Archives

The Psychology of Money

We read umpteen books on how to become rich but when it comes to implementing it, we miss the point somehow. The problem lies not with the books but with the lack of clarity and self-belief.

Remember, clearly working out where you want to be regarding your finances is the baby step towards making money. Here, let us discuss in brief on a few tips to make money or to become successful in our respective careers.

Setting a Goal

• Define and declare your goal with conviction.
• Calculate the amount you intend to earn. For example, if you intend to earn 10 lakhs as monthly salary, clearly set 10 lakhs monthly salary as a goal.

Do Affirmation

• Keep telling yourself that you are thankful for earning 10 lakhs as monthly salary.
• Write down the amount in a diary in your language so that you emphatically declare yourself committed to earn it which in turn increases your self-belief
• Paste the goal and the amount on your wall or in prayer room which makes it stick to your mind
• Read the affirmation at least 10 times every morning and at night prior to sleep
• Try visualising yourself earning the money, counting and investing it.
• Imagine the feel while the money is in the hands and the impact it creates in your life, family and lifestyle such as buying a new vehicle, attire, the kind of people you befriend, the charity you will be part of, the number of people who is going to benefit.
• Create a vision board to imagine the kind of impact the money will have in your life. Cut images from magazines or make a pictorial representation on your computer screen. For example, if you run a company, create one on how your company gets listed, you running a charity as part of your organization, how you start prioritising your physical health by running marathons, you constructing a good house or buy a car. Get it printed and pasted on your wall or as a screensaver in your computer so that they are frequent reminders.

Take Action

• Ask yourself on the actions needed to be taken to impact the lifestyle
• Implement the small ideas which you get while you keep on asking questions.
• Monitor these small ideas transforming themselves into huge visions and ultimately reaching a moment helping you attain the goal

Remember it may take months or years to reach your goal. The stronger you believe in it, the faster you reach there. In that defining moment, no external factors, be it economy or situations can stop you from reaching there.

Venturing into Shariah Investment

Shariah Investment is an Islamic investment philosophy which follows shariah norms, the moral code of Islam. It encourages people to invest in a socially responsible way thus dissuading them from investing in anything which harms a man physically or emotionally.  Anyone who believes in shariah norms are free to invest in this.

There are various Shariah compliant mutual fund investments in India though the options stand limited. Here, let us discuss about the various Shariah investment options available in India.

Taurus Ethical Fund

This is a Shariah compliant mutual fund. It starts with a minimum investment option of Rs. 5000 as a onetime payment or Rs1000 as SIP (Systematic Investment Plan). Taurus provides an average expected return of more than 10 percent which is a better performance in comparison to fixed deposit. Its AUM (Assets under Management) is 37 crores and has an expense ratio of 2.6%. However, this suits those who eye long term investments of anything more than 5 years, being fully aware of the risk of equity market.

Minimum investment	SIP	AUM	Expense ratio
5000	1000	37 Crore	2.6%

 

Tata Ethical Fund

Tata ethical fund is the most popular and recommended ethical mutual fund in India thanks to its AUM which stands at 515 crore and brand name.  One can invest a minimum amount of 5000 and a SIP of 150. The average returns expected is 14 percent and its expense ratio stand at 2.5 %.

Minimum investment	SIP	AUM	Expense ratio
5000	150	515 Crore	2.5%

 

Nipon ETF (Exchange Traded Fund)

Demat account is a must for investing in Nippon ETF. The expense ratio is above 1 percent. The one persistent issue with Nippon is its low liquidity as its AUM is 3 Crore. This makes buying and selling difficult.

AUM	Expense ratio
3 Crore	1%

 

The documents required for investing in an ethical mutual fund are as follows:

• Pan card
• Aadhar card
• Cheque leaf or details of bank account

If you are a Non-Resident Indian, apart from having the above documents, you should furnish your address proof from your resident country as well as NRI account details.

If you are investing through Demat account, you will need

• PAN card
• Aadhar card
• Details of Bank account

In case you are an NRI, besides the above-mentioned documents, you must have PAS (Personal Account System) account which must be linked to the trading account

Taxation and Discontinuation charges

• Discontinuing the plan before the completion of 1 year will make you pay 1% as exit load from the amount.
• Selling it before completing 1 year makes you liable to pay 15 % of the profit as tax
• Selling it after 1 year makes 10 % of the profit taxable.
• In ETF, you are free to buy or sell as and when there is liquidity
• NRIs are not exempted from taxation

As limited options exist, most of the time, you feel exposed to its limitations in Shariah investments. So, conduct a detailed study before venturing.

Find your Money Personality

Our attitude towards money is largely dependent on our personality and this turn is influenced largely by family, experiences or any life changing events which occur during childhood. Understanding this money personality is essential to have a proper financial plan.

It is said there are four types of money personalities and we fall into either of these which are savers, spenders, money avoiders and money monks. Here, let us talk about the various characteristics of these money personalities.

Savers

Savers are those who find all the possible ways to save money. They do this by

• Skipping hangouts and entertainments
• Choosing risk free investments
• Venturing into only those which they are sure of
• Checking every minute detail before investing thus ensuring its risk free
• Investing mostly in fixed deposits
• Staying away from other investments such as equity and mutual fund
• Prioritising savings over investments
• Not maintaining good lifestyle and thus treating themselves badly

To have a proper financial plan, a saver should

• Analyse their spending habits
• Set goals and invest according to the lifestyle
• Diversify the investments
• Attempt risky long-term equity investments
• Set up emergency fund as part of savings.

Spenders

Spenders keep on spending and constantly try to upgrade their lifestyle by

• Frequently engaging in shopping either out of liking or to ease stress and tension
• Regularly using credit cards even above their credit limit

Spenders must

• Give importance to budgeting
• Analyse the spending habit and invest accordingly
• Reduce the unnecessary lifestyle expenses

Money Avoiders

Money avoiders dread money, avoid all possible conversations regarding money. They,

• Consider money as the root cause of all evil
• Avoid money matters such as financial responsibilities, expenses and bill payments
• Delay the payments

Money avoiders should

• Educate themselves about money
• Make payments on time
• Take an upfront decision on financial planning.
• Try to automate the savings
• Make payments of loans and other services on time

Money Monks

Least interested in money, money monks avoid all conversations regarding money like money avoiders. They take more interest in matters like charity. On the job front, neither they demand salary hike nor ask for their deserving remuneration due to the fear of people considering them greedy.

Money monks must

• Create a financial plan as per the lifestyle
• Automate the investments as it is highly unlikely of them to find a suitable plan by themselves and invest
• Review their portfolio at least once in 3 months.

Make out the category which you belong to which is essential to have a proper financial plan in life.

A pandemic has hit the globe. People have locked themselves inside their homes due to fear of spread. World economy has hit rock bottom and so has the income of common man. Fear of losing the job or a dip in the income has left many worried especially the returning expats.

In these trying times, the first thing one should learn is to know how to manage money and to bring about a financial discipline in life.

• Keep an Emergency Fund

It is not about just expats, each and every person must maintain an emergency fund . It must be sufficient enough to cover the lifestyle expenses as well as EMI (equated monthly installments) payments of a family for a span of at least one year.

• No Unnecessary Expenses

Back out from anything that empties your pocket.

• No Long-Term Investment

Do not venture into any new long-term investments, be it insurance or equity. Liquidity is the key during this crisis.

• Continue Existing SIP, Insurance

Continue the existing SIP’s and insurance policies unless you are left with zero fund after the necessary expenses. Discontinuing the policies will result in losing the money paid.

• Avoid Quick Income Schemes

Do not fall into regular income offer traps in the form of business partnerships and other schemes. This is not the time to make such investments.

• No to New Traditional Insurance Policies

Say no to new insurance policies even if they come up with irresistible retirement plans and returns. Most of them have low liquidity and will at least take five years to initiate the returns.

• Manage your Expenses

Note down the monthly expenses and strike off the unnecessary ones. Maintain a discipline in financial matters so that you come out of this crisis unhurt.

• Review Existing Insurance

Review your insurance policies and make assessments regarding your term insurance, life insurance coverage, sum assured, health insurance and critical illness policy. Check whether these policies and its coverage meet the requirements of your dependents and family including ageing parents. If found insufficient, take corrective measures such as discontinuing the unnecessary ones.

• Manage your Debt

Restructure your debts which include renegotiating the interest rates of EM I’s if found higher. Combine the multiple loans and pay the interest together or reduce rates if possible. Seek the help of an expert in realigning the EM I’s and interest rates to make it a better payment structure.

• Find Part Time Job

Find a part time job if you are on a vacation or have resigned. Try working online if you are a skilled worker. Utilize the time to the fullest by searching for one online or developing a skill set which might add value to your resume.

• Build your Network

If you are in constant fear of losing the job, utilise the time to find a network who could help fetch a job.

• Goal Based Investing

Assess whether your investments are goal based apart from your emergency fund and insurance.

• Plan your Retirement

Check whether you have a retirement plan. Identify the time of retirement and the goals to be achieved before retirement.

In these unpredictable times, maintaining a financial discipline financial  in life helps to come out of this crisis unhurt.

Emergency fund is a safety net which helps you move on with life when hit by life’s unforeseen events.

It could be anything – unemployment, unexpected medical contingencies, and repairs to your house or vehicle. So, irrespective of your profession and income, emergency fund is a must. Because uncertainties apply to all.

One must have excess fund for at least 3 to 6 months or a year and it should be adequate enough for the monthly lifestyle expenses of a family.

To have an emergency fund , one must identify the monthly expenses, asses your job and salary and keep contributing to the emergency fund on a regular basis.

Wondering how to find this excess money so that you can create one?

Let us discuss a few points.

1. Find Unnecessary Expenses and Stop

Strike off the unnecessary expenses like visiting restaurants and multiple subscriptions and reduce bad habits like smoking and consuming alcohol. Identify the money leakages and stop them.

2. Do Online Job

Use your additional skills to find online jobs which adds to the income. Job losses and pay cuts are making rounds. So, polish your skills which might fetch you another job or add value to your resume.

3. Automate Emergency Fund Investments

Once you identify the funds to be raised, automate the emergency fund account. This is much easier than contributing to it manually.

4. Use Liquid Fund over Savings Account

Move your funds in the savings account into liquefied mutual funds which fetches higher rate of interest. This interest is additional income which adds to the emergency fund. You can automate this account too. Liquefied mutual funds can be withdrawn immediately with some even having ATM cards.

5. Sell Unused Items

Sell those household items that are not in use. For instance, if you have furniture which remains unused, they can be sold in websites like OLX. This too adds to the emergency fund.

6. Renegotiate Loan Interest

Check whether the rates you pay for the loans are higher. If yes, correct them and try restructuring the loan. This helps to reduce your EMI and thus realign the interest. This saved money can be added to the emergency fund.

Tough times are ahead as businesses keep losing their revenue and as people face unemployment. So, secure yourself with an emergency fund so that you are not left to run from door to door for money.

Retirement planning is a gradual process as well as a multi step procedure. It includes identifying the time of retirement, finding the goals to be achieved before your D-day, evaluating the expenses and finding an income flow post retirement and giving a serious thought about your dependents.

Some would want an early retirement while others would follow the due course. No matter which group you belong to, go through this 10-step formula to make your retirement life a happy and contented one.

1. Know When You Want to Retire

Identifying the time of retirement is an important step. This helps you assess the years left in service and define the goals to be achieved before retirement.

2. Goals to Achieve Before and After Retirement

Define your goals  you wish to achieve before retirement. This can be your children’s education, marriage and additional goals such as paying off debts and constructing a house. Evaluate those goals which remain pending even after the retirement.

3. Total Cost of Retirement

Evaluate the cost of retirement. Calculate monthly expenses and identify the source of income post retirement. Identifying the fund required to meet these expenses and raising them must be one of your goals.

4. Your Income Flow Post Retirement

Calculate the source of your income post retirement. You may receive rent from residential or private property, revenue from businesses invested, dividend from share investment or any other kind of monthly or yearly income which is an income.

5. Evaluate Total Assets and Investment

Make a clear calculation of your assets and investments. Consolidate these investments and try realigning them. Do a re balancing and make it compliant to your risk profile and requirements.  Check whether these investments help you achieve your retirement goals.

6. Can I Invest Monthly Now

Now that you know the number of years left in service, identify a suitable SIP (systematic investment plan) to invest as this adds to the retirement fund.

7. Find Your Dependents Need

Find the requirements of your dependents and their retirement age. Check whether your children become independent before the retirement. Keep your insurance policies in check and irrespective of the state of your dependents, take a health insurance. This will avoid emptying your pocket in case of a medical contingency.

8. Fix Insurance Need

Make sure you have a suitable life insurance policy. In case the earning member passes away, it ensures the family gets compensated with a lump sum amount which helps them move on in life. Check whether the sum assured is compliant with your requirements. If not, take corrective measures.

9. Find the Post Retirement Tax

You will have to pay tax for your additional income post retirement. Calculate the tax amount during retirement planning.

10. Create a Will Document

Make a will clearly mentioning the property and the name of the recipient. Seek the help of a legal expert to follow proper legal procedures to make sure that the recipient receives it. In shares and mutual fund investments, even if a nominee is mentioned, a legal suit would be enough to stop it reaching the deserved. So, make sure you register the will.

A well-executed retirement plan helps you have a stress free retirement. So, if you have not started one, follow these tips and begin the journey.