Cts debt management

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Financial
Wellness
Cognizant Technology Solutions
22nd November 2010

Topics for discussion
Getting out of debt
Investing for life goals
Common mistakes in tax
planning

Financial Wellness
Being financially well is to be in such a
financial situation that your hopes,
dreams, future endeavours for you and
your family are realistically possible and
attainable.

Financial wellness components
Plan for life goals
FINANCIAL
WELLNESS

Getting out of debt
Is like a
penance….

Why should you get out of
debt?
Debt is expensive
Debt drains your wealth
Debt can delay your goals
Debt can cause stress

Credit cards…
If you borrowed Rs. 1 lac on your credit card
that charges 2.99% per month and you pay the
minimum balance every month, how long do
you thing it will take to pay off your credit card
in full….

200 months (or) 16
years and 8months
with still about Rs.1200.00
outstanding

You would have paid an interest
of Rs.136700.00 on this loan of
Rs.100000.00

Home loans…
Home loan amount 2000000
Interest 9%
Tenure (months) 240
EMI Rs. 17,994.52
Total repayments Rs. 43,18,684.59

If invested….
Regular savings Rs. 17,994.52
Returns 9%
Tenure (months) 240
Total payment made Rs. 43,18,684.59
Value of investment Rs. 1,20,18,303.05

If ten years time saved….
Assume age at which loan
taken 25
Investment starts age 35
Retirement age 60
Investment amount Rs. 17,994.52
No. of months 300
Rate 9%
Retirement corpus Rs.2,01,74,050.13

If invested after full loan term..
Assume age at which loan taken 25
Investment starts age 45
Retirement age 60
Investment amount Rs. 17,994.52
No. of months 180
Rate 9%
Retirement corpus ???????

Rs. 68,09,229.84

The value of getting out of
debt early is a whopping
Rs. 1,33,64,820.29

How to get out of debt?
Hari’s
case

Hari’s income and expenditure
Income Amount Occurrence
Salary - net take home 75000 per month
Annual - bonus / incentives 300000 per year
Total (Nett) Rs. 12,00,000 Per year
Expenses
Monthly provisions 8000 per month
EB, telephone, mobile bill 4000 per month
EMI 45853 per month
Movies and eat outs 8000 per month
Home - parents 5000 per month
Fuel 5000 per month
Flat maintenance charges 2000 per month
Gym 20000 per year
Car maintenance & insurance 35000 per year
Total per year Rs. 9,89,236 per year

Hari’s income and expenditure,
looking harder…
Monthly regular income Rs. 75,000
Monthly regular expenses Rs. 77,853

Hari’s Loan statement
Loans Amount of loan Period Interest
Regular
repayment
Home 2500000 240 9% Rs. 22,493.15
Car 500000 48 11% Rs. 12,922.76
Personal loan 100000 48 18% Rs. 2,937.50
Credit card 1 75000 21 36% Rs. 5,000.00
Credit card 2 50000 31 36% Rs. 2,500.00
TOTAL Rs. 45,853.41

Hari’s Loan – looking harder..
Loans
Amount
of loan
Monthly
repayment
Total
repayment
Total
interest paid
Credit card 1 Rs. 75,000.00 Rs. 5,000.00 Rs. 1,05,000.00 Rs. 30,000.00
Credit card 2 Rs. 50,000.00 Rs. 2,500.00 Rs. 77,500.00 Rs. 27,500.00
Personal loan Rs. 1,00,000.00 Rs. 2,937.50 Rs. 1,41,000.00 Rs. 41,000.00
Car Rs. 5,00,000.00 Rs. 12,922.76 Rs. 6,20,292.54 Rs. 1,20,292.54
Home Rs. 25,00,000.00 Rs. 22,493.15 Rs. 53,98,355.74 Rs. 28,98,355.74
TOTAL Rs. 32,25,000.00 Rs. 45,853.41 Rs. 63,42,148.28 Rs. 31,17,148.28

NO TAKING ANY MORE LOANS
• When you realise you have dug
yourself into a hole, the first and best
thing to do is STOP DIGGING
Steps to “Zero Debt”

Steps to “Zero Debt”
• Budget expenses
• Generate a surplus and commit it to the “Zero
Debt” project
• Snowball the debt repayment

Hari’s loans – New look
Loans Amount of loan
New - total
repayment
New - interest
Credit card 1 Rs. 75,000.00 Rs. 89,400.00 Rs. 14,345.00
Credit card 2 Rs. 50,000.00 Rs. 68,400.00 Rs. 18,375.00
Personal loan Rs. 1,00,000.00 Rs. 1,24,155.00 Rs. 24,111.07
Car Rs. 5,00,000.00 Rs. 5,99,562.00 Rs. 99,539.94
Home Rs. 25,00,000.00 Rs. 37,27,816.00 Rs. 12,27,683.40
TOTAL Rs. 32,25,000.00 Rs. 46,09,333.00 Rs. 13,84,054.41

The effects…
Parameter Existing Revised Savings
Total repayments Rs. 63,42,148.28 Rs. 46,09,333.00 Rs. 17,32,815.28
Total interest paid Rs. 31,17,148.28 Rs. 13,84,054.41 Rs. 17,33,093.86
Total tenure to "zero
debt"
240 months 98 months 142 months
Richer by about Rs.1.33
crores on retirement

Building
wealth

Financial life cycle

Steps in goal based investing…
Name your goal

Estimate when this goal
is due

Estimate the cost of the goal at
today’s value

Estimate the rate of inflation
relevant to the goal
Estimate the rate of returns on
investments expected

Assess current value of any
investments already made towards
that goal

Investment needed for the goal
You will require a regular annual investment of
Rs. _________ to reach your goal assuming a
certain rate of return on investments and rate
of inflation

The “r”
A = P(1+r)^n

Common mistakes in tax planning

• Overdoing the tax planning under Sec 80C
• Buying insurance to save tax
• Borrowing and buying a house to save tax
• Waiting till the last minute to invest in tax
saving options
• Not filing returns on time

Thank god its over!!!!
I am ready
for
Questions


Facilitators
• Bhuvana Shreeram
• +91-98840-70750
• bhuvana@finerva.com
• Finerva Financial Solutions Private Limited
• www.finerva.com

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