Retirement | Finwise

Mirror, Mirror, On the wall, Which is the biggest risk of them all?

Girish Ganaraj Financial Freedom, Financial Planning, International Investing, Personal Finance, Retirement June 19, 2019June 19, 2019 0 Comment

“If the highest aim of a captain were to preserve his ship, he would keep it in port forever” – Thomas Aquinas

With the market indices at all-time highs (the Sensex touched 40000 and the Nifty touched 12000 on 23^rd May 2019, post the election results), it will be pertinent to congratulate those retail investors who have benefited from it. They have benefited because they have stayed invested through the bad year that 2018 was, and therefore benefited from this run up in 2019.

Such investors are in a minority today. Most investors either have never considered equity due to fear and lack of awareness or keep their investment to the minimum because they do not want to take the “risk”. By staying away from equities, they avoid a “risky” investment and invest their hard-earned money into other “safe” investments – bank fixed deposits, corporate bonds, gold, real estate.

But, is this really less risky? What investors fear in equity is the volatility that is associated with it. By investing in less-risky avenues, one is avoiding this volatility. When one looks at risk in this way, defined as “volatility”, then yes, equities are riskier.

But, as an investor, the actual risk that you should be worried about is not achieving your financial goals. After all, of what use is the avoidance of volatility risk in the short term, if one is unable to meet one’s financial requirements in the long term?

If you are investing a sum of money without a particular goal and time-frame in mind, then you are making 2 mistakes with your money.

One, you are not setting any expectation from your investment and therefore cannot review its performance over the right periodicity, and take appropriate course corrections.
Two, you will unnecessarily track the movement of your investment frequently and get impacted by the volatility, and since you don’t have a goal or a target in mind, you will move to take hasty short-term decisions with that investment, maybe at a loss.

To understand this better, let us look at two commonly occurring scenarios

A invested Rs 500000 in shares on the advice of his good friend at work, who traded frequently and hence was “knowledgeable”. His friend said that markets are doing very well and if he invests now, he can get a good return in a short time. Instead, 4 months after he invested, the market saw a steep correction and A saw his capital come down to Rs 400000. Not wanting to lose further, A sold the shares at a loss, in 6 months.

B bought a second house in an upcoming suburb and took a home loan of Rs 80 lakh for this purpose. He bought this house because the suburb was slated to be close to the new airport and as per everybody he talked to, the area was slated to explode in a few years. Unfortunately, the house took 3 more years than planned to get possession, and the location still hasn’t developed to that extent, and hence isn’t yielding a decent rental. B still has nearly another 10 years to repay of the loan, and the outstanding loan is more than Rs 60 lakhs.

Do these sound familiar? So, what went wrong? In both these cases, the investment was neither planned, nor reviewed, with an underlying purpose. And hence, while the vehicles (shares, house in suburbs) themselves may not have been poor investments, wrong actions were taken (sell shares early, hold on to the property too long).

The first step in investing is to identify what is the goal one is investing for, and what is the time horizon that one is investing for this financial goal.

Once one has identified the goal and the time horizon, then the logical next step is to identify the correct asset class (or mix of asset classes) that one should invest in, in order to achieve the financial goal in the most efficient manner.

This should, of course, be done while keeping in mind one’s risk appetite, but years of investing as well as observing investors, leads me to say that risk appetite is not something that is static – this evolves over time, through one’s experiences as well as knowledge.

Once one looks at the investing process in this fashion, volatility as a risk is something that gets taken accounted for while taking the investing decisions. And hence is not something that as an investor should worry you, since you have planned for it.

In order to achieve one’s financial goals, it is important that your investments not only grow at the right pace, to create adequate wealth to meet your goals, they should also be in the right asset classes so that you have the money when you need it.

By investing in so-called “less-risky” avenues, one is putting a sort of ceiling on the returns one can earn, by sacrificing them at the altar of short-term volatility. In addition, one is actually exposed to both liquidity as well as inflation risks.

By not taking “risks”, one ends up encountering the biggest risk of them all – not having enough money when one needs it, and in the right form so that one can access it easily without any trouble.

So, do yourself a favor and look in the mirror and ask yourself this – do you know what goals your investments are helping build wealth towards? And how many of your investments are actually helping you create wealth that is both, beating inflation and helping you meet your goals?

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

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Do you know your “Finish Line”?

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance, Retirement June 13, 2019June 12, 2019financial freedom, financial independence, financial planning, Retirement planning 0 Comment

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.

4 reasons why women must take charge of their financial planning

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Personal Finance, Retirement June 6, 2019June 6, 2019 0 Comment

As a woman, you may be in charge of your present. But are you in control of your future?

Taking control of your financial future is important. Take out the necessary time for it.

It is important not to confuse your current financial independence with financial freedom. By being financially independent you are able to take care of your personal expenses at present. When you are financially free you are able to maintain your desired lifestyle throughout your life-time, including your retirement. This is not going to happen automatically just because you earn an income. It requires thought and planning and is more challenging for women than it is for men. Pl read my latest article published on Moneycontrol.com.

https://www.moneycontrol.com/news/business/personal-finance/viewpoint-4-reasons-why-women-must-take-charge-of-their-financial-planning-4048041.html

Image credit: Moneycontrol.com

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

Prathiba Girish Financial Planning, Personal Finance, Retirement May 1, 2019May 1, 2019EPF, financial planning, Retirement planning 0 Comment

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.

Are you being Penny wise and Pound foolish?

Prathiba Girish Financial Freedom, Financial Planning, NRI, Personal Finance, Retirement February 21, 2019February 21, 2019choosing the right planner, direct plans, financial planning, good advice, investing, investments 0 Comment

I have been conducting financial wellbeing camps at corporates for a few years now, and a couple of questions invariably crop up at the end of the session. One, can you give us a few good MFs to invest in? Two, what about investing in direct plans, they are cheaper right? Three my advisor doesn’t call me frequently to review my funds, shouldn’t he be?

Three questions which sound very different from each other, but are connected to the need of the customer to have access to expert advice so that they can follow a DIY approach to investing. This is natural and a good thing even, when the person concerned has adequate time and knowledge to use this information for his benefit. This is where many of them overestimate their ability and have perfect reasoning too. Let’s dwell deeper into each of these questions.

Can you give us names of a few good MFs to start investments in?

This is a very difficult question to answer, without having any other details. Typically, before recommending an investment to someone, we need to know what is the purpose of investment. This gives us advisors two important data points, which are

The importance of the goal
- can you postpone it without grave consequence? Example. foreign trip. The same may not be true for child education.
The time available for investments
- This is crucial to understand as well, to enable making the decision of whether to invest in equity or debt

What about investing in direct plans?

This is a good way to invest, and yes, it is cheaper to go for direct plans. This comes with a condition though, only and only if you have the knowledge and time to devote to this. Many HNIs and corporates use direct plans, but they have no problem paying a professional for advice and recognise their limitations in being effective without advice.

Unfortunately, this is not true for most retail clients, where paying a fee for advice is not an easy decision. As they say there are ‘no free lunches’, if you read about a particular investment on media it may be relevant today, if you invest and forget to check its relevance on a periodic basis, you have no one but yourself to blame. In such a situation, the money saved by going direct may not be worth it when you could have had a financial advisor to guide you and put your interests first and review your investments on a periodic basis for such risks.

My advisor doesn’t call me?

I meet someone who said “my advisor never calls me to review my funds or with suggestions”. In the course of the conversation, I realised the client had invested funds for which the compensation to the distributor was a few hundred rupees (this info is readily available in the consolidated statement received by investors every month from NSDL/CDSL). His expectation of having a review and constant interactions were therefore not in line with what was feasible.

Note though that even if he had invested substantial amounts, constant conversation and change is not required. Investing (once done post adequate due diligence) is very boring and as long as you or your advisor is monitoring it periodically, there is no need for constant action. Hence, it is better to get clarity on the nature and frequency of interactions when you sign up for advice.

The value added by good advice goes much beyond helping you choose a scheme to give you returns in line with your needs. It is more holistic in nature and helps you solve your financial puzzle. You will be guided through turbulent times, because remember, investing is going to be volatile. Your advisor will be able to temper your expectations so that market down turns are not a shock it can otherwise be. Another important aspect where a good advisor adds value is assess your risk appetite and tailor your investment plan accordingly.

How do I find such advisors you ask? Interact with them to find out how the advisor plans her own finances, and ask them the above questions. If they answer with a string of names for the first question, they are not the type of advisor you are looking for. Understand how often you would be interacting, and how they would be getting compensated. Also, check which category you would figure in their current list of clients, these questions should help you zero in the right person for you.

Image credit: Stevepb, Pixabay.com

Don’t Underestimate the Long-Term, Understand it

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance, Retirement February 13, 2019February 13, 2019compounding, effect of time, financial planning, inflation, long term, Retirement planning, underestimate 0 Comment

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.

Image credit: Jack Sharp on Unsplash.com

8 questions to ponder over if you are an NRI Investor

Prathiba Girish Financial Freedom, Financial Planning, NRI, Personal Finance, Retirement January 31, 2019January 30, 2019financial planning for NRIs, investing for NRIs 0 Comment

While the basic steps of financial planning are similar for most people there are certain situations which are exclusive to NRIs. What I have seen from interactions with a few of them are as follows.

Are you sure about retiring in India?

While most NRIs are very clear that the children will be educated abroad and in all probability, will never return to India, they are unsure about their intentions of settling back in India post retirement. This can be challenging for retirement planning and deciding if it makes sense to hold on to real estate assets accumulated in India.

Have you insured your health adequately?

Most NRIs have huge global cover currently and hence are in a good position to take care of any medical emergencies should they arise. These are typically provided by the company and hence it can be a cause for worry. What would happen in case of a sudden loss of job? It would mean you dip into your savings for medical emergencies.

In most cases, while people are aware of the need for a personal cover, they have put it off till they retire. Health insurance is available only to healthy people. It is possible that by the time you retire, there is some ailment which has crept up. This will make it difficult to get insured or at the least have undesirable exclusions in the policy.

Have you taken Critical Illness insurance?

Health insurance will cover your medical bills. What happens if you are unable to retain employment due to a critical illness? While this is an important insurance for everyone, all the more so for NRIs, since losing income in an alien land can be even more traumatic. Also note that, while this is expensive in India, it may be affordable in other countries. Do check and ensure you take adequate CI cover. For more details on this subject, you can read an earlier blog of mine.

Have you done Estate Planning?

Again, this is true for most clients, since somehow coming to terms with the fact that death is inevitable is never easy. But in the case of NRIs, this is crucial, especially, when you have assets as well as dependents in multiple countries. Do understand that assets in different countries are governed by different laws. Hence, make a will in India for your Indian assets. Separately, consult with specific experts in countries where you have properties and other assets and plan for them as well.

Have you considered tax implications outside India while making Indian Investments?

As an NRI you may be paying tax on your global income. What is tax free in India need not necessarily be tax free in the country where you reside. It is very important therefore to consult with both your Indian advisor and your advisor in the place of your residence. It is important to seek and heed to the advice of both professionals before you decide on a particular investment.

Do you believe investing in India can only be done in INR?

There are attractive options available in India to park currency of your choice. Check what these are and compare return and risk before you choose your instrument of choice.

Have you closed your EPF account on leaving your Indian employment?

Since it is etched into us that EPF investments give tax-free assured-returns, there is a lot of inertia in taking any action on this. In most cases its good and ensures a huge corpus gets accumulated for retirement. But as per new rules, interest paid on EPF accounts once there is no fresh contributions is fully taxable.

Have you taken care of these minor but time-consuming changes?

If you have multiple bank accounts as a resident, you need to review and close them or convert them to NRO or NRE status. Schemes like Sukanya Samruddhi which is available for residents is not for NRIs, hence you will have to look at closing such schemes. It may be a good idea to have a check list of things to be done on your next visit to India and keep adding to it.

Managing all of this remotely on your own can be challenging if you are an NRI and having a trusted financial advisor who can advise you on these matters as well as execute, will help manage the situation.

Finwise is a personal finance solutions firm that helps both residents and NRIs 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: Emre Aliriz on Unsplash.com

So, what does it mean to become Financially Free?

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance, Retirement January 23, 2019January 23, 2019financial freedom, financial independence, financial planning, retirement 0 Comment

Dear readers, as I said in my last article, the most significant words that I have experienced since becoming an independent adult have been “Become Financially Free”. So, how did these words happen? And what do these words mean?

As I mentioned in my earlier post, early in our careers, (am talking about 1999-2000), like most people our age, we were merrily travelling along life’s highway, earning, spending and salting away a bit for the future, and ticking away at various “achievements” which were largely material acquisitions. But our middle-class genes also automatically built in some caution and I remember that we had started thinking about what should be the financial goal that we should be looking to build to “be comfortable”. At that time, the number “x” seemed both luxurious and unattainable and hence that was the number that we set ourselves a “target” to reach.

Of course, as a few more years passed by (by about 2005-6), the number started looking small! Not because our nest egg was getting closer to the number though, since we had continued to follow a fairly haphazard (in hindsight) approach to building wealth – a second house, some bit in the stock market, some insurance, etc. Just that “x” suddenly seemed both “within reach” and “not enough”. So, the target became larger (about “3x”) and we continued to earn and spend while saving up.

As we entered our middle years (around 2011-12) and our kids started growing up, life began to resemble a treadmill. Just that while the run in itself was enjoyable, the faster we went, the faster the treadmill also seemed to go and the ultimate destination seemed like a mirage. The target again started seeming “not enough”. That’s when we consciously decided to slow down the treadmill and asked ourselves a few questions.

What kind of lifestyle did we desire for ourselves and our children?
How much of a role should debt play in our lives?
What is really the corpus that we wanted to “be comfortable” for the rest of our life?

Our search for answers to these questions helped us fulfil our need for financial security as well as discover the concept of “financial freedom”. Essentially, Being Financially Free in the simplest way meant having enough money that one need not have to work for money for the rest of his or her life. That said, it isn’t as one-dimensional as that. Being Financially Free necessitates the following

Having enough money to ensure that all foreseen (and unforeseen) expenses are taken care of
Still having money post that to take care of all future events/milestones until one’s death
Making sure that assets are in the right form to enable one to live the lifestyle that one has planned for
Last but not the least, making sure that your money is invested wisely enough to ensure that it is not getting eroded by factors such as unplanned expenses, inflation, market cycles, illiquidity, concentration, etc.

This process also helped us recognize the fact that how much people go wrong in their understanding of money and their efforts to build wealth. And 2 reasons stood out

Underestimating the long term – both in terms of inflation as well as asset composition
Lack of direction – Building assets doesn’t necessarily build adequate wealth, unless one knows what are one’s milestones and goals

In our personal case, as we underwent and completed the comprehensive planning exercise for ourselves, we discovered that the “number” we were looking for to be “comfortable”, rather “financially free” was about “10x” from the original number we started with, and that too in current value terms. We now know what is the number we are working towards, and we also have a clear understanding of what are our future financial milestones and how we need to plan for them.

As an aside, our personal experiences with money helped us set up Finwise, a firm that helps busy people achieve their financial goals, grow their wealth substantially and work towards financial freedom. In a way, we ourselves were our first “financial planning” customer!

I hope our story helps you understand what it means to “Be Financially Free”. Do let me know your thoughts at getfinwise@finwise.in.

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

Image credit: Stockified.com, shot by ab-dz

The 3 most important words I have said as an adult

Girish Ganaraj Budget, Financial Freedom, Financial Planning, Personal Finance, Retirement January 9, 2019January 23, 2019 2 Comments

Becoming an adult is one of the biggest thresholds that a human being crosses in his or her life. For a young one on the verge of this threshold (for context, we are talking here about the legal definition of crossing the age of 18 years), it comes with the promises of many excitements and thrills. It is about being an independent person (As Bollywood would say – apne pairon par khada hona), owning a driver’s license, the right to cast a vote, legally marrying a partner and much more. It also comes with the sense of responsibility of having to fend for oneself officially since he or she is no longer on someone’s dependent list. It is also about being responsible about making many important life choices, including partner and career.

So, all of my readers, tell me, which do you think are the most important 3 words that you have ever said since becoming an adult? While I am sure there would be many, am putting down below a few which I would think make the top of the list.

Right at the beginning, there’s the cliched but very important “Mujhse shaadi karogi / karoge”. Arguably one of the biggest decisions that a young adult makes is to select his or her life partner and these three words signify a huge commitment that one makes, one that is expected to last the entire lifetime. These 3 words would count as some of the most important words said, and rightly so.

But there are others. As the early excitement wears off adulthood and responsibilities begin to make themselves felt, 3 more important words are uttered, this time, “Buy a house”. Important because, these signify a long-term financial commitment that the young adult makes from the meagre salary that he or she makes, all for the promise of “apna ghar”.

And then, as the years pass by, either due to personal choices or egged on by familial pressures, the next set of 3 words get uttered, these being “Start a family”. Again important, because, apart from long-term financial commitments, these words also add the responsibility of bringing up new lives in this world, with the right set of values, just as the adult was brought up, many years back.

There may be more, but I would guess the above 3 would largely be the 3 biggest decisions that any adult would take in his or her life, especially in their early adulthood years. I have to admit, I have uttered all the above, and whenever I said them, they felt to me at that time to be the most important words that I have uttered until then.

So then, which of these 3 were my most important words, you ask? Well, while at the time I found each of these to be very important, let me say that my most important 3 words are none of these, especially with the benefit of hindsight. So, what are my most important 3 words?

My most important 3 words were uttered some years back, in what I would like to think was a moment of enlightenment. And they were – “Become financially free”.

Let me explain. Like most adults my age, I was caught up in the race to build assets and fulfil responsibilities, and like all others, went about “ticking” off the various “goals” – namely marriage, first house, second house, children, nice cars, latest gadgets, name it. Thankfully, both me and my spouse Prathiba come from middle-class families and still remember those struggles that our parents went through in bringing us up. Somewhere, as we were zipping along merrily through this “tunnel”, prudence prevailed and we also started looking for the light at the end of it.

It was then (about 8 years back) that Prathiba and me decided that we would become first debt-free and then work towards becoming financially free. We achieved our first goal of becoming completely debt-free about 5 years back and since then are working our way towards achieving financial independence. For us, financial independence means having enough money or assets to take care of our major goals in life, allowing us to work towards one’s passions.

Following this and emboldened by our own experience, Prathiba left a lucrative private sector career and founded and successfully runs a Financial Planning firm called Finwise Personal Finance Solutions some years back, which helps families plan for and achieve financial independence.

As far as I am concerned, I spent a few more years in the corporate world to bolster our financials and have recently left the corporate world to join Prathiba and grow Finwise to the next level. This would have been unthinkable a few years back, but timely planning as well as diligent focus over the last few years has allowed us to take this bold step.

So, now that you have heard my story, what’s yours? Have you discovered 3 new words that seem important to you? Do you wish to get on the path of financial independence? Do write in to me with your thoughts at getfinwise@finwise.in.

Finwise is a personal finance solutions firm that helps people 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: Unsplash.com, Shot by Victor Rodriguez

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

Prathiba Girish Financial Planning, Government Savings Schemes, Pension, Personal Finance, Retirement, Tax Savings December 20, 2018December 19, 2018financial planning, national pension scheme, national pension system, NPS, retirement, Retirement planning, saving for retirement, Tax benefits, tax saving 0 Comment

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.