A comprehensive guide book on Savings and InvestmentDeepika Jha
Lean the following with this guidebook -
1. Key differences between Saving and Investment
2. Basics of Investment Planning
3. Financial Plan - Concepts & factors for Success
4. How to plan for your life-stage
Financial Planning: Updates on Financial Planning, Tips to manage money. Know about importance of Financial Planning, rules of financial planning, ...
Financial Planning: Updates on Financial Planning, Tips to manage money. Know about importance of Financial Planning, rules of financial planning, ...
A monthly Newsletter to manage your personal finance & aim to give a detailed outlook about Mutual funds, other investment options, and Market via INVESTMENT MANTRA.
Identifying the 12 things that EVERYONE gets wrong about financial planning, Understanding insurance, Demystifying savings and investments, Wading through the banking and lending challenges, Effective tax and estate planning
A comprehensive guide book on Savings and InvestmentDeepika Jha
Lean the following with this guidebook -
1. Key differences between Saving and Investment
2. Basics of Investment Planning
3. Financial Plan - Concepts & factors for Success
4. How to plan for your life-stage
Financial Planning: Updates on Financial Planning, Tips to manage money. Know about importance of Financial Planning, rules of financial planning, ...
Financial Planning: Updates on Financial Planning, Tips to manage money. Know about importance of Financial Planning, rules of financial planning, ...
A monthly Newsletter to manage your personal finance & aim to give a detailed outlook about Mutual funds, other investment options, and Market via INVESTMENT MANTRA.
Identifying the 12 things that EVERYONE gets wrong about financial planning, Understanding insurance, Demystifying savings and investments, Wading through the banking and lending challenges, Effective tax and estate planning
In every movie, at the end everything goes well and movie ends happily and if it didn’t, then... "Picture abhi baaki hai mere dost"
How happy we’ll be if our life turns out to be like a movie, no? But the truth is … Life is not a movie. We all know about the hardship and struggle of life. But YES, if we plan our finances and manage it properly then we can surly make the story of our life “Happy".
So where ever you are and in whatever condition, let's start planning our finance because."Picture abhi baaki hai mere dost...". We at financial Hospital is coming with a session on how to plan and where to find safe heaven for your finance. Read on to make yourself a super hero of your own life movie.
The monthly newsletter by seeman fiintouch LLP april 21 editionAshis Kumar Dey
READING THE MARKET PULSE DURING THIS COVID CRISIS
CASE STORY OF RAMESH, 37 YRS,WHO STARTED INVESTMENT HABIT AT THE AGE OF 27 ONLY
WHAT IS FUND OF FUND ( FOF) SCHEMES ? IS IT GOOD FOR ASSET ALLOCATION ?
A self guide towards financial planning. We ourselves can manage our finances, so here comes phase-1 describing about few topics. Stay tuned for the remaining topics in phase-2.
6 step simple personal finance planning dont read if you plan your personal f...Vinod Pottayil
Personal finance is managing your finance for achieving your short and long term financial goals.
It means the application of self-discipline on your income to plan and secure your future. Personal finance planning only will lead you to the ultimate financial freedom.
Admirable Worldwide is one-stop consultancy firm offering comprehensive solutions in Financial Planning and Consulting. We help individuals and corporates to achieve their strategic goals and objectives as well as increasing process efficiencies to optimize revenue and bottom line.
Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child's higher education or planning for your retirement.
Financial Planning is about “Planning Life” and “Financial Prosperity” and involves 95% strategy and 5% products. It is the blueprint for planning and management of all financial affairs for your entire life and consider holistic view that enables you achieving your life’s goals. For further details, please visit "http://www.admirableworldwide.com/".
In every movie, at the end everything goes well and movie ends happily and if it didn’t, then... "Picture abhi baaki hai mere dost"
How happy we’ll be if our life turns out to be like a movie, no? But the truth is … Life is not a movie. We all know about the hardship and struggle of life. But YES, if we plan our finances and manage it properly then we can surly make the story of our life “Happy".
So where ever you are and in whatever condition, let's start planning our finance because."Picture abhi baaki hai mere dost...". We at financial Hospital is coming with a session on how to plan and where to find safe heaven for your finance. Read on to make yourself a super hero of your own life movie.
The monthly newsletter by seeman fiintouch LLP april 21 editionAshis Kumar Dey
READING THE MARKET PULSE DURING THIS COVID CRISIS
CASE STORY OF RAMESH, 37 YRS,WHO STARTED INVESTMENT HABIT AT THE AGE OF 27 ONLY
WHAT IS FUND OF FUND ( FOF) SCHEMES ? IS IT GOOD FOR ASSET ALLOCATION ?
A self guide towards financial planning. We ourselves can manage our finances, so here comes phase-1 describing about few topics. Stay tuned for the remaining topics in phase-2.
6 step simple personal finance planning dont read if you plan your personal f...Vinod Pottayil
Personal finance is managing your finance for achieving your short and long term financial goals.
It means the application of self-discipline on your income to plan and secure your future. Personal finance planning only will lead you to the ultimate financial freedom.
Admirable Worldwide is one-stop consultancy firm offering comprehensive solutions in Financial Planning and Consulting. We help individuals and corporates to achieve their strategic goals and objectives as well as increasing process efficiencies to optimize revenue and bottom line.
Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child's higher education or planning for your retirement.
Financial Planning is about “Planning Life” and “Financial Prosperity” and involves 95% strategy and 5% products. It is the blueprint for planning and management of all financial affairs for your entire life and consider holistic view that enables you achieving your life’s goals. For further details, please visit "http://www.admirableworldwide.com/".
For Those Who Want to Prosper & Thrive in Retirementfreddysaamy
http://ekinsurance.com/financial/retirement/
Our core capital should be designed to outlive us. In fact, it’s important for you to start thinking about your money in terms of it outliving you, not the other way around. You don’t want to outlive your money.
Please reword these paragraphs in your own words and do not use th.docxmattjtoni51554
Please reword these paragraphs in your own words and do not use the same words as in the paragraphs.
Focus on Personal Finance, Ch. 1
· 1-The eight components of personal financial planning are obtaining, planning, saving, borrowing, spending, managing risk, investing, and retirement and estate planning. The obtaining component relates to acquiring resources through employment and investments. The planning component involves budgeting while considering future events that may impact an individual's financial position. The saving component creates a financial safety net for the individual that allows for large expenses that could be either planned (tuition) or unplanned (hospital bills). The borrowing component allows for financial smoothing. In situations when the individual does not have liquid cash available for current expenses, they can borrow funds and repay the lender in the future when they have cash available. The spending component is the use of the acquired and saved resources. The managing risk component involves the consideration of many different variables in order to mitigate risk exposure in a way that appropriately meets risk appetite. Each individual has a different risk appetite based on variables such as their age, income, health, etc. The investing component relates to allocating resources in a way that allows them to grow and produce return. Retirement and estate planning involves making decisions to secure a financially stable life after retirement.
I believe the most important component is risk management. Every individual must consider their risk appetite. If the individual is young with very few expenses, it would make sense for them to make investments that have a relatively higher risk exposure because they have a long investment horizon and can recover losses in the long run. However if an individual is nearing retirement and has many expenses, they cannot afford to take on excess risk and would probably prefer to plan for retirement and save. Each individuals risk appetite will affect how the approach the other components of financial planning.
Focus on Personal Finance, Ch. 2
· 2-Budgeting and financial planning can make or break a relationship. Everyone hears about people that are fighting over money all the time, this is simply because the couple doesn't sit down and discuss their financial issues and talk about ways to fix it. When people can come together and put a budget together that can be agreed upon and have legitimate financial plans, this can release tons of stress in a relationship. There are all kinds of different people and the ways in which people deal with money are also very different, so coming up with a good financial plan and a good budget will help a relationship stand on a more solid foundation financially. This type of planning will also give both parties something to hold them accountable for if they stray off path.
Focus on Personal Finance, Ch. 11
· 3-Once we establish our comf.
The Importance of proper Financial Planning. Navigating the financial world is a minefield, make sure you know what steps you need to take to ensure you don't lose money.
In this FREE guide, you will learn powerful do-it-yourself investing concepts like:
1. How to start investing in stock markets
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The comprehensive beginner guide on investing in various financial instruments. You will learn following -
1. Bank Savings, Fixed & Recurring Deposit Account
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Laitkor RoR development team has always been in the forefront in creating innovative and world-class web applications since a decade. Check - https://www.laitkor.com/laitkor-provides-best-ror-development-services/
Package Consolidation Service - 1GrandTrunkDeepika Jha
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Laitkor, the premier software development company in the USA, with expertise in multiple platforms for Web development & Android and IOS mobile application development.
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Package Forwarding Service - 1GrandTrunkDeepika Jha
1GrandTrunk is presenting affordable International Shipping from USA, China, and India to any other place across the globe. You can get free USA, China, and India address for shipping purpose.
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Nucleus Vision is an IoT-based contactless identification system, empowering retailers to identify and better serve their customers.
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Embracing GenAI - A Strategic ImperativePeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
Palestine last event orientationfvgnh .pptxRaedMohamed3
An EFL lesson about the current events in Palestine. It is intended to be for intermediate students who wish to increase their listening skills through a short lesson in power point.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
Francesca Gottschalk - How can education support child empowerment.pptxEduSkills OECD
Francesca Gottschalk from the OECD’s Centre for Educational Research and Innovation presents at the Ask an Expert Webinar: How can education support child empowerment?
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
3. Saving &
Investme
ntAmit, a 26 somethingtechie
received a call from Sumit, a
financial advisor regarding a
new investment plan. Amit
replied he did not see any
need for saving & investment
as hebelieved
in living life to its fullest.
Sumitunderstood that Amit
needed some lessons on the
concepts of Saving &
Investment. He fixedup a
meeting for weekend morning.
As expected, Sumit turned up
and after introducing himself
began explaining
thefollowing:
1
3
4. Chapter 1: Saving
&Investment
4
1.1 What is savings and
investment?
In simple and general terms, savings is
the surplus amount left from your income
earned after deducting all the
expenditures.
Hence, Savings = Income earned –
expenditures incurred.
Investment, on the other hand is done
out of the savings made. This portion
can either be invested in long term or
short
term investments avenues. Investments
are intended to provide a cushion against
future liabilities or otherwise. It can be for
a child’s education, marriage, purchasing
of a car, settlement of EMIs etc.
5. Chapter 1: Saving
&Investment
5
1.2 What is Investment?
The meaning of Investment is
spending your time or energy on
something anticipating income
generation or value addition
infuture. For example: A farmer
ploughs his field on a daily basis
under the expectation that he may
reap some returns in the form of
grains after a specified period of
time. This means that he invests
his time and energy
anticipatingfuture benefits within a
certain timeframe.
Once you have read the aforesaid
example, now you already know
what an investment means, let us
understand the term investment in
terms of finance:
In finance, the meaning of investment is
6. Chapter 1: Saving
&Investment
6
1.3 How is investing different
from savings?
As mentioned above, savings is
theamount
leftaftermeetingexpensesandinvestmen
t
is done out of the savings made to meet future
uncertainties or obligations.
While money kept in savings bank
accountwill give interest, investment in
mutual fund or any other dynamic
investment avenue which is a blend of
both equity and debt will givea
value for money (read that investment can
lead to growth of capital). This is where the
main difference between savings and
investment lies. Also, while investments
lead to wealthcreation, savings is merely
liquid cash.
In finance, the meaning of investment is
purchasing or creating an asset
anticipating an interest income, rental
income, dividend, profits or any
combination of the mentioned returns.
For example: I purchased 100shares
of a company anticipating dividend from
these shares. In this case, shares are my
investment and I am anticipating dividend
income from the investment made.
7. Chapter 1: Saving & Investment
1.4 Why should one invest /
why planning for investments
is necessary?
You should invest to get the required
sum of money for any goal at the
correct time. In other words, if you
want to achieve your financial goals in
life like creating an
emergency corpus, retirement
corpus,children education corpus etc. then
you must start by making an investment
plan which will guide you step by step as
to how to achieve your goals.
You cannot expect to achieve your
financial goals by following blindly the
experience and products
embraced/practiced by previous
6
8. 7Chapter 1: Saving
&Investment
1.5 When to start investing?
The legendary investor, Warren Buffet
mentioned “I made my first investment at
the age of eleven. I was wasting my life up
until then.” Hence, there is no right age to
invest. It all depends on your ability to take
risk and the foresightedness to get going.
generation. Cost of major milestones have
risen manifold in the last 25 years with the
growth
of Indian economy (read high
inflation).There is a good chance of funds
shortage as and when your goals come
up if you don’t have an investment plan in
place right from the beginning.
Practically, you should start investing as
soon as you start earning money from
your job or business so that you can get
the benefit of starting at an early age and
your money has a long time period to
grow.
Amit suddenly realized that he had been
working for little more than 3 years and did not
have any substantial savings.
9. 8Chapter 1: Saving
&Investment
1.6 What care should onetake
while investing?
People have a tendency to invest by
listening to others including the “so-called”
expertson television, newspaper,
magazines, neighbor, friends and
relatives.
But it may happen that the stock which
they are suggesting may be suitable for
him/her but not for others since financial
net-worth, risk taking capacity and time
plays a key role in investing.
Say a stock which looks a very poor
investment in the short run could be a very
good investment for the long term.
Hence, the right path would be either to
give your money in expert’s hand or rather
start with your own research.
A novice investor may face gains or losses
initially, however, with experience he shall
be able to build his own strategies and will
be able to invest based on his own wisdom.
10. 1.7 What are various options
available forinvestment?
Market is flooded with different modes of
investment. However, it depends on the
risk aversion ability of the investor as to
whether invests in high risk option with
greater returns, low risk options with
moderate returns or no risk modes
available.
Accordingly, the categorization can
be as follows:
9
Safe
zone
s
High
risk
options
Moderat
e
risk
options
• Realestate
• Gold
• Company fixeddeposits
• Non ConvertibleDebentures
• Shares and othersecurities
• Mutualfunds
• Investments made in bankfixed
deposit or recurring deposits for
steady returns in terms of
interest.
• Investment in National Pension
Schemes, National Savings
Certificate, Public Provident
fundetc
11. 1
0Chapter 1 Saving& Investment 10
1.8 What is meant byInterest?
Interest is the cost of borrowing funds. It
is the amount charged in percentage
expressed as Interest rate. In other words,
interest is the cost of renting money.
Suppose Mr. A borrows Rs. 50,000 at an
interest rate of 5% p.a. Hence, the interest
charged for borrowing the funds at the
interest rate given will be Rs. 50,000*5% =
Rs 2500/-
12. Chapter 1: Saving & Investment
1.9 What factorsdetermine
interestrates?
Interest Rate is used to regulate
Inflation by the central banks. Inflation is
the continued increase in the general
price levels of an economy. On the
other hand; interest is the cost of
borrowing funds. The explanation given
below will make you understand that the
primary factor affecting interest rate is
inflation.
Let us discuss two main situations:
Tocooldownhighinflation:the
interest rate is increased.
When interest rate rises, the cost of
borrowing rises. This makes borrowing
expensive. Hence borrowing will
decline and as such the money supply
(i.e the amount of money in circulation)
will fall. A fall in the money supply will
lead to people having lesser money to
spend on goods and services. Hence,
they will buy a lesser amount of goods
and services.
This, in turn, will lead to a fall in the
demand for goods and services. With
the supply remaining constant and the
demand for goods and services
declining; the price of goods and
services will fall.
11
13. 12Chapter 1: Saving
&Investment
As inflation is a continuous increase in
the general price level of goods and
services so a fall in the general price
level of goods and services will lead to a
decline in inflation levels.
In low inflationary situations, the
interest rate is reduced
A fall in interest rates will make
borrowing cheaper. Hence, borrowing
will increase and the money supply will
also increase. With a rise in money
supply, people will have more money to
spend on goods and services.
So, the demand for goods and services will
increase and with supply remaining
constant this leads to a rise in the price
level i.e. inflation.
Inflation
Money
supply
Demand
for
money
14. 13Chapter 1: Saving
&Investment
Insuran
ce
Women typically pay
lower
life insurance premiums
Certain health insurance
plans provide maternity
cover at applicble
premium rates
Certain Critical
Illnessplans offer
coverage for diseases
specific towomen
Some motor insurance
companies offer discount
on motor insurance
Property &Home
loan
Several states impose
lower stamp duty if the
property is registered
in the name of a
woman Home loans
are given at lower
interestrates some
banks offer concession
on homeloan
processingcharges
Deposits with
banks/PostOffice
Some banks offer
exclusive facility
available to women in
terms
of minimum balance
maintenance & no cost
debit cards
Govt of India offers
Sukanya Samriddhi
Scheme (SSS) meant
only for girl child. This
scheme offers higher
interest rates than most
of bank fixed deposits
16. 15Chapter 2: Basics of Investment
Planning
2.1 What is investment
process?
Investment process means a series of
steps taken to construct and manage your
portfolio. There are six steps in
investment planning process:-
a) Determine what are
yourobjectives
b) Decide a value for yourobjectives
c) Conduct security analysis:
a. TechnicalAnalysis
b. FundamentalAnalysis
d) Construct thePortfolio
e) Evaluate thePortfolio
f) Revision of the Portfolio
2.2 What are the factorsthat
determine / affect your
investment capability?
a) Family Information - no of earning
members, no of dependent members
,life expectancy
b) Personal information – age ,
employability, nature of job , psyche
c) Financial information – capital base ,
regularity of income (regular or
contractualjob)
d) Present networth- amount of assets
already created and any liabilities
undertaken like anyloans
e) Past investment experience (ifany)
In short, it can be said that your risk
appetite determines or affects your
investment profile.
17. 16Chapter 2: Basics of Investment
Planning
Invest
for a
long
period
Invest
regularly
Start Early
2.3 What are the fundamentals
rules of investments?
There are three fundamental
rulesof
investments:
a
)
b
)
c)
Start Early
Invest Regularly
Invest for a long period of
time
Example:
Raj started investing money to the tune of Rs. 5000 pm diligently. He began this discipline at
the age of 22 years of age. He was earning a rate of interest of 12% compounded each year.
While his friend, Amrita started investing money to the tune of Rs. 10,000 pm. She was also
doing this very religiously. She also earned 12% compounded. She started the process of
doing the investments month on month, at the age of 30. What is the total investment adding
up to at the age of 50 years ofage?
18. 17Chapter 2: Basics of Investment
Planning
Raj Amrita
Age when investing began 22 30
Monthly investment amount Rs.5,000 Rs.10,000
Total amount invested Rs.16,80,000 Rs.24,00,000
Total market value of investments
(approx)
Rs.1,36,56,360 Rs.98,92,554
Cost of waiting/ delaying Rs.0 Rs.37,63,806
As you can see from
thetable the cost of waiting
/ delaying for Amrita
isRs.37,63,806.
Raj benefited from
eightmore years of
compounded growth
thanAmrita.
Thereforeit is
veryimportant to start
investing early. More
earlier, the better for your
investments.
2.4 What are the investment concerns that
need to be addressed, while investing and
choosing theassets?
The most common concerns that needs to be addressed,
while investing and choosing the assets are-
19. Chapter 2: Basics of Investment Planning
Returns
The return from the investment could
be in the form of capital gains, cash
flows, or both. A retired person might
be needing regular cash flows to meet
daily expenses, where as a younger
person in working
/ accumulation phase might be more
concerned with growth of his investment
for creating a corpus for his retirement.
Capital Protection
The most important aspect of
investment is to protect capital. Majority
of indiansare risk averse. We feel
investments are risky and thus leave
most of our saved money in
instruments earning low income,
without
understandingtheeffectofinflation,which
reduces the value of our money
everyday.
18
20. Chapter 2: Basics of Investment
Planning
19
Risk is part of our lives. There is risk
associated with anything or everything
we do. Even if we cross a road, there is
risk of meeting with an accident. Risk
and reward go hand in hand, higher the
risk, more is the reward expected.
Each of the investment assets has its
own associated risk and reward/return,
whichone must understand before
investing his money in any of the
investmentvehicles.
Inflation
By definition, inflation is the rise in
general
level of prices of goods and services in
an economy over a period of time. When
prices rise, each unit of currency buys
fewer goods and services, resulting in
erosion in the purchasing power of
money. The aim
of investment is to get returns in order to
21. Chapter 2: Basics of Investment
Planning
20
increase the real value of the
money. Inother wordsyour
investment should be able to
beatinflation.
Taxation
Income from our investment
assets isliable to taxation, which
is going to reduce our returns.
You should remember that the
real return (read positive return)
from any investment product
would l be the return after
accounting for taxation
andinflation.
Liquidity
It is the ability to convert an
investment into cash quickly, without
the loss of a significant amount of the
value of the investment. If you would
need a particular amount at a short
notice then invest in a investment
product
22. Chapter 2: Basics of Investment
Planning
21
with high liquidity.
Divisibility
This is the ability to convert part of the
investment asset into cash, without
liquidating whole of the asset. Divisibility
may be an important consideration for
many investors, while choosing an
investment vehicle. For example, while
investing Rs.
15 lacs in senior citizen scheme, one
could increase the divisibility without
affecting returns by dividing this
investment in ticket size of Rs. 2-3 lacs,
rather than investing Rs.15 lacs in one
go.
Before committing your capital to any
investment vehicle, it is preferable to
consider your financial needs, goals, and
aspirations, as well as the risk profile.
Concern
s /
Factors
for
chooosin
ginvestm
ent
TaxationDivisbility
InflationReturns
Capital
Protection
Liquidity
23. Chapter 2: Basics of Investment
Planning
22
2.6 What are the various types
of Assets?
•
•
Financial Assets – cash, debt ,
equity
Physical / Non-Financial Assets
–
commodities , real estate
• Alternative Assets – art
objects,collectibles
, precious stones and Gold,
2.5 What are the avenues for
investments?
The various avenues where you can park
your
saved money are known as ‘asset ‘in
layman’s language or ‘asset class’
ininvestment
parlance. Broadly there are four asset
classes in India – equity, debt, gold and
cash.
25. 23Chapter 3: Financial Plan – Concepts & Factors for
Success
3.1 What is Time Value of
Money?
You have won 10 lakh in a lottery. Given a
choice, would you take the 10 lakh as a
lump sum in one shot immediately? Or
would you prefer to receive it in equal
yearly installments of 1 lakh over the next
10 years?
If you are like most people, you will have
taken the money immediately. And this is
the right decision. This is because of the
Time Value
of Money (TVM) which is basically power
of
compounding.
Where,
FV: Future Value
PV: Present
Value R: rate of
return
N:Numberoftimeperiodsforwhichthemoney
is invested
Money that is available today is worth more
than money available at a later date, because
you can invest it and earn a return / interest on
it. So, for example, if you had 10 lakh available
today, and you invested it into a 1 year Bank
Fixed Deposit offering 7.50% in compounding
mode, then in 1 year your money would be
worth 10.77 lakhs.
The money you save and invest is the Present
Value in your equation.
R is the available market rate of interest –
this is not in our control – available
investments offer
FV = PV x
(1+R)^ n
26. 24Chapter 3: Financial Plan – Concepts & Factors for
Success
3.2 Explain - disciplined and
regularInvesting
The most convenient and easiest way to
accumulate wealth is by investing regularly
and in a disciplined manner.
This can be done with any of the asset
classes mentioned previously. For
example when investing into debt market
you can opt for a recurring deposit, or
investing into equity you can go for SIP
(systematic investment plan).
The asset class that grows your wealth the
most over a long period of time is equity.
Very often while investing, investors try to
get the perfect entry and exit point of the
market – which
certain approximate rates of return, and what
you can do is choose your
investmentinstrument carefully.
The only factor in your control is your N. You
can increase your investing time horizon.
The earlier you start investing, the higher will
be your N,and the greater will be your
money’s FutureValue.
PowerofCompoundingistheEighthWonderof
World – Albert Einstein
27. 25Chapter 3: Financial Plan – Concepts & Factors for
Success
3.3What are the benefitsof
investing via a Systematic
Investment Plan(SIP)?
3.4Howinflationcanaffect
your financialplan?
Purchasing power is the quantity of goods or
services that one unit of money can buy. For
example, Rs.100 can purchase much less
today than it could purchase say 20 years
ago. If your income level stays the same,
but the prices of goods or services
increases, then it essentially means that the
purchasing power of your income has
reduced.
This increase in the price level is called
Inflation. Thus inflation is the increase in
prices that erodes the purchasing power of
your money.
And this is the most important factor to account
for when making your financial plan.
Advantag
e of
power of
compoun
d- ing
Benefit
s of
SIP
Advantag
e of
Rupee
Cost
Averagin
g
Enables
disciplin
ed
investing
amounts to market timing which is very
difficult
even if not impossible.
Instead of timing the market, try to let your
investments spend time in the market!
Aviodstii
ming of
market
28. 26Chapter 3: Financial Plan – Concepts & Factors for
Success
Purchasi
ng
Power of
money
Inflation/
Cost of
Goal
Example: Mr. Prajwal Ingle has a 6 year old
daughter. He plans to send his daughter to
col- lege for graduation at age 18 and post
gradua- tion at age 21, for which he will
spend 10 lakhs and 25 lakhs respectively.
What corpus does Mr. Prajwal need to
accumulate for his daughter’s education
goals? Assume that inflation in college
fees is approximately 10% p.a.
If Mr. Prajwal’s daughter goes to college at
age
18 i.e. in 12 years, college fees at that time
will be approximately 31.40 lakhs. This is
theamount Mr. Prajwal has to accumulate in
12 years to send his daughter for the same
standard of college education available
today at 10lakhs.
Similarly, for his daughter’s post
graduation, in 15 years Mr. Prajwal
needs to accumulate
approximately 1.04 crore to give the same
level of post graduate education available
for 25lakhs today. This is the effect inflation
has had on college education fees.
29. Chapter 3: Financial Plan – Concepts & Factors for Success
3.5 What is the importanceof
Asset Allocation?
Asset allocation is a simple concept which
means allocating your investments across
various asset classes so that the poor
performance of any one asset does not
affect the overall performance of the entire
portfolio.
Different asset classes are
differentlycorrelated with one another. For
example, when equity does well, debt or
gold may not do well,
and vice versa. It is this different
correlation that makes asset allocation
such a critical component of financial
planning.
27
30. Chapter 3: Financial Plan – Concepts & Factors for
Success
28
Asset Allocation depends upon the
following factors:
• Your risk profile (appetite
andtolerance)
• Your financial goal timehorizon
Usually, determining the right asset
allocation for you is best done by your
personalfinancial planner.
include buying a house i.e. accumulating a
down payment in 5 years, sending his son to
college in 8 years, and planning for his own
retirement in15 years.
Asset Allocation for Mr. Kaustavand Mr.
Anand is given as follows :
Asset Class MrKaustav Mr Anand
Example: Equity 70 % 55 %
Debt 10 % 30 %
Consider two persons: Mr. Kautav and Mr. Gold 15 % 10 %
Anand. Cash / liquid funds 5 % 5 %
Mr. Kaustav is a 30 year old male who is
married and has no children. He wishes to
plan for his retirement, and so his goal time
horizon is 25 to 30 years.
Mr. Anand on the other hand is 45 years old,
married and with a 10 year old child. His goals
MrKaustavalready
has his allocation to
real es his own
home.
Mr. Anand is buying a
ho accumulating
down-pa he
his own house and
hence tate is simply the
value of
me for which he is
yment funds. When
he will be
31. Chapter 3: Financial Plan – Concepts & Factors for
Success
29
purchases thehome buyingreal
32. Chapter 3: Financial Plan – Concepts & Factors for
Success
30
estate and hence adding real estate to his
asset classes. He has a lower exposure to
equity due to the higher number of goals,
their comparative nearness in terms of
years, and his higher age which reduces his
risk appetite and tolerance.
Mr. Kaustav on the other hand has higher
exposure to equity, a riskier investment,
because his only goal is retirement, and the
time horizon of the goal is 25 to 30 years i.e.
long term.
Remember, asset allocation is not a one-
time process. It is not static, but dynamic.
As your goal draws nearer, it is important
to re-assess your asset allocation and
withdraw fromrisky investments – to de-
risk your goal’sportfolio.
You can decide what your asset allocation
should be for each of your goals. Here are
some guidelines you can follow in deciding
asset allocation:
• If your goal is more than 10 years away,
youcan invest up to 70 – 75% of your
investiblefunds
into equity, depending on your risk profile.
The remainder of your investment can be
put into debt (15 to 20%) and gold ETFs
(around 10%).• As your goal comes closer, for example
whenyour goal is 6 years away, you can maintain
an
asset allocation of 60% in equity, 30% in debt
and 10% in gold ETFs.
• When your goal is less than 3 years
away, itwould be wise to not expose the corpus to
equity
market volatility. Maintain a 100%
exposure to fixed income instruments.
33. Chapter 3: Financial Plan – Concepts & Factors for
Success
31
3.6 What’s your risk appetite
and risk tolerance?
Risk appetite simply refers to how much
risk
one is willing to accept. Risk tolerance
indicates how much risk our finances can
actuallyhandle. The two might be
verydifferent.
Remember, those investors who were
invested in equity when the markets crashed
in 2008 and in early 2018, and had a goal
such as theirchild’s education or their own
retirement less than 3 years away, have had
to watch their goal funds get eaten away in
the market crash. They also may not have
had enough time to rebuild their goal
corpus. This is why it is absolutely essential
to de-risk your goal portfolio as your goal
draws nearer.
Risk
Appetite
Risk
Tolerance
Risk
Profile
34. 31Chapter 3: Financial Plan – Concepts & Factors for Success
Example:
Mr. Arka Roy is a young man, married with a
child. His risk appetite may be high. This
may be based on his investing tendencies, in
case he has done well with equity in the past
he is confident to do well in the future also
and hence has a high appetite for risk.
However, based on his financial situation
which comprises factors such as level of
emergency fund he maintains, if he has any
loan EMIs that are chipping away at his
income and so on, his risk tolerance might
be very low indeed.
You should assess your own risk profile to
know where you stand compared to your
own risk appetite and risk tolerance.
35. Chapter 3: Financial Plan – Concepts & Factors for Success
Risk profilingis an exercise to determine
how much risk is appropriate for an investor.
Risk profile is subjective. Few persons have
the ability or objectivity to determine their
riskprofile appropriately. This is done by
asking several questions as part of a
structured data gathering exercise. Examples
of few such questionsare:
What is your age?
A young investor will have a higher risk
taking capability than older person due to
sheetfact that he has more time on
hisside
How many earning members are there in the
family?
If number of earning members are high then
risk taking capacity goes up but if there is
only one earning member then he can have
lower risk
taking capacity.
How many dependent members are there in the
family?
How stable are the income streams in the
family? If the job is a permanent full-time one
as compared to a freelance consultant then
the person will be having a higher risk taking
capacity
.
What is the level of the investor’s current
wealth, in relation to the fund requirement for
various needs?
Already if the investor has gathered
substantial asset then he can take on
higher risk,
What is the liability and loan
servicing requirement of the
client?
If the investor has single or multiple loan EMI
32
36. Chapter 3: Financial Plan – Concepts &Factorsfor Success 33
running then a major portion of income
gets eaten up by such liabilities leaving
littlesurplus for investing and taking risk.
If the market were to fall down by 10%, how will
you respond?
The investor who believes in increasing his
position when the market falls is obviously
comfortable with risk and losses. If a market
fall were to trigger an exit from the investment
with whatever can be recovered, then the
investor
is not a candidate for risky approaches to
investment.
Such questions help in understanding the
psyche of the investor and accordingly asset
allocationis customized for the investor.
37. Chapter 4: How to plan for your life-stage
How to
plan for
your
life-stage
You must have heard
the thumb rule of how
much to invest in equity.
It states that you should
have (100
- Your Age) % of your
net wealth in equity. So
if you are 40, you
should have 60% of
your net wealth in
equity.
4
3
4
38. 35Chapter 4:How to plan for your life-stage
But is this necessarily correct?
Your equity exposure depends on the proximity
to your goals, and it is very doubtful that
anybodyhas only 1 financial goal in their lives.
So a single equity percentage based on your
age cannot apply.
Two generations ago, life was comparatively
much simpler financially. You would go to
school, maybe to college, get married in your
20s, have children by
your 30s, work in one company for almost
yourentire working life, buy a home on retirement,
and retire peacefully by 60.
Things are different now. Creating a successful
and powerful plan for your financial life in today’s
times has very little to do with your age and a lot
to dowith major life stages / events when you
make the plan.
Let’s see what these life stages / events are and
what the best approach is to deal with your finances
in each one.
40. Chapter4:Howtoplanforyourlife-stage 37
4.1.1Startsaving.
Although you might feel like you don’t
have the money, even saving 10% of your
income per month is enough to start
planning for your
retirement. If you’re 23 years old and in your
first year of working you manage to save and
invest Rs. 24,000 (Rs. 2000 a month for 12
months), then at a growth rate of 15% per
annum this Rs. 24000 will grow to Rs. 36.75
lakhs by your age of 60.
4.1.2Insurance
you most likely have no financial dependents
at this time so you might not need life
insurance, but you should definitely opt for
health insurance. This has dual benefits -
firstly, your health is insured and this is most
important.
Secondly, you can claim a tax deduction
of the premium paid, under Section 80D.
4.1.3Tax EfficientInvestment
If your salary brings you into the 5% or 20%
tax bracket, the first thing you should do is
avail
of Section 80C deductions - invest into an
ELSS fund (equity exposure) and into your
PPF / EPF account (debt exposure). The limit
is Rs. 1.50 lakh under Section 80C.
4.1.4ContingencyFund
Start building up a contingency fund for use
only in case of emergencies. Typically this
should be the equivalent of 6 to 12 months of
your monthly expenses - depending on your
personal risk appetite. Set this aside into a
liquid mutual fund to earn a better rate of
return than your savings bank account. But
remember that the aim of this fund is to
enable liquidity of money and not just high
returns.
41. Chapter4:Howtoplanforyourlife-stage 38
4.2 Stage 2 - GettingMarried,
Having Children, Life Goals
Increase
If any equity investments are done at this
stage and held for a long period like 5 – 10
years or even more would most likely
generate a high rate of return, and therefore
beat inflation. At this stage of life, equity can
be taken for the long run.
Married, with or
without
children. May
have or take a
home loan /car
loan
Personal goals
would include pro-
gressing in your
ca- reer, caring for
your family
(parents, spouse,
children
if any), enhancing
lifestyle
(vacations, car,
other regular
lifestyle
expenses)
List of financial
goals might
include planning
for chil- dren’s
education
& marriage,
house purchase,
own re- tirement,
providing for
parents, pur-
chasing a
property as an
investment to
yield rental
income
May or may not
have adequate
life insurance.
May
not have
adequate health
insurance for the
family
Need to grow
wealth, increase
contingency re-
serve
42. Chapter4:Howtoplanforyourlife-stage 39
4.2.1 Insurance
the first thing you should do is checking your life
insurance requirement. Buy life insurance in the
form of a simple term plan and not any other
type of product. The premium for a term plan is
the lowest; the cover you will get for this
premium isthe highest. This is the best way to
protect your familyin case of your untimely
demise, especially if you also have any liabilities
like a home loan / carloan.
A financial planner can help to do an exact
assessment of your insurance requirements
and suggest the most suitable policy from the
universe of hundreds of policies. Also, for
health insurance
- take a family floater that covers your
dependents. Ensure that you have sufficient
cover for each member of the family,
considering that medical costs can be quite
44. Chapter 4:How to plan for your life-stage
4.2.2 Different Kinds ofLoans
Available and How to Ensure
You Don’tOver-Borrow
Unsecured Loans - An unsecured loan
refers to any kind of loan that is not attached
by a lien on any of your specific assets. This
means that in case you default on the loan
due to bankruptcy or any other reason, the
unsecured debt lender does not have the
right to claim any specific asset. Example -
credit card debt & personalloan
Secured Loans A secured loan is one
where you, the borrower, pledge some
asset of yours as collateral to the loan. In
case of bankruptcy
/ any other reason for defaulting on the
loan, the lender has the right to take
possession of the asset and sell it to
recover some of his loss.
40
45. Example - car loan & home loan.
Thus there are many options of loans
and different lenders (from banks to
housing finance companies to your
relatives), whichcan help you take a loan
when you need one. Now you face the
question of how to ensure that you don’t
over-borrow and put a strain on your
finances.
A simple way to check whether you are
over- leveraged or not is to find out your
Debt to Income Ratio.
Formula = Sum of monthly outflows /
EMIs / total fixed monthly income
Ideally, this ratio should not be more
than 30%, else you might be exerting
strain on your income to service your
debt.
46. Chapter 4:How to plan for your life-stage
4.2.3 How to Build your Wealth
with aLoan?
Taking a loan can be a great way to build
your wealth provided you know how use it
smartly within the laws of land. For example
home loan & car loan can help you achieve
the financial goal of buying a home or a car
(by making payments over a period of time)
without having to wait and save enough to
make an outright purchase by paying in
lumpsum mode.
In case of home loan, there are tax benefits
both on principal repayment and interest
payment.Since you are not going to pay in
lumpsum but via EMIs so it provides a way
to build an appreciating asset like a
residential flat.
41
47. Chapter4:Howtoplanforyourlife-stage 42
4.2.4 How to save to buy ahome?
You can follow the steps given below to
ensure savings to buy your dream home:
Don’t let credit card debt suck you dry
If you have a large amount of debt then
there is no point trying to save money as
the interestyou’ll be paying on your loans
will faroutweigh
any return you will see on any savings. You
need to get rid of your accumulated debt
first.
Also, before you take a home loan, you
should put yourself in a position where you
do not have any other debt to service. Not
only will that free up cash to service your
loan but you will be able to take a higher
loan simply because you are not
bogged down by other such payments.
So the first step is to clear your personal loans
and credit card debt.
Start saving with your very next paycheck
You can start investing in an equity fund if
you plan to take loan years after some years.
Start a systematic investment plan (SIP)
where a small amount gets channelized
every month towards an equity mutual fund.
If you do not have a long way to go, opt for
debt mutual funds and select that type of
debt fund which matches your time horizon
and risk appetite.
Stop the outflow of expenses
Curb your expenses and you will be
surprised at how the small savings add up.
You can start by eating at home. Reduce
your eating out budget
48. Chapter4:Howtoplanforyourlife-stage 43
and you will see what a big saver that is. Not
to mention much healthier. Cut down on
cigarettes and alcohol too. Not only will you
be healthier but even richer. Cancel
unnecessary magazine subscriptions. All
these small moves will impact your bank
balance positively.
Act on a definite plan
Do you have an idea how much the house is
goingtocostyou?Forinstance,ifyouplantobuy
a home that costs around Rs 50 lakh, then
you will have to ensure that you have Rs 10
lakh as a down payment. So work with
definite figures or else your savings may fall
way below the actual amount that you need.
Also, work with a time frame. Do you need
that amount within a year or within five
years? Once you determine that, the actual
investment avenue can bedetermined.
Monitor Credit Card debt
Start saving with next
Stop the outflow of expenses
Act on a definite plan
49. Chapter 4:How to plan for your life-stage
4.2.5 What is an EMI and how
are EMIscalculated?
The Equated Monthly Installment, or the
EMI,is the amount of money paid by
borrowers, each calendar month, to the
lender, for clearing their outstanding loan.
Generally, EMIpayments
are made every month on a fixed date, for
the entire tenure of the loan, till the entire
outstanding amount has been completely
repaid. The EMI depends on the
loanamount,
the rate of interest and the duration or the
time
of repayment of loan.
Home loan providers offer different
varieties of loans that are designed to fulfill
the diverse needs of home buyers. But,
before opting for
44
the right one, it is important to understand the
most integral part of any loan, and that is EMI.
So, let us understand the composition and
how is EMI calculated?
51. 4
5
Chapter 4:How to plan for your life-stage
4.2.6 Rising Loan Interest Rates–
What should youdo?
The most common option when the interest rate
goes up is to either increase the EMI or increase
thetenure of the loan. But there are other options
too besides these as mentionedbelow:
Increasing the loan tenure and keeping the
EMIconstant
When interest rates rise, a sudden rise in EMI
could be quite a pinch especially for individuals in
tight financial conditions, those with more than
one debt and those nearing retirement. At such
times, keeping the EMI constant and increasing
the loan tenure works out as an ideal option.
Lenders accommodate the interest rate increase
in the increased loan tenure and retain the
monthly outflow at the same level. However keep
in mind that by doing so in the long run, you end
up paying more
interest for your loan.
Increasing the EMI, with the same loan
tenure For those who can afford it, go for a
higher EMI and maintaining the same loan
tenure. This is because, by increasing the
EMI and retaining the same loan tenure,
though the monthly outflow is higher, the
total cost of the loan works out to be much
lesser.
Loan Prepayment
For many borrowers, loan prepayment could
be the last option in times of high interest
rates, as it primarily depends upon the
liquidity position. When going in for a
prepayment, remember to check on the
prepayment charges the lender would quote.
Consider prepayment only if the cost of
prepaying the loan works out to be much
lesser than the rise in interest rate.
Loans could also be part prepaid. By doing so,
the
53. 4
6
Chapter 4:How to plan for your life-stage
the total interest amount you’ll pay. The EMI
would reduce, or at least, the same EMI would
remaineven after an interest rate increase.
Some banks may not even charge a penalty for
up to a certain percentage of prepayment. A
combination of a part prepayment with a
marginal EMI hike could sometimes work out as
an ideal option, if funds are available to doso.
Now comes the big question - when is the best
time
to prepay a loan?
This question is quite relevant for home loans,
as the amounts (and thus, the interest) involved
isvery large. Towards the end of a loan, you are
mostly paying the principal and very little
ofinterest.
Whereas towards the beginning of a loan, you
are mostly paying interest, and very little in
terms of repaying the principal. Therefore, if you
repay the loan towards the beginning, you
would be saving a lot more on the interest than
if you repay the loan towards its end.
Loan Refinance
Loan Refinancing is replacing your existing
loan, with a new one, under fresh terms
andconditions. When interest rates rise,
switching over to a lender who is offering a
reduced interest rate, could serve to be a
good deal. For a charge, you could switch
over from a fixed to a floating rate, or vice
versa.
Manylendersaremorethanhappytoattract
borrowers by lowering their interestrates.
However this process does not come
easy. Be ready for a lot of paperwork
along with foreclosure charges, and
processing fees.
55. Chapter4: Howtoplanforyourlife-
stage
48
4.2.7 Why It Is Sometimes NOT
Better ToPrepay YourLoan?
It is not necessary always that prepaying
make financial sense. Simple reason is the
opportunity cost of your money.
For example, if you have a loan which
ischarging you interest at 10% p.a., and you
suddenly come into some surplus funds
which you can either use to prepay full or
part of your loan, or to invest, the first thing
you should do is check the opportunity cost
of these surplusfunds.
Would it make more sense to prepay the
10% interest loan, and thereby save yourself
from paying the 10% interest? Or would it
make more sense to invest the funds into an
investment
product that can generate more than 10%
return -
based on your risk appetite and time horizon?
So remember, if there is an investment
instrument which would give you a long
termrate of return that is higher than the rate
of interest you are paying on your loan, it
makes financial sense to invest the funds and
earn the higher rate of return, than to prepay
the loan (in full or in part) and save yourself
the lower rate ofinterest.
56. Chapter4: Howtoplanforyourlife-
stage
49
4.2.8 What to Do When You
Find Yourself in Too Much
Debt?
If you find yourself in a situation where
youfeel like there is too much debt to
handle and you need to get out from under
the debt as soon as possible, there are
some simple steps that will certainly help:
DoNotIncreaseYourLiabilitiesIfyoufindthat
you are already stretched, you may find
that well-wishers are advising you to take
another loan to pay off your existing loan.
You would simply be delaying the time
when you do have to sit down and pay off
thedebt.
Do not add to your existing liabilities by
taking on more loans. Once the existing
liabilities are cleared, if you find that you
need to takeanother loan – make sure it is
easily serviceable by your existing, fixed
monthly income, and the terms (tenure, rate
of interest) are suitable to you. This should
be done only after your existing liabilities
have been paid off.
TakeStockofYourLiabilitiesMaintainaPersonal
Budget. This simple and oft ignored tool is
an excellent resource in your battle against
debtand by maintaining a good personal
budget, success against debt isachievable.
A personal budget will help you discover the
following:
Your exact cash flows your fixed monthly
57. Chapter4: Howtoplanforyourlife-
stage
50
incomes and all your monthly expenses.
Once you know your expenses, you can see
whereyou are spending on luxuries – and
rationalize this portion. Spend on the
necessities only, save the rest.
Calculate an approximate figure of how
much extra money you can save each
month – and allocate it towards a debt
repayment fund.
Your exact liabilities You can track exactly
what
debts you have and all their details.
Create a table which contains all details of
the various loans taken, loan type, each
loan’s outstanding tenure, EMI, rate of
interestand
outstanding amount. The rule to be followed
is pay off the highest interest rate debt first.
Loans restructuring can be done in two
ways. First, restructure your loan for a
lower Interest rate. Second, refinance your
existing high rate loan by taking a fresh
loan at a lower rate.
58. Chapter4: Howtoplanforyourlife-
stage
51
4.2.9 ContingencyFund
Now, you need to assess your
contingency (emergency) reserve. This
should be 6 to 24 months of your
monthly expenses, including EMIs if
any. Hold this in a liquid mutual fund
scheme. This should be used only in
case of a financial emergency, which
can occur at any time. Do not use this
for big ticket expenses like contributing
to a new car or a vacation.You never
know when an emergency might occur
and how much cash you will need.
Think credit crunch year2008.
59. Chapter4:Howtoplanforyourlife-stage 51
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