Is it really worth saving small amounts like Rs 2,000 per month?

A lot of young investors are often confused if it’s really worth saving small chunks of money in the start of their careers?

A lot of investors don’t save enough at the start of their career and wonder if they should start saving only in the future when they are able to save a “respectable” amount like Rs 10,000 or Rs 50,000 a month?

Today I want to let you know why small savings matters!

The #1 benefit of small savings

Does it really matter in long run if you save Rs 2,000 per month for a few years? Even if you do it for 3 yrs, you will just have Rs 60,000-70,000 with you. It’s not a big amount of money.

A lot of people might be able to put a big lump sum in one go to compensate for the pain of taking the effort of saving a small sum of money each month. On top of it, if you ignore saving a small sum of money for a few years, your final wealth will not be drastically different had you saved small amounts.

What you just read above is what a lot of investors think about small saving. It’s a classic mathematical way of looking at it.

However I often tell people that it’s not about the amount, but about the HABIT OF SAVING MONEY.

Cultivate the Habit of Saving

When you start your investments and start investing per month, the bigger benefit is that you are forcing yourself to take out a chunk of your monthly income and invest it somewhere.

You are actually developing the HABIT of saving on a regular basis, which is not an easy thing to achieve.

habit of saving

Today, a lot of investors are earning good amount of money and they also have a decent surplus, but what is missing is the habit of saving. They have never done it before in life for many years, and now when suddenly they are having surplus which potentially can be invested, they are finding it tough to do that, because they are not able to control themselves with the distraction this world offers them.

Imagine two kids, one of them always saves 5% of his pocket money and spends the rest. Another one spends all his pocket money. This continues for 15 yrs of their life. You can imagine what will be the psychology of both the kids and how it will impact their future.

The same is true for investors after they start their career and earning life.

Small savings compounds and boost your wealth in the future

Small savings might not look big enough at the start, but over the period of time, they compound well and adds to your wealth creation, sometimes big and sometimes small.

So let’s imagine that your future saving scenario looks like this

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Year The amount you will save per month
First 10 yrs Rs 2,000 for 3 yrs, then Rs 3,000 for 3 yrs, then Rs 5,000 for 4 yrs
Next 25 yrs Rs 20,000 per month (increasing with 8% per year)


Given the scenario above, imagine two cases

  • Case 1: You invest in first 10 yrs – Small savings done
  • Case 2: You DONT invest for first 10 yrs – No small savings done

If you add up all the money which you invested from your pocket in CASE 1 and Case 2, you will find out that the difference is just 2.4%. Yes, incase 1, you will invest 1.77 cr and incase 2, it will be 1.73 cr. Hardly any difference you will say

But when you find out the difference in the wealth created at the end in both cases, it will be a gap of 16%. In the case of Case 1 you will make 7.98 cr, whereas in case 2, you will have 16% less wealth. That’s a decent amount of money.

Below you will see the wealth difference in both the cases.

Impact of small savings in long term

The above example tells us that if someone is not saving small chunks of money just because they feel it will not be worth it, it’s not the right way of looking at it, because in the long term it will surely help in boosting the wealth one will create.

Small savings also help you in dealing with emergencies

Another benefit of saving small amounts at the start and not waiting for the “right” time is that one will at least start having some amount for emergencies. In our example above, if one invests even small amounts for the first 10 yrs of life, they will have a sizeable amount of Rs 7.2 lacs at least.

This is not a small amount. It can help the investor in dealing with any kind of emergencies. One can even avoid taking loans for things like buying a car, vacation or home appliances.

If nothing happens, it will give a nice feeling to the investor and boost his confidence that it is possible for him to create wealth. Remember to create 1 crore, you need to create the first 10 lacs and to do that you need first 1 lac.

You have to start somewhere.

Don’t delay your investments, else it will cost you later

The more you delay investing, the more you will have to invest in the future to cover up the short fall. Here is a small example I want to share with you

If you invest Rs 10,000 per month for the next 30 yrs (assuming a 12% return and 7% increase in SIP per year), you will be able to create 5.36 crore in 30 yrs.

Do you what happens if you delay by just 5 yrs? In that case, you will create only Rs 2.78 crore. Yes, Only 2.78 crore against 5.36 cr.

And now if you want to reach the same corpus of 5.36 cr, you will have to start with the SIP of Rs 19,300

Cost of Delay Calculator

Below is a simple cost of delay calculator where you can try out different scenarios for yourself and see what will be the impact of delaying the investments.

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Start Small – It helps you in building the habit of saving

To conclude I would say, starting small has its own benefit. It will develop your habit of savings. If you can’t save Rs 2,000 at the salary of Rs 30,000, it will be equally tough to save Rs. 20,000 at the salary of 1,00,000.

“Investing” is more about your own behavior & not external factors.

Do let us know what you feel about this article? Do you know someone who has been delaying their investments (are you one of them?)

Things that you should know before hiring a financial planner

As a concept ‘financial planner’ has been in existence over several decades in the western world and in modern times, this role has turned into a well understood and highly regulated profession.

In the developed markets Financial planners would be similar to the family GP (general practitioner or family doctor) advising their clients on money matters ranging from buying into real estate to making of wills and estate planning.

5 reasons why you should hire a financial planner

In India though the concept, as it is understood in the west, is yet to arrive; we always did plan our finances well. This was, however, done by a variety of means. For instance, we took advice of friends and family members before finalizing the property deal; we asked colleagues for a reference to persons who could provide us the financial product that we wanted to invest in.

We also were chased by individuals who would specialize in selling a particular product (Common mistakes in Personal Finance). It could have been insurance, tax planning products, loans etc. In most events there was significant mis-match between what we wanted and what we got. The products would service most but not all requirements of the problem we had.

This has been changing over the past 5-7 years with the emergence of financial planners. These individuals/firms approach in dealing with client’s financial problems is more integrated than what most of the firms offer in India today.

Financial planning firms in India now help you address whatever your financial need, just like their western counterparts. Below are 5 main reasons why should hire a financial planner:\

Read : A short guide to Hire a Good Financial Planner in India

You can also watch this video to know the Financial services by Jagoinvestor.

1. Service

This is the most fundamental part of any financial planner. Since when you hire a planner and he charges you fees, individuals can expect a very high level of personalized service from the firm/planner.

This serves several purposes. It frees a significant amount of time that you invest in doing research for investment/ financial products. This in-turn helps you choose the right financial product/service.

2. Accountability

By far this is the most important reason to hire a financial planner. Over the past few years, there have been a plethora of financial products that got manufactured and a significant of those that got invested into were sold by individual/firms who were and are not held accountable for promise and performance.

There has been a wide gap between these and it continues to be easy to get away after completing the transaction without any recourse to the agent/intermediary for non-performance. ‘Caveat-emptor’ or buyer beware is applied on majority of financial products.

A financial planner and his engagement is a multi-year one and rest assured that chances are that more often than not you can demand an answer and check back on promise and performance of the financial product sold.

In fact, the planner of today in India is the one that keeps clients updated on what has been the periodic performance of his/her investments.

3. Knowledge

There has been a sea change in the financial landscape in India over the past 10 years. Financial products that got manufactured in India have increased in complexity and oft border on the esoteric fringe.

A planner endures that he is updated on the latest happenings around him and is expected to do two things – guard his client into signing on against anything which is not in his/her interest and select products which though not understood well but suit and serve the purpose and his financial goals.

Both of these activities require a deep understanding of the markets and products per se. In addition, global certifications such as the CFPCM (Certified Financial Planner) provide the added comfort that the individual has done enough homework before he takes fiduciary responsibility of your funds.

4. Ethics

This is easy to understand and preach but difficult to find and practice. Here is where the difference can be stark and contrasted. Financial planners who have demonstrated business ethics and integrity will remain a standout.

Because of the esoteric nature of quality involved in testing the planner whether he is ethical or not, the test can be done by simply asking questions such as – What process does he follow in taking and dealing in funds? What is the quality of people he employs at this firm? How long has he been in the business? How has he grown the business? – references, ads etc.

Answers to questions such as these will provide you with a fair degree of things such as Ethics, honesty et el.

5. Goal orientation

Not the least of them and equally important is the ability of the current planner to being goal oriented and inculcating a habit of financial discipline into the client’s psyche. The benefits of this get blurred in the overall scheme of things due to the nature of the long length towards the realization of them.

Things like children’s education, marriage or spending for one’s 25th marriage anniversary are events stretched far out in the future and hence not planned for. The planner’s ability to set aside or build funds for these events and the benefit of those would dawn upon when the events arrive over the short horizon.

This is a guest article written by Vinayak Kanvinde , Vinayak is a CFP and Head of Research at International Money Matters Pvt Ltd

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

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

The answer is – LACK OF CLARITY!

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

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

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

Some examples of decisions which investors have to make !

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

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

4 point Decision Making Framework

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

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

decision making framework

What is decision-making framework?

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

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

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

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

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

Its happens because of instant gratification problem !

The first home loan is allowed!

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

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

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

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

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

Is debt free always a good option ?

Real life example when it becomes tough to choose

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


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

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

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

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

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

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

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

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

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

simple or lavish financial life

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

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

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

Why choosing your theme is important?

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

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

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

Its not about show-off

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

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

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

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

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

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

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

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

Some investors like Liquid money !

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

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

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

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

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

Should you block your money in various assets

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

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

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

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

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

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

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

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

Kids Education and Retirement

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

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

But things are changing !

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

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

Spending culture in increasing

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

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

for whom should I-earn

You have to complete your responsibilities in life

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

Will this decision-making framework help you ?

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

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

financial framework

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

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

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

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

my personal framework

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

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

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

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

What are those parameters? 

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

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

checklist of good financial life

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

Lets see how many of these are true for you.

1. You have positive surplus each month

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

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

Did you pass this check or not?

2. Your net worth is going up on yearly basis

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

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

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

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

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

Did you pass this check ?

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

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

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

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

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

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

Did you pass this check?

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

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

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

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

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

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

Do you pass this check or not?

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

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

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

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

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

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

Are you able to pass this check or not?

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

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

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

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

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

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

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

Anyways, Did you pass this check or not ?

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

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

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

Imagine what all can go wrong with this situation?

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

Double Income, No kids families with too much debt

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

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

What is the problem here?

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

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

Did you pass this check or not?

8. You are earning real return in positive number

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

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

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

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

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

Did you pass this check or not?

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

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

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

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

Let me explain you with an example

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

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

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

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

Are you able to pass this check?

How much did you score?

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

Please share your views about this article in comments section.

4 early life mistakes which investors should avoid at any cost

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

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

personal finance mistakes of new employee

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

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

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

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

tax saving search trend india

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

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

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

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

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

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

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

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

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

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

investment late tenure

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

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

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

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

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

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

Are you getting my point?

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

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

debt trend indian cities

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

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

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

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

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

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

Relatives and friends role in your financial life

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

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

relatives role personal finance

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

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

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

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

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

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

X+Y theory – A simple theory explaining, why its important to invest money for future

Today’s article is going to be very very basic. It’s one of the lessons which we should teach our kids when are growing up. The question is “Why Invest money at all?”

A lot of investors are not very serious when it comes to save enough money and invest it properly so that it grows well. A lot of investors are quite consumed in their life and don’t deal with this conversation fully. Only after years of working they realise that they have done a very bad job when it comes to investing their money.

I thank Mandar Rane to raise this question in Ashal Jauhari facebook group and shared what he faces with his siblings and many connected to him

why should I invest

X+Y years theory – Why you should invest money at all ?

There is a simple conversation which I think everyone should go through once. I call it as X+Y theory. Its very simple.

Every person will be living for X+Y years in total.

X is the number of years when they will go to work and bring back money to pay their bills and acquire all they want to enjoy (movies, clothes, eating out, travel, food, fees). This is mostly ACTIVE income and money will come only when you work.

Y is the number of years, which we will spend without earning. We will still need food, clothes, travel, eating out and various other things, but the problem is we will not be working in those years, either by choice or mostly because we are unable to. Now where will the money come in that phase? The money has to come from somewhere?


So you mainly invest so that you create enough wealth which can last your Y years. I know I am making retirement planning very jazzy at this moment, But NO, this is just going one level deeper and answering the basic question of “Why should I invest at all?”

reason why to invest money

Note that when we are in X yrs phase, we are not too much concerned about the Y yrs, because the X yrs phase itself has many issues. Kids , House, job, health, parents, relationships and many issues which keeps us occupied enough and only when we approach the Y phase, we are bit scared and tensed, but then it gets too late.

3 basic level reasons you should invest your money?

Below I will talk of primary level issues why one should invest their money to grow in future. And when I say grow your money, I am not talking about saving it in bank account, I mean talking about really letting it grow beyond inflation.

1. Because of Inflation 

The most basic reason to invest your money is to protect it from Inflation. Your money will decrease after many years in its purchasing power. A Rs 100 note will not be able to buy the same thing in future, what it can buy today. So you need to invest money properly so that you are able to at least buy the same quantity tomorrow or preferably a larger quantity.

2. Financial Independence

This is exactly what I was talking above. I am sure everyone want to work, but not becoming money slave’s. If you do not invest your money, you will never be able to create a corpus of money you can rely on, and will never be able to get free from your work. If you want to make sure your reason to go to job should be “because I love my job” and not “I need to pay my bills, I am helpless”, then start building that corpus as soon as possible.

And I am not talking about cutting down your desires and entertainment. Do all that, but also start creating that corpus. Keep a balance.

3. Reach your life goals

If you earn Rs 100 per month, and you need Rs 50 for some purpose suddenly you can surely handle is somehow. But what if you need Rs 5000, but you earn only Rs 100? In that case, you need to make sure you have accumulated that amount before hand, slowly and steadily.

We all know some of our financial responsibilities will be coming up in distant future and they would need a big amount. Things like house downpayment, children college education, marriage and many other things like that. If you do not invest, how will you fund those goals? It’s as simple as that.

You are sum of your experiences in life

A lot of youngsters have seen their parents struggle for money and their mindset is already set in a way that they understand the importance of saving properly and growing their money. However a big number of people have had a bad relationship with money. They live paycheck to paycheck, splurge beyond the limit and are careless enough when it comes to money.

A lot of people might say that they are just stupid to act like that and are highly careless and irresponsible. But I think its just a matter of lack of financial literacy or their way of looking at life is different. Everyone is raised differently in their lives and we all have difference experiences. We become what we experience at some level. If you save enough or do not save enough, at the end its just has an outcome which you need to be aware about. That’s all.

How to teach this lesson to your kids (and some adults)?

The simplest way to teach this lesson to small children is to tell them the Ant and Grasshopper story. It’s one of the most simple and powerful stories.

Here is the story for those who can’t see the video

In a field one summer’s day a Grasshopper was hopping about, chirping and singing to its heart’s content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest.

“Why not come and chat with me,” said the Grasshopper, “instead of toiling and moiling in that way?”
“I am helping to lay up food for the winter,” said the Ant, “and recommend you to do the same.”

“Why bother about winter?” said the Grasshopper; we have got plenty of food at present.” But the Ant went on its way and continued its toil.

When the winter came the Grasshopper found itself dying of hunger, while it saw the ants distributing, every day, corn and grain from the stores they had collected in the summer.

Then the Grasshopper knew… It is best to prepare for the days of necessity.

Invest early and with discipline

To get the maximum benefit, make sure you start your investments as early as possible. Even if it’s small in the start, that’s ok. At least you will prepare yourself to invest bigger amount in future if you at least invest small amounts in the start. You will build some wealth (even though its small) and build your mindset to invest regularly.

What exactly is Financial Planning – 8 things we learnt after working with 300+ clients

“Financial planning” is the NEW buzz word these days all over the internet, TV channels and newspapers. These days even bank employees are selling a lot of financial products on the name of “Financial Planning” .

Investors are literally bombarded with the word – Financial Planning from various sources like blogs, articles, advisors and every mutual fund and insurance agent, and the flow of information has created some kind of mental image in investor’s mind about – “what is financial planning?”.

what is financial planning

In a typical financial planning exercise, a financial planner goes through your financial data and then draws a written financial plan, which touches upon various area’s of your financial life like life insurance, health insurance, asset allocation, retirement, children goals etc etc.

But in this article we want to add more dimensions to what is financial planning, and want to add a whole new perspective to what is financial planning. The article’s motive is to help you to see financial planning process with new and empowering perspective.

Our view of “Financial Planning”

We feel that at Jagoinvestor – even our own view about the term called “Financial Planning” has changed over a period of time and we would like to share the same with you all today.

We have worked with close to 300+ clients till date and today we want to share our learning and insights which we have drawn from our experience in so many years. With every passing day we are evolving inside our profession and we also want our readers to grow with us.

What Investors and Financial Advisors think about “Financial Planning”

We want to know what do investors and various financial advisors connected to us on social media think about “Financial Planning” , We wanted to know from them what is their view about “What is Financial Planning?”.

So we asked them on facebook here and here. We got lots of answers and we are sharing some of them with you below. There is no wrong or right definition here, so we just collected few answers from investors and financial planners and we want to show you what they think about it.

financial planning meaning

8 insights about Financial Planning

Now We will share with you 8 insights about how to perceive financial planning in a new way. We feel a big number of investors and financial advisors have a very narrow view about “financial planning” and its potential.

We simply want you to see Financial Planning tool with fresh pair of eyes. May be it’s time to question our perception about what financial planning is all about. Here are those 8 insights below.

1. It is not about securing future, it is designing your present

A lot of investors and advisors think that financial planning is about future, in our view it is not about future. Financial Planning is an exercise that helps you to design your present as an investor. Future is an illusion and it just does not exist in reality.

You have to use financial plan as a tool to make each day/week/month and year your best financial year. A lot of investors think with the help of financial plan I am going to secure my future, but in reality it is about learning to play fully in this very moment.

Let me share an example with you – All the investors who drop a financial planning inquiry on our services page – we usually ask them why they want to go for financial planning and what financial planning means to them ? And the most common answer we here is, “I want to do financial planning, so that I can secure my long term financial goals like children goals, retirement etc.”

They think financial planning can help them to be more secured. We ask them to stop over focusing about future and look at what best they can do right now with their financial resources.

2. Financial Plan is not about “Financial Goals”, it is about Financial commitment

A lot of people think financial planning is only and only about financial goals. May be financial goal is one small part of the whole financial planning exercise, but surely its not only about financial goals.

In our view it is about strongly announcing your financial commitment and what you are going to do now on-wards in your financial life and then sticking to your commitment. We encourage all our clients to announce their monthly financial commitments. Setting financial goals is extremely easy, but sticking to your monthly financial commitments is where the rubber meets the road.

Let me share with you something about our clients, what we do with our clients – When we get on call with any investor clients of ours, they bring all their WANTS on table (difference between Needs vs Wants here) . Wants like second home, A lot of clients want to even plan for the kid who is not yet born.

Now, the moment we start the commitment conversation the goal list starts to shrink. Commitment is doing what is required to get what you want and not allowing anything to get in your way.

3. Financial planning is NOT about bringing Certainty

As human beings we are always attracted to Certainty. Most investors want to know whether they will be able to achieve their financial goals or not ? This is the core reason why they hire a financial planner! . In our view the best thing about life is that it is mysterious and uncertain.

If we pull uncertainty out of future then it is no longer the future; It is present – which is projected forward and nothing else.

We want investors to hire a financial planner not only with core focus of bringing certainty, but to building financial muscle, to face every kind of situation that life throws at you, to bring more completeness in various areas of financial life, to get an external opinion about your financial life.

We have seen this happening with many investors – No matter how much they plan, life turns out the way it turns out. Now this does not mean you should not plan, but you should develop your mind that is constantly planning in face of what happens.

Watch this video of Financial Coaching by Jagoinvestor: 

4. It is NOT about financial plan, it is about the Journey

We find so many investors and financial planners – who are totally attached to the document called “Financial Plan”. They pick small small things from the PDF document given to them and over focus on them, it might be some number , some fund name or some assumption taken.

In our view the real results are not inside of a financial plan, they are located outside of a financial plan. We ask our clients to draw key learning’s from the financial plan and then throw away the plan. Every investor is on some journey and it is important to enjoy the journey. If you are not enjoying the wealth creation journey, you will never enjoy the so called destination.

We have seen people who after reaching the age of 55 or 60 years of age, tell us that it is the financial journey that matters at the end and nothing else. When we work with investors we just do one thing, we simply ask them to enjoy the process of wealth creation. This eliminates all the worries from your head and helps you to take proactive actions in your financial life.

5. It is NOT about picking perfect financial products

In our view financial planning is not an exercise to pick right or perfect financial products. A lot of investors spend maximum time in “Which Mutual Fund is Best?” or “Which Health Insurance policy premium is lowest?” and similar points. While that’s important to some  level, but finally wealth creation is all about testing and exploring.

A lot of investors fail to create wealth because they stop testing and exploring. A good financial planner will always encourage their clients when it comes to testing and exploring new things. He/she will educate you in a way, such that you are motivated to test new things in your financial journey.

A good planner will always say “Don’t’ worry I won’t let you fail but I want you to test new things as an investor”

When we work with our clients – we ask them to test new and unknown territories. We once asked one of our client to think about creating an alternate income even though he was working in a software company. We asked him to cross his mental barriers and keep looking at opportunities.

Few months later, In one of the offices, there was a food counter in cafeteria space, which he setup and hired a worker and it was doing well , The question is not what happened later, but the main thing is that he explored some new ways of earning money.

Then there are so many investors who never ever invested in mutual funds thinking it is a risk proposition. We ask them to test this new route and we become their guide. We helped them clear their myths about equity products and once they become comfortable, they started exploring it.

6. Financial plan is not about products, calculations and returns, it is about YOU

The number one expectation an investor holds in his mind is to find a financial advisor who helps him/her to get more returns. “A Financial Plan  is not about products, returns and calculations, it is about YOU” – This line is from my book “11 principles to achieve financial freedom”.

This entire book has no numbers and calculations in it, it teaches an investor to develop right kind of mindset in the area of money. Financial planning is an opportunity to be 100% honest in the area of money so that you can work on your discipline level and can make corrections as an investor.

Let me share an small experience here. I was working with a client who told me – “I have no idea why my financial life is not good”.

I simply asked him to get the truth on table, I asked him to search inside him to get real answer. He finally agreed and owned all his mistakes and took entire responsibility of his financial situation. It was painful for our client, but things started to shift when the truth got on table.

This realization and acceptance gave him a lot of power to change things. It was all about HIM and not about situations and circumstances.

7. Financial planning is NOT about advice, it is about ACTION

The old definition says that financial planning is process where two people connect, number crunching takes place and advice is imparted on what needs to done.

Giving or taking advice is just 20% of the job done, because the rest 80% is all about taking actions. More and more investors will make the most of financial planning tool when they will take actions, because at the end only action produces results and nothing else. As an investor check, how action oriented your advisor is or how action oriented you are as an investor?

A lot of readers write to us and say – “Can you advice me on so and so issue ?” . We say – “NO , We will help you to gain insights along with giving advice so that you are empowered to take actions”

We ask our existing clients to report their weekly personal finance actions to us. This is how things start to shift in their financial world. In our facebook bootcamps, we focus on taking actions for 6 weeks and we have helped more than 250+ investors to make their financial lives awesome till now.

Look at one of the recent bootcamp sharing where, one of our participant “Sachin Gopalkar” is sharing what all actions he did while he was in bootcamp

Jagoinvestor bootcamp sharing

8. Financial plan has to be a LONG document

Who the hell says financial plan has to be a long and lengthy document. You won’t believe, but there are many software’s which financial planners use and all these software’s are in the race of 30-50-100 page financial plans.

Even a lot of financial planners believe that longer the document they give to client, they can showcase the work done by them and all the “analysis” they did. They feel that can justify their “work-hours” put in the financial planning exercise and help them to charge more fees.

But, almost all the investors we have talked to till date are not looking for a lengthy plan; All they want to learn is how to get in control of their financial life. Lengthy documents just confuse the clients. After looking at number of pie charts and heavy graphs and complex calculation tables in the financial plan, investors get more frustrated.

Why not give a financial plan that the investor can own and implement, why not give a one page plan  or may be something which is short and sweet. A short plan, which only has something which really matters to clients and makes it easy for them to understand their own financial lives.

We once gave an option to one of our clients – “Do you want a 15 page financial plan or a 1 page plan?”. He said, “I will be thankful if you can give me a 1 page plan”. And we gave him a one page plan, which was sufficient for him to take important actions in his financial life.


Now, you have a whole new perspective on how to look at financial planning and you also know how not to look at financial planning. Share what is it that stops you from getting a financial plan, what stopped you till date? Is it about your lack of understanding, lack of belief in financial planning or something else?

Do share your views on today’s article, I have not been very active on writing articles but from now on I will see that I share my views from time to time.

– This article is written by Nandish Desai

GFactor , A decision making tool for Financial products

How do you find out if a product suits your requirement ? What about a very simple calculation which can take into account most important requirements like lock in factor , complexity of a product , your requirement and its return and risk potential and tells you if it really suits your requirement. This Post will talk about a concept developed by me called GFactor , which is a score system for any Financial Product. You can input 4 factors and get a score for a product . So this GFactor score system will tell you about goodness/badness of a product.  Gfactor stands for Goodness Factor .

What is GFactor ?

GFactor is a very simple rating system for Financial products which gives a score on a scale of 0-1 . 1 represents excellent , 0 means worse . There are mainly 4 factors which we consider when we design this GFactor .

  • Trap Factor (Liquidity)
  • RR Factor (Risk/return Factor)
  • Complexity Factor
  • Need Factor

Trap Factor

Trap Factor is nothing but its score for the product on scale of 0 – 1 for the lock in period. The more trapped you have to be in product , the more will be the Trap factor score. One important point you should note here is that you should also consider how much loss you have to take even after you can freely come out of the product . For example : Endowment policies trap you for long periods like 15 to 20 yrs . Even though there is an option to close the policies you loose a lot of money. So the trap factor of Endowment Policies will be more like 0.9 or 1 , where as Mutual funds (non tax saving funds do not have any type of locking period) . So they can have trap factor of 0.1 or 0 . In ULIP you are stuck for at least 3-5 yrs , only after the 5th year. So it can have a trap factor of 0.6 or 0.7  you can get out without any penalties . For term insurance there is no trap factor , you can stop the policy any time .

Years of Trap

Trap Factor

No Trap 0
1-3 yrs 0.2
4-10 yrs 0.5
10-15 yrs 0.75
15+ yrs 1.0



Risk/Return Factor

Risk/Return Factor is a factor which will evaluate a single digit score for its risk/return potential . This score takes into consideration both risk and return . You can look it as risk adjusted return potential . so this factor will determine the return potential considering the risk potential. To calculate this you should know average return and average risk figures of a product in its total duration . Lets see the calculation first .

Risk Return Factor = (Average Return – Average Risk)/Average Return

Lets see an Example in case of ULIP : Robert wants to buy some mutual funds for next 5 yrs . In these 5 yrs , as per the historical data , we know that he can expect an absolute 100% return on average  (his money can double) , and if some thing bad has to happen hecan loose around 30% of value (the figures will differ for everybody) . So

Example for Mutual Funds (5 yrs)

  • Average Return = 100%
  • Average Risk = 30%

Risk Return Factor (Mutual funds) = (100 – 30)/100 = 0.7

Example for Fixed Deposits (2 yrs)

In this case suppose the returns from FD are @8% .

  • Average Return = 16%
  • Average Risk = 0%

Risk Return Factor (FD) = (16 – 0)/16 = 1.0

Note : For term insurance , the return will be the max amount you can get and Risk would be amount you can loose all , which is total premium over many years.

Complexity Factor

Complexity score is a number you assign to the product, depending on the how complex of easy it looks to you . For example Mutual funds can be easy to understand for me , so I can put 0.1% for it a complexity, whereas  NPS is more complicated to me , so I will put 0.5 . This means If it looks too complicated for you, then give a higher score, whereas if you understand it well, assign lower score .

For a normal person I would say ULIP is complicated , so we gave give a score of .7 or .8 or 1 ,depends on you, where as term insurance is extremely easy to understand, so it will get 0 or .1 , Mutual funds would be .2 or .3

Need Factor

Its a score given on the fact that how badly you need or require the product and will it be the best thing for you. One person may need it more than other, so the score will be different for different people. If you are not in a hurry, but your relative suggests you a policy , then it does not become a very high priority product for you, because you do not require it at that time, so you will assign a lower score to it .  For a person who is in his 26-27 age and just married and has some financial dependents , His score for term insurance will be around .9 or 1 because he badly needs it . Make sure you know difference between your needs and wants

A person who is 45 , for him/her NeedFactor for Health Insurance would be .8 or .9

A person who is Extremely High risk taker and understands equity investing well , his need factor for NSC or FD would be low , say a score of .2 or .3 because he really does not need it and it does not suit his requirement also .

Now Lets construct the formula

Variables are

TF : Trap Factor
RRF : Risk Return Factor
CF = Complexity Factor
NF = Need Factor

You should understand how the formula should be constructed. Out of the 4 variables, 2 scores shows strength of the product(Need Factor and Risk Return Factor), where as two scores are negative(Trap and Complexity Factor), so below formula should take care of this aspect .

GFactor Formula = (NF * RRF) – (CF*TF)

Lets take an example . Ajay is a 35 yrs old Indian working in a Software company, He has 2 kids and 1 wife 🙂 and 1 parent to support . His risk appetite is moderate and he cant take more than 20% downside in his investments at any given year . He has a home loan and a car loan at this moment and has just 10 lacs of overall savings . Below is the chart which calculates GFactor for some products considering Ajay’s situation. Understand that these numbers are for Ajay, it can change for you .

Trap Factor
Return/Risk Factor
Complexity Factor
Need Factor
 Term Insurance
0 0.95 0 1 0.95
 Health Insurance
0 0.85 0.3 0.8 0.68
.25 0.5 0.1 1 0.48
.25 0.5 0.4 0.4 0.1
 Tax Saving FD
.5 1 0 0.1 0.1
 Endowment Policy 1 1 0.5 0 -0.5


  • If GFactor value is more than .7 , you can consider that product as “Must buy. Go for it” .
  • If its more than .4 , you can consider it as “Average”
  • If its more than .2 , you can consider it as “Look for alternative product. Buy only if nothing else is available”
  • And if its less than .2 , then you must avoid it .

GFactor of a Portfolio

Just like we have Gfactor of a product , we can have GFactor of a Portfolio , which is average of GFactor’s of all the products in a Portfolio . Example

  • Term Insurance : 0.95
  • 4 ELSS : 0.43
  • 4-5 shares : 0.35
  • 10 gm of Gold ETF : .72
  • EPF contribution : 1
  • 3 months of Cash : 1

So average of all the GFactors = (.95 + .43 + .35 + .72 + 1 + 1)/6 = .742 . This  is a good Score for a Portfolio , But I can do better than this . Whats your Portfolio GFactor ?


There are 4 main factors which matter when taking the decision regarding a Financial product , The above concept is my own thinking and It may not fit everyone criteria , but I am sure it would be true for most of the people , If you have disagreements , its fine . We subconsciously understand how there 4 factors affects our decision making process , but the idea is to put it into formula and get a Score out of it , so that we can compare and know how good or bad a product can be for us .

Ques tion

  • Can you design a better formula for GFactor which makes more sense that what I have given .
  • Do you think GFactor can be useful to general investor to take decisions .
  • Please share with me GFactor of your overall Portfolio .

Note : This is an old post , I am republishing it with changes

Top 10 doubts and answers in Financial Planning which every beginner investor has

Most of the newcomers and even some experienced people struggle with basic questions and concepts of Financial planning. I hear most of the readers on this blog and even over the chat with them asking the same kind of questions over and over again.

So here are top 10 questions and their answers. Read them and find out if it contains some of your doubts too…

Financial Planning

Question 1# I want to Buy a Life Insurance for my Financial dependents. What Should I buy?

Answer: Term Insurance, split the Insurance between 2 Insurance providers, better to take 5% increasing Cover option.

Question 2# I have to save for my retirement and Children Education and Marriage. It’s more than 15 years away. I can take small risk to moderate risk, where should I invest?

Answer: Invest in Equity Diversified Mutual funds via SIP. Keep reviewing the funds every 2-3 yrs. For now, choose the funds from this list of Best Mutual funds in 2009.

Question 3# I have no Idea about Stock Market and How it works and I am not even Interested to know how it works! Is there any way I can invest in Equity and Enjoy high returns?

Answer: Yes, The answer is same as #2. Invest in Equity Diversified Mutual funds via SIP method. Keep reviewing the funds every 2-3 yrs. For now, choose the funds from this list of Best Mutual funds in 2009. If you are not a big risk taken and have some heart problem then Invest in Balanced funds.

Question 4# I have recently got very excited by the idea of doing Stock Trading and make some consistent money from it. Any Tips?

Answer: Better do what you are doing right now… Trading is not everyone’s cup of tea. Unless you are very determined of making it as a career or a semi-career, don’t even try Trading unless you have no hobbies to keep your self-busy with. Read How a newcomer should start in Stock Markets first.

Question 5# I want to invest in FD or Endowment Policies for my child Education or Retirement which is more than 10 yrs away, Shall I?

Answer: No!! FD and Endowment Policies provide very bad “post tax post inflation” returns… most of the times… it’s Negative return after adjusting inflation and tax. The purchasing power of your money will decrease drastically in these kinds of Endowment policies.

Always remember

Short term = Debt
Long term = Equity

That’s the RULE NO 1. Look at how to choose the best FD for yourself.

Question 6# I need some money for my Sister’s Education or Marriage in 2 yrs, shall I Invest in Stocks or Mutual funds. I can see markets are rising now and I am sure that it will give me great Returns.

Answer: No!! It’s an Important goal and you can’t risk with that. Stay Away from Equity…The first thing you have to ask yourself is “Is Direct Equity for you”? And what do you mean you are “sure” about the markets moving up?

There is no such thing.. Markets didn’t even like Einstein and Newton who tried Predicting the movements, who are you !! Even though markets look easy, it’s too tough to make such calls…

Question 7#I have invested in some Endowment and money back policies. What can I do now?

Answer: Better make it a paid-up policy and take a term policy. You will save a lot of premium and hence you can invest it for long-term in Equity which you provide you much better returns. See the Review of Jeevan Tarang Policy from LIC.

Question 8# Should I hire a Financial Planner? I can read about Financial planning on blogs, through newspapers. I have increased my knowledge to an extent I can take care of myself. What to do?

Answer: It’s great that you have learnt it yourself, you should be able to take care of most of the things by yourself, but most of them will be day to day decisions when it comes to Financial Planning. It takes much more than just that!

Financial Planning is more than “Taking term insurance” or “Choosing some great mutual fund” or “good attitude about saving”

It requires

  • Time
  • Analysis of Current Situation in detail and linking each component with other for best results.
  • In-depth knowledge or at least basic level of knowledge of overall Financial Planning …
  • An attitude of thinking in terms of Financial planning.

It’s not everyone’s job. We all have expertise in some or the other field, we may be okay or good at Financial planning. If your Home electric wires have issues… better call an electrician even though you have learnt some basic Electronics in college and know what needs to be done.

It’s always better to hire an expert and pay him what it deserves. We all are in this world for some reason, better do your own part and let others do theirs.

Note: I am talking about overall Financial Planning and expert advice… taking basic advice can /should be done by yourself.

Question 9# How is an Insurance agent or Wealth/Portfolio Manager different than a Financial planner?

Answer: From decades, Agents and petty advisers with some basic knowledge in a single field claim to be a financial planner. Financial planning is a very different thing than just Insurance Planning or Investment planning.

They are part of Financial Planning and much much more than that. Its like surgery of current situation, trying to find the issues in the current situation, the defective parts of overall Financial life and then correcting those mistakes by linking different parts.

CFP is the standard certification accepted all over the world for Financial Planning; So if you are looking for your Financial planning. Only look for people who are some way related to CFP certifications.

They can either be pursuing it, completed it or have been given CFP certificate. You can also look for any trustworthy person you think have required Skills.

Question 10# But Why to do Financial Planning at all .. I have never done it and I think I am in a good shape .. I don’t see any financial issues with my life.

Answer: It’s an innocent belief. There is time for everything.. wait for 20-30 more years and you will be amazed to see you are so much short of your Retirement corpus. You are still alive, hence you can’t imagine your family Financial situation once you are gone …

Everything shows up later… There are people claiming to be “healthy” and then dying of “Heart Attacks” 2 yrs later .. and young people complaining for “Backaches” in Early 20’s … These are the people who don’t believe in regular checkups…

Just to save few hundreds these people take risk with there health and let it deteriorate to an extent when it’s too late…

There are people who have decided to do their Financial Planning, but they are already in too much mess now… because they have taken those junk Endowment policies long back thinking it will make them rich… once you analyse your Financial Situation by your Future eyes.

You will be amazed to find out how much of restructuring you are doing…

Comments please .. Do you know of any more common question which can find a place here. Which one of these was one of your doubts? Please leave a comment …

Financial Planning and Stock Market Seminar in Bangalore

We had a Free session on Personal Finance and Stock Market Basics on last Sunday , 2nd Aug . There were total of 17 participants , I talked about Basics of Investing and Insurance principles along with a live case study , where I proved why one of the participant was severely underinsured , I told them How to calculate the Insurance Requirement .

Another Friend Trilok also talked about Basics of Stock market to get new people learn the basics terms and get them ready for Stock Markets in case they plan to trade . Some of the important points I noticed overall are :

  • People do not understand basics , but they can understand it very well if they guided properly
  • On an average level there is too much need of good Financial Education
  • Most of the people have money but little knowledge to invest it wisely and correctly

I had put the information about the session on this blog and I expected some good number of registration , but I got just 4 people from my side . I am not sure if people missed it or are not interested in ruining their Sundays for a personal Finance talk . Let me know .

We are planning to do some more more sessions on weekends , but we really require some things from people who come . Interest to learn and Some Time 🙂 . If you are interested please Fill this form to put down your Name . The session will be in JayaNagar 3rd Block , Bangalore . Check out some pics from last session Below .

Manish giving some knowledge about SIP and its Importance

Me trying to Prove why Endowment Policies are not the Right Answer to Insurance

Trilok Explaining from Basics of Stock market and Trading , check out this Ebook on How a newcomer should Start in Stock Market .

The wonderful Audience we had

Note : The session will be totally free , you just need to COME 🙂 .

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