Financial Freedom | Finwise

Why discussing finances is mutually beneficial for spouses

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Moneycontrol.com, Personal Finance January 30, 2020January 30, 2020financial independence, finwise woman, personal financial planning 0 Comment

I always wonder why it is so difficult to talk about money even with your spouse. You are comfortable talking about almost anything under the sun, but talking about money seem petty and crass. To my surprise some women refuse to do it even when they have a gun to their heads.

Why should you wait to be pushed against the wall to have a conversation? Marriages are meant to last a lifetime and it is impossible to traverse this journey without discussing money. At some point of time in a relationship one needs to move from Mine to Ours.

Read our latest article, published on Moneycontrol.com

https://www.moneycontrol.com/news/business/personal-finance/money-matters-why-discussing-finances-is-mutually-beneficial-for-spouses-4877221.html

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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“What problem of mine can you help me solve?”

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance January 16, 2020January 16, 2020financial independence, financial planning, investing 0 Comment

It is that time of the year, when everyone seems to be in a bit of a party mode. It is also that time of the year, when increasingly, school/college friends are meeting up for reunions! I was at one such reunion a couple of weeks back, and, as is oft the case, was meeting some friends after many many years. After many hugs and a few jugs of beer, during which time we reminisced about old times, discussions veered towards the serious stuff, including politics, the economy as well as catching up on each of us, both on the personal and professional front.

With everyone’s kids around similar age bands, there was some serious collective letting-off of steam about the pressures involved in being parents to children who preparing for their Std X or XII exams (Eg. don’t ever remember studying so much even for an engineering paper in our 3^rd year as compared to what kids nowadays have to do for a Std X paper, OR how the current standard of Maths and Science in Std X is akin to what was done in 1^st or 2^nd year graduate courses in our generation!)

Things then moved on to what we were doing on the professional front and how we were coping with the pressures on the job, the state of the economy, and so on. I had left my corporate career to join my spouse in our small personal financial planning and advisory business and when I explained that I was a financial planner, there were the usual reactions – how exciting it must be to be on our own, how courageous we were to have taken such a step, some questions on how I was liking it, etc.

Of course, there were some who also wanted to know what exactly financial planning was, and what exactly it was that I do, which again is something that I am (by now) used to. I then (as usual, passionately) launched into a description of what we do as financial planners, how it helps people, and what our typical assignments are. Things took an interesting twist, when one of them asked a very interesting question – “What problem of mine can you help me solve?”

While I of course answered the question and the follow-ups that came post that, it set me thinking. As I have discovered over the past many months, over various interactions with customers and others, financial planning means different things to different people. Importantly, it actually is “solving different problems” for different people, as long as the problems related to money. In fact, it actually doesn’t matter what I say I do as a financial planner, as long as people, including my customers see that I am helping them solve some money problem of theirs, which for them becomes “their understanding” of financial planning.

So, what “money problems” can a good financial planner-adviser help you solve?

The “LIVING BEYOND MEANS” problem

A few people we meet are earning well and spending even better. No, it doesn’t mean that they don’t have any savings or assets, just that they underestimate the needs of the future while getting hooked onto today’s pleasures. For such a person, a financial planner acts as a quick wake-up call, who puts things in perspective, and is a catalyst for habit changes.

The “TOO BUSY TO GIVE TIME” problem

Quite a few people we see are financially prudent, but are successful individuals, so caught up in their day-to-day work and life that they are simply are unable to spend quality time on growing their money. Their investment decisions therefore are impulsive, driven by products that get sold to them or event-driven eg. taxation insurance. They end up collecting a disparate set of investments, lacking purpose and inefficient in performance. In such cases, a good financial planner can help become both the filter to weed out wrongly-sold or ill-intended products as well as the channel to invest their money in vehicles that are both risk-appropriate and goal-appropriate.

The “INCORRECT ASSET MIX” problem

Many customers in the middle years bracket (age 40-50, double incomes, good jobs) are reasonably secure on the wealth creation and savings front. Like most of their generation, they own multiple houses, and while these were popular investment avenues, they are not necessarily the right asset-mix for future goals like children’s education and retirement, due to their illiquidity, as well as the current question-mark on long-term appreciation prospects. For such customers, a good financial planner helps them restructure their portfolio, keeping their risk profile and goal horizons in mind.

The “WHERE TO INVEST” problem

Some customers we meet are both personal finance savvy and investment-aware, meaning they have a good handle on their financial position as well as understand most investment asset classes and their risk features. That said, they lack the time as well as inclination to identify the right products, which will give them the right performance metrics while keeping in mind their interests and their risk appetite. In such situations, a good financial advisor helps provide the right mix of adequately diversified high-quality products to meet their needs.

The “NEED PEACE OF MIND” problem

Lastly, a few are completely sorted and only need a bouncing board to help validate their approach as well as decisions. Some may be good on the financial investments front but are inadequately prepared to face unplanned challenges in their life in case of unforeseen events. For such people, a good financial planner provides peace of mind and a tangible improvement in quality of life by allowing them to outsource their worrying nature as well as the outside chances of having uncovered risks.

Whichever it is, suffice it to say that a good financial planner/advisor’s primary role is to “solve money problems”. So, rather than try and understand from prospective financial advisors what they do, ask them – “What problem of mine can you help solve?”

Credit: M, a good friend from college whose pertinent question not only made me pen this, but also helped hone our customer propositions.

Image credit: Mohd. Hasan, Pxhere

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.

3 easy ways to know if your financial advisor is good for you

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance January 9, 2020January 9, 2020 0 Comment

In a recent article, we shared 3 simple approaches that can help you determine whether you need a financial planner/advisor. But once you decide you need one (or already have one), how do you know whether he or she is giving you your money’s worth, if not more?

Personal Finance advisors who manage money range across a broad spectrum of names. A few of these are Financial Advisor, Investment Consultant, Wealth Advisor, Financial Planner, Relationship Manager, etc. Unfortunately, while there are certifications and qualifications* that can help customers determine whether the advisor is actually an “expert”, the awareness about these are very low and the average customer has no clue about these.

* Some (but not all) of these qualifications are CFP (Certified Financial Planner, issued by Financial Standards Planning Board, USA), CWM (Chartered Wealth Manager, issued by American Academy of Financial Management) and RIA (Registered Investment Advisor, issued by SEBI).

So, how can a customer determine whether the “advisor” is qualified to give him advice and is experienced enough to be able to manage his investments? Here are 3 easy ways for you to check whether the financial advisor is right for you.

The advisor asks you “What’s the goal/purpose for the investment?”

In our experience, most retail investors start investing as and when they have savings, based on advice that they get from whoever they know. Many a times, they discover the need for an advisor when there is a “penny-drop” moment in their lives, usually due to some realization eg. need to plan for child’s education, lost a significant sum of money in some investment, etc.

In either case, a genuine advisor will try to understand your goals and aspirations. Money is usually itself never the purpose (for investing), it needs to be put to good use to achieve some personal milestone for you.
It’s the job of a good advisor to understand your current financial health, and where needed, suggest re-structuring for your existing investments to align with your goals
Lastly, a good advisor will prioritize your goals and create an overall financial plan for you, that will act as your financial road-map

The advisor says “I need to know more about you to suggest the right investments”

While the phrase “every customer is unique” sounds cliched, it is something that definitely needs to be borne in mind when it comes to personal finances. Your personal experiences with money, along with your financial health determine your risk-profile which, when combined with your goals, makes you unique.

A good advisor will spend time understanding you and your personal experiences with money, so that over time, he is able to address your fears and concerns about money.
He will help you understand your risk capacity (your financial ability to take risk) and your risk tolerance (the risk you are willing to take basis your personal experiences/biases), which together form your risk appetite
He will then suggest the right “Asset Allocation” as per risk profile and accordingly invests across asset-classes, while keeping in mind your goals. He will also come back to tell you basis your risk profile if some goals are unachievable, unless you are willing to take some higher risks

The advisor says “I charge a fee, my advice is not free”

For us as advisors, one key moment when we know that a customer may not be suitable for us, is when we talk about fees. Quite a few customers balk at the idea of paying a fee, understandably so, when there would be many so-called “financial advisors” who don’t charge.

A good financial advisor is as much a qualified professional as a respected doctor, lawyer or chartered accountant is. He therefore charges a fee for his time and advice
That said, a good financial advisor also clearly explains the value that he would be able to deliver for the fee that is getting charged, so that the customer understands clearly what he is getting
Lastly, a good financial advisor operates in a structured manner – recorded/documented conversations, in-writing recommendations along with rationales, periodic reporting and pre-planned financial reviews, all of which mean that the number of hours that the advisor puts in for you behind you is far more than the mere conversations that he has with you

So, next time you feel the need to hire a financial advisor, and are short-listing one, understand how many of the above boxes does he or she tick? Alternately, use the above to understand for yourself whether your current financial advisor meets the grade, or do you need to find a new one.

Image Credit: Tim Graf, Unsplash

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.

Dear woman: Take these 4 small steps to be on top of your money life from 2020

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Moneycontrol.com, Personal Finance December 30, 2019December 27, 2019 0 Comment

It is again that time of the year to work on New Year resolutions. The word has become a joke and it is now accepted that resolutions never work. We all know that a turning of the calendar is not going to weave its magic and get you started in the right direction.

What I have noticed is when we endeavour to make small changes rather than daunting makeovers which require a whole lot of change, we tend to stick to our resolutions. The same applies on the personal finance front – both whether to increase your financial awareness and to improve your financial situation.

As a woman if you wish to make your financial life better than what it has been thus far let us without much effort, here are four simple things you can do.

Read more about this in our latest article below, published on Moneycontrol.

https://www.moneycontrol.com/news/business/personal-finance/dear-woman-take-these-4-small-steps-to-be-on-top-of-your-money-life-from-2020-4763791.html

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.

To receive our articles through email, pl subscribe here.

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

Image credit: Moneycontrol

3 ways to quickly check if you need a financial planner

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance December 20, 2019December 21, 2019financial freedom, financial planning, Personal Finance thumb rules 0 Comment

Personal finance and investments related advice is omnipresent today. Open any regular newspaper and they have a daily page devoted to personal finance. Surf the TV and even normal entertainment and mainline news channels have programs which “help” customers on their personal finances and give product-related advice. On most infotainment portals, Personal Finance is a separate section and every few articles, one on personal finance advice pops up.

This surfeit of information has created a not-so-desirable impact for us though – easy access and availability of so much information makes us think that we now “know enough” and can even “do it ourselves”. That said, there is an information overdose even on the products side, so how does one be sure? That’s where financial planners and advisors come in. In our experience, hiring a financial planner is usually a big decision for people to make, and hence they end up delaying both this decision as well as their investment decisions, doing themselves more financial harm in the process.

So, how can you decide if you need a financial planner to help you with your personal finances? I am sharing below 3 simple thumb-rules which can help you decide. If your answer to even one of these is a NO, then you surely need one.

RULE 1 – THE SAVINGS RULE – Save at least “your Age %” of post-tax income

What – At age 25, you should be saving at least 25% of your post-tax income, and as you grow older, this % should increase beyond your age. Eg. at age 35 should be 40-45% and at age 45 should be 50-60%.

Why – Remember, for every year you work, you will live a year, possibly even more, post-retirement. Now, even assuming that your needs in retirement are more spartan than when you are young, unless you save an average of 40% of your income across your working life span, you may end up not having enough to fund your retirement.

RULE 2 – THE NET WORTH RULE – Your NW should be at least “(your Age * Pre-tax annual Income) / 10”

What – Your Net Worth is defined as your Assets minus your Liabilities. Do not include the house that you stay in, unless you are willing to liquidate it and move into a smaller one.

Why – This rule helps you assess 2 things – how much your savings have transformed into assets and how over-leveraged you are in terms of liabilities. Also, this is a “minimum” rule, to check whether you have “enough”. To understand whether you are “wealthy”, multiply this by 2 (or more). Eg. If you are 40 and your pre-tax income is Rs. 50 lakhs per year, then your minimum Net Worth should be (40 * 50 lakh) / 10 = Rs 2 Cr. Remember this is net of your liabilities and the house you are staying in.

RULE 3 – THE ROI (RETURN ON INVESTMENTS) RULE – Your investments should grow at minimum your country’s nominal GDP rate

What – Return on Investments is the rate at which your investments are growing on an annualized basis. Nominal GDP is Inflation + Real GDP. Your investments include both real and financial assets (excluding the house where you stay).

(NOTE: An easy rule to calculate your current ROI is the Rule of 72 – Divide 72 by the number of years it took you to double the value of your investments. Eg. If your investments were Rs 2 Cr in 2012 and today their value is Rs 4 Cr, ie. took approx. 7 years to double in value, the approx. ROI you have generated is 72/7 ~ 10%).

Why – In an Indian context, the nominal GDP over the next couple of decades can be conservatively estimated to be around 10% (4% Inflation + 6% real GDP growth). Preferably, add 1-2% to this, since lifestyle inflation is usually higher, and investment returns can be much more volatile than national Inflation/GDP, hence some buffers are needed so that you don’t fall short as you near financial goal horizons. So, a good number to plan for is 12%.

BONUS RULE – THE “PEACE OF MIND, NOT PIECE OF MIND” RULE

Benjamin Graham once said “The investor’s chief problem – and even his worst enemy – is likely to be himself”. And as if on cue, Jack Bogle said “An advisor serves as an emotional circuit-breaker, so you don’t abandon a well-thought-out plan”.

Frequent, sometimes even addictive perusal of “information” ends up making us over-reactive and take wrong decisions in the short-term, apart from stressing us out. A good financial planner allows you to forget about your money worries and gives you peace of mind, while also acting as a safety-net to prevent you from taking wrong money decisions.

So, use the above 3 rules to quickly check whether you need a financial planner to help you manage your finances. And use the bonus rule to assess whether your money is worrying you, rather than working for you.

Image Credit: TheDigitalWay, Pixabay

Rule 2 Credit: While the other 2 rules are commonly used thumb rule, Rule 2 is formulated by the authors of the book “The Millionaire Next Door”

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.

To receive our articles through email, pl subscribe here.

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

Saving for kids’ goals, no child’s play!

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Investing for Children, Moneycontrol.com November 29, 2019November 29, 2019Childrens goals, financial planning 0 Comment

For a parent, if there is one thing that is paramount in her life and gives her the utmost happiness, it is ensuring that her children are given every opportunity to blossom into well rounded human beings, confident and capable of taking on the world. Sadly, there is usually a gap between desire and action, and most parents wake up to the task of planning for their children’s basic and higher education when there is not much time left.

Schools don’t prepare the children to handle finances and most families do not discuss money matters with their children, even in tehir teens. As a result, in many cases, they grow up with a large sense of entitlement, never realising the effort, planning and sacrifices which went into building enough wealth to fulfil their dreams.

So, apart from investing mindfully for them , it is a great idea to involve your children early in the personal finance journey. When we interact with customers, we often see how one could have benefitted by avoiding a few traps or being more conscious of the decisions made and we enumerate them here.

Pl read more in our latest article, published on Moneycontrol.com

https://www.moneycontrol.com/news/business/personal-finance/saving-for-kids-goals-no-childs-play-4683281.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.

To receive our articles through email, pl subscribe here.

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

What role does your Financial Advisor play in your life?

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance October 17, 2019October 16, 2019financial independence, financial planning 0 Comment

If you were asked to describe a good financial advisor, what would your response be? Based on our experiences over the years, let me go out on a limb here and say that the most popular responses are likely to be from among the below.

Someone who is trust-worthy, whom I can trust with my money
Someone who is available to me for advice when I need and has my interests at heart
Someone who will make my money grow at a decent pace while also ensuring that it is safe

Of course, there could be other responses, do add them in the comments section below. That said, if I am right till here, let me turn around and tell you that these expectations are rather basic and should describe any financial advisor worth his or her salt. I fact, these above “virtues” should be basic minimum expectations for anyone to qualify as a financial advisor. After all, why would you even consider using the services of someone who is not trustworthy or not available when you need or not competent?

So, what then actually makes a good, rather “really good” financial advisor? In my view, a truly good financial advisor will have the qualities of these professionals as well!

Doctor

A doctor diagnoses ailments basis visible symptoms, necessary reports and probing, identifies them as chronic, acute or placebic (imaginary), and treats accordingly.

Similarly, a good financial advisor should be able to unpeel your personal finance onion layer by layer to identify your money problems so that the right approaches can be used to put them in order.

Accountant

Just as an accountant helps you put and keep your books in order, as well as plan and stick to a budget, a financial advisor helps you understand your personal financial balance sheet and profit-loss statement, co-creates a plan with you to nurse them back to health and helps you execute a budget for your household.

Designer-Architect

A designer-architect understands your personal desires and aspirations and helps you accordingly build a home that feels like yours and only yours.

In the same way, a financial advisor understands your personal financial goals, helps you prioritize them and works with you to construct your own castles.

Policeman

A financial advisor is your personal money police and helps you stay on the right side of your plan and budget, while also reading you the riot act once in a while when you step out of line!

A financial advisor also is the person who you will run to in case of any doubtful or poor experience with your money, to seek advice on damage control as well as salvage.

Lawyer

A lawyer helps you interpret the rules or the laws specific to your problem and finds a way to solve your problem for you within the available space to your best advantage.

Just like a good lawyer, a financial advisor always has your interests as paramount and protects them at all costs, even if you are at times being criminal with your money! Though at times she (or he) may not be civil about it!

Psychologist

A psychologist studies people, their thoughts, feelings and behaviors, in an effort to understand the “why” behind people’s actions so that they can help plan appropriate corrective measures.

Likewise, a financial advisor understands you as a person, your relationship with money and your deeper motivations so that his advice is tailored to suit you as a person. At times he also gently corrects you when you are making common behavioral mistakes with your money.

Teacher

Last but never the least, a teacher is someone who imparts knowledge and wisdom to her students, feels pride at their successes and then selflessly moves on to the next batch, ready to start the journey all over again.

A financial advisor too helps you move along the path of “personal financial wisdom” from safety to security to freedom, is there with you to celebrate your small wins at every step and when finally, your financial goals get achieved, feels proud to have helped make it happen.

So, if you have a financial advisor, how many of the above qualities does he or she have? And if you don’t have one as yet, use the above as benchmarks to set your expectations so that you select the right one!

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.

To receive our articles through email, pl subscribe here.

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

Image credit: foreside.com

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

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Moneycontrol.com, Retirement September 27, 2019October 9, 2019financial freedom, finwise woman, Retirement planning 0 Comment

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.

To receive our articles through email, pl subscribe here.

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

Many a times, the battle is lost for the want of a horseshoe!

Prathiba Girish Financial Freedom, Financial Planning, Personal Finance September 19, 2019September 19, 2019fee-based advice, financial independence, financial planning 0 Comment

For the want of a nail the shoe was lost,

For the want of a shoe the horse was lost,

For the want of a horse the rider was lost,

For the want of a rider the battle was lost,

For the want of a battle the kingdom was lost,

And all for the want of a horseshoe-nail.”

― Benjamin Franklin

It may not sound nice to the ear, but as Indians, we are, in general, poor at DIY (Do It Yourself). As such, we are not brought up in a DIY culture and this perpetuates. Even now, we are used to having help at home for the smallest of things, and as a result, an average middle-class Indian is hugely lacking in basic life-skills as compared to his counterparts in most developed economies.

To make things worse, we place a premium on DIY when it comes to knowledge-skills. It could be that it gives bragging rights that you could manage something by yourself, when many others found the need to engage with a professional to get ahead.

For example, we resort to self-medication because the symptoms seem “similar to what she had” or worse, we googled it up. Similarly, planning and managing your personal finances often is a DIY activity. While this may work at times, what many people don’t see is the many risks that one may encounter due to this.

In the hundreds of interactions with numerous customers over the past few years in my financial planning practice, I have seen many such mistakes committed. I have tried to list a few commonly encountered ones to help you avoid the DIY trap.

Investing too little

This is something we see often. There is a lot of media noise around mutual funds, and listening to the ‘mutual fund sahi hai’ campaign on a constant basis, people feel the need to be a part of the success story. They decide that setting aside some money is required and start with some small amount. A person whose monthly expenditure is Rs 1 lakh starts saving Rs 10000 per month in MFs and is very happy that he is putting something away for the future. For a low-income family, whose monthly expenses are Rs 25000, being able to save Rs 10000 per month consistently truly deserves a pat on the back, since the family is saving a substantial part of their income and may well on its way to financial freedom. But in the above example the Rs 10000 investment in mutual funds is not going to help you save anything substantial and is a mere tick-mark activity which lulls you into believing you are saving, thereby allowing you to indulge guilt free.

Not assigning any goals

In almost all cases when money is invested there is never a purpose to it. When you invest without a purpose it is mentally extremely easy to redeem. The next iPhone upgrade or the long-dreamt-of trip to New Zealand seems like an emergency, when you have sufficient money invested. Imagine if the savings were given a name, say Child Higher Education Fund. What are the chances that you would withdraw from it, to fund your trip to New Zealand?

Trying to time the market

When you are sitting on the fence, it never seems like the right time to start investing. One month you are worried that the markets are creating new highs every day, second month you are worried that the political situation may spell dooms day to your investments and the third month you are worried about recession. If you are investing with a horizon of 7 to 10 years what happens in this month or the next is not going to have much of an impact on the outcome. What is important is to get off the fence and get into the field of play.

Investing in schemes based purely on recent performance

Most investments are based on past performance, and even star ratings of Mutual Funds are largely based on past performance. One should keep in mind the recent performance has a huge bearing on the 1-year, 3-year and even 5-year returns. It is also important to understand the reasons for the outperformance or underperformance before deciding. Make sure that your investment advisor has a proper framework for selection is important.

Discontinuing investments during down times

Markets are by nature turbulent, and you are going to have to accept your share of this, if you are in for the long haul. It is important to have conviction in your choices and stay put. However, there is a lot of noise in the media and Whatsapp forwards from well-meaning friends proclaiming that doomsday is around the corner. The immediate instinct in such situations is to stop any further investments. However, that would be a very bad strategy since you are getting an opportunity to accumulate at lower prices. Unfortunately, this awakening will come in hindsight.

Not bothering to understand tax implication

Many a times we see people have invested without understanding the tax implications. Just because the dividend which is given to you is tax free does not mean there is no tax applicable on it. It is paid out after tax is paid by the AMC. There have been cases were people have invested in dividend pay-out option for years when they had no use for the dividend and had no clue what they did with dividends. They would have been better of in growth option where the capital would have appreciated substantially given the long tenure of investment. In other cases, we have seen people in 10% slab investing in dividend option of Debt fund where the tax is much higher. Investing in NPS without checking the taxability on exit. Buying ULIPs purely for the taxability. The list is very long and exhaustive but I guess the point is made.

Have a laundry list of investments in the name of diversification

The intention is right, one should not put all eggs in one basket. However, having 25 schemes in the name of diversification is no good. Further there is no thought given to overlap. It would be a good idea to start investing only after you clearly decide how much goes into debt, equity and other assets. Within equity you need to decide percentage allocation to MF, stock, PMS etc and have optimum stocks /schemes and not go over-board with it.

Taking your RM at face value

For many clients, the trust they have on the RM is a transfer of the trust they have in the Bank. They truly believe that products suggested by him/her is totally in their interest. I wish this were true, but its not! We encounter customers who have been sold the wrong products – eg. bad performers, high lock-in products with little or no exit options, complete laggards, etc. so often. Remember, there is no free lunch, if someone is giving you a “free” recommendation in your interest, it may make sense to understand how he is compensated for his time and effort.

Herd Mentality

Last but not the least is following the crowd. The crowd is always excited when markets are touching new highs every day. They don’t want to be left behind and hence jump in when markets have already gone up. However as soon as they see some down side they want to jump the boat. Where-as caution is in order when markets are going up and one should invest more if possible when markets are going down. However, to do this you require conviction and belief.

As the title says, it makes little sense to learn by making mistakes with your own money rather than engaging with a professional at a fraction of that sum. They could guide you to take better decisions and keep you safe from your impulses.

After all, Benjamin Graham did say ‘The investor’s chief problem – and even his worst enemy – is likely to be himself.” Think about it!

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“No Pain, No Gain” is as true for your finances as it is for your fitness!

Prathiba Girish Financial Freedom, Financial Planning, Personal Finance September 12, 2019September 12, 2019financial independence, fitness and money, personal financial planning 0 Comment

The year seems to have flown by quickly, with less than 4 months left for it to end. As I look back at the things I planned to achieve, one stands out – getting fit! This has been on the list for nearly a decade and this year, I finally managed to get somewhere close. This journey of mine towards fitness, has many parallels with people trying to get financially independent and this has helped me understand and empathize with customers better, by looking at the need for financial planning, being in their shoes.

Phase 1 – It’s a breeze, I can do it myself. I don’t need a trainer

When I decided I wanted to get fit, I thought it would be a breeze, and now that I had decided, all I had to do was do a bit of exercise and eat smart. I could not understand why people engaged with a nutritionist and trainer. What a waste of money and time, to do something as basic as getting in shape, I thought.

Armed with the newfound motivation to get fit, I did a bit of walking, changed my eating habits very slightly and looked at the weighing machine with hope every few days. It just refused to move. This whole phase lasted a few years. There was no consistency in my effort, and though the intent to do it right was very much present, it always kept getting pushed to “tomorrow”, which obviously never came.

I see many parallels to this in the journey of people trying to achieve financial independence. Many of them start out saying this is common sense, just save every month and very soon you will have a good corpus. The amount they save has no correlation to the goal they are trying to achieve. The investments are dipped into at the slightest of provocations. The newly launched phone, a lavish birthday planned, are all legitimate reasons to put the savings on hold.

I often tell people – don’t kid yourself by starting an SIP for a miniscule amount, its only a tick mark activity, and unlikely to ever take you anywhere on your path to financial freedom.

Phase 2 – I need a bit of motivation and help, nothing personalised, let me join a group

It took me a few years to wake up to the fact that my walking and working out on an irregular basis was not going to deliver at all and I did need some help. I decided to be smart and achieve the target by joining a running group. It was of course better than phase 1, and since I had paid up, I did manage to train 3 times a week and made some fabulous friends. It was also a good point of discussion in many social gatherings on how I trained for marathons. Yes, I did manage to do a few marathons. Neither did my timing improve nor did I lose any weight or inches. I can now honestly say that I was nowhere near my definition of fitness.

Again, in their financial independence journey, I see that most DIY people at some stage, sufficiently alarmed by the years passing by and the savings pot not growing in tandem, move to seeking advice from some form of website or robo-advisor or even “tips from knowledgeable friends” where they get advice instantly on where to invest and how much. There is a sense of achievement on being more systematic with investments. There again, they may end up saving more than they did previously but are they really taking their entire unique situation into consideration and moving comfortably towards their financial independence, is something they need to ponder on.

Phase 3 – I need proper personalised guidance to help me get on track and stay there, let me engage with a professional

I finally realised that if I seriously wanted to get fit, I would need to engage with a professional who knew his job and so, I enrolled with a personal trainer. I now realised the difference between what I was doing in the name of exercise and what it really meant to exercise. I was consistent and trained 3 days a week without fail. I started to lose inches and feel more energetic. The weight wouldn’t budge. I realised that I would not only need to exercise but also ensure that my nutrition was right if I were to get anywhere close to being future-fit from a health point of view. I then visited a naturopath to get rid of some of my niggling health issues. My stated objective was to get rid of allergies, my secret hope was to lose weight. Major lifestyle changes were suggested by her, give up on sugar, no processed food and a lot of other changes. I followed advice strictly. The initial few weeks were very difficult. Despite giving up my favourite food, there was no improvement. It took few months for the changes to be seen. And a few more for people to comment on it.

A journey towards financial security and independence is similar, your situation, goals and aspirations are unique and hence advice that is personalized keeping those in mind will hold you in good stead. Similar to the above story, just concentrating on one thing, investments, is not going to be sufficient to get you to your destination. Apart from investments, you would also need to look at your spending and income. Like with my weight, you may secretly aspire for a certain return. You may peg it to the best return you have got over a life-time and evaluate your investments against your benchmark. Your planner will not even be aware of what you are anchoring your expectation to.

Financial planning requires you to see much beyond returns and wait patiently without losing faith during turbulent times. At least in the above case of my health, results started showing in a few months post engaging the right professionals. In case of your finances, it may take a few years for you to see meaningful results. In the interim there is only pain, since you will need to cut down on unnecessary expenses, ensure you invest smartly and stick to it even when you see you are getting unsatisfactory, maybe even negative returns.

Again, unlike the fitness story, there is no before- and after- picture to flaunt, all you will have is peace of mind that you are well prepared for your future. No one is going to compliment you on your financial health, unlike your weight. What you will see though, is that you are inching closer to your life’s goals, sometimes because of your returns and sometimes despite your returns. Either ways, having someone who has your back through the journey and motivates you to stay the course and steer you clear of some impulsive emotional actions can be invaluable!

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.

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