Most complexities don't occur, because they are complex. They occur because the ones teaching them, make them complex. To keep themselves relevant.
I have no idea who said this or when, but I am increasingly beginning to understand why it was said.
Take personal finance for instance. I get a million advice on how I should plan for my future, when I have no idea what I am going to get for my breakfast. Do these financial advisers know what they are going to have for their next Monday's dinner? And they expect me to plan for next 20 - 30 years.
So am I qualified to make any statement? Yes I am. I am the guinea pig, they work on. So are you. We are those who want to make a decent income and want to make sure our income provides for our today's cost and use it to secure a thousand things that we need to accomplish.
I want to make a decent living and save for my future needs like daughter's education, and assistance thereafter if she has anything in mind, or retirement and the fact that I want to live a 100 years and I assume, you want too.
So let me wipe all that I have heard from the financial advisers and look at what I want and what I would do.
What I need first of all is a basic income to take care of my today's needs.
The second thing is a preparedness for failure to take care in case my income stops. My wish for that would be 12 months of liquid fund in Savings bank or Fixed Deposit.
I would be lucky to think beyond this in today's times. But if I am one of the lucky ones, I would buy balanced mutual fund(s). How would I decide? I would go to the top three websites based on results of three top web search engines and compare performance of the mutual fund(s) and get those mutual fund(s) that are shown in top 5 - 10 across all websites. I would look at 10 year performance, if available. Else I'll settle for 5 years. And invest my money equally in all these. The number of funds I buy will of course depend on how much I have to invest and how much comfort I have in investing in one fund. 3 - 5 funds if you want to invest 1- 5 lakhs, more if you have lot more funds. But then, if you have lot more funds, you should not be reading this. This is not for you. You should talk to your financial advisor.
What about follow up? Since I am not smart to understand which fund changes in what form, I would review this folio once in a year and change if my funds are no longer in the top. If you do have a basic understanding of funds, you should go beyond top and compare NAV changes (over the period of comparison) between the fund that you hold and one that you intend to switch to.
Every year I make contributions to the above mentioned funds/SB/FD based on my savings using the same logic.
What if you want to buy a car or house in the next 5 years? Who the heck thinks so far?
What if I am responsible financially for something (child's education, marriage etc.) in the next 5 years? That I would remember.
If possible, (not in today's times) anticipate these requirements 4 - 5 years ahead and move that money into a debt MF or a fixed deposit. Why 4 - 5 years? I would love to say 12, but it is just not feasible (we don't live that long in these days). Why 12 years? 12 years would see the ups and downs of all investment asset classes. So you take the averages and work with it coz you don't want to fail.
If after funding all of these, you have anything left, good luck for that 100th year birthday.
Oops, wait a few more minutes before celebrating that birthday. I need to add a few more things.
Life Insurance: If you are earning and have dependents, you need one. Solution: term insurance. Find the one that costs least and choose your comfort. All other means of insurance are to make you poorer and them richer. How much should you buy? My thumb rule would be
- Surviving dependents can take up financial responsibility, 5 times annual income
- Surviving dependents can take up financial responsibility after some effort, 10 times annual income
- Surviving dependents cannot take up financial responsibility, at least 20 - 25 times annual EXPENSE
If you are not earning or do not have dependents, you don't need one.
Medical Insurance: Absolutely. One incident and all your plans go down the drain. A mild cough makes you feel a lot lighter in your wallet when you visit a doctor. Imagine other problems.
Accident and disability: Sure, but can be bundled with one of the above. If not, get one specifically.
In case of all insurance, the responsibility of the deal lies with the insured. You. So make sure you reveal all details about yourself. The premium may be a tad bit higher but can come to a total ZERO if the claim is rejected later. May you never have to claim, but it always pays to err on the side of caution.
I have known of cases, where claims have been rejected due to
- Lifestyle risks not revealed at the time of buying insurance
- Multiple insurance taken for same risk and not disclosed to the insurer
- AND A HOST OF OTHER THINGS
Property, gold and all other variants are not considered as it would make this topic a lot more complex. But if you are not an investor, consider all these as expenses and not investments.
Use tax benefits if it fits into your above plans, else it is paying a rupee to a save a few paisa.
One final word: Use credit card/loans by all means, but clear all dues as soon as required. Preferably as soon as possible.
And now, cheers on your 100th birthday...
I have no idea who said this or when, but I am increasingly beginning to understand why it was said.
Take personal finance for instance. I get a million advice on how I should plan for my future, when I have no idea what I am going to get for my breakfast. Do these financial advisers know what they are going to have for their next Monday's dinner? And they expect me to plan for next 20 - 30 years.
So am I qualified to make any statement? Yes I am. I am the guinea pig, they work on. So are you. We are those who want to make a decent income and want to make sure our income provides for our today's cost and use it to secure a thousand things that we need to accomplish.
I want to make a decent living and save for my future needs like daughter's education, and assistance thereafter if she has anything in mind, or retirement and the fact that I want to live a 100 years and I assume, you want too.
So let me wipe all that I have heard from the financial advisers and look at what I want and what I would do.
What I need first of all is a basic income to take care of my today's needs.
The second thing is a preparedness for failure to take care in case my income stops. My wish for that would be 12 months of liquid fund in Savings bank or Fixed Deposit.
I would be lucky to think beyond this in today's times. But if I am one of the lucky ones, I would buy balanced mutual fund(s). How would I decide? I would go to the top three websites based on results of three top web search engines and compare performance of the mutual fund(s) and get those mutual fund(s) that are shown in top 5 - 10 across all websites. I would look at 10 year performance, if available. Else I'll settle for 5 years. And invest my money equally in all these. The number of funds I buy will of course depend on how much I have to invest and how much comfort I have in investing in one fund. 3 - 5 funds if you want to invest 1- 5 lakhs, more if you have lot more funds. But then, if you have lot more funds, you should not be reading this. This is not for you. You should talk to your financial advisor.
What about follow up? Since I am not smart to understand which fund changes in what form, I would review this folio once in a year and change if my funds are no longer in the top. If you do have a basic understanding of funds, you should go beyond top and compare NAV changes (over the period of comparison) between the fund that you hold and one that you intend to switch to.
Every year I make contributions to the above mentioned funds/SB/FD based on my savings using the same logic.
What if you want to buy a car or house in the next 5 years? Who the heck thinks so far?
What if I am responsible financially for something (child's education, marriage etc.) in the next 5 years? That I would remember.
If possible, (not in today's times) anticipate these requirements 4 - 5 years ahead and move that money into a debt MF or a fixed deposit. Why 4 - 5 years? I would love to say 12, but it is just not feasible (we don't live that long in these days). Why 12 years? 12 years would see the ups and downs of all investment asset classes. So you take the averages and work with it coz you don't want to fail.
If after funding all of these, you have anything left, good luck for that 100th year birthday.
Oops, wait a few more minutes before celebrating that birthday. I need to add a few more things.
Life Insurance: If you are earning and have dependents, you need one. Solution: term insurance. Find the one that costs least and choose your comfort. All other means of insurance are to make you poorer and them richer. How much should you buy? My thumb rule would be
- Surviving dependents can take up financial responsibility, 5 times annual income
- Surviving dependents can take up financial responsibility after some effort, 10 times annual income
- Surviving dependents cannot take up financial responsibility, at least 20 - 25 times annual EXPENSE
If you are not earning or do not have dependents, you don't need one.
Medical Insurance: Absolutely. One incident and all your plans go down the drain. A mild cough makes you feel a lot lighter in your wallet when you visit a doctor. Imagine other problems.
Accident and disability: Sure, but can be bundled with one of the above. If not, get one specifically.
In case of all insurance, the responsibility of the deal lies with the insured. You. So make sure you reveal all details about yourself. The premium may be a tad bit higher but can come to a total ZERO if the claim is rejected later. May you never have to claim, but it always pays to err on the side of caution.
I have known of cases, where claims have been rejected due to
- Lifestyle risks not revealed at the time of buying insurance
- Multiple insurance taken for same risk and not disclosed to the insurer
- AND A HOST OF OTHER THINGS
Property, gold and all other variants are not considered as it would make this topic a lot more complex. But if you are not an investor, consider all these as expenses and not investments.
Use tax benefits if it fits into your above plans, else it is paying a rupee to a save a few paisa.
One final word: Use credit card/loans by all means, but clear all dues as soon as required. Preferably as soon as possible.
And now, cheers on your 100th birthday...
The dimension you avoided in the post, ironically, is the one I worry about a lot these days. What if you save/ invest 1 crore and value of the currency drops? Is there a forex-proof way of investing? (Gold is one example, are there others?) Is it better to sit on a pile of cash or invest it in illiquid forms?
ReplyDeleteAlso, good work on the blog - if you can, consider changing the color theme (white on black is really hard on the eyes). Also consider proof-reading your post after writing and before pressing.
Sure mate. Thanks for your suggestions.
ReplyDeleteThis post is more for those who do not have time or inclination to track too many parameters. Currency fluctuation is not a parameter for them. For people who have investment in multiple currency, this is definitely one of the worries.