Category: Psychology and Wisdom

Download this Free Audio Conversation – Slow Down & Grow Rich

Posted on by Jagoinvestor

We are giving away a Free audio on Slowing Down and Grow Rich which we created for our Jagoinvestor Wealth Club last week. The Audio is totally FREE for all our blog readers.

Slow Down & Grow Rich

For a moment look around and see you will find everyone is in RUSH (including you). You rush to reach office, you rush to meet your deadlines, and most people do the same when it comes to producing wealth. Everyone wants to make a lot of money as fast as they can. The truth is that Human beings are CRAZY for money. But tell me! . Will an artist who is in rush be able to create the best painting of his life? Will a chef, who is in rush be able to prepare the best dish of his life? Will a doctor who is in rush be able to perform his life’s most critical surgery?

The answer is NO.

Similarly, an investor who is in rush, is unable to produce desired wealth in his lifetime. Speed has become like an operating system that is installed in the machine called “Human Being”.  But Wealth is not a function of speed it is a function of depth. It is about how deep you engage yourself with the process of wealth creation.

Today, we have an Audio GIFT to share with you which is exclusively made for our Jagoinvestor Wealth Club members. With the help of this audio we want you to learn the principle of slowing down and apply it to your financial life. (Every month you get such audio files as club member and more stuff!). Wealth club material is priceless, still we have priced it in a way that anyone can become a member. We want every investor who gets in touch with us to slow down and to have an awesome financial life.

Download Audio

Cashflow/Networth Analyzer Tool

We have also released a nice calculator, which is going to help you understand your income/expenses and assets/liabilities in a much better way. It does some number crunching and based on your current numbers, gives you some detailed insights on your current situation. This calculator tries to give you insights on different parameters of your financial life and marks them as red, yellow and green, which represents “Bad” , “Average” and “Good” . So instantly you can see how well you are doing on various parameters. Watch the Video below to learn more about the calculator. In past we have also released Financial Freedom Calculator for our members.

Get this Calculator

Let us know if you listened to the audio and if you liked what you heard ? Are you also rushing in your financial life ? Do you think slowing down a bit and carefully moving ahead will help you to grow rich ?

Planning for Unexpected Expenses – Why it makes sense !

Posted on by Jagoinvestor

Have you ever heard someone say something like – “I had planned to buy a car from last 2 yrs and I was saving for it regularly with discipline, but I think I will have to delay my decision because some thing urgent and unexpected cropped up in between! . It happens all the time.”

Here are some more examples of “unexpected expenses”

  • My Car Servicing had to be done urgently. I didn’t expect it to break this month
  • My brother asked me Rs 1,000 more this month, I had to send that extra money this time which I didn’t plan for.
  • My daughter had to see a doctor last week, and now suddenly this month budget’s gone for a toss!
  • I was planning to buy Manish’s Book next month, but those awesome reviews forced me to grab my copy from flipkart today itself, I never planned to buy it ! .

95% people don’t plan anything. They just go with the flow. And for the rest 5%, who do any kind of planning; even their planning fails at some point of time because of a very simple and over looked factor in financial life, which is “unexpected expenses” . If you write down all your monthly expenses on a paper, do the total, and keep exactly that much money in your pocket… You can be very sure that you will have a really tight month!  And that must be happening already !

Unexpected Expenses in Life

These “unpredictable” expenses are very predictable

It’s because when we make any assumption, our conscious mind can only think about the bigger picture and we never deal with smaller details and mostly never count the uncertainties of life . We never consider that you might have to shell out Rs 2,000 on something which suddenly comes up (it can be anything). Suddenly there can be some trip, some eating out, some medical expense, some expenses related to the kids school etc. By now you must have realized that these unpredictable expenses are very predictable 🙂

I mean, you can always expect the unexpected. See each month, without fail, some thing or the other always crops up out of nowhere, your planning never fits the target , you are always short of what you were thinking earlier! , Sound familiar? Life is so unpredictable, that it’s a great idea to factor that “unexpectedness” into your planning. When you do your monthly budgeting, have a “Unexpected Event” category too, and allocate some money for that anyways, because it will happen 🙂

But its anyways taken care , so why Plan for it ?

If these unexpected events happen a lot in your life, you will agree that the money you need to shell out is not the big issue, rather the real issue is the psychological nonacceptance and your irritation every-time it happens. You have not mentally prepared yourself for those expenses and every time they happen, its like a pinch on your face! You didn’t think about it and now it’s in your life, staring you in the face. To overcome this issue, you need to create that unexpected expenses buffer. Once you’ve done that, you are mentally ready to expect something unexpected and when you need to spend money for it, you know it will come from your “unexpected event” account.

If nothing happens, you can always use up that buffer for your other expenses, its like a  bonus for you. On the similar lines, Ramit Sethi of iwillteachyoutoberich.com talks about the Stupid Mistakes Account, which is for the same concept of planning for unexpected expenses.

 (Direct Link for Video)

Keep buffer even in your investments

The same thing applies to your investments also . If you are planning for a goal which is going to come after 6 yrs, better plan for just 5 yrs and keep 1 yrs as buffer. If you are assuming a 12% return , better plan assuming 11% only , and keep 1% as buffer , if your SIP amount needed for a goal is Rs 5,000 , better invest Rs 6,000 instead of Rs 5,000 . This way , the chances of the final outcome fitting into your expectations is much higher!

What do you think about it?

Misselling or Misbuying – What’s your case ?

Posted on by Jagoinvestor

Misselling is a very common word used these days by everyone. It’s been projected in such a way for the last few years that people have started feeling all agents and companies are engaged in looting the public. But maybe there’s another angle to this and maybe we need think a bit & answer a big question – Is it misselling or misbuying?

  • “I was mis-sold a financial product”
  • “Agent made me buy this crap and now he is not agreeing to it”
  • “My trusted friend mis-sold me idiotic policy promising high returns”

What is Misbuying ?

The first question we need to ask is – How can some one sell you something if you do not want to buy it? Can anyone come to you and put a gun on your head and make you buy? If that happens, I think anyone is bound to agree that it was mis-selling. However, when someone buys a financial product without proper research; or without understanding what they are buying, I would say its more of “mis-buying”. By no means do I want to say that agents and companies are not at fault. If you have not understood the product and bought it, just because some one said some thing verbally or showed you some fancy chart, you need to question it first, inquire about it before buying it and understand the whole dynamics which govern the financial product.

Misselling – What about Investor’s trust ?

While its true that a customer has to do his own research and study, we cant say that companies and the product sellers are not at fault . What about “trust” from the customers who feel that companies will take care of trust part being into business, but most of the times, companies don’t accept the fault on their side by stressing on “Buyer’s Beware” points.

Misselling vs Misbuying

Seth Godin has a very crisp point to make on that.

“Buyer beware”

Really? Is that really the attitude you want your audience to take? That they should be wary of what you say and what you offer and what you promise?

How about “buyer trust”?

How do you deal with customer disappointment or buyer remorse? It’s the difference between “tough luck, you should have read the fine print” and “oh no! How can we help?” If people know you will always make it right, they will beware less and trust more. What do you have to do to create trust? How much would it cost and how often can you produce it?

Dr Kishan has made a very beautiful comment on this topic .

Dear Manish,

What I concluded after my and others’ experiences is that thieves dont come in the dark always. They are not always dressed in masks and armed with lock breakers etc. We can encounter thieves even in broad daylight dressed in finest of clothes with most charming smiles on their faces, so much so that even most intelligent people can fall prey to them.

We all lock our houses when we go out daily, because we dont know when the thieves may come. We all lock our cars when we park them, so as to protect from theft. These “locks” can be bought in the market for some price and applied on the doors.

But there are some other “locks” which can only be acquired by getting knowledge. This cannot be bought from market for some money. And getting this lock is a life long process which entails a lot of effort. This “LOCK” is required for protecting our hard earned money. Or else the charming and well dressed “thieves” shall rob us in broad daylight. This is KALYUG. And thus everyone will rob us if we are not cautious. We can very well say we were ignorant but it is our fault. Not locking a house and expecting there shall be no thieves is not the order of the day in today’s world.

Why dont we educate ourselves against this robbery

Reasons are many- lack of time, lack of access to knowledge, lack of knack of understanding the concepts of money, lack of interest etc. But I think spending some time and taking some effort to save our hard earned money is really required or else money will just slip like sand slips out of our hand.

What I feel strongly

There is no mis-selling, there is only MIS-BUYING. After all its ME who had put the signature on the application form I can blame nobody absolutely nobody for that signature.

Sorry if I sounded too harsh

Time Spent before and after making the decision

Nandish some makes an interesting comment on this, he says – “People spend too much energy and time after buying the product , and not at the time of buying it” .

If you see your past behavior – You might have spent very less time in buying a product and maximum time worrying and cribbing about the product later . However all you need to do is spend some more time at the time of buying and nothing later. All their life Indian investors take decisions on the basis of trust and relationships. They ignore their financial lives and how they deal with it, but at some point in time, we need to understand that world is changing, our country is changing and the whole dynamics of personal finance are changing. We now, need to take responsibility of what we are doing and make our own decisions.

What do you think about this concept of misbuying or misselling ? How much is it a fault of the buyer and how much of seller ?

Can your assets support your for next 30 yrs ? Download this Calculator and Find Out !

Posted on by Jagoinvestor

If you have Rs 50 lacs with you and you want to generate some consistent income for next many years, how many years you can generate income? Think about it! Put some very high level calculations in your mind and try to come up with some numbers! . Will it be able to generate a lac of monthly income for next 10 years or not? Will it be able to generate Rs 30,000 of inflation adjusted income every year for next 30 years or not? Will it be able to generate Rs 30,000 of income increasing at 5% each year for next 100 years or not?

Still wondering ? 

Lets discuss a very basic problem which many people face in financial life. A lot of people at times have a big lump sum amount like 20 lacs, 50 lacs or say a crore! Now they want to know how much income can be generated using that big amount which can be used by their family. This can happen in many situations like following

1. When a person wants to make sure that he wants some kind of passive income out of a big chunk of money

2. A person might have got retired and now he wants to create a pension for himself using the big amount of money he/she has saved

3.  A person wants to leave his job and because of uncertain future , he wants to utilize a big sum to generate a certain cash flow in future

4. You might want to find out how much of life insurance you should take so that your family can start getting monthly income by making a fixed deposit out of the money.

So lets take case of Rs 50 lacs ?

Coming back to our example – Let’s talk about Rs 50 lacs. How much monthly income can it generate? And for how many years? This will depend on three things.

  • How much inflation you are considering
  • How much return on the investment you are considering
  • How much monthly income your want to generate per month

Here are some of the permutations and combinations assuming different values for Inflation , Return on investment and monthly expenses needed and a corpus of Rs 50 lacs in hand.

How long the money will last

How to Calculate this ?

You can calculate this in many ways , but one of the ways you can do is by calculating it in excel sheet. We have this calculator on our upcoming Jagoinvestor Wealth Club product (our paid product) . You can download this calculator and play with different numbers and plan out for yourself.  The calculator shows the answer along with the graph of the wealth and how it grows or shrinks over the years.

Download the Calculator Now

Was the calculator helpful for you? What other kind of tools you would like to have and to what level ? You can start using this calculator and see what is your net worth and how much monthly income can you generate at this moment if you leave your job and in case you are not able to bring money to home due to some issue.

First 5 yrs of your earning life – Does it matter ?

Posted on by Jagoinvestor

A lot of people complain that they do not have much wealth in their life despite earning from many years. This brings an important point in question. What did they do in the first 5 yrs of their earning life? It’s very clear that the first 5 yrs of your earning life leaves a very big impact on your future financial life. Your financial life shapes a lot due to the first 5 yrs of your financial life.

There are 3 possibilities

  • A person has saved & invested a maximum of his earned money in first 5 yrs
  • A person has spent a lot of his earnings in the first 5 yrs.
  • A person has kept a balance between his spending and investments/saving in the first 5 yrs.

Are you one of those who started young with a nice paying job, but did not focus on your first 5 yrs or are not focusing on it right now. You feel the future is so promising and your abilities/expertise are so great that you don’t need to worry so much. It happens because at times people are seriously unaware and ignorant that life turns out very differently then they think. There are many events which demand money and attention at any cost. These are some times unplanned or just popup in life if you had not planned for it before – like Job loss, Marriage, Sudden health-related expenses, etc. The moment these events happen or come near, then you realize – “Oh my god – I never planned for it or I underestimated how much money I will need”.

In my book Jagoinvestor there is a chapter where I explain how your first 5 yrs investments, out of a 30 yrs period make the 50% final corpus and rest another 25 yrs makes another 50% corpus. That means the initial 16% tenure makes 50% corpus and later 84% tenure builds rest 50% corpus – (read sample pages)

So if you are 5 yrs late in saving and investing for your retirement – You will end up with 50% less in your retirement – This might not sound too scary, but it is. This could mean looking for a part-time job compared to an enjoyable retirement without much tension. There is a big difference between what 50% less corpus can do. It’s like earning Rs 30,000 per month from next month compared to Rs 60,000 right now, imagine your life from next month.

Early years of your earning life

 Spending Maximum vs Investing Maximum

Let’s talk about the first two possibilities mentioned above – “Spending Maximum” vs “Investing Maximum” . Let’s say there are two guys who earn 75,000 per month. Both are unmarried (we all are, at the time of getting a job and next few years, possibly 4-5 yrs) and have similar conditions.

The first guy operates from the mindset of  “Life happens now and this is the time to spend, who knows about future“ , however, the other guy operates from the mindset of “Life is uncertain, I can save today so that I can protect my future now”. Both are ideologies and the way you think, but it can have a drastic impact on your life. Because your financial life operates like a chain reaction. What you do in the first year, has some impact on 2nd year, what you do in 2nd year affects your 3rd year and so on, obviously assuming that your pay rise is natural and not shoots from 3 lacs per annum to 13 lacs per annum in short term.

If you are struggling to make a down-payment for your dream house TODAY, you can clearly see your early 5 yrs have been and identify that point where you could have been more responsible, where you could have given your financial life a new direction and shape. If you are not able to fulfill your big goals coming soon, it’s a clear indication that you have done something wrong in the first 5-6 yrs of your financial life or early years. In the same way if you are at peace today, you can clearly identify what right things you did at the start of your career.

Real-Life Experience of Saving Early in Life

One of the readers Ashish shares his experience about how he saved early in life and how his life is right now.

After completing my study in 2004, I started my career in IT industry. Three thing was clearly injected in my mind by my father :-

1) Always maintain the cash for emergency. As in emergency cash is primary and relation is secondary.
2) Never go for loan. If you need money, first check with your relative and don’t mind paying interest on the money you owe from them. It will always be cheaper then bank. If no help available, consider the thing is not worth to invest.

3) Respect your money.

Though I am not obedient son of my father but “Money matters”. So I started maintaining one excel sheet about my expanse. I must say with my experience that daily expanse is not cost you more if you spend smartly. So at the start of my career, I compromised on my comfort level. Instead of staying in separate house, I searched for shared accommodation or PG which really helped in saving a lot. Instead of buying bike, I calculated my per-day travel expanse and tried my best to minimize it by sometime taking lift with office colleague :)

Travel and Stay is the biggest expanse as per my experience and this clicked me an idea of buying a house. I was not capable enough to buy the house, so instead of taking loan from bank I knocked my father’s door and able to convince him on 4% interest rate(following papa’s advice). No need to say that I paid 4% or not, but he is happy to see the value of that flat on today’s rate. But I was not able to stay in that house for more than a year as I changed my job very frequently(at least once or twice in a year) and happily rented so far.

I travelled from Gurgaon–hydbd–Noida–Pune–Mumbai and then finally got chance for onsite UK in 2008. I applied the same logic and maintained at least 1 lac saving per month. And the story continued since then on saving more and spending less. With this, I am able to manage to renovate my own house for my parents (which they call now as my house officially :) )

Then I married in 2009 on my own expanse and came back to India last year when we both thought that there is no place better than India on this earth. And it get proved as well, when my wife also got the job in same company and same building :) . Before coming to india, I showed no interest in paper form investment except ppf and property investment. But after becoming the member of JagoInvestor and reading some well written and advices article, I did another smart investment. 60 + 40 lac term insurance for me an my wife from two different company. One personal accident insurance of 40 lac from LnT for myself.

SIP of 8k per month in different MFs , which I considered after reading one of the article on jagoinvestor where the comparison was made with child plan and other investments and purchased one villa plot in Bangalore. So far no Loan :) . So far the story is this but adding new pages everyday… I know there are more happy family out there but just want to say that “Saving does help not hurt”.

I would say your life has a constant amount of comfort in your financial life, it’s your choice when you want to have it, at the start of later years or keep a balance in start and end. The best approach I feel is to 1st year your earning life to yourself, enjoy, spend and do what you always wanted. After the first year just get damn serious ! .. What do you think?

Emergency Fund – Helps you stay in Action !

Posted on by Jagoinvestor

How many times have you ever faced an emergency situation in your financial life? I am talking about some situations when you needed cash within a few hours or days and it turned out that you had to seek monetary help from your relative for it or some friends, whom you didn’t want to ask?

Financial Planners and advisors suggest emergency funds to everyone saying that they should have it because there can be emergency situations in their life and they should always have a few month’s worths of expenses as plain cash for emergency purposes.

Emergency Fund

While it’s a good practice to maintain an emergency fund, a lot of people do not believe in it because for them emergency situation is something which will never happen to them. They always have fixed deposits which can be broken in hours/days and if its really required one can get it anytime. In the same way, mutual funds can be liquidated at a click nowadays and in the worst case, you always have relatives/parents etc who can lend you money in short term. So, in reality, a “real” emergency is really rare. This is how a lot of people think.

The real reason of having an emergency fund

But after a lot of introspection, I came to the conclusion that the real reason for having an emergency fund is something else. More than the “handling emergency situation”,  It’s about your behavior about investing regularly. It’s helpful in stopping you from disturbing the investments which are all set in your life. Let me explain to you what I want to say with some examples.

Imagine a situation where you have started a SIP of 10,000 per month. You also have invested some amount in Fixed Deposits recently and few other investments. You all know that it’s damn tough to finally take actions and really start your SIP’s and actually make investments after a lot of thinking and analysis and “will surely do one day” thinking.

Now suppose you didn’t have an emergency fund, which is “6 months of expenses” for you. Now, what will be your natural reaction if you need money urgently? It’s very natural to break your FDs, liquidate your mutual fund’s investments and then say “let’s stop the SIP for few months till I am facing this cash crunch”. Put one hand on your heart and tell me, how many of us are really so dedicated to re-start our SIPs and investments after the situation is back to normal. We all get lost in our life and jobs and “problems” and then it only starts back after months and years of finding that perfect moment or if its “high time now” situation.

So as per my understanding, the real reason for having an emergency fund is to make sure that you do not disturb your investments which are already started and automated. The real reason for having it is so that you have dedicated funds which you will break before reaching out to your other goal-oriented investments. Think of it as a layer between your real wealth which you want to grow over the long term and money which you want to use in emergency situation. Think about this for a moment, its a little hard to imagine what I am saying here, but if you get my point, you will really appreciate the concept of this.

Did you understand what exactly Emergency fund does for your financial life?

Is looking for perfection killing your financial life ?

Posted on by Jagoinvestor

Do you know that looking for perfection for everything in your financial life can be one big reason why your financial life is a mess! . If you dont think so, read the story below.

The Perfect Woman

Once upon a time, an intelligent, attractive, self-sufficient woman in her late twenties decided that she wanted to settle down and find a husband.  So she journeyed out into the world to search for the perfect man.

She met him in New York City at a bar in fancy hotel lobby.  He was handsome and well spoken.  In fact, she had a hard time keeping her eyes off of him.  He intrigued her.  It was the curves of his cheek bones, the confidence in his voice, and the comfort of his warm, steady hands.  But after only a short time, she broke things off.  “We just didn’t share the same religious views,” she said.  So she continued on her journey.

She met him again in Austin a few months later.  This time, he was an entrepreneur who owned a small, successful record label that assisted local musicians with booking gigs and promoting their music.  And she learned, during an unforgettable night, that not only did they share the same religious views, he could also make her laugh for hours on end.  “But I just wasn’t emotionally attracted to him,” she said.  So she continued on her journey.

She met him again in Miami at a beachside café.  He was a sports medicine doctor for the Miami Dolphins, but he easily could have been an underwear model for Calvin Klein.  For a little while, she was certain that he was the one.  And all of her friends loved him.  “He’s the perfect catch,” they told her.  “But we didn’t hang in the same social circle, and his high profile job consumed too much of his time,” she said.  So she cut things off and continued on her journey.

Finally, at a corporate business conference in San Diego, she met the perfect man.  He possessed every quality she had been searching for.  Intelligent, handsome, spiritual, similar social circles, and a strong emotional connection – perfect.  She was ready to spend the rest of her life with him.  “But unfortunately, he was looking for the perfect woman,” she said.

Just like the story above, we all are looking for the “best” and the “perfect” financial products, services and financial life, which does not exist in reality. As we don’t get perfection in most of the things we are looking for till the extent we want, we don’t take any action. We keep on searching that perfect financial product which has no defect and which is better than it’s competitors and gives us the maximum benefit.

Perfect Financial Life

Let me share with you couple of instances which happen in real life

Imagine a guy who wants to buy a term plan. He wants a term plan which is cheapest in the premium, he wants a term plan with best customer support, he finds few options. He was going to buy it but then suddenly he read that there is something called “claim settlement ratio” and the best of premium and customer support is of no use if this “claim settlement ratio” is not high. 3 months are gone.

He again gets on net and then concludes that the company with best settlement ratio’s have high premiums and only 2 companies are with good settlement ratio and low premiums, but he has seen 2 people complaining on jagoinvestor.com about the bad customer service. He decides to wait for some other company which fits in his criteria. 2 yrs passed by .. he never took any term plan.

Now imagine a guy who wants to go for a fixed deposit for 3 yrs. He is so excited with high interest rates that he decided to put some extra money then he planned for. But then came the issue, there are smaller banks which are offering 0.25% higher interest rate than his bank and he does not want to “loose” the free interest money. After all, all the banks are same. Then some one advises him that never go for pvt banks because they are all “chor”, but PSU banks especially the big one’s which his father approves are not giving that high interest rates. While all this as going on suddenly banks have now dropped the rates back and all his plans are dropped. His money kept lying in saving banks only.

Now again imagine this guy wanting to hire a financial planner, The planner he wants to hire comes on TV , writes few articles on few websites and also educates everyone. The financial planner charges Rs 20,000, but this guy “feels” that the fees is too high for him and that planner is not giving him sample plan also and the planner is not ready to give a free consultation too! . So there are few things which didnt match his expectation and he decided to give himself some more time. And this guy had 20 lacs in saving bank account which remained there for next 3 yrs because he didnt know where to invest it for best returns.

Is looking for perfection stopping your financial life to grow?

Now coming to the real point, what I want to say is that we all are looking for perfection in our financial lives, mutual funds, term plans, financial planners, bank deposits, relationships, education, marriage etc etc. This looking for perfection is somewhere not helping us grow. Its stopping us from taking decisions which can be much much better than not taking any decision because we didnt find that perfect thing.

90% Perfection Rule

I will say that the only solution to this problem is to look for only 90% perfection in whatever you do and let 10% go. Focus on the next step, that’s taking action because 10% of it will be things you will neither be able to find out, nor it will be totally constant. So as soon as you start getting a feel that you have understood 90% of something and 10% of things are remaining, focus your mindset on taking action, choose things based on that 90% knowledge itself. While this 90% is subjective, you can choose 95% of 85% , but make sure its not 100%, because then it does not serve you.

What do you think about this?

Which Model of Financial Advice do you like ?

Posted on by Jagoinvestor

There are many different ways financial advisory runs in India (and worldwide). You must have encountered one of them for sure at some point of time. I have been able to pick 5 financial advisory models and wanted to highlight them and want you to tell me which advisory model you like and which one you hate? & why?

1. Financial adviser earning commissions out of products sold to you

This is the most common advisory model. Also, due to the widespread know how of this model, majority of Indian’s are stuck with bad and unwanted products. In this model the advisor/agent/planner comes to you, pitches the product, makes it look amazing through graphs/projections/emotional-blackmailing and then you buy it. In this model, the commissions are the main source of compensation for the seller. There is no fees paid by you directly to him and you feel like a KING.

2. Financial Advisor with fixed yearly charges

This model is not much widespread, but some people do it. In this model, the advisor/planner (whatever you call), will be available for you throughout the year, whether you need him/her or not. Its kind of yearly contract where he advises you on anything you ask him on your financial life. If in some year you ask more, that’s fine, you pay same fixed cost and in some years if you don’t “consume” his services much, still you pay him the same money. With this model, you are clear about the fixed cost you will incur on your financial advisor and even advisor knows that his cash flows are fixed. This model as per me is one of the best, but sadly this does not work much in Indian environment.

3. Financial Advisor on demand (pay when you want advice)

This model is very much like the above one, but in this you pay your advisor “on the go”. So whenever you take his advice or use his time for asking anything, you pay only for that much time, nothing less and nothing more. Again this model is not that much widespread, but some courageous advisors take this route. This model from one angle is really “american” style, where each thing is paid on “hourly” basis. So if you take 20 hours of your advisor in some year, pay for 20 hours. And if in some year you take only 5 hours, just pay for 5 hours. For advisor it makes his life easy as he spends his time only for what he is paid for and is really committed to produce the value for that time. Indian’s laugh on this model as of now.

4. Financial Advisor on One time payment basis

A lot of advisors work on one time basis, you approach an advisor, you take the service/advice and he works with you till you get what you need and then tata-bye-bye-see you. Financial advisors really try to make sure that there are yearly relationships, but most of the times clients don’t come back after a year as they feel it’s a waste doing it again and again. But some advisors just run on this model. So it really ends up like – “Come, pay the fees, take what you want, and that’s all”.

5. Fees charged as percentage of Portfolio Worth

Call it wealth management or Financial Planning + Wealth Management, in this model a fixed percentage of your net-worth is charged. The yearly fixed fees can be present or missing, but a percentage of your AUM (total worth) are taken by the advisor/planner/wealth-manager. A lot of people feel comfortable with this model as this is linked to their net worth. If there is no increase in their net worth, then no fees to be paid, but if the net worth increases, you give away a part of it in fees.

Which model do you like and why?

Now the question is which model do you like and why? What is the reason you like a particular model and why do you think it should really be encouraged? A plain brainstorming! let’s do it. Leave your comments and express yourself!



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 ?

The biggest financial advice – Saying NO

Posted on by Jagoinvestor

“No” is one of the non-complicated word – Simply two letters. Yet saying “No” out loud is hard for most people. Welcome to the world of personal finance where saying NO is tough and 90% of the people reading this blog might have a messed up financial life because of a single reason that they didn’t say NO to a lot of things. Let’s start with my favourite ‘Life Insurance’. Almost everyone I have interacted with, had/have a sad story of some uncle selling him (wait wait …. the correct word is ‘forced him’) to buy a life insurance plan because he had to complete his target or his job was at danger or because he was trying to sell life time product. Saying ‘NO’ was not an option because ‘it won’t look good’ (I am sure it looks amazing right now).

“Yaar – Can you help my brother as he needs a car loan. Can you guarantee his loan, they want someone from the city itself and could you just give your PAN Card to my brother? As it is part of the procedure, kuch hota wota nahi hai ” . You can’t say NO. Months and years pass on … Friend’s brother loses job, can’t pay the EMI and obviously you are the defaulter now! Your home loan, car loan, credit card all kind of applications are getting Rejected. Either live with this situation or pay the balance Rs 4 lacs. This is the cost of avoiding a NO.

Saying No in Personal Finance

Are equity markets risky for you? And you want a equity + insurance product bundled which gives tax benefit and also gives benefit of rebalancing on its own, but you want guaranteed returns? Welcome to the world of “Highest NAV products“. Now you get highest NAV (but we will decide how the highest NAV is controlled… he ha he).

Wait… but it would be amazing if I can buy at the lowest NAV product. Arre no problem sir, jaan bhi haazir hai. Just close your eyes give me 10 min… zoom! Lowest NAV ULIP is here! Anything else? Now please don’t say NO. We did whatever you wanted, please be kind and don’t be so rude, please write a cheque. What? I can’t invest lot of money in one go… Ok then, we have a monthly investment option available. We can try every weekly too if you want.

Inventions in SIP and Insurance

There are “inventions” in SIP … SIP in Stocks (It does not work, think why) , weekly SIPs, daily SIPs, minute SIPs… we will extract the rupee cost averaging concept… Normal SIP, Flexible SIP, increasing SIP, decreasing SIP – They can read your mind.

People were scared of ‘Term Insurance plan’ about it not giving back the money paid as premiums – so let’s introduce Return of Premium Term insurance plan, now no one can say ‘NO’! We are giving insurance money if you die and your premiums back incase you live for the term of the insurance… what else you will want to say YES? Please be human and take it. I hope you are getting what I am trying to say – The more options we have, the more we believe that we need it. You need to learn to control your decisions and say ‘NO’ to most of the things. There are minimal options which you need and keep things extremely simple.

There is no reason in this whole world to have 10 insurance policies. There is no reason to have 15+ mutual funds in your portfolio. There is no reason to have try to beat the markets with direct stocks if you don’t know the rules of the game in equity markets or you are trying to learn the game of equities or have a past record of beating mutual funds or even index returns. There is no reason to have different kind of policies. There is absolutely no reason to own more than 2 credit cards.

There is no reason to have more than 2-3 Health Insurance products & overall there is no need to have savings account in so many banks unless you have extra cash to pay for the bank charges. However almost every portfolio we come across, we how there are many area’s where investors went shopping with craze at some point of their financial life . I have seen 45 insurance policies (yes , LIC policies) , 100 Mutual Funds in a portfolio (I really suspect the guy thought they are SHARES) , 12 health insurance plans , 8 credit cards with a close friend, and one of my relative with 7-10 bank accounts (with that attitude of “arre Rs 500 pada hai account me , rehne do, ja hi kya raha hai)

So what you need to do?

If you want a fairly simple financial life, all you need to have is:

  • 4-5 good equity diversified mutual funds or balanced funds
  • 1-2 term plan
  • 1 health insurance product
  • 1 credit card
  • 1-2 bank accounts
  • Financial Discipline to say ‘NO’ to what you don’t need

We said No at wrong places

Now just like we didn’t say No at wrong places, we have said NO many times at right places. When we met an agent who was not ready to share his commissions in exchange of authentic and right advice, we said NO, we don’t want you. When we meet an advisor who didn’t give us discount on his fees but was a high quality advisor, we said NO, we won’t need people like you. When we wanted to go to a workshop or seminar on finance & money and we came to know that its PAID seminar, we said – Kya faaida – NO we don’t want to come. 

I want to take this message very strongly in 2012 start and follow it though out your life – You don’t need to do a lot of advanced things in your financial life, provided you do not make a lot of mistakes and are ready to keep things simple and an attitude to say NO to fancy and complicated things in life . Thais the conclusion of this article. Also I am going to break a very good and big news to all readers in few days. Any guess ?