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[yoursvaibhav]

Season II - Learn to Kick Start

The Why, How, When, Where and What

 

 

One fine evening at the dining table Ravi Sinha got to know from his father that Ravi has to have Rs 4Crore for his retirement expenses. Ravi was shocked and the first thought came to his mind was “Why” and “How”

Ravi is in his mid-40s with 15 years of marriage and a daughter of 12 years. He works in a MNC in Gurgaon with net take home of around Rs 2 to 2.5 lakhs range, decent enough to run a household.

Post dinner, Ravi calculated in an excel sheet that if he retires at 58 years of age, that is 16 years from now, he should have a sum of Rs 4Crore. His savings were mere in lakhs, to his surprise not even 10 lakhs. In simple maths Rs 25 lakhs every year (which was his total take home) 

For Ravi, to answer “How” will he achieve this sum was not on priority, but the first priority was to understand “Why”

What came as a shock to Ravi or any individual was due to unawareness or unpreparedness on financial planning

When could he learn, or How, or from Whom he could learn this funda of funds and be aware and prepared. As a matter of fact while Simple Interest and Compound interest in taught in curriculum the same time a chapter of Money can be added. But the reality is this subject is not at all common till the study age suddenly becomes the most important aspect of life few years later in the job. There is no text book in market and also many still don’t understand the basics to save money. As savings would happen one can think for investments. Lets be simple and take small steps..

Dear Individuals of 25 to 45 years of age lets start understanding the long journey of Savings to Investments. You never learnt or rather you were never taught what is money and what to do with money when it is getting accumulated in savings account in a bank. I believe boy and girls of business families get to know it early in life due to early grooming from their parents as the kids are treated as heirs to wealth.

So lets start being aware on financial planning or Finance for self and family.

Answer to the question “When do we learn or How do we learn” is not as simple as it would sound.

The best answer to When is TODAY if not earlier.

The balance in your account one day before the salary deposit message beeps, is called Savings and this is after all expenses of the month are done with. So whatever be the savings … meagre, decent or high, manage it well. We will get to Expenses and Savings in later chapters.

At the workplace, you get to know about some colleagues who have sound knowledge of income tax. Then there are financially active men / women who would be discussing about share market, sensex, mutual funds, bonds etc., one can start getting educated from these people around. After a few discussions with this so called aware and knowledgeable lot, you may search on internet, there are many good books available online and in stores. Start Reading ! Read atleast 20 to 30 such books on these subjects. These books will make you understand as to what you should know and a few bunch of definitions and terms used in Financial Planning. Just to make a note here, these books are on Basics and on awareness only. To be financially happy one has to shift gears from Savings to Investments.

While reading and acquiring knowledge from dozen of books, start discussing the concepts read and remembered or doubts as we may call them, with colleagues at workplace, seniors around you, batchmates, schoolmates, colony friends or some uncles/aunts. In response of such interactions either you will learn or you will preach. Start accumulating the learnings from good people around you.

Ravi started his search and found some good friends, seniors and colleagues to help him in detailing. On the other side his father, at the dinner table that day, was smart enough not to guide him and make Ravi search for himself. The “Why & How” was upto Ravi to get answered

As we all have been doing, to learn a new language we go to books, to read about a famous personality we find his / her autobiography, to know about historical events or even science we refer to books. Similarly there are many books available on Financial Planning, Retirement Planning and self-help on Personal Finance etc. Guess what? For next six months Ravi read 08 to 10 books and he summarized his readings and understanding as, that the budget he requires for his retirement is not Rs4Crore but its actually Rs6Crores seeing his current lifestyle expenses.

The ordeal of his life that night at the dinner table brought him to the realization of “What he needs to have and Why he needs to accumulate this amount?”

Let us understand the “Why?” aspect first. Every individual and family has expenses (to meet his / her needs and wants), to serve these expenses there is need of funds or cash and this cash comes from Savings, primarily from Salary income. A working individual retires from his / her job at the age of 58 to 65 (depending upon profile and role) therafter active income stops if the job role ends. And this happens to most of us these days, as post the age of 58 to 65 not much job opportunities are there.

Now suppose the household expenses of Mr. Anand in December 2020 were Rs 68000 and Mr. Anand retired from his job on 31st January 2021, will his expenses reduce in February 2021, answer is no or only to some extent like transportation to workplace etc.

So lets put this in a excel sheet, with monthly expenses as Rs 68000, then the annual expense would be Rs 816000. With all good health and by the grace of Almighty let us assume Mr. Anand lives till age 75, that means next 17 years (assuming he retired at age 58 years)

Rs 816000 x 17 years = Rs 1,38,72,000 (Rs 1.4Crore approximately)

(this is with no inflation and no increase or decrease in expenses)

 

Let us take inflation at 7% then this Rs 1.38 Crores becomes Rs 2.7 Crores approximately.

 

Since active job income ceases for Mr. Anand at the age of 58 years and he doesn’t have any income source post that , so he needs to have approx. Rs 2.7 Crore to Rs 3 Crore for himself and family needs and wants in these years.

Similarly for Ravi it was Rs 6Crore according to their current lifestyle.

SUMMARY

When to start understanding money and savings … At the earliest, Best is NOW, Best is Today.

Where to acquire knowledge from – Books on this subject and Financially active colleagues and friends around you

Why is simplest to answer – to continue the same lifestyle and expenses related to it post your active income ceases.

What to do initially – Gather the list of expenses, take hold of savings in account, that’s it for now.

[yoursvaibhav]

Hi All

[yoursvaibhav]

Season 1 – Savings – ‘Nill to Some’ in last 70 years

 

In earlier days say like 1930s to 1950s the kids aged five to twelve years had six to ten siblings and their respective parents could afford to educate the first two or three of them. Younger ones were educated either at their grandparent’s home or the elder siblings paid for their younger ones as all grew together. The parents never worried or thought about how would they bear the expenses for these kids, educate them for job worthy, marry them and set them free.

 

Then came the era of 1960s to 1990s, the children born in these years were two to four siblings, parents became a bit more cautious  and started savings for their kids’ education and marriage and all bringing up expenses. The parents of these years were mostly govt servants or semi govt jobs and some got into education and teaching. In this era Insurance of self and family was restricted to LIC and financial planning was aided by some Govt schemes, gold or some bank savings. Don’t be surprised to know that persons who attained superannuation from active service in 1980s and 1990s didn’t have a bank account even.

 

As mentioned earlier, the parents could bear the fees of first two kids and for rest kids it was done by others, hence there was no point of having savings. Yes my good friend gold was always decently stored in such households. And many believed it to be savings for a critical day. The obsession for gold still continues. Second most important aspect of savings / assets was land / house made on own land.

As the generation grew older, parents shifted with eldest sons, the ancestral house was sold and each of children would get his / her share as per love and understanding amongst all. Each individual took his / her share and migrated, either to a different town or the newly developed outskirts of the same town and build the house / flat as per the requirement of the new generation. Any Savings? Could not be as all was invested in the new house plus some soft loan from banks or friends/ relatives.

 

These set of people mentioned above are maximum who retired from active job between 1990 to 2010. They always had limited expenses and with their own house they all survived their retirement and some shifted with their sons / daughters family.

 

As they amicably settled in their limited expenses, need of financial planning was never felt. And biggest support was the pension to the retirees from Govt jobs. Whatsoever was the pension amount plus some meagre savings made their retired life happy.

 

The other set of people were employed in Private jobs or no pension jobs. Private jobs paid well and hence lifestyle improved and expenses grew. After spending well they had savings in banks. Also banking sector came up with loan products and easy EMIs

The generation which got their first pay cheque in the years 2005 to 2010 were told by their seniors and parents to have awareness of Savings and Investing for future after all decent necessary expenses. In this same period 2005 to 2010 many insurance companies brought in their products for savings and investing ‘small amounts’ to get good returns in future, but still everyone understood one good friend LIC. What have you done for investments and tax planning, prompt was the response I have one two or three LIC policies. What would that policy give in return and maturity amount was not known to many. Complete awareness and total solution was still not known. It was hazy. Internet searches were also limited in these years.

 

So where did these people / generation spend? Good clothes, latest furniture, LCD / LED TVs, coolers became ACs, desktops and above all mobiles. Good thing was they were cautious and calculative in spending.

Savings? Yes, they had better bank balance than their seniors and parents. Yes, for sake of investments they had some policies which their young friends sold , who joined the Insurance sector, “Bhai ek policy le le , mera target ho jayega”

 

The Best era starts… 2011 to 2018 (this is called Best as worst was also witnessed from 2019 to 2021)

Corporate culture, private jobs, malls, shopping, gadgets, foreign travels, Big car, home (flat purchase) , heavy pay cheques, good increments on job switching, TV and AC for each room. Lifestyle changed !

Acquisition of any material thing from Rs 500 for a coffee to a flat in a multistoreyed apartment all looked affordable and on a click of mouse the search could start and the end was possession.

 

Financial Planning? Yes, it is the next level after “savings”, it started budding and practiced and preached by some smart individuals.

Savings, investments all types of insurance (gold, land, home, home loan, medical, accidental, cancer, term plan) started getting discussed. Also planning for future goals like child’s education, his / her marriage, retirement. Mutual funds, SIP, Calculators, NPS, Term Plan, PF, VPF, Home on loan or stay rented throughout life all was discussed, debated, deliberated amongst the youth. Generation who started earning in 2000 till 2018 all started sharing their knowledge and it became a subject and agenda of meetings, while the elderly senior citizens enjoyed as they were more or less settled.

 

It is a long way to go, till each person whether earning or not, in age group of 25 to 45, as on today, understands the importance of financial planning, corpus money and retirement planning with funds for goals.  

 

Author wishes to submit a disclaimer that he has immense respect for the Senior generations and their lifestyle. He has no biasness towards any investment mode and model, product or company.