPFO offices, you get some clarity, but even that does not help. So now if you are fed up with the EPFO office and it’s slow speed of work, what’s the final step you can take? In this article I will show you how you can use file an RTI application and successfully get lot of information and at times get your work done at a speed which you never imagined. Filing RTI application for EPF information has worked wonders for many people and they claim that it works brilliantly (if you do it right way). I know your eyes are shining, but let’s understand some background before you rush to find out how it works!

Some success stories of RTI solving the EPF issues

Case 1

I would like to share the success with RTI. I opted for EPF withdrawal about 4 months back, and did not receive my PF amount until I decided to file an RTI Application. And it was realy shocking to see the amount getting credited to my bank account within 3 days of receipt of application by K.R.PURAM, Bangalore EPFO. – Rohit

Case 2 

My EPF withdrawal issue was resolved with RTI. After submitting the forms, after around 3 months, the EPFO claimed that they transferred my withdrawal money to my bank account. However I didn’t receive the money in my bank account. I raised online grievances for 3 times. Each time I got the same answer saying that the money has been transferred and has not been returned back to EPFO, so it must have been deposited to my bank account and I should check my bank account. Around 6 months went in this process with no results. As a last option, I filed an RTI application and to my surprise, the money got deposited in my bank account in 5 days (with additional interest for 6 months) and also received a reply for my RTI application.If EPF grievance system does not work for you, go for RTI. – Manish

Case 3

Yep RTI does the trick most of the time , I got all my PF issues sorted out with RTI application and have all the written proofs with cheque numbers etc for all my previous transfers. They even informed my about my balances for current year and told that they are yet to prepare the PF a/c’s for my company for the current year , but here are your balances with us. It really helps. – Hitesh

 

What is RTI and how it applies to EPFO office?

RTI as we all know is a common man’s tool to get a speedy and clear information from any govt office. Supreme Court has clearly mentioned under article 19(1) that Right to Information is a part of Right to Speech & Expression. Now, as EPFO comes under the RTI purview, you can file an RTI application and ask anything you want about your EPF. Govt is bound to respond within 30 days to your letter with all the information you had asked. So if you are unclear about what your EPF status is or if your EPF transfer work has even started? Why did your EPF money still not credited in your bank account etc etc… You can ask all these questions and you should be getting the 100% right and clear answers within 30 days. The only point here is that you should be doing it the RIGHT way. So lets see what all you need!

Note : Before filing the RTI , a good idea would be to file a EPF grievance redressal form online

File RTI in 3 easy steps

Step 1: Buying a Postal Order of Rs 10 from Post Office

The first step is to go to Post Office and buy a Postal Order for Rs 10.  It should be in favor of Accounts Officer of the Concerned EPFO Office. Like if you are sending your EPF letter to Bangalore, the Rs. 10 postal order should be in favor of Accounts Officer, EPFO, Bangalore. The fees can also be paid by demand draft, but that would be expensive, better go for Postal order as it is commonly used for RTI.

Step 2: Drafting your RTI letter

The first step is to draft RTI letter for your EPF related queries. All you need to do is write a letter on a normal paper (better take a very high quality A4 size paper). Though there is no specific format for RTI application letter, still there are some rules of drafting it.

  • The letter subject should start as “Application Form for Seeking Information under RTI Act 2005”
  • The letter should be addressed to Central Public Information Officer, Employees’ Provident Fund Organisation, (Provide Concerned PF office address). Refer to this EPFO directory for exact address of PF office for your jurisdiction.
  • Make sure you mention your Name, Address, Contact telephone number and your Email id along with EPF account number.
  • Now, put all your queries which you want to ask regarding your EPF (putting them as bullet points is recommended)
  • As a next thing, you should have a declaration – “I do hereby declare that I am a citizen of India. I request you to ensure that the information is provided before the expiry of the 30 day period after you have received the application”
  • Finally at the end of the letter, mention the proof of payment of fees as – Proof of payment of application fee: Attached Indian Postal Order for Rs. 10 /- dated  dd/mm/yyyy  favoring “Accounts Officer of EPFO” as application fee.
  • And complete the letter by putting your Signature, Place and Date.
  • Sign the letter and Put your Postal address
  • Mention the payment details like Postal order number, issuing post office, date, cash receipt details, etc., towards the end of your application

Following is a sample RTI letter.

EPF withdrawal or EPF Transfer RTI application Template

Download the PDF format here

Step 3 : Send the RTI letter by Registered Post or Speed Post

The final step is to send this RTI letter by Registered post only, as no courier is accepted. Please make sure you keep the acknowledgement receipt carefully for all the future communication (if any). It might be required by you.  Once you complete the 3rd step, the RTI letter should reach the concerned authority in few days and then within 30 days you should be getting the reply within 30 days (as per RTI act).

Two RTI’s application needed in case of transfer of EPF

Note that in case of EPF withdrawal case , all you need to do is file an RTI query for the concerned EPF office. But in case of Transfer of EPF, there are two EPF offices involved, they are Source and Target. For example if you got transferred from Bangalore to Delhi and applied for EPF transfer, then your source EPFO office is “Bangalore” and your Target office is “Delhi”.

You will first have to file an RTI for the Source EPFO office to find out if the transfer has happened from their side or not. It might be the case that they rejected your application and you don’t even know about it. Once you file an RTI to them, you will atleast know what is the exact status. If you get a reply that the Transfer has still not happened, then they will let you know by when it will happen or give some pointers on the situation, but in case they say that they have transferred it from their side, then it means that the issue is on Target EPF office and they might not have processed your transfer yet. In that case the next step is to file second RTI to the target EPFO office.

File an RTI application for the Target EPFO and this time, along with all the details also mention about the first RTI and the response you have got from the Source, so that you show them all the proof of what you have done. Now you should get a reply from them again within next 30 days on what is their action and what is the exact status of your EPF transfer.

Online RTI Filing (For NRI’s or lazy Resident Indians)

For those who are too busy to visit Post office and do RTI filing offline. You can use the services of www.rtination.com for filing the RTI. They will help you create the RTI letter and then you need to download it, sign it, scan it and send it back to them by courier or ordinary post. They would speed post it to the concerned officer and also enclose the fee. At the moment the fees is Rs 150.

Important Points while Filing RTI application

When you file an RTI application, there are some very important points you should remember, because incase you don’t take care of some very critical points, it would mean rejection of your application and unnecessary work again. Here are some important points:

  • Do not address your RTI application to the PIO by his name, just in case he gets transferred or a new PIO is designated in his place, it will be an issue. However addressing the Officer by name has its own advantage like when it reaches his desk, by seeing his name, he might see more interest in opening it and that might mean speedy work. However in my opinion, better not put the exact name of the person.
  • Before filing the RTI, see if checking the status online helps here
  • The matter can be hand written, or typed. There is no compulsion of typing the content.
  • Be very specific while asking the questions, don’t ask unimportant or unnecessary questions, because some states like Karanataka have limits on the number of words in the RTI application (150 incase of Karnataka)
  • Check the exact fees for RTI application for the state where you are sending it. Because it can be different from states to states. Like incase of Haryana, it’s Rs 50, not Rs 10.

You can read about RTI in detail here

Can you share your experience about EPF withdrawal or EPF transfer and in case you have used RTI for resolving the issue? Are you going to use RTI to get your EPF problem solved? Please update your results once you are successful.

Should you repurchase a new Term Plan ?

Posted on by Jagoinvestor

Did you buy a term plan few years back? Many of you did. Aegon Religare was the first company to launch its term plan in India and from that point, lots of companies have launched their online term plans. Recently I got a comment from one of the reader who had bought his term plan from Aegon religare long back and they increased his Sum Assured by 25% because they have reduced the premiums recently

I had taken AR iterm couple of years back. today i received an email saying my sum assured is increased by 25% of original to keep it at part with the new iterm rates. This is a good experience from AR – Says Muthu Krishnan

Term Insurance premium is constantly coming down from many months and new companies entering this online term plan business are making sure they keep down the premiums due to competition. The new entrant in this field is Bharti Axa eProtect plan which has lowest premiums compared for 25-30 yrs group at the moment.

“Term life insurance premium depends on the mortality experienced by a life insurance company,” says Suresh Agrawal, executive vice-president, Kotak Mahindra Old Mutual Life Insurance. “As the mortality experience of the insurer improves over a long period of time, it is passed on to the customers in the form of lower life premium for the new customers.”

However the point we are raising today is, what about those people who had already taken term plan 2-3 yrs back? It can be online or offline doesn’t matter, the point is that they are paying a very high premium compared to a new policy which they can buy.

For instance, someone who had bought a policy with sum assured of 50 lacs before 1-2 yrs must be paying around 7,000-8,000 premium, however if they dump their old policy and take up a new policy they will get it much cheaper despite their higher age now. So the good idea would be to look back at your term plan and see how much are you paying and how much is latest premium in the market for the same company or some new company?

Important point before you take a new term plan and change your Policy

1. Older the Policy, better it is

A very important point worth noting here is that in Life Insurance any claim which comes within 2 yr is considered as “early claim” and it’s scrutinized in detail, very detail. However a policy which is more than 2 yrs old does not come under “early claim”. So, if you have already completed 2 yrs or close to completing 2 yrs, this is one thing you will lose out when you take a new policy. However its just a point you should know, it’s not something which should stop you.

2. Look at your health changes

You need to see how your health has changed after you had taken the term plan, if you have developed any illness in between then for you the premium will increase (loading) after the medical tests. So even if the premium might show cheaper on the calculator, after you do the medical, the new premiums can actually be much higher than your old premium. So better look at that aspect.

3. Take a new term plan and then close the old one

The best way of moving ahead with new policy and dumping your old one is to first apply for the new term plan and once you get it, then close the old one. Do not just close the old one and then take a new one because in case there is some issue in getting a new term plan or if you are unsatisfied in between, it will be a bad situation to be in.

This topics brings another question in mind – Should there be Life Insurance Portability in Future ? Do you think its something desired or not ? Did you understand when you should switch to a new term plan ?

Paid Jagoinvestor Workshop in Pune (25th Mar)

Posted on by Jagoinvestor

We have planned a 1 day paid workshop across different cities in India, starting with Pune. The first workshop will be on 25th Mar (Sunday) in Pune and it will be a full day event. It was not easy to decide what should be covered in the workshop, but we really want to make sure it is of extremely high value and should leave an experience. So, after a lot of discussions and brainstorming we designed the workshop which we are calling as “Design your Financial Life”.

Contents of Design your Financial Life

The workshop will start at 9:00 am and will go up to 6:00 pm in the evening. The focus of the workshop is, that any one who attends has a clear understanding of how he should lead his financial life. The talks will be a rich mix of mentoring on how to think about money and what mistakes to avoid (coaching aspects) and it will also have some talks on how one should look at various dimensions of their financial lives and get the ground rules clear about them. There will be 2-3 group activities and exercises which will enrich the program. Here is the table which gives a full day time line.

Jagoinvestor Workshop Details

Pune Workshop Registrations are Closed now

Who should attend the workshop

This workshop is targeted at those who are beginners and have made a start in area of personal finance and they would like to spend a full day to hear and experience rich conversations on money and learn the ground rules of most important area’s of personal finance.  The workshop will assume that participants are beginners/moderate knowledge about money related matters and they would like to build on it from that point. The session will be a mix of mentoring & insights on how to think about personal finance related things.

By the end of the session you should be capable of charting out your Financial Roadmap and be self-sufficient in basic level of thinking in personal finance.

You can register for workshops in your city here

What this workshop is not

This session is not for experts who know it all. This session is also not for those who wants any stock or mutual funds tips or any kind of get rich-quick kind of tips. Financial Planners or advisors should also refrain from attending the workshop.

Why to save & invest money for future? Here are 10 simple reasons

Posted on by Jagoinvestor

Are you saving for the future? NO or YES?

If you are, then you must be wondering what a stupid question that is, because it’s so obvious that one needs to save money for the future. We all do it anyways!

You are WRONG!

Trust me, in last 10 yrs – we have dealt with so many investors who are not as prudent and forward-looking as you are. Many investors are hand to mouth when it comes to saving money. They are just postponing their savings in future and relying on luck or maybe they are not giving putting enough energy to save money.

So today, I thought of writing about 10 simple reasons why one should save and invest their money for the future. I want these 10 points to act as a reminder to you. Note, when I say “Save” in this article, it means “Save and invest”!

Why to Invest for future? Here are 10 reasons discussed

Let’s start

Reason #1 – It will help you in bad times

We all know that life is dynamic and bad things can happen. One may lose a job and become jobless some day. Or one may need lots of money to admit a loved one in the hospital. You never know what the future has in store!

If you have enough savings with you, you will be able to handle the situation in a much better way and won’t have to run around to others for money. There are always phases in life when things are going bad and if you don’t have savings, it can trouble you!. So savings help you in bad times!

Reason #2 – One day you will stop earning

At times, I am surprised to see many people forgetting this simple point, that one day they will stop earning.

That’s called “Retirement”

I see many people in their 30’s and 40’s behaving as if they will keep getting salary in their bank account all their life. They don’t take enough efforts to save money. They keep delaying their plans to invest and one day they realise that they are now in danger zone!

Dont forget that after you start your job, the expenses will never stop after that, but your earning will come only till you are 55-60 yrs!.

Reason #3 – To have peace of mind

One always feels a sense of security and peace of mind, when you have enough wealth to fall back on.I am talking about the day to day feeling you go through when there is bad news coming in.

Imagine situations like

  • Talks of layoffs in your company
  • Thoughts of getting someone hospitalized in the family.
  • News of your children school raising the fees .. AGAIN!!

All these small things in life will subconsciously haunt you and you will not have peace of mind because you know deep down you have no savings or less wealth. If something happens to your job, how will you manage things?

If you are working for many years, you will agree at there are some tough days, when you feel like just running away from everything and just chill out and enjoy life. You feel tired of corporate life and this rat race and all you wonder is – “If only I had enough wealth in my bank account”! ..

This also leads to a lot of stress and you may feel left-out compared to peers. Hence it’s very important to start saving for the future!

Reason #4 – To Get Financially Free

We all want to reach a stage in life when we dont have to depend fully on our salaries. We all want to create a level of wealth so that its enough to generate some income for us to handle our basic expenses at least. I am talking about financial independence.

When you start working, you have no wealth and you have to rely 100% on your salary. But over time, your wealth basket needs to go up in value so that if required – you can take out money if needed.

If someone needs Rs 40,000 a month for his expenses and he has 4.8 lacs savings – they know deep down that they at least have 1 yr worth of money with them.

With 48 lacs – they can last for 8-10 yrs (not considering inflation here)

This way, you reach a point in your life when your wealth itself is enough to create a stream of income which handles your basic expenses at least if not a lavish lifestyle.

Recently I tweeted – “Investing money is nothing but an act of gifting yourself more Retirement days”

If you have started your wealth creation journey on time – you are moving towards your financial independence slowly and maybe somewhere in your 40’s or 50’s (dont confuse this with your retirement) you will have some level of financial independence

Reason #5 – So that you don’t get into the debt trap

Remember that people who are into debt trap today started small. They got into a small debt first, and then they continued it, didn’t manage it well and now after many years, they find themselves into a deep debt trap. Think why they even started with the small debt like credit card debt or a small personal loan of 2 lacs?

Its because they didn’t have enough money saved!!. The root cause of the debt trap is because people do not save for the future, and then slowly have to rely on debt to fund their needs and desires.

Reason #6 – Feeling of Progress in life

Sense of “progress” is very important in your financial life. You may have ZERO bank balance at the start of a career. But if after working for 8-10 yrs, you have very less to show – then its crushes you from inside.

It’s like running for hours, only to realise that you have not moved much. If you do not save on time, then over a period you may feel like a failure because you dont see any progress in your wealth.

I also said in one of my tweets that “If your Net worth if not going up, you are probably a RICH SLAVE” and nothing more than that. Think about it!

And its not too tough to create wealth over time. A small sum of money can also turn out to be a big sum over a long period of time.

Check out how much wealth can you create just with the monthly SIP of Rs 10,000 in 30 yrs

Wealth Creation using SIP in 30 yrs.

So if you have been late till now – START NOW!

Reason #7 – To handle major life events

A lot of major life events are going to come in your life.

  • Kids School fees (recurring)
  • Vacations (recurring)
  • Child Education Higher Education
  • Buying House
  • Upgrading of Car (recurring)
  • Home Renovation
  • Retirement

and lots and lots of small events which will demand money constantly!

What are you going to do – if you will not save enough for the future? Depend on Loans? Get into a Debt Trap?

Starting your wealth creation journey early in life increases the chances of you meeting these financial goals with less stress and on time without compromising on them!

Reason #8 – So that you can spend without guilt!

I have seen enough families who do not take enough vacations or spend properly on themselves enough. They keep cutting corners and often try to show that they are simple people and they dont believe in wasting money. But deep down the reasons is that they just don’t have wealth!

This means that on each occasion, they often feel guilty for spending money. They feel as if they are doing something wrong. They deprive themselves today so that they don’t have to deprive their future-self!

It doesn’t only impact them but their spouse, kids, parents and everyone around them at some level. A good financial life is not about just saving money, but spending money sensibly!

So start your saving today to that in future, when you have to spend money on things you love, you can do it with free mind without any guilt feeling!

Reason #9 – To explore an alternate career

A lot of people are not happy with their jobs. They feel stuck and they want to do something about it. But once you take a home loan and don’t possess any other skill, it becomes a permanent job for you.

You cant quit and explore other career choices because you have no backup plan. Forget switching career, ask yourself if you can even take a 2-3 yrs break from the job? Do you have enough wealth to support that?

If you save enough today, there will be a time when you will feel more comfortable to take that kind of tough decision. Having wealth on your side – gives you enough power to tell your boss that he sucks and that you are not coming from the next day!

You will be able to take calculated risks in life and try out many things .. so start saving now!

Reason #10 – Do that you can leave a legacy

I have many friends who have got enough legacy from their parents. Their money issues are partially solved. Imagine someone in a big city (Bangalore or Mumbai) whose parents are going to leave them a house or a big portfolio/business.

Only a person is burdened with a big EMI and no future inheritance can understand what I am speaking about.

One of my close friends has a Rs 10 crore net worth today (he is just 35 yrs age) all created by his grandfather. He has his own home, other properties and few income sources. Imagine how it would be for you if you were to acquire a lot of wealth from your ancestors!. What would be your mental state?

I am not saying that this itself will solve all your life issues, but you have one big less thing to worry about in life. You just build upon that!

You don’t get legacy because your parents messed up their retirement and didn’t do enough wealth creation. You can choose to not do that your next generation. I know that its a subjective thing and not everyone is excited or agree with the idea of leaving an inheritance.

Why we don’t save enough money when it’s so obvious?

Below is an excellent video from Shlomo Benartzi on why we don’t save enough and a framework to solve that issue. Listen to it!

A simple financial plan for you to invest your money

So here is a very generic roadmap on what you can do to invest your money

  • First, take enough term plan and health insurance early in life
  • Make sure you have 12 months’ worth of expenses invested in an ultra-short-term bond fund. This will give you good liquidity and decent returns at the same time!
  • Invest 20% – 40% of your take-home income into equities (as you already have debt portion covered by EPF). The options can be a mutual fund, Index funds, direct stocks if you understand it
  • Over time, as you grow older you may also have investments into debt mutual funds to lower the volatility of your portfolio
  • If you wish to, you can also have some fixed deposits – but preferably very less of it
  • If you are investing in NPS already, you have some equity exposure!
  • Stay away from an endowment and money-back insurance policies
  • You can open a PPF account, but don’t over-invest in it at a young age!

The above suggestions are all generic in nature. If you are interested in wealth creation in a more focused and structured manner, you may want to look at our investments services brochure

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