Investment

Saturday, Feb 07 2020, Contributed By: Team NJ Publications

Everybody likes to be in control. And to do the things they like. Almost every second person today dreams to have his/her own business/venture. But are these dreams mere dreams? There is a famous quote - “goals are dreams seen with open eyes”. While our dreams may or may not fructify soon – the answer largely depends on one thing and one thing alone – money or wealth.

Carl Sandburg, Pulitzer prize-winning writer once remarked, “money is power, freedom, a cushion, the root of all evil... and the sum of all blessings”. True, there is a lot we can achieve with our wealth. However what comprises our wealth? To different people, wealth may mean many things. However, to summarise it well, it would be the ability to do things you desire to do.

The ability is a very wide concept and goes beyond just numbers. Coco Chanel, French fashion designer once said that “there are people who have money and then there are people who are rich.”. Thus, what you do with your money is more important. You may feel insecure and not rich even if you are a millionaire and there is an actual study done to prove this. Understand this – if your wish is to travel after becoming rich and you are not travelling today, you will never travel even after you get crores in your bank. What is stopping you today?

The truth is that wealth means different things to different people. Some are in the game for the joy or excitement of it and some are in it just to survive. The ability can also mean cover things like physical health, social network or standing giving you the power to do things which others can't. However, for most ability would mean one thing – freedom. 

Johnny Carson, an American television host said that “the only thing that money gives you is the freedom of not having to worry about money.” The freedom will free you from the financial worries of day-to-day life which most of us aren't privileged to have. However, it is not impossible. The number behind this 'freedom' will change from person to person and place to place. But whatever may be this figure, the truth is that it will be only possible to achieve if you have this as your goal. You can be in control even today, you can be a CEO even today. You have an opportunity to do that – be your own CEO and get in control of your wealth.

The CEO Hat:

Now that you have your understanding of 'wealth' and a fair idea of the price of your 'freedom', let's us begin the day as a CEO. So how would you start your new journey – the journey of your wealth?

Have a vision/plan:

Having a vision of the journey, the path you want to reach is the starting point. Having a clear idea of your destination would be great. But as many new businessmen experience, either they overestimate their goal or underestimate it completely. The fact is, once you carry on the journey, the destination will also change. So you may start with say a target wealth of 10 crores. However, a few years down the line you may realise this is no longer feasible and revise it downwards to say 5 crores. Fortunately, if you are reading and implementing this article in the true spirit, you may even realise that you can even reach 20 crores !! You get the idea...

The path here is more important. There has to be a plan for everything in your life. Your wealth is perhaps the first thing in the list and something which is greatly in your control. How about a proper detailed 'Financial Plan' which covers all your financial goals, your assets, liabilities, your risk protections?

Invest in yourself:

Every business invests in itself – be it a shopkeeper or a big business conglomerate. But as a person are you investing in yourself? Times are changing and there is no guarantee today that any business or profession today will stay relevant after even say 5 years. It is a new reality of a highly competitive business environment challenged by disruptions daily. Your only way out – invest in yourself. It can be either learning or building a network or marketing yourself in a positive light, creating a social standing, and so on. There are enough opportunities around you to learn and build your network. Remember, if you are skilled and knowledgeable, have a good network, you may never fail in life.

Watch your budget and cash-flows

As the CEO of your wealth, you need to have a budget for everything you do. Have a budget for your living expenses, for your entertainment, for learning and most importantly – your saving or investments. Perhaps you can start managing your budget by allocating funds to living expenses and savings to start with. Ideally, your savings must be at least 25% of your post-tax income. The higher it is the better. Work out the other figures in relation to this. Many people do make a budget but fail when it comes to implementation. One idea on effective implementation of your budget is to have a very close watch on your cashflows. Spend some time to track these cashflows to stay on top of your budget. You may take some bold decision like – STOP the use of credit cards altogether. This is one advice which Warren Buffet (google if you don't know) gave when asked what advice he has for youngsters. It may apply to you too.

Hire /associate with good people:

A successful business is not built by one person alone. It takes a team. To be successful, you too will need to have a good team. The team will include people like your gym or yoga instructor, your spiritual guru, your doctor, lawyer, accountant and when it comes to money – your financial advisor. Everyone you consult has a role to play in your life, irrespective of how many times you are interacting with them. We would suggest that you have good people with you and invest in building this network. On a financial front, having a good financial advisor will take care of a lot of things when it comes to wealth creation, preservation and distribution. We would strongly suggest that you outsource these things and not do this dedicated, expert activities yourself.

Conclusion:

John Rockefeller, America's first billionaire once said that “if your goal is to become rich, you'll never achieve it”. Your focus should be pursuing the thing you like doing the most. Try and navigate your life's journey into doing so. A lot many people have changed professions careers in life to settle at things they love the most. The most successful in life are those who have done it. However, running merely after the idea of getting more money doesn't work for many. To create wealth or happiness or even a life, being in control and thinking like a CEO is perhaps the way to go.

Monday, December 30 2019, Contributed By: NJ Publications

We are now well into the new financial year. Most of us would have now got their salaries revised, business plans worked out and bonuses received. It is now then time for revisiting your own personal finances. The start of the year is the best time to do a thorough analysis and reworking our financial plans. In this article, we will take a look at the things that you need to do in order to reset all your finances and plans for the new year.

Assess Your Finances:
As an important exercise, we have to work out all our finances in the new year. Things like school fees, salary to your driver, society dues, fees to your CA, etc. would have all changed in addition to changes in your and your spouse's salary. It is thus high time that you sketch out the estimated monthly cash inflow and cash outflow to know your budget. It is also time to take stock of your investments, especially those lying in bank and small savings. Try and arrive of a proper balance sheet of all your assets and liabilities at this moment. Keeping ready with the cash-flows and your balance sheet would give the knowledge of your net-worth and your financial capabilities for making the upcoming decisions.

Make a Budget:
After an assessment of your financial situation, it is time to take the first step of reconstructing your finances by planning your budget. Most of us do not have fixed budgets defined for our expenses and do not consider them as important. However, this is far from truth. Having a budget not only helps you in better knowing and planning your finances, it also helps you to save more and control the unwanted expenses. At a more philosophical level, it helps us become more organised and thoughtful in spending our money. Put together all these things, repeated over the years, can make a considerable impact on your wealth. One may not realise this impact today but it can only be experienced when applied in its' true sense over time.

Review your financial plan:
In layman terms, financial plan is nothing but a statement of your financial goals and the investment plans to achieve them. It is mandatory that you prepare a financial plan for yourself at the first possible instance with the help of the experts. And if you already have one, its' time to revisit the same, given the financial changes that may have already happened. You may consider making the following changes in your plans...

Adding of any new financial goals Removing any financial goals which are no longer needed Adjusting the financial goals by changing the amount required and/or the period remaining Accounting and allocating the existing investments already made towards goals Lastly, making changes in the planned investments towards achieving different goals

Though these exercises are not simple and assistance may be needed to do them, a basic level of reworking of finances is not an impossible task. Engaging yourself in this exercise will also help you to understand your financial plan better and make you more committed to your plans.

Rebalance your Portfolio:
Once your financial plans are reworked, as a next step, you would be required to rebalance and/or make changes in your investment plans. This would mean understanding your present asset allocation (share of different asset classes like equity, debt, cash, etc. in the portfolio) and changing same by shifting money and/or making new investments. It is also recommended that you make changes (read increase) in your monthly investments (SIPs) with the given increase in your inflows. Your advisors would help you effectively rebalance your portfolio in accordance with your financial plans and your risk appetite.

Review your insurance policies:
This is something we don't often do. As a matter of fact, insurance is not a one time thing but an evolving need. With changes in your finances, family and your life stages, your insurance needs would also change and it is important that we reflect these changes in the insurance cover that we take. Note here that while a typical life insurance policy would be for a long-term period, general insurance policies are generally of a one year period. Thus, your personal accident, critical illness, health insurance, motor insurance and home insurance, all would be up for renewal /reconsideration. At this moment you would do well to assess all your and your family member's insurance needs – both in terms of the risks and the amount of coverage, and make the right decisions to comprehensively account for them.

Plan for next year's tax savings:
After planning for your budget, financial goals, insurance policies and portfolio, it is now time for the tax planning to be done. Your tax planning would consider your assessment of your tax slabs, the estimated income in different heads and the amount of tax savings already committed. These committed tax savings would be related to your provident fund, insurance policies, home loan, etc. After considering these expenses, you can arrive at some figure that you may need to save for tax saving purpose. Knowing this figure at the year beginning would be a great thing to know since now you can smartly plan your savings in the year ahead.

Implementing Your Plans:
After all the planning, comes the crucial implementation part. Doing this without any procrastination or delay would be no less than some feat. To ensure this, let us put on paper all the decisions that we have taken till now and also put a target date to these decisions. Remember that with every day of delay, there is some monetary cost attached to it which you cannot see. Also there is the risk of your plan itself loosing relevance with you forgetting and/or later avoiding any commitments. Your financial plans are like packed foods that come with a manufacturing and an expiry date. It is best for use (read implementation) only for a limited time and a delayed plan is like a stale plan which will need to be revised later.

Get ready to file Income Tax returns:
After completion of the financial year, it is important that you file your returns, if required, within the due date. Just to point out, there is no restriction on filling returns before this date. We can thus file the returns, properly and at our leisure, while avoiding the last minute rush. Other than you, there will be one more person who would be happy when you do this – your accountant.

Conclusion:
Well, there is a very thin dividing line between financial well-being and financial stress. The reason it is thin is that we can easily walk away and wander from the right path. If you are not on top of your finances and are doing things, making financial decisions without proper awareness of your goals and limits, you are most likely to fall to the wrong side of that dividing line. And as Suze Orman once said “The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem.” The beginning of the financial year is an opportunity for you to get back onto this thin line and get in control of your finances. Let us not miss this opportunity. Its just an first quarter completed.

 

Friday, August 30 2019, Contributed By: NJ Publications

One of the most common financial goals today has become financial freedom. This is especially true for the young generation, the millennials who wish to not only become rich but become independent to enjoy life. Financial freedom to them is all about freedom from the need to work to earn a livelihood. It is today easier for the younger generation to accumulate enough wealth. Many other individuals are also 'financially independent' today without even realising so. The question for these individuals really is what next? This article is about the post-financial freedom stage...

Financial Freedom: Congrats!

You are one of the very few, privileged individuals to be in such a financial position. You can be proud and happy about it. But there are also few other caveats you need to know or understand.

  1. Its all about you & family: Do not wonder what your cousin or uncle or the person next door is thinking about you. You and your family should be comfortable with the important decisions taken and should support each other and happy to live a lifestyle you have planned to live.

  2. Nothing is permanent: Remember, there have been many people who have been very rich and powerful in past but have lost it today. Nothing is permanent and there is no guarantee that you will be as financially strong as today forever. So be humble, grounded and careful in life.

  3. You need to plan: Earning money is easy for most. However, financial freedom is not about earning money or how much money you have. One can be financially independent in very less finances than you. The real trick is in planning your finances post retirement such that you may continue to remain financially free. A backup plan, should you come in financial stress should also be planned.

  4. Be Sure! The first and the last thing about financial freedom is to be sure that you can be so and also to ensure that nothing gets in between. The need for proper financial planning can never be overstated in such a scenario. You should also be sure that no possible event or scenario in future will be able to put you completely at risk.

What Next?

  1. You need purpose: Being wealthy without any purpose or direction is not really desirable. You will be the same person but probably more lazy, less healthy /fit and even less happy than you were before. Remember, having a motivation, a passion, a direction and purpose is life is most important. Without it, you may feel a sense of emptiness with no agenda for the day /week.

  2. Making decisions: Being in a privileged position, you would probably be able to take decisions more freely. Since money or wealth is not a big factor anymore, you need some basis for making your future decisions. Thus, your future decisions can be based on your personal values or in support of your purpose / passion in life or any other form of context. Deciding this context is important to give a sense of direction to your decisions.

  3. Choosing a quality of life: Choosing the right quality of life is essential for you. You cannot say YES to everything. You also need to create a boundary for you and your family and say NO to things which can potentially negatively impact your status. Remember, some spending can be done when you can afford it but remember it adds value only to a point. Too much spending will only clutter your life, will not any value and negatively impact you.

  4. Fix yourself first: The first and the best thing to do is to fix what is not good or broken in your life. Start with finances – clear all debt, ensure proper investments, ensure adequate insurance for all possible risks, ensure earmarked investments for all financial goals, ensure regular income flow. Once the finances piece is done, you can move on to other things in life like getting fit, living a healthy lifestyle, building networks, building social presence, giving more time to children, building strong relationships with your friends and family and so on.

  5. Work after wealth: Many people will be happy to continue working in some form even if you don't really need to. Some people choose to be semi-retired where they may need to work but they would also be free to choose what kind of work they need to do and what portion of time they need to give. Working after wealth is a great idea as it will give purpose, make up for idle time, give income support, give additional financial comfort and surety while keeping you skilled and relevant in the industry.

  6. Make world a better place: Making the world a better place is a great idea and you can lend your hand in many ways. Dedicating some portion of your time and/or money to some social cause can be a great way to towards satisfaction and happiness. You could also use your skills and knowledge to guide and help others who otherwise would not have access to same like for eg, legal, medical, financial or business advice, etc.

  7. Make a list: The end point of what next question is preparing that one list you would ever need to make. This is a list that defines who you are and what you want from your life. So what can we include in this list? Here are a few things you can answer and keep updating this from time to time.

    1. What are your most important goals?

    2. How would you like spend the next 5 years?

    3. What are the key values and principles you wish to live life with?

    4. How would you like to see yourself in next 5 years?

    5. What are the skills and things you want to be good at?

    6. How would you live if you knew you are going to die in say next six months?

    7. What is your mission, purpose in life?

Friday, August 16 2019, Contributed By: NJ Publications

All investors have one common goal – get better returns or performance out of their portfolio. While not all investors can be successful, all successful investors do display some characteristics which can be followed by other investors. Mind you, these characteristics are easier said than followed. In this article, we will talk about the most common characteristics and approaches to be successful at investing.

  • Set realistic goals and investment objectives:

Having a fair and reasonable expectation from your investment is the first thing that investors should learn about. The investment objective should be aligned to the investment asset class, risk appetite and your expectations from the portfolio. Any imbalance in these key elements is bound to find friction and conflicts. If one is unreasonable, he/she will probably end up making the wrong decisions. While working with an advisor, it also becomes important that you share your expectations and investment objectives and then arrive at mutually acceptable details of the same. Having the right expectations from your advisor is also an important element of successful investing for investors.

  • Be disciplined and patient:

As investors, we should understand that not doing anything in the markets is also counts as a decision or strategy. There have been many studies which have showcased that rather than attempting to time the markets, just spending time in the markets is much more beneficial to the investors. Making steady but low returns is much more preferred in the long run than making random high and low returns over the long term. This patience becomes very important if you consider yourself as a long term investor. Discipline in your investment approach or strategy is another very key success factor. If you are investing in a disciplined fashion, market movement and levels will no longer be important for you over time. Small investments, made regularly can deliver exemplary returns as compared to unplanned, random lumpsum investments. Being disciplined and patient also involves ignoring market distractions and noises.

  • Look at diversification and asset allocation

Diversification and asset allocation are a couple of investment strategies which have proved themselves to be indispensable to the investors. Having the right asset allocation on your total portfolio is perhaps the most critical factor for deciding your portfolio performance. How would a 15% returns on your equity portfolio matter if it is only 10% of your portfolio? The right mix of asset allocation – say into equities, debt and real estate or other physical assets should be appropriately managed in accordance with your risk appetite. Similarly, diversification is also important but one should be careful as to not to over-diversify into too many asset classes, products or AMCs or schemes. Only a reasonable amount of diversification would be beneficial for your portfolio. An investor should periodically review his/her portfolio asset allocation and diversification with the advisor.

  • Minimise the number and intensity of your mistakes

Warren Buffet strongly advocated making fewer investing mistakes to be successful at investing. While some of your investment decisions will surely help you reap good returns, it is often the mistakes that you do that destroy your returns. A good investment portfolio in quality mutual fund schemes will definitely help you create wealth. However, if you make some financial mistakes, that will surely eat up all your progress. Hence, it pays if you play it safe and not make mistakes. Also, the quantum of money put at stake for risky financial decisions bears huge significance. Make sure that any risk you are taking is only with money which you could afford to lose without any significant impact on your portfolio. By rule, know that any investment “guaranteeing” high returns is too good to be true and is not possible in the market. If you want high returns with risk, equities should be your go-to asset class.

  • Know your expertise and your limits

The great Sachin Tendulkar once realised that his cover drive was not working against the Australians. He decided to not play that shot, a very common one, in his entire innings in that one match and ended up making a very good score. The point being, one has to know one's areas of expertise and your limits and work accordingly. If you are good in your profession, business and making money out of it, stay focussed and continue doing that with all passion. If you are not so good at identifying stocks, leave that work to the fund managers, don't try to become one. The idea is not to stretch ourselves and try and become experts at everything. Managing wealth or money requires a certain amount of time, knowledge, efforts, market awareness, product familiarity and freedom from personal bias. It would be great if you have everything, but it would not be so great if you are overconfident of your skills and expertise. You will only end up hurting your wealth.

  • Be responsible:

Being responsible for your investments would mean a certain level of seriousness and commitment to your financial plans and investment strategies. It would also mean that you value your money and would not take undue risks or decisions which are not in line with your stated objectives or contrary to the advice from your advisor. Being responsible would also mean that you are professional and adopt an unbiased, ego-free, open attitude and approach to managing investments. Being responsible would also mean that you share the important things with your advisor that directly or indirectly may impact your finances. Lastly, being responsible would also mean that you listen and follow the mutually decided decisions with your financial advisor, in a time bound manner, giving it the priority it deserves.

Friday, July 19 2019,
Source/Contribution By : NJ Publications

Most of us are aware of what a will is and how it works. Most of us are also under the impression that the will is only for people who are of old age. Also, that a Will and estate planning is not important.

Before we explain why estate planning is important, let us look at what happens when you die without making a will. When an individual dies without making a will, then he/she is called to have died “Intestate”. Incase of death of an individual intestate, succession is then governed by personal laws of succession. When governed by personal laws, the division or transfer of estate may not take place as wished by the deceased.

For example, if a Hindu individual wishes to transfer some of his estate to his father or brother but doesn't make a Will, in succession by Hindu Succession Act, the father and brother will not get anything as they are not Class 1 legal heirs under the law.

Thus, as an individual, if you wish that your assets are distributed and divided not only according to your wish but also in a manner where it goes to the right beneficiary, estate planning becomes important.

Estate planning refers to the organized approach to managing the accumulated assets of a person that will be transferred to the intended beneficiaries. It covers the structural, financial, legal and tax aspects of managing wealth in the interest of the intended beneficiaries. The term estate includes all the money, assets, property owned by a person before death, and also all the liabilities the individual had before passing away. Estate also includes all the claims that the deceased was entitled to receive or pay.

Estate planning is important as without formal structures that ensure that these purposes are met, there could be disputes, conflicting claims, legal battles, avoidable taxes and unstructured pay-offs that may not be in the best interest of the beneficiaries. The estate of a deceased is generally passed on to the legal heirs of the individual, however, they can be transferred to any individual the deceased wishes to receive his estate or a part of the estate. The estate can also be passed on to a trust and be managed by trustees where the ownership is with a distinct entity.

One may argue that he/she has done nomination in financial assets. But one needs to understand that in case of nomination, someone has the right to just receive the investment or asset proceeds as an agent or trustee as per law and such a person is not a beneficiary of the same. The assets may be required to be transferred from the nominee to the legal heir as per the law.

Advantages of Estate Planning

1. Minimise delay, costs and legal hassles

After the demise, the legal formalities and transfers take time and the family generally has to wait a long time to get everything in order. With proper estate planning and a valid Will in place, you can avoid this delay for your family and they can get everything in order quickly and without legal hassles. A lot of money can also be saved which may go to lawyers and legal expenses in case of absence of an estate plan. An even higher amount of money is spent in case there are family disputes. One can avoid this hassle by simply creating a will and ensuring that a proper estate plan is in place.

2. Disclose all assets /investments

Most of us may not know the full details of the assets belonging to our spouses and similarly they too would not know all of our assets. This becomes even more important if you are the bread earner of the family. Your dependents will not be even aware of your entire estate and investments that you must have made. A detailed Will helps them by disclosing all assets/investments properly and getting all the affairs in order.

3. Avoid Disputes

Making a valid Will clearly states out your preferences in distribution of your estate. This will clearly help in avoiding any legal disputes in the family. In absence of any Will, disputes are most likely to breakout in distribution of properties and businesses. A valid Will signed by all beneficiaries /legal heirs will go a long way in keeping the family intact and together.

4. Plan for incapacity

While most people are convinced that estate planning is for old age, that is not true. Life is unpredictable and anything can happen at anytime. It is possible that one becomes incapacitated because of some unfortunate accident or sudden medical condition which leaves them unable to manage their financial affairs.

While estate planning, one can create a power of attorney for both financial and healthcare decisions in case of incapacity. This can help you and your family in difficult times.

5. Support your favorite cause

An individual can leave a fixed amount as donation or as charity to a cause he or she wishes. In often cases, where a proper will has not been made, these causes go unnoticed as the family is unaware of the deceased wishes.

6. Assign a legal guardian for your children /dependents

In unfortunate cases where both the parent pass away and the children are still minors, the court decides who the legal guardian to the kids will be. However, with estate planning, you can assign a legal guardian in case of any unfortunate incidents and make sure that your kids and dependents, if any, go into safe and trusted hands.

With our expertise, we will assist you in channelizing your resources in a systematic way. Hiring a financial planner is an important decision in your life and must be built on the foundation of trust.

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N J Financial Planning
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