Don’t be a fool, make your Money Life Cool!

So You want to be Cool, not a fool!

Then just follow this 6-Point Guide for a Money Life that’s Coooooool!

  1. Always spend more than you earn. Budget and savings are boring words for cowards and fools!

  2. Don’t have enough cash in bank? Not to worry – Swipe your credit card – that’s what cool people do!  Credit limit not enough for your big purchase? Take a personal loan – that’s what the bank’s for, right! Why worry about tomorrow’s payments when you can enjoy life today?
  3. OK so you’re not very good at spending – you have lots of savings. You save money every month. Phew! And you even want to invest it! Well, not to worry, just do this: Invest ALL of it in a bank fixed deposit or gold – no exceptions! After taxes and inflation, your real rate of return will be 0 or negative. Don’t you ever diversify and put money in growth assets. And all the while you’re fooling people into believing that you’re investing your money for nice and guaranteed returns. They just don’t realise that you’ll actually get guaranteed negative real returns – brilliant!

  4. Aah, Fixed deposits are old school, you say…  You’re an adventure junkie – You love risk! We have something for you too – trade in equity shares  every day or at least every week. You can even trade in futures and options. But why stop at equity trading? You can even speculate in commodity and currency futures. But do not ever buy bluechip stocks or diversified equity mutual funds. Even if you do, don’t hold them for years. Keep buying and selling. How else will your broker pals make money?

  5. Insurance – what a waste of money! Remember, never buy health insurance. Instead just decide to never fall sick. Easy!  Of course, never buy term life insurance either. What’s the point? You’ll get nothing back as long as you’re alive(and you already know exactly how long you’ll live right?). Plus, you know your family never depends on you for anything so why leave something behind for them? Aah, now if you’re talking about those beautiful Endowment/Moneyback plans… go for it! They will give you Guaranteed negative real returns with the excuse of some tax savings. Such cool products, I tell you!

  6. Now this is Most Important: whenever, you’re making a significant financial decision, always go to other cool people for advice. And if you want really cool advice, just find  an agent or a bank RM, but one who is only concerned about his cool commissions! Don’t ever go to a fee-based/fee-only Financial Planner(especially if he’s a CFP)! Those guys are BORING! They talk about stuff like Financial Planning, Need based investments, risk analysis, cash-flows, helping you achieve your Life Goals and Dreams through prudent money management, planning for a good Retirement, so on and so forth…yikes! They actually want to look out for Your Financial Life and even have the nerve to charge a Fee for that! Soooo uncool! Avoid them at all costs!

So now you know how to be cool in this financial year! All the best!

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 Image credit: http://www.scrapsyard.com/scraps/april-fools-day/

Wish your Investments a Happy Holi!

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Red, blue, green, yellow, orange, purple, pink…

So many colours enter our lives on the day of Holi. These colours bring with them festive cheer, excitement, relief  from tensions and joyful contentment.

Each colour has its own characteristics, a special meaning:

  • Red denotes purity
  • Yellow brings healing 
  • Blue symbolises power
  • Green signals new beginnings or growth

and so on..

Similarly, if we want our investment portfolio to paint a happy picture, we must give it a good palate of colours(asset classes), each with their own distinct characteristics:

  • Real Estate: Inflation-beating Growth, Perceived High Safety of capital, Very Illiquid, Low Yield, Large Blocks of Capital, High Physical Risks, High Transaction and Maintenance Costs
  • Equity: Inflation-beating Growth, Perceived Low Safety of Capital, High Liquidity,  Low yield, Small Blocks of Capital, No Physical Risk
  • Fixed Income: No Growth, High Safety of Capital, Varied Liquidity, Low to Medium Pre-tax Yield, Varied blocks of Capital, No Physical Risk
  • Gold: Inflation-Matching Growth, Perceived Safety of Capital, Highly Liquid, No Yield, Varied Blocks of Capital, High Physical Risks, High Transaction and Maintenance Costs

and so on…

Now, many of us have the tendency to invest in just one favourite asset class. But Holi wouldn’t look as bright if you played with only one colour, would it? So why invest in just one asset class?

Fill up your investment portfolio with different assets classes in the right proportion as per your needs and suitability to your financial picture.

               Hope you and your family had a nice Holi!

Now wish your investments a Happy Holi!               

For Professional, unbiased advice Contact FinCare now by clicking here! 

Young Boy with Colourful Hands

A Cartoonist tells you all that you need to know about Financial Planning – in just 118 words!

No, it’s not a joke. This famous cartoonist actually tells you all that you need to know to have a healthy financial life and that too in just 118 simple words. What’s more, I think he does a far better job of it than most Financial Advisors!

Scott Adams with Dilbert Image

Who is he? He’s Scott Adams, the author of Dilbert, the popular office humour cartoon strip.

So what does he say?

You can see the original text by clicking here.
  1. Make a will
  2. Pay off your credit cards
  3. Get term life insurance if you have a family to support
  4. Fund your 401k to the maximum
  5. Fund your IRA to the maximum
  6. Buy a house if you want to live in a house and can afford it
  7. Put six months worth of expenses in a money-market account
  8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement

If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio

Of course, Mr. Scott has written the above in the American context.  In our country, things are a bit different. For example, we have neither 401K nor RIA in India.

So what about Mera Bharat Mahaan?

 We need to tweak Mr. Adams’ advice to befit the Indian context.

So here’s my two cents , er..paise:

1. Make a will.
But getting the will probated means 3-6 months waiting period (optimistic scenario), expenses and possible legal hassles to boot.
So do make a will, but also do the following:

  • Have joint holdings wherever possible
  • Nominate

2. Pay off your credit cards
With the insanely high interest costs (36%p.a. to 52%p.a.) and other charges, if you use a credit card, you better pay off the entire amount every month.

3. Get term life insurance if you have a family to support
Also get adequate health insurance – unless you want to depend on governmental/charitable healthcare.

4. Fund your EPF(for employees), NPS for Govt. Employees and PPF (for all) to the maximum
 
5. Aah… We don’t have anything similar to the US IRA account…  And no, do not invest in Pension Plans of insurance companies!

6. Buy a house if you want to live in a house and can afford it
Assume an immediate 50% rise in EMI to test affordability.

7. Put six months worth of expenses in a liquid mutual fund.

8. Take whatever money is left over and invest 70% in the ‘growth’ option of a stock index fund or ETF and 30% in a bond fund through the ‘direct’ mode and never touch it until retirement.
Or invest 100% in balanced funds which will roughly do the same job for you in a tax-efficient manner.

9. If any of this confuses you, or you have something special going on (retirement, college planning, children’s wedding expenses, tax issues), hire a fee-based financial planner, not one who gets commissions from your investments.

Now as to what kind of financial advisor you should not choose, I’ll let Mr. Adams’ characters do the talking 🙂

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House Cleaning

Diwali Cleaning, Wealth and Good Fortune

House Cleaning

My wife and I dedicated the past weekend to the clean-up of our home as Diwali is just around the corner. As per a Hindu belief, Lakshmi – the Goddess of Wealth and Fortune resides in clean spaces only. Now, who doesn’t like wealth? So before Diwali, most of us go through the annual ritual of cleaning and decorating our homes to extend a clean, warm welcome to Goddess Lakshmi!

For a proper clean-up, we inevitably have to go through all our stuff. While going through all that stuff we come across the following:

  • Positive Surprises in the form of things that you need but were lost and/or forgotten during the year…. and of course old memories – photo albums, mementos, gifts, letters, personal possessions of no money value but immense emotional value.
  • Negative surprises in the form of all the useless junk – in fact I’m sometimes surprised at my capacity to accumulate so much useless stuff in just one year – well some of it is older but that’s even worse so please don’t tell my wife 😉 . Now to be fair, some of these things did seem useful at the time of bringing them home and some were in fact needed at some point of time. But now they’re only there because I’m simply averse to letting anything go.

Still, once the old junk is gone and the cleaning is finished, the whole place looks so much cleaner, brighter and more organized. As a bonus, it also creates a lot of space to fill up with new and more useful things.

Now what does all this have to do with keeping your money healthy?

Well, if you want Wealth and Good Fortune, the same clean-up exercise is required with your money as well.

Over a period of time, we tend to accumulate a lot of Financial Junk:

  • Investments: Too many stocks, mutual fund schemes, insurance policies, etc. Such fragmented investment portfolios end up getting too much to manage, increase risk and bring down the return performance.
  • Bank accounts: We keep opening new bank accounts for different reasons but don’t close the old ones. The result? Money lying idle for maintaining minimum balances, dormant accounts, bank charges, headache in maintaining our accounts and filing income tax returns.
  • Miscellaneous: Unnecessary credit cards, stock trading accounts, demat accounts, post office accounts, the list goes on…

So this Diwali clear all the clutter:

  • Have a small but diversified investment portfolio designed to help you achieve your life goals. Getting rid of dud investments will free up money for new, better ones.
  • Close all those extra bank accounts, credit card accounts, and other unnecessary things to have an efficient, easily manageable money-box.
  • Resolve to not give in to the temptation to accumulate things on impulse i.e. without proper consideration of pros and cons during the coming year!

With a little effort and care, there is no reason why we can’t extend a year-long, warm, clean welcome that even Lakshmiji can’t refuse!

Lakshmiji at your Door

Wish you a Happy Diwali and a Prosperous New Year!

Money Health Checkup

Do you know your Money Disease?

All of us know about the common Physical illnesses. Be it something as minor as the common cold or something major like cancer or heart disease. We even have regular check-ups to make sure that any disease is diagnosed in the early stages and treated immediately so that we can live long, healthy and pain-free lives.   But have you ever considered what Money Diseases you and your family may be suffering from?   Well, here’s a quick short-list of the most common money diseases mapped to behavioral tendencies….

Tendency to Avoid Action

Financial Phobia

Many people feel sick at the sight of bank statements, tax forms and other financial information. Sounds familiar? Although this reaction is common – and may even be natural – this revulsion can cost you a lot of money!

The “Tomorrow” Syndrome

Many of us avoid the simplest to the most important money management tasks for ‘tomorrow’ – whether it’s paying the monthly bills or selecting the right investments or even filing the income tax return. And of course, tomorrow never comes (or comes late, with penalties and opportunity losses).

The Ostrich Syndrome

Dont bury your head in the sand like an ostrichWhen there is a sand storm in the desert, an ostrich doesn’t run or take action to save itself. All it does is bury its head in the sand, not even seeing the storm coming towards it. But does the storm go away because you don’t look at it?

When we perceive financial problems on the horizon, don’t we also behave in the same way rather than facing the problems and trying to prevent or solve them?

Tendency for Too Much Action

Addiction to Risk

Just like alcoholics or smokers, some people are addicted to taking risks. Such people don’t think twice about gambling with their hard-earned money while taking extremely risky bets with their investments (equity/property/gold..), sometimes even on borrowed money. An easy way to lose your shirt!

Hyperactivity

“If it isn’t broken, don’t fix it”.  However, some of us just need to “do something” with our money. In our restlessness to do something, we even end up doing things we know to be mistakes even before doing them. For example, an investor staring at live share trading terminal just cannot resist the urge to trade and ends up becoming a day trader and loses money.

Loan-a-holism

“Neither a borrower nor a lender be” wrote Shakespeare in Hamlet. However, with banks providing ready  finance, it’s easy to end up living on borrowed money: Education Loans, Home Loans, Car loans, Personal loans, Vacation Loans, large credit card balances, investment loans . . . phew! The list just goes on.. The result – can’t repay EMIs on time, cash crunch in spite of good incomes, bad credit scores and stress!

Tendency for Action in the Wrong Direction

The God Complex

Some of us think we “know everything” there is to know about money management. We are ‘too smart’ to seek advice from professionals or even knowledgeable friends or family members. Our ego doesn’t permit us to learn from others. But what if we’re wrong?

Risk Phobia

“I will only invest if it’s safe” is a common refrain from so many investors. These investors typically confuse short-term volatility with long-term investment risk. In their keenness to avoid risk, they usually end up taking the biggest risk of all – losing their hard-earned money to inflation.

Hatred for Tax

While no one likes paying taxes, for some people, avoiding taxes is almost a sacred, religious duty! For example, a person investing in a tax-free instrument with a 6% p.a. return rather than a taxable instrument providing a 10% taxable return although it actually means a 7% return after deducting taxes!

Myopia (Near Sightedness)

We usually plan and manage our money looking only at the short-term scenario without considering our long-term requirements. For example, more than 90% Indians don’t even know the amount of money they’ll need on retirement; even fewer have actually planned for it properly.

Now the most important questions are these:

1. Which money disease(s) are you suffering from?

2. What are you going to do to make your money healthy?

Looking forward to reading about your views, experiences and feedback on this post!