Why are financial goals necessary ?

First of all what do I mean by a financial goal - It is the purpose for which one needs money in the future.

There are predictable future needs and wants that you would like to meet for which money is the most important ingredient. Usually this is very fuzzy and most of us simply start putting money in FD or RD without really thinking about whether that is the right way and instrument to meet the goal. Once you are really clear about the goal - that is, you clearly know what the goal is, how fast you need to reach it, what is the quickest way to reach it - you can bring a lot of refinement to your investment strategy. Setting clear cut goals to be met is the HARDEST part of financial planning but it is fun once you get started.

Scenario 1

Let us suppose you do not have goals and start putting money in equity MF just like that because you heard or read about investing. It is good that you started without getting stuck in an analysis paralysis mode that, "I will put my money only after learning all things about MF". This will never happen. Cut to 7 years from now: you have About 15 lakhs money in MF due to gains etc. At that time your mind and situations will dictate / coax / cajole / rationalize / force you to take that money out and use it for a purpose which seems necessary at that point in time.

However, if immediately after starting to invest you start a 'process of clarifying your goals' like: to retire at 60,  I will need x amount to support myself and my spouse for the rest of our lifetime or for my child's education I will need Y amount in 15 years, it will naturally lead you to many questions.

Some other goals may be:

• Business expansion
• Travel
• Children's expenses ( Education, Marriage)
• Car purchase
• Real estate purchase

Let us take the first example - How much money do I need to have when I retire to sustain the rest of my life. The questions that may jump out at you may be-

• How much time do I need to plan for
•  What will be my monthly expenses be starting at 60? 
• How will my lifestyle will be?

Caution - Don't get into whether you will live till 60 or prefer not to live beyond 70. Look around you to see the life expectancy of your relatives and friends and make a cautious choice. I too do not know if I will die tomorrow or tonight or in next 1 hour. Just plan.

Some answers to these questions can be extrapolated from your current monthly expenses - what expenses will still be relevant to you after retirement considering an inflation rate of 9% p.a in India. So a clear understanding of your current expense pattern is also important for this exercise. We all want the quality of life to stay the same or improve, not to get worse. So saying that you can minimize your expenses to simply one meal of Dal Chawal will not cut it. 

Already you can see that you and your spouse will have to spend a lot of time to clarify such a goal. It is not easy but it is essential to make sure that your money is working for you in the best way.

Scenario 2

Let us assume that you have completed the entire exercise diligently now in 2016, you set a goal to generate 5 Crores INR in the next 20 years for the specific purpose of your retirement.

This process of goal setting for a specific purpose will definitely reduce the probability of your mind or situations forcing you to break the investment set for retirement. Because, by setting specific purpose for your investments you will also slowly build muscle in creating systems by which any surprises / emergencies also will be taken care of so that your march towards that goal of generating 5 Crores INR in 20 years is not hindered.

Now when you see 5 Crores INR is generated in 18th year you won't (shouldn't) dilly-dally in greed thinking, "If I leave it for 1 more year, that 5 Crores INR may become 5.1 Crores INR, 5.5 Crores INR or 6 Crores INR." You will ( should) move the 5 Crores INR to an FD .

This is beauty of systems / discipline which will result in your mental space to be freed from worrying about money and instead spend time on what you love and what you want to create.

Now, you may ask:

What if in 20 years my investment did not make 5 crore rupees ?

 The answer would be -Equities, MFs have the potential to give inflation beating returns over long term and also have the probability of wiping your money out.

You are supposed to steer the money in funds and investments in such a way that it reaches 5 Crores. You cannot say, "I put money and sat in a  corner it should have given me returns."

This is where periodic review for switching to funds which give better returns and ditching the funds which do not perform comes in.

To give a metaphor:

Markets are like the sea. They can be calm or turbulent. They can take you to tropical paradise or topple you.

MF is like a ship or boat. You have to use the rudder (periodic review, switching to good funds, ditching low performing funds) to steer it where you want to go, and just to ride a storm or wave and not get knocked by it.

Hire a boatman (financial planner) AND ALSO ( not 'or') learn to sail it yourself. The boatman can jump off anytime but you won't because it is your boat/ money.

Meaning: Learn to DIY because you and only you will care about your money more than any Financial Planner. 

Go ahead and set some realistic financial goals. Clarify, refine, rinse and repeat as needed.

In the next post we will discuss more about short term and long term goals, why the classification is necessary and how that affects the way you invest.

Financial Fortification: Where to start?

I draw my inspiration & education from freefincal, subramoney. You should go there if you want more depth.

Who the hell am I and what gives me the right to talk about finance? My mistakes & error correction!

I did these things in 2013:

Bought a second house taking second Home loan . The thought process was:
I get salary; my wife gets salary and there is surplus every month. So i asked around some uncles and relatives who in turn suggested buy a house. Asked the friend of a friend what to do to cover liabilities and took Endowment policy.

Mistake 1: Buying a house without proper analysis. (Increased liabilities for very small returns).
Mistake 2: Lazy thinking that an LIC agent will do 'good' for me as he is relative of my friend in our community (which he did not as his commission trumps my wellbeing).
Impact/ Loss : Taking the endowment policy of 90L sum assured for a huge yearly premium of 2 Lakhs (60L in premium payment over 30 years) which when invested properly (even with very little education) could have easily fetched inflation beating returns.

Luckily, in June 2014, I got a queasy feeling that I am doing something wrong with my money. 2L per annum premium for 90L coverage just did not add up as good deal. So I started reading some finance blogs ( RamitSethi, jagoinvestor, ashal jauhari, pattu- freefincal, subramoney) and got a clarity and methodology about money decisions. I started course correcting.

Now, in 2016, I am able to (with proper logic and numbers) enhance the financial situations of 10 of my friends and family members. My brother insisted that I share this knowledge so it may help you.

Financial Fortification:

See if the following resonates with you.

• "What little things do I need to know to invest wisely and allow my money grow? In the world of mutual funds, compounding, term plans, ULIPs, endowment policies, life insure, medical insurance, riders, fixed deposits, recurring deposits, savings accounts, liquid funds, growth plan, dividend plan, etc, etc. how do i make sense of it all? "(most of that is useless jargon anyway)
• "I know about mutual funds, tax savings, insurance. But I just use RD same as my parents even though I know I should do better. Now, where do I begin?"
• "What is financial fortification, and how to create a sensible financial plan ?"
• "Savings was the only way to get rich for our parents. I know times are changing and i want to learn about investing step by step, with hand holding. How to proceed?"

By the end of series, you will have good knowledge and also would have started investing ~ in a SAFE and SECURE way!

Financial Fortification (in the same order):

1. Term Plan (Life Insurance)
2. Medical Insurance
3. Emergency Fund
4. Debt/Loan Repayments
5. Investing to reach financial goals (leveraging savings account, liquid fund, mutual funds, stock market, gold, real estate).

Let us understand these in detail.

Term Plan

This is the first step in financial fortification.

40% of my income goes towards my home loan EMI. If I die today, how will my non earning family members pay that EMI or survive? 

The answer is TERM PLAN. This is called life insurance.

This is relevant if you have financial liabilities

Medical Insurance

This is the second step in financial fortification.

This is for emotional security. Last year, my brother had dengue and it cost INR 25000 for 3 days of hospitalization. He is a yoga practitioner/ teacher. He does not get even a cold or fever. But dengue happened. Thanks to his health insurance (well, thanks to me here because i suggested it) he did not have to dip into his savings/ investments.

So, get a basic medical cover which needs low premium for high sum assured. Looking at your scenario, you can personalize it.

Emergency Fund

Money needed in case of emergency.

If you lost your job today, and did not get one for next 6 months, can you sustain your expenses (rent, EMI, medical and other non negotiable expenses) - without this affecting your emotions negatively?

Other examples of emergencies:  laptop / computer crash, initial payment to hospital who do not accept credit card when medical emergency arises, bike repair.

Debt/ Loan Repayment:

Target finishing off all credit card debts, education loan, personal loan, house loan & debts to friends/ family in the same order. Not all at once. Device a plan in such a way, after setting aside money for insurances and emergencies, the majority of your income should go towards finishing these loans off and little on saving and investments. With time, as the loans reduce, the amount on investment shall increase.

Investments (long and short term investing):

Now comes the juicy part. Now lets actually make some money. 

When I say investment, don't think about:

• Tax saving
• Stock market/ day trade (with knowledge, you may be able to do this in near future. For now keep it aside.)
• Get rich quick schemes

So, what to think about then? GOALS.

Specifically LONG TERM GOALS. (like retirement, house down payment, child's education, lump sum expense for family functions and other predictable but huge expenses).

If you are asking, "How can I buy that car next year?" or "how can I make it to Tomorrowland (Europe festival) this year?", sure, these are called short term goals. 

Use the following for short term goals:

• Increase your income
• Use a recurring deposit - a systematic saving - earmarked for that expense.
• Look at your expense and cut down on shopping or entertainment or other negotiables and increase specific saving
• Send any surplus money towards liquid fund investment, which is a smart investment tool, sometimes better than recurring deposit and fixed deposit.
• Use a fixed deposit 

Goal based long term investing:

Now, this is where you actually grow your money, even if you invest small amounts consistently. The magic here is compound interest. Let's understand.

Illustration:

Ram, 25 years old started investing 5000/ month in 1st year, 5500/ month next year... and so on...  for 30 years. In various instruments, his returns comparison below.

	Invested amount	Mutual Fund (12%)	RD (8%)	PPF (9%)
10 years later	9.5 Lakhs	17 Lakhs	14 lakhs	14.8 Lakhs
20 years later	34 Lakhs	98 lakhs	67 Lakhs	73.5 Lakhs
30 years later	99 Lakhs	4.2 crores	2.39 Crores	2.74 Crores

Kumar, 25 years old started investing 1000/ month for 30 years.  

	Invested amount	Mutual Fund (12%)	RD (8%)	PPF (9%)
10 years later	1.91 lakhs	3.4 Lakhs	2.8 Lakhs	3 Lakhs
20 years later	6.75 Lakhs	20 Lakhs	13.4 Lakhs	14.7 Lakhs
30 years later	19.74 Lakhs	84 Lakhs	47.8 Lakhs	54.7 Lakhs

So, as you can see... the best time to invest INR 5000/month was 10 years ago.

The next best thing is to invest now.

If not INR 5000, start with as little as INR 1000 or even 500. 

Conclusion:

A basic thumb rule of money allocation - set aside 20% of monthly income for goal oriented long term investments, 5% for short term goals, emergencies.

Deeper understanding on the next post.

Insightful Captures(Ah-Haa moments)from Movies!

I watch lots of Movies & Series . The thing which I can say I learned is Various ways of 'BEING'. The following are some Insightful Captures (think of a electric bulb suddenly glowing ) from various movies that stick in mind and which changed my way of seeing things and being.

I provide it in dialogue form (imaging A & B talking):

From 'The Secret' ( not a movie, though):

You are not here to try to get the world to be just as you want it to be, you are here to create the world around you that you choose,while you allow the world as others choose it to be to exist also.

From the movie 'Grace is Gone':

B:
I mean, do you agree with him about everything?
You shouldn't.
A:
Why not?
B:
Because it's important that people have their own views based on an understanding of facts.
But it's also important not to trust the facts because most of them are lies.
A:
I don't understand.
B:
Well, it basically comes down to a...
gut thing.
..pause..
B:
You just have to be open to allowing for a truth which differs from your own opinions,
or else you'll never actually see the truth at all.

From 'Into the Wild':

A:
I'm gonna miss you when you go.

B:
I'll miss you, too, Ron.But you're wrong if you think that the joy of life comes principally from human relationships.God's placed it all around us.It's in everything.
It's in anything we can experience.
People just need to change the way they look at those things.

A:
Yeah, I'm gonna take stock of that.
But I wanted to tell you something.
..pause..
From the bits and pieces I put together, you know, from what you told me about your family, your mother and your dad.And I know you've got your problems with the church, too.
But there's some kind of bigger thing we can all appreciate, and it sounds like
you don't mind calling it God.
But when you forgive, you love.
And when you love,
God's light shines on you.

From movie 'Platoon':

at the end there is a dialogue:
"
Sergeant O'Neill!
- How are you doing? - Just fine, sir.
That's good, cos you got second platoon.
Yes, sir.
- Ready? - You bet.
I think now, looking back,we did not fight the enemy,
we fought ourselves, and the enemy... was in us.
The war is over for me now,but it will always be there,
for the rest of my days,as I'm sure Elias will be,
fighting with Barnes for what Rhah called possession ofmy soul.
There are times since...
I've felt like the child born ofthose two fathers.
But be that as it may, those ofus who did make it...
have an obligation to build again,
to teach to others what we know,
and to try with what's left ofour lives...
to find a goodness, and meaning, to this life.
"

From the movie 'Man from Earth' one of the best movies I saw:

A:
do you believe literally
everything in the bible, edith?
B:
Yes!
A:Before you say it, I know it's undergone a lot of changes,

B:But god has spoken through man .... To make his word clearer.

C:He couldn't get it right the first time?

B:We're imperfect! He had to work to make us understand.

C:(sarcastic) He couldn't get us right the first time, edith?

D: taken alone, the philosophical teachings of jesus are
buddhism with a hebrew accent- kindness, tolerance,
brotherhood, love,A ruthless realism acknowledging
That life is as it is here on earth, here and now.
The kingdom of god, meaning goodness,
Is right here, where it should be.

"I am what i am becoming. "

That's what the buddha brought in.
And that's what i taught.
But a talking snake
make a lady eat an apple,
So we're screwed.
(pause)
Heaven and hell were peddled So priests could rule
through seduction and terror,
Save our souls that we never lost in the first place.
....

D:
I see ceremony, ritual, processions, Genuflecting,
moaning, intoning, Venerating cookies and wine,
And i think...
It's not what i had in mind.

B:
But that's vatican flapdoodle.

It doesn't have a thing to do with god.

A:
As you said, john, everywhere, religions...
From exalting life to
purging joy as a sin.
Rome does it as grand opera.
(sarcastic) A simple path to goodness needs
A supernatural roadmap.

C:
Supernatural...
A stupid word, i mean...
Anything that happens,happens within nature,
Whether we believe in it or not.


This is from my favorite series (as of now) which I watch, HOUSE.M.D:

A: I just want to die with a little dignity.
B: There's no such thing.
Our bodies break down.
Sometimes when we're 90.
Sometimes before we're even born.
But it always happens,
and there's never any dignity in it.
I don't care if you can walk,
see, wipe your own ass.
It's always ugly. Always.
We can live with dignity.
We can't die with it.

will be updating more later!

Astrology, FATE, Mr. GOD & its derivatives

I feel happy to express some of my thoughts, revelations, 'My Truths' & experiences . I hope it triggers some thoughts on growth and produce value to people who read this. If not, at least an amusing read.

I was raised in a orthodox Hindu family with a belief system that God, an Omnipotent being exists and govern every being on Earth. During my childhood, I grew up with the belief that there is God who goes by different names and he takes care of all your needs. In my last year of high school I started to get disconnected with the thought of an 'single omnipotent being' sitting somewhere and governing everybody:

What is His purpose?

• Why does he have to create humans, have some deeds categorized as 'Good' and some as 'Evil' , reward people who does 'good deeds' , punish people who does 'bad deeds', evaluate them based on their actions and send them to a place called 'heaven' and 'hell'?
• If He is the one who created 'Good' , 'Bad' & humans , why does He make some people do good/bad deeds , and again rewards them based on the actions which He made them do. What is the point?
• If He is Omnipotent Master of all that exists, why does he accept 1, 28, 108, 1008, coconuts (In India, especially south India, Lord Ganesha is famous for this) and costly gold ornaments, Cash from his subjects and grant them what they ask for? If he is doing this how can He be the one who knows all that is there to be known? Is he doing this as a hobby? business? or Are all these be a creation of Human Mind?
  

I wanted to ask people who uses the phrase "God fearing" when they talk:

• If an all pervading singular super-conscious being expects the people whom He created in the first place, be afraid of him , make his subjects do evil stuff which He Himself created, can He be GOD?
• Can any GOD who elicits a low Conscious feeling called FEAR from his subjects, be 'GOD 'in the first place?
  

At this point I thought: Is there a possibility that all these rituals & were created by human mind. I wanted Solid answers. So I started grabbing whatever books I can and became voracious consumer of various thoughts. Being in a orthodox Hindu Family, I had(have) knowledge access to various works of Vivekananda and translated version of Upanishads in second hand book stores.

Back then, in my adolescence, I had not got some concepts which were conveyed from some rational minds, before. May be my brain, at that time, was not wired to grasp the (or background family conditioning) concepts said at that time!

The following excerpt is from RajaYoga by patanjali which triggered some serious questioning about the way I went about 'worshiping' God (just because I was expected to be that way by parents & family members) :

"

....The man who thinks that he is receiving response to his prayers does not know that the fulfillment comes from his own nature, that he succeeded by the mental attitude of prayer in waking up a bit of infinite power which is coiled up withing himself. What, thus, men ignorantly worship under various names, through fear and tribulation, the Conscious One declares to the world to be the real power residing dormant in every being,...

"
As I opened myself to new ideas and reevaluate my existing beliefs and ideas, now, I am in whole new paradigm on life.

Now, I do not subscribe to a specific religion or do not need an idea or concept of an entity called GOD: a superior being sitting somewhere governing and moving everybody's life. With this above idea, I also believe there can be nothing called FATE: the idea that says, for humans, everything is predestined, that before getting born one is destined to go in some paths, meet specific people, marry particular person, get x number of kids, die at particular date.

Thanks to Vivekananda's works, RajaYoga and Bhakti Yoga, Ayn Rand, many more books and articles.

But somehow, I WAS thinking there is something out there in astrology from this perspective:
There might be some forces in universe which is not known to human brain (science) yet which might affect human lives and decisions.
That idea shattered and in came the revelation that nothing is predictable; it is all what one creates for oneself. After reading the following articles,

E=mc^2: Astrology Vs Science I
and
E=mc^2: Astrology Vs Science II: Linda Goodman debunked

This is what I got:

If there is no entity called GOD there cant be a thing called FATE ( by fate I mean the idea that for humans everything is predestined).

so,

If nothing is predestined how can there be a predictive theory ( astrology) because astrology conforms to idea of FATE( that events occurring in human life are fixed and predetermined)and there cannot be a PREDICTIVE SCIENCE.

My close friends, parents,WONDER about my assertiveness and totally opposite stance when compared to some years ago. They have the notion (my parents) that such stances of mine are 'youthful peppiness' and it will phase out. They somehow cannot accept my differing opinions and thoughts. I used to enter into discussion with them which turned into arguments.

That is when I realized I do not have intense need to be right. This is the way I see things & the reality is that just because I can see something does not mean that others have to see the same way. Others have their own ways to understanding things and 'their truths'.

After the pondering over God, Fate, this question pestered me :

Why am I here? What is the purpose? What is My Purpose?

when I was ruminating this question I stumbled on this FANTASTIC article:

Why does purpose matter?

Where I am now? :

I am the prime Mover of my Life!
I and only I am responsible for whatever happens in my life!
Nothing is predictable;All there is to one's life is what one creates for oneself.

I would like to quote a dialogue which I heard from a film & which makes sense to me:
"
you just have to be open to allowing for a truth which differs from your own opinions, or else you'll never actually see the truth at all.
"

Now I am inclined on the thought that there is something more to be explored, which I would like to name as Collective Consciousness. But still ... I am not sure.
Exploring....!!!...and I think this is why human brain is for: questioning, analyzing and fine tuning for understanding the 'TRUTH'.
It is a never ending progressive process!

People who read this may react anywhere from totally agreement to total disagreement . I request readers to post in their comments. Finally, a quote from Steve's blog here:
"
As I see it, if you and I agree on absolutely everything, we can’t help each other grow. It’s only by exploring our differences that we can learn from each other.
"

First Post

This blog is to pen down my thoughts on various subjects. I find myself getting more clarity when I express it by writing down my thoughts. I hope this produces value to who ever reads this blog.