Don’t wait for a hard landing to set your money matters in order!

Don’t wait for a hard landing to set your money matters in order!

The last few weeks have been a turbulent roller coaster of a ride, and even the most astute and calm investor would have had stressful moments while their portfolio values gyrated violently.



Given this kind of unseen volatility, it is not uncommon to expect calls from customers during such times, wanting to discuss their portfolios and share their concerns. Even then, there are some calls though which startle me and forces me to take a break.

I do also realize though that in some cases, counselling can only do that much and sometimes, only a hard landing sometimes serves the purpose of making people realize the risks of living without a financial safety net.

Read more in our latest article, published on Moneycontrol.

https://www.moneycontrol.com/news/business/personal-finance/dont-wait-for-a-hard-landing-to-set-your-money-matters-in-order-5217561.html



Image credit: Moneycontrol



Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.


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How women should plan for their parents’ financial and other needs

How women should plan for their parents’ financial and other needs

Somehow in our society, while it is an understood thing that a man needs to take care of his parents, it is not such a given for the woman. It is strange when you think of it, since equal share in property post demise of parents is accepted by all, while equal share in responsibilities not so easily so.

 

However, a woman has the same instinct as a man’s and would like to be there for her parents, financially or otherwise. So how can you plan for such debts, which in a way, can never be fully repaid?

 

Read our latest article, published on Moneycontrol.com

https://www.moneycontrol.com/news/business/personal-finance/how-women-should-plan-for-their-parents-financial-and-medical-needs-4579881.html

 

Image credit: Benjamin Elliott, Unsplash.com

 

Women must develop the right money mindset for a fruitful post-retirement life

Women must develop the right money mindset for a fruitful post-retirement life

When we are still working, we make so many plans of things to do once we retire. And as we get onto the home stretch in the last few years, the excitement begins to build, of course, with a few butterflies in the stomach as well. So many places to see, so many people to meet, so many suppressed aspirations to fulfil, all of course, while juggling one’s hard-earned wealth and believing that there is enough, not only for ourselves but also to bequeath.

 

But retirement is not always as rosy as you imagined it to be. The transition to retired life is sudden, and there is a vacuum of time, that has to be fruitfully filled. That vacant space has to be occupied with activities that need to be created, not only to feel gainfully employed, but also to feel good about oneself. The actual retirement, therefore starts with a whole lot of unexpected dilemmas and mental adjustments.

 

What are those scenarios that one must adapt and adjust to?

 

Read our latest article, recently published on Moneycontrol.com (link given below).

 

https://www.moneycontrol.com/news/business/personal-finance/women-must-develop-the-right-money-mindset-for-a-fruitful-post-retirement-life-4479141.html

 

In retirement, the role of money is to allow one to fulfil our bucket list of desires, while ensuring that there is enough to take care of our balance life-times, including exigencies. Nothing more, nothing less. Hence, as a retiree, use money to bring you happiness and add meaning to your life, while taking care that it is safely working for you as well. 

 

Image credit: Moneycontrol.com

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

 

 

 

 

 

Do you know your “Finish Line”?

Do you know your “Finish Line”?


Over the last few weeks, Std X and Std XII results across various boards have been announced. As usual students all over have done very well, with many students scoring a full 100% as well, and 95-96% almost seeming like an underperformance!

At the risk of sounding a bit geriatric, it seems to me that while our times were reasonably high-scoring too (if am not wrong, my school topper in Std X got around 88-89%, and I was very happy to be in the same decile), in this generation, this scoring business has gone a bit too far. I would like to think that, beyond a certain point, how much you score doesn’t actually determine success in later life, and vice-versa. Also, this extreme focus on scoring in academics in the early years takes away from valuable life-skills and competencies that should be learnt or built, that, I can say, from experience, are likely to hold our children in greater stead in the later years.

But as is said, life is a race, and you have to run it, like it or not. It’s just that no one tells you what kind of race it is! And hence, despite our best efforts both during education and work, we aren’t adequately prepared for it!

 Life in school and junior college seems like a 100-meters sprint, with everyone (well, it seems like nearly everyone nowadays!) scoring in the top few percentages (just like in a 100 mts race, where every finisher is within a few milli-seconds of each other).

 

And hence when we reach “real life”, ie. higher and post-education years, we are still prepared for a sprint and we get a rude shock when it starts resembling something completely different!

 My take on this is that Life is actually a special kind of long-distance race because of the following two reasons.

 One, like a steeple-chase, there are some reasonably-heighted thresholds that one needs to get past. Beyond a point, how high you jump doesn’t matter, as long as you cross the thresholds.

 These thresholds are personal performance as well as personal skills related, ie. making sure that you do reasonably well in your education and initial corporate life, including learning the necessary life-skills. Eg. good performance in your major exams, landing a good job, getting the right breaks at work, building the right professional skill-sets, etc.

 Like in a race, success is about making sure that one doesn’t trip on these thresholds. Else, the race in future can have various handicaps.

 Two, like in a long-distance race, while all are running, each is running at a different pace, and after a time not running together at all. The race also has a bit of trail thrown in, where one can get lost for a while, in search of directions! Importantly, after a point, each one is running his or her own race, trying to do as best as possible.

Like all races, this one too is a success only if you finish it. The unique thing about this race is that one can determine where is the “finish line” and plan for it. In a way, everyone has his or her own finish line, which they have the freedom of deciding, and which then, they have to reach.

 Reaching your finish line successfully means that you have gained financial independence and have the freedom to retire, to do what you love with your time, to follow your passions.

 The key to winning your own race is to identify your finish line well in time, having a plan to run this race well, including for any unplanned detours on the trail, and reaching your finish line in good shape, feeling happy that you could actually run a couple of miles more!

 So, do you know your finish line? What and where is it? If you do, then do you have a plan to reach it in good shape? And if you still have a good bit of the race to go, are you prepared for the thresholds that will come your way?

 Photo by Jenny Hill on Unsplash.com

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.


Your EPF can be your Secret Santa, provided you don’t touch it until the Christmas of your life!

Your EPF can be your Secret Santa, provided you don’t touch it until the Christmas of your life!

For most of us, our mid-40s seem to be a very hectic life-stage. We frequently imagine our retirement being made up of long holidays with no emails to check and phones to answer, and we hope to start a peaceful retired life someday soon. Unfortunately, these day-dreams end as soon as they start, rudely interrupted by kids, work or something else “urgent”.

Wanting to retire in peace with no liabilities and financial stress is something that everyone aspires for, and rightfully so. After a life-time of hard work, this is something we are entitled to, aren’t we? That said, this peace of mind is not something that comes automatically, and needs to be worked towards, with discipline.

One investment which is the biggest contributor to a salaried person’s peaceful retirement is his or her EPF (Employees Provident Fund). It is therefore extremely important to give it a little attention and time.

When we make a financial plan, a few clients who don’t attach much importance to retirals are pleasantly surprised when they see the amount accumulated.  If EPF is left untouched and promptly transferred every time one shifts jobs, it can truly bring a lot of relief when most needed.

Sadly, we see many clients in their mid-forties who have a low accrual in EPF.  Ironically, the reason is they are knowledgeable and relatively personal finance savvy! They recognise that there is much to savings beyond Sec 80C and with the kind of time-frame available for retirement, they would be better off investing the amount elsewhere and making far higher returns than that on offer with EPF.

While all of this is true, what most of them fail to recognise is once you withdraw the amount it is needs to be earmarked for retirement with discipline.  When you have investments, which are visible and are tracked on a regular basis, you will be surprised at the numerous expenses which suddenly crop up and seem “urgent and unavoidable”. The result is – the EPF amount that is withdrawn and carefully invested while changing jobs, is dipped into to meet this “now important” short-term expense, leaving a big void in your retirement pot.

This might sound unreal, but I am yet to meet a client who has withdrawn the EPF and re-invested it with retirement in mind, but has let it remain there till retirement. Do give this aspect a serious thought before you choose to withdraw it for “better investment opportunities”.

We also come across people who have shifted multiple jobs but have not shifted their EPF from previous employer to the current one. The thought process is, it is earning interest, and it is safe, there is no hurry to transfer, lets do it when time permits. Unfortunately, it becomes another item on the to-do-later list and ends up remaining there.

The process of transferring EPF is now online and simple and consumes very little time. In the minds of most people though, this is a complicated procedure requiring multiple visits, paper work and constant follow up. Once you realise this, it may motivate you to action this immediately.

The more pressing reason for you to do so is that if you stop making fresh contributions to your EPF the interest paid on the amount accumulated is taxable. This is a big downer and should be incentive enough to transfer it on time.

Remember you could be working for the same employer but may have had multiple internal transfers within group companies, these need to be treated as job changes and you need to ensure that the EPF has been transferred. I have seen people quit after 15 years with one group and then realise that EPF accumulation does not go back to their date of joining the group, due to multiple intra-group transfers.  Getting these transfers done when you are not part of the system and do not have access to the right people can be frustrating and time consuming.

It is very easy to download an EPF passbook online, I have given the link here on how to – https://www.cleartax.in/s/pf-balance-check. I strongly suggest that you do this at least once a year and ensure that all transfers are done. You will reap rich dividends for the time and effort put in tracking and ensuring your retirals are not idling away. If any of you have had interesting experiences with EPF do share them for the benefit of everyone in the comments below.



Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Have you planned for this – Why everyone around you seems to be getting Cancer

Have you planned for this – Why everyone around you seems to be getting Cancer

In this weeks Livwise feature, we talk about something different, our health, and some surprising facts about how we may need to plan for it in the future.

Over the last couple of decades, we have visibly seen healthcare services improve. What used to be treated by a GP possibly as a child, it today treated by a specialist. That once popular term “family doctor” is a declining species, as the urban climber visits speciality clinics and super-speciality hospitals for getting “better” care.

Why is this the case? Partly due to the fact that medical care has indeed advanced. In every suburb, while erstwhile clinics and nursing homes still exist, fancy glass-covered hospitals also stand out. We feel (and we could be right) that specialist doctors in these modern hospitals are possibly better equipped to treat us. Also, disposable incomes have increased and we are willing to easily spend a 4 (or sometimes 5) figure sum to get ourselves a “more certain” fix. Lastly, with better education as well as the internet, general awareness of illnesses is far higher. In general, we also love to self-diagnose, and a runny nose which earlier was a symptom of possibly just a simple cold, could today be a pointer to many more complex ailments.


Credit: calliope/Flickr, CC BY 2.0, The Wire

Anyways, with better medical care at our disposal, as well as fundamentally better preventive measures being taken, life expectancy is going up dramatically. What used to be around 54 in 1980 in India is now 69 in 2016 (likely to be above 70 right now). With medical science continuing to improve and general awareness levels on fitness and health exploding, one can expect these numbers to hit late 80s by the time our generation ages (ie. around 2050) and maybe even three-figures by the time the millennials age (around 2075). This means that while our health will improve, we must be prepared financially to live longer and hence the retirement planning assumptions we make become all the more crucial.

All these health care advances would mean that many germ-borne diseases would be controlled or eradicated and better personal practices could help us prevent the incidence of lifestyle diseases such as BP or diabetes. But it might surprise, or even shock you to know that all this increase in life expectancy is also leading to an increase in cancer incidences. It is already happening if you look around, and more people around us seem to getting it. The reason for it is that cancer is a disease that is “internally born”. To quote from the below article, “Cancer is, fundamentally, a disease of wear and tear”. Hence, while we plan to live longer and enjoy our retired lives through smart retirement planning, it is important to also take into account this fact and work that into our plans.


This brilliant article by Sri Krishna in The Wire tells us why we in India should be worried and planning better as a nation for cancer as a disease.

https://thewire.in/health/why-everyone-around-you-seems-to-be-getting-cancer

Don’t Underestimate the Long-Term, Understand it

Don’t Underestimate the Long-Term, Understand it

While most people can be financially free, many don’t reach there. My earlier article spoke about 2 reasons (that I have observed, there would be more) – Underestimating the long-term and lack of direction. Today, lets understand how people underestimate the long term (and possibly why).

“Humans are terrible in predicting the future. We really overestimate what we can do in the short term and underestimate what we can do in the long term… If we can glimpse even a couple of years into the future, even that’s difficult to do” – Bill Maris

Underestimating the long-term is key to understand, since it is a weakness in the way humans think. We are used to thinking linearly whereas events in life have exponential effects – both on the upside as well as down. While the above quote originally alluded to technology driven evolution, it equally applies to the effect that money decisions can have on one’s future.

The upside impact of time is fairly straight-forward and I will not elaborate much on it as most of you would know it – the effect of compounding over time on money. Suffice it to say that this is like a lottery that you have a near-guaranteed chance at winning, the only condition being to start early. A common example that many mutual funds show to promote starting SIPs early goes something like this.

  • a SIP of Rs 10000/month from age 25 to 35 (10 years) creates a corpus of Rs 4.60* cr  at age 60 (ie. Start early with a sum at age 25, invest for just 10 years)
  • a SIP of Rs 25000/month from age 35 to 60 (25 years) creates a corpus of Rs 4.74* cr at age 60 (ie. Start just 10 years later, but with 2.5x the sum, invest for 25 years)

* (12% pa rate of return assumed in both examples, monthly compounding)

On the other hand, the downside impact of time is not something that is understood as freely. Here, there are 2 impacts that one needs to watch out for, namely Inflation and asset mix.

As we already know, Inflation reduces the purchasing power of your money, and therefore you need more every year to maintain the same lifestyle. Importantly, lifestyle inflation (which is what impacts us) is also a few percentage points higher than the headline inflation that is reported.

What this means is we do not readily understand the sums of money that we need for events/expenses that are beyond a few years ahead. Let me share a recent customer conversation. The customer is nearing 50, and has 2 goals, one short term (daughter’s marriage 3 years away) and the other a bit more into the future (retirement at 60).

His initial estimate for the cost of the marriage was fairly accurate. He estimated a requirement of Rs 70 lakhs 3 years from now, considering a current cost of Rs 50 lakhs. At an estimated lifestyle inflation rate of 8%, the required amount is approx. Rs 63 lakhs, hence not very off the mark.

But when it came to retirement, his estimates were way off. Basis his current monthly expenses (only him and his wife) of Rs 2 lakhs per month, he estimated that by age 60, he might need about Rs 3 lakhs. While intuitively this seems ok (a 50% increase!), when one looks at the effect of inflation on it, it is very inadequate. Assuming a lifestyle inflation of 8% per year, the sum required 10 years ahead per month goes up to Rs 4.32 lakh!

Remember this is nearly 44% higher than his estimate, month after month, for an entire retired life, of maybe 25-30 years. An underestimation like this proves very costly for retired people, needing them to make drastic changes to their lifestyle, at a difficult age, to sustain themselves.

A connected but important effect of underestimating the long-term is having an adequate corpus, but with the wrong asset mix. A real-life example occurred recently with very close family friends who came to us for advice.

While the retired couple were reasonably secure financially, the bulk of their assets were in real-estate, gold and fixed deposits. Their cash-flows were in control currently, but in a couple of years from now, they would have had to start breaking their deposits for monthly expenses, and were projected to exhaust them in about 8 years, leaving them with assets but no cash.

While these assets are safe, they are both illiquid and not necessarily inflation-protected. While real estate may protect inflation to some extent, important to remember than it has the disadvantage of not only being very illiquid, but also stops appreciating at market rates once the house is more than 20-30 years old.

The effect of time on money can be deleterious if not estimated properly in time and necessary corrective actions taken. Hence, underestimate this risk at your own peril.

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image credit: Jack Sharp on Unsplash.com

Why I will not be investing in NPS despite the removal of tax on withdrawals!

Why I will not be investing in NPS despite the removal of tax on withdrawals!

National Pension Scheme is not as popular as the government would like it to be. In order to make it on par with other investment options, changes have been made constantly and the latest was announced last week.  The biggest and most talked about change is that now NPS enjoys fully EEE status where it was earlier partly EEE and partly EET.

 

EEE (exempt, exempt, exempt) essentially means there are tax exemptions (up to specified limits) available while you invest, the capital appreciation when you stay invested is exempt from tax and there is not tax exemption when you withdraw.

 

At this point, a quick recap on how withdrawals from NPS are treated currently will help.  It is compulsory to invest 40% of your accumulated corpus in an annuity scheme which gives you pension. The remaining 60% can be withdrawn after you attain 60 years of age. Currently out of the 60%, 40% can be withdrawn tax-free while the remaining 20% is taxable.

 

Going forward, once the changes announced are implemented, the entire lumpsum withdrawal of 60% will be exempt from tax.  The pertinent point to note is that it is still compulsory to buy an annuity with 40% of the corpus and the pension received will be taxable. Therefore, EEE is only for the lumpsum withdrawals. While this is a welcome improvement, it is too minor to change one’s decision on whether to use NPS as a significant investment vehicle.

 

Taxation is evolving in recent years, as is evident with the long-term capital gains measure introduced for equity investments. I strongly believe that while it is an important factor, it cannot be the only factor in deciding on the vehicle of investment.

 

If you recall in my previous article I had said that I would not invest in NPS for several reasons, many of which are still applicable, hence my stand in principle remains the same. Let me recap the reasons why I would not invest in NPS, even in its improved avatar.

 

  • The corpus is locked in until one turns 60. I have come across numerous clients who want to retire as early as their late 40s. With NPS, your funds will not be at your disposal if you choose to retire early, the only option being to withdraw 20% of your corpus and investing 80% in annuity.

 

  • The annuity from NPS currently does not give good returns. It is possible to have an annuity with better returns through investments in mutual funds and if lack of knowledge is a constraint, one can engage a financial planner to help with the same. Compulsorily locking funds with the pension provider alongwith poor returns is a stiff price to pay for investing in NPS.

 

  • However, there is a possibility that one could still consider investing to the extent required for extra tax savings of upto Rs 50000 per year, given this change.

 

Lastly, if you are a central government employee, you can cheer some of the other changes like increased contribution by employer (Govt.), etc. While you stay invested, choose your asset allocation wisely and keep track of it regularly to make the best of the situation.

 

Finwise is a personal finance solutions firm that helps people plan for their financial goals, follow their passions and achieve financial independence. Please reach us at prathiba.girish@finwise.in or +91 9870702277.