financial planning | Finwise

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.

But I am scared of Equity!

Girish Ganaraj Financial Planning, Personal Finance May 30, 2019May 30, 2019financial planning, Goal-based investing, Investment Planning, personal finance 0 Comment

During most client financial planning conversations, the financial planning process generates a sort of awakening. For some, its like “blinkers off”, while for some others, it’s like “a huge load off my shoulders”. For some, it’s a scientific validation of their understanding of their finances, while for others, some aspects come as a rude shock. But usually for everybody, the discussions lead to a clear shared understanding of their current financial position, a discovery of what their financial future priorities are and what they need to do going forward to achieve them.

As a part of our conversations, we also transparently share the short-term volatilities that asset classes like equities have, which could lead to a capital loss of even 20-30%, even if temporary. Over the course of our discussions, most customers end up building comfort with various available asset classes, as well as the differences between them. With our help, they also get to know what (and how) they will need to invest in each asset class to achieve which goal, and get comfortable with the risk-return trade-offs of each asset class.

Rarely though, we come across some customers who are quite resistant to the idea of investing a part of their savings into equity, irrespective of how critical it is to achieve their financial goals. When we try to understand more, the following deeper truths emerge

I do not want to take any risk, I am very conservative
I just don’t understand Equity
I have no idea of how the stock market works
I am worried that I will lose all my money
I prefer to invest in something I understand – like Real Estate or Gold

To many of you, these reasons may sound familiar. So, how can these worries be addressed?

For us, these worries are opportunities for us to understand customers better so that we are able to adapt their investments to their risk appetites in the best possible way, while enabling them to meet their goals. At the same time, it is also an opportunity for customers to understand a bit more about various asset classes, especially the ones they do not know much about, confront their beliefs and overcome their fears.

Irrespective of your mental approach towards decisions, the below rationales should help you to understand and update your beliefs about the risks attached with equity.

History shows that while in the short-term, investments in equities are very volatile, in the long-term, a well-selected and adequately-diversified portfolio of equity mutual funds is very safe from a capital loss perspective. The below table illustrates this

A significant part of our own portfolio is in equities and we are usually invested in most recommendations to our customers. Our own experiences in investing in equities has been very positive. This also helps build confidence in our customers that we have skin in the game and that our interests are aligned.

Many customers who come to us have a significant % of their Net Worth in Real Estate, which hasn’t had a great run in the last decade or so. That being the case, the risk of remaining further invested in Real Estate is higher, and investing in equities not only helps them meet their goals more safely, it also reduces risk in their portfolio through diversification.

As a people, we are used to taking risks in many aspects of our life. We take those risks by managing them better, by constantly building and updating our understanding of the risks and taking appropriate corrective actions, when needed. Our approach to risks in investing needs to be similar.

Equities are an important asset class, arguably the most important from a wealth creation perspective, and much needed for all of us to meet our long-term financial goals. Avoiding Equities due to your fears of them is something that can severely impact your financial security in the future. The better thing to do would be to understand your reasons for fearing equities and seek the correct information in order to overcome them.

Image by Mediamodifier from Pixabay

How close are you to FIRE?

The term FIRE has gained popularity in recent times. For those of you who haven’t heard it before, it stands for – Financially Independent, Retire Early. Many articles are being published on what it means and what one should do to be part of this “elite” community. Speaking to a few millennials made me realize that it definitely has caught that generation’s imagination.

At the core, FIRE is about becoming financially free. I have written about becoming financially free before (here is the link), hence wont go into it again. Suffice it to say that becoming FIRE is not an event or an end-point in itself. In fact, beyond a certain stage in your personal financial life-cycle (having successfully planned for all financial goals and still having money to spare), it is an enabler to a different way of life. Let me explain.

Becoming FIRE is not at all about having a target pot of money and spending all one’s energies saving, investing and managing it. That would defeat the purpose of attaining that status. It is about identifying what one wants to actually do and how much minimum money does one need to move on to actually living one’s life the way one wants to.

Hence importantly its about 2 things –

Stripping and clarifying your finances to a level where one is clear what is a must and what is not, so that it keeps you happy, while not dependent on money.
Being clear about what one wants to do in one’s life. Everyone has their passions, secret desires that one would life to fulfil. Dare I say, every one of us has our own stories about “what I would do if I had enough money”.

The starting point to becoming FIRE is to actually know what one wants to do and where one wants to be financially to achieve that purpose. Everyone’s needs and wants are different and everyone therefore needs a different amount of money to reach FIRE status. One only needs to remember that the purpose at the core should be something that gives you immense happiness, and beyond a point, “there are many things in life that money still can’t buy”.

Also read this nice article by Mrin Agarwal in Mint about some of the checks and safeguards that people in FIRE status also need to have, while living their life.
https://www.livemint.com/money/personal-finance/opinion-financially-independent-can-retire-early-without-feeling-irrelevant-1556722367309.html

Image by Jill Wellington from Pixabay

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.

You spend across the globe, do you also invest internationally?

Girish Ganaraj Financial Planning, International Investing, Personal Finance April 26, 2019April 26, 2019Diversification, financial planning, International Investing, Investment Planning 0 Comment

One of the key pillars of building a stable yet strong investment portfolio for your long-term goals is Diversification. The objective of diversification is simply to “not put all your eggs in one basket”. Ie. apportion your money across different investments, in order to reduce risk. Conventionally, diversification for retail investors has meant the following –

Invest across asset classes – eg. Equity, Debt, Gold, Commodities, Real Estate
Invest across categories – eg. within Equity – large/mid/small cap, within debt – liquid, duration, credit risk

One key area available for diversification, yet, not taken advantage of by the retail investor is – Geography. Think about it – while we all agree that as a country India has a great long-term future and is one of the fastest growing markets in the world, from a risk perspective, having all your investments in one country – isn’t it another way of “having all your eggs in one basket”? While during happier times your pure Indian portfolio might grow healthily, what about the volatility risks during uncertain times (eg. global recessions, oil prices peaking – haven’t we seen these before?) when global money flows out of emerging markets such as India?

One key factor that large and HNI investors use successfully to not only de-risk their portfolios but also take advantage of global growth cycles is investing internationally. This has many advantages

Companies such as Apple, Google, Amazon, Facebook, Netflix – are driving huge behavior and consumption changes across consumers. And none of these are Indian. Investing internationally means having a finger in this pie.
Most clients we meet today have a significant portion of their goals planned abroad. Eg. Children’s foreign education, International holidays every few years both before and after retirement, destination weddings abroad. Investing internationally helps you plan for these goals better.
While India is a higher-growth market, it is also a higher inflation country, and hence its currency depreciates against most developed country currencies eg. Dollar, Euro, GBP. Investing abroad allows you to take advantage of the rupee depreciating and adds to the gains.

Remember though, investing internationally also has its share of “new” risks that one needs to plan for. Eg. knowledge of global cycles, international geo-politics and its impact as well as currency risks. That said, there are significant investment opportunities available today that helps us invest internationally. More importantly, not investing internationally may be a bigger risk over the long term, keeping in mind the increasing inter-connectedness the world is moving towards.

It is also not something that a retail investor can DIY. It is important to reach out to a trusted financial advisor who can help you sift through and find these opportunities. For our clients, who have anywhere between 10-25 years left for retirement, we recommend at least 10-20% of their investment portfolio should be invested abroad, both to take advantage of global investment opportunities as well as act as a hedge during volatile times.

Going on international holidays or spending on international products – a good part of your expenses goes towards international companies. Then, why haven’t you invested a decent part of your inve/stments in them yet?

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 by stokpic from Pixabay

How secure is your job? Decisions by top few can change fates of many

When one heard recently about the shut-down of Jet Airways, the immediate feeling was one of sadness. How could it happen to the airline that was to some extent a great symbol of Indian globalization, and our own MNC airline brand? And what about the tens of thousands of jobs lost, both directly and indirectly?

When one thinks deeper, the question that comes to mind is – how many of these employees ever thought that something like this could happen to them? Even if a few of them imagined it, did they plan for the consequences?

Over the last few years, quite a few large companies, big behemoths in their time, have ceased to operate. Large industries have significantly pared down their operations eg. Telecom, Construction. There has been significant re-trenching in these industries and people have been caught unawares. Many of them would still be struggling to find jobs commensurate to their experience. Most of them wouldn’t have envisaged this outcome and would have been caught short on the need to up-skill and build new skill-sets.

One important reason why people take jobs in the corporate world is because it brings tremendous job security and allows one to have a far more certain future. But remember, no future is certain unless one plans for all the various scenarios adequately. In today’s times, with uncertainty only increasing, the chances of having a long, 30-year career in the corporate world is something that is definitely not a given.

All the more reason for corporate employees, especially at the middle management and lower levels to be far more planned about their financial futures. Its never too late, however old you are. As Warren Buffett said – “The best time to plant a tree was 20 years ago. The second best time is now”. Also read this timely article by Lisa Pallavi Barbora in Mint on how corporate employees and their futures are completely dependent on their corporate leaders decision making abilities. The job security that one imagines one has is to an extent only a façade. Hence, important to have the right personal financial practices and plan to make sure that such eventualities do not put you in a vulnerable position due to no fault of yours.

https://www.livemint.com/Money/iC8z4rl08CpNaNp4C5PF2O/Opinion–Decisions-by-top-few-can-change-fates-of-many.html

Why being a diligent saver may be making you a bad investor

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance April 10, 2019April 20, 2019financial planning, Saving vs Investing 0 Comment

“Saving is a great habit, but without investing and tracking, it just sleeps” – Manoj Arora

In general, we are aggressive savers and “keeping something aside for a rainy day” comes to us more naturally than most (probably because we live in a country that is used to quite a bit of excess rain! 😊). We are people who save because we are taught to save. For most of us, our earlier generation (or the one before that) has gone through tough times bringing their children up and we have seen it. We have lived through times of “scarcity” and this scarcity has automatically built into us the values of both prudence (living within our means) and caution (hesitation to take the risk).

This prudence has held us in good stead and manifests itself in our lives in many ways. Not only do we usually have Plan Bs (ie. jugaads) ready for most important situations (ab kya karein is not something we get stuck at usually), it has also taught us to have a savings habit and spend carefully. Our ability to survive and manage short-term household cash crises is also quite good, purely because there is some savings lying somewhere that turns up to be used in that emergency.

At the same time, this caution has led us to being not-so-good investors. For most of us, our investing experiences are formed by what people around us have done. Hence the moment one has a secure job, “ghar kareedna hai” becomes the goal. For our earlier generation, investing a large part of their savings in gold was common since “bachchon ki shaadi mein dena hai”.

The values of caution have also been built into us because of past experiences that we may have had or seen. Someone in the family losing all their money because “usne share-market mein gawah diya” can be a very tough experience for a young adult and can form the basis for his or her life-long investing thinking process.

As financial planners, we commonly see large parts of client savings parked in illiquid assets such as gold or real estate. Most clients we get usually have significant holdings in these asset classes, to the extent of being too dependent on the performance of these asset classes to secure their financial futures. What such strategies also end up risking is that while we spend our lives building “assets”, we don’t necessarily have enough wealth when the time comes, and corrective actions in such situations, unless taken in time, also can prove costly.

It is only recently that people are getting more comfortable with financial assets such as mutual funds, and stocks. Even today, personal finance and investing isn’t taught to kids right from school to graduate programs. It is ironical sometimes to see senior professionals, directors and vice-presidents in large companies, managing company balance-sheets and P&Ls, but struggling at home to have a clear plan that will help them secure their long-term goals.

The fundamental issue with not knowing the basics of investing means 2 things. One, you are dependent on the mercies of whichever “salesperson” you meet (whether from a bank/NBFC, a newspaper ad or a well-wisher friend/relative) to take your investing decisions. Two, even more importantly, you are dependent on the vagaries of luck and time to determine whether you have made the right choice or not.

So, what can we do about it? While Saving is about controlling your expenses to keep aside something for the future, Investing is about making sure it is enough when the time comes. This requires the layman to have some rudimentary knowledge about various financial assets, the return they can generate as well as the risks they entail over various time horizons. Importantly, it also requires us to recognize the corrosive power of inflation on our savings and the ability to assess which investments can build wealth over the long term and which erode it.

Investing is primarily about understanding risk and putting your money to work when and where it favours you. It is not something alien to us since we generally take risks in other domains all the time. In today’s times, we cannot remain ignorant about the basics of investing especially when it does seem that the future of wealth creation lies more in financial assets like equity, mutual funds and bonds, rather than conventional old-time favourites such as real estate and gold. Start your learning and investing journey today. If required, reach out to a good financial planner, just make sure that their interests are aligned to yours.

Image credit: Mohamed Hassan, Pixabay.com

Lets talk money, honey!

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Personal Finance April 3, 2019April 3, 2019financial independence, financial planning, women empowerment 0 Comment

To know a person fully, it is important to know their attitudes towards money. This is a critical step towards being truly ready for your happily-ever-after story.

Read this article written by me in my monthly column on Moneycontrol.com by clicking the below link.

https://www.moneycontrol.com/news/business/personal-finance/viewpoint-lets-talk-money-honey-importance-of-discussing-finances-in-a-marriage-3674541.html

The Finwise Woman series – In celebration of International Women’s Day – 8

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Personal Finance March 7, 2019March 7, 2019financial independence, financial planning, finwise woman, personal finance, womens day 0 Comment

Our final Finwise Woman is Mrunali Majmudar Sathe, a successful corporate executive, someone who has worked at senior levels in the corporate world as well as has successfully run her own company. For her, money has always been a means to an end, towards achieving her ambitions and desires for her and her family.

Mrunali says,

“As a working woman I have always been financially independent, driving many of our financial decisions of key investments like house and big expenses as well. But as the kids grew up and I took a year off on sabbatical, it struck me that one day I may not be able to earn and the burden will fall on my husband alone or on our meagre savings.

Thats when I realised I needed a personal financial advisor. Enter, Prathiba. I have ever been so grateful that she came into my life. I can say that today my financial future is absolutely secure thanks to her meticulous planning and coaching. All I do is follow her. I can now even think of expensive college education for my kids which I had all but given up on.

In a city like Mumbai if both partners don’t think and act alike to influence their financial status, it is difficult to thrive. Thanks to Finwise, I am wiser and in charge of my and my family’s financial future.”

We hope you enjoyed reading the stories of how these women took charge of their financial lives and went about building financial security and independence as a bulwark for their futures. It is never too late to begin and we urge all women to begin their journey towards becoming “finwise” today!

#finwisewoman # financialindependence #womensday

Finwise is a personal finance solutions firm that helps successful women gain financial and emotional security by helping them plan for their financial goals and achieve financial independence. For consultations, please reach me at prathiba.girish@finwise.in or +91 9870702277.

The Finwise Woman series – In celebration of International Women’s Day – 7

Today’s Finwise Woman is someone who is surrounded by aromas, both at her job and when she is not (her passion is to see the world)! Anusha Iyer is Creative Fragrance Director and is based out of South Africa with her spouse.

She says

“It’s been about 20 years since I started working and I’ve been managing not just mine but also our household finances till date. My goals in life were to have my own house, be debt free and travel the world. Successfully managed to achieve the first two and the latter is work in progress. Having become a travel addict and with a long-term goal of maintaining our current lifestyle I realized it’s time for me to up the game.With Finwise am looking forward to a great partnership to help achieve my dreams!”

#finwisewoman #financialindependence #womensday