Deepa’s Money Tips ” Discipline , very important for Savings ,why?”

Hi ,

 The new year has started on a great positive note . There are many who have come forward asking me for a discussion about their personal finance . They have clearly demonstrated that its time to set aside all  inhibitions and check and audit on what is the current status . The questions which come up might be regular like the ones below , solutions may be varying from individual to individual.

“Are we in the right direction”.

“What are the corrections to bring our finance to the right track”.

“What is the right course of action to be followed in future”.

And the big question “ Where to Save and How much “.

During these interesting conversations , I have observed a few common points . I am sharing in this forum since I know that all of us are sailing in the same boat and these thoughts may have crossed our mind some time .

a)      Every one of us want to save ,might be little or more ,but intent is to save. (Who doesn’t want to ?)

b)      Saving  according to us is, being able to leave a residue from income ,post spending for all our requirements .

c)       There are two hidden personalities within us which control our financial decisions at different times.

1)      When we see an amount accumulating in our regular savings account, our first personality takes over and gives us a sense of satisfaction and security. We treat this as our contingency , and higher the accumulation ,the better is our feeling. 

2)       When the accumulation gets beyond acceptable limits , we now decide that its time to invest our money . But, when we deploy , we want the money to give us the highest returns possible . Our conscience tells us that all this money was sitting idle till now,so we better get things moving quickly. This is similar to the last minute exam preparation where we want to score highest with minimum preparation. This zeal of earning highest return pulls us towards aggressive products or complicated products .We check with friends and colleagues and decide to go ahead with one which gets maximum votes. 

3)      Even when it comes to investing into mutual funds, our concentration is only on equity mutual funds and the ones which generate maximum returns . Do we really take time out to research what are the risk parameters and how to compare funds based on risk and return together? 

The outcome is mismatch of expectations and picking up products which do not match our needs . As a result we have bad experiences and we conclude that its best to stick to our traditional avenues of investing , i.e., FD,Real Estate and Gold and back to square 1.

 Are  we being fair to our money ?Are we not missing out the key link in all the above observations?

 Yes, we are !!

 The root cause of all the above is “ Not Being Disciplined with our money,with our savings and  not being in tune with our real priorities. “ Again , all of us want to be disciplined with savings .Then what goes wrong. Simple, its never on our hit list ( priority list) because its not our emergency item. We are tuned to living in an urgent and important /unimportant square, that unless something is urgent ,we don’t do it.

 Let me share a tip which I follow with my clients which might be of help.

1 . I  first help them identify their responsibilities for which they need to save .

2. Then I identify how much is to be saved .

3.Finally , I help them automate all the savings in such a way that money  flows out of their account before 5^th of every month  into the various baskets of saving . Automation is the best solution to being disciplined with money . If one is able to identify where to save and how much to save, this is the best way to make money work for us.

 One may ask , why should we put our money to use at all in the first place. We are comfortable seeing it lie the way it is  .

 While we may not really want to take the pain , but without our knowledge , inflation is working its way ahead like a rabbit. Find below in the attachment , the CPI ( consumer inflation) figures for last 5 years . What we could purchase for Rs 1 lakh in 2008 , how much do we shell out in every consecutive year . I have also taken an example of a person in 30% tax bracket , saving in FD for these years with an assumed rate of return as 9% . You will observe that if we do not save judiciously , we will end up working harder to preserve the value of our money and contributing more towards living expenses itself. Imagine if we haven’t used even FD as saving mechanism, then what could be the implication !!

So, better late than never , pick up the pace and beat the inflation monster !!

Thanks

Best regards

Deepa

 

 

 

“Deepa’s Money tips “: My exclusive opinion on ‘Real estate vs equity’

Hi , 

 

Wish you a very happy Sankranti . Would like to share another query I received last week  asking my opinion on the Real estate vs equity . 

 

I understand the real estate and stocks are favourite subjects of many . These are very relative topics and opinions are also unique . This calls for a long discussion . So bear with this long mail .

 

Why am I saying they are relative topics :

 

1. one cannot predict what return a particular stock can give , similarly real estate in India is also unpredictable . 

 

2. Information can be obtained about indexes . In stocks , we can check the progress of Index, be it Nifty 50 or Sensex 30 .But that doesnt make it necessary that the stock being purchased belong to the index . So can somebody really compare a stock’s performance with the index. It can be done only if one is purchasing a sensex index fund or nifty etf , which have all the stocks of the index in the same proportion as in the index . 

 

3. With real estate  also, there was index introduced  in 2007 called residex. I am referring 2 links below which you can read through and verify. They are very useful read . This is to do  with property prices and based on real time transactions and data.

 

http://property.magicbricks.com/microsite/buy/propindex/index.html

 

http://www.nhb.org.in/Residex/Data&Graphs.php ( in real estate again comes the  question of sale deed value being different from market value ) however, this graph can indicate the drop in Hyderabad on prices which are relative.

 

http://www.nhb.org.in/Residex/About_Residex.php

 

My Take on this topic :

 

1.Yes stocks generate good returns, provided one is in right stock. To invest in stocks , one should understand the business the company is into , the direction the industry is going to take, the growth prospects and balance sheet  of the company  .

Picking stocks based on a friends recommendation or news channel picks may not pay off . Hence, one should not venture into direct stocks till it is research based. Its better to go for Mutual funds that way which diversify the business risk . If its a large cap stock , it diversifies business risk and industry risk . Which means , the performance of the fund is not dependent on performance or non performance of one stock or one industry segment. The large caps also bounces back faster than other mid or small cap funds. 

Most important thing to remember is that by nature, equity mutual funds perform better when the investment horizon is greater than 5 years. However , people expect them to do better in short term also and leads to mismatch of expectations and downgrading of opinion ,which is wrong according to me. 

 

So , if the discipline is maintained of not withdrawing in panic , time to time monitoring and rebalancing (i.e., profit booking time to time ) , then definitely one can expect a decent return.

 

2. With real estate , my take is that by default there is an assumption real estate does well . But there are various angles to it.

 

a) real estate is an unregulated market , so  what is good for one need not be good for another . for e.g ., if A premium builder is selling his apartment at an sft. price, an independent developer cannot sell an apartment at same price even though he maintains same quality of construction.Its very relative.

 

b) Yes , real estate gives great returns . Practically this is true for plots but not for flats . There is one of my client  who purchased a plot in an area For Rs 800 per sft in 2000 , and today its expecting 20000 Rs per sft .This translates to an annualised return of Rs 28% annually. Imagine , if he had purchased a flat then at 15 lakhs, it can maximum quote 50 lakhs by now . which is an annualised return of 9.7% .People also have option of going for a new flat at 50 lakhs ,rather than purchasing a 13 year old flat . So its incomparable . 

Also , he wouldn’t have a similar gain if he would have invested in a land in undeveloped quarters of the city . So its important to be close to development.

 

c) rentals are added income . But the best yield a rental can give is about 4.5 % in prime areas . If you refer the property index link above and refer page 7 of  it , it will clearly show you the maximum capital gain one can expect and maximum rental yield one can expect  in Hyderabad. Both are much lower compared to equity if compared for a long term . With current high cost of purchase and low rentals , even if a 12000 rent is expected from a 50 lakh flat , its equal to 2.88% yield . Added hassles of turnover of tenants ,maintenance, repairs and upkeep of the flat ,etc.

 

d) Both are different asset classes and shouldn’t be compared . But strategies can be defined. 

In real estate , a proper study can be done on developments coming up in coming 10 years . Land , approved by municipal authorities , like HMDA (municipal approved) plots with LP numbers can be purchased ,which are close to these areas of future developments . That way, lands can be purchased  cheap, HMDA approval will ensure these are free of legal hassles , gated community will ensure security , mid size layout will ensure future saleability . There are people who purchase plots in large ventures like 1000 plots etc , we did that mistake once. But the lesson is that it will be difficult to sell since there is too much supply and less demand . Future developments will ensure capital appreciation . Then Real estate is one of the best options and incomparable .

A mixed bag of all asset classes will anyday payoff than over exposure in one .

 

But if this strategy is not understood correctly and if one assumes any real estate is the same ,and invests into flats , its a myth . 

 

The above is solely my opinion . It may be different from your point of view .

 

Best Regards

Deepa

deepanittala@gmail.com 

“Deepa’s Money tips” : How much Health Insurance and why ??

 

Hi ,

In the previous article , I had mentioned about sharing my responses on some queries which I received last week. I am sharing on this platform as they might be useful to all .

I had received a query on whether to take a medical/health insurance over and above company cover. Yes, It is important to take a health insurance over and above company insurance .

According to me , one should have a  health insurance and critical illness cover in their kitty.The size of the cover will primarily depend on the individual , their medical history , the family’s medical history and lifestyle . There are some generic ways of calculating required cover , but depending on your medical history , you may look at taking additional cover accordingly .

 Also important is cover for parents . Its a general observation that medical insurance for senior citizen parents comes with a very high premium and many conditions. When I take up financial planning for my clients, I ask them to set aside a goal exclusively for creation of medical contingency fund , which can be withdrawable at any point of time when required, does not depend on any approval from insurance company , can be used for any of the parents and not specific to one. Insurance can be sought if the surplus we have falls short of other critical goals . In such case , though at a higher premium , medical insurance is at our rescue. 

There are different ways of deciding the cover required for Health Insurance .

1. Premium affordability method : Where you check for 2% of your annual income as the premium affordable . In that premium range you should check what sum assured you can get . So if the income is 20 lakhs ,

Step 1: 2% of 20 lakhs is Rs 40000. 

Step 2: Check for how much cover comes in Rs 40000  . 

Step 3 : For the current scenario , deduct the cover provided by company from Sum assured arrived in step 2 .

Step 4 : Purchase Insurance for bridging this gap. When you leave the current company and new company gives a lower cover , can take a top up then.

2. Second method is sum assured as a % of income . 50% of income should be good enough to go .

3.Size of the cover can be : 50% on income  + 100% of last 5 years expenses on health / hospitalisation . 

Critical illness is again an important requirement these days . I was checking on a few policies available , and below is a useful link on that . I also verified the ICICI crisis cover as mentioned in below news article , which covers 35 critical illnesses .

http://businesstoday.intoday.in/story/how-to-choose-the-best-critical-illness-insurance-plan/1/188491.html

Some more useful links on difference between health plan and mediclaim are mentioned below. Please feel free to refer.

http://www.livemint.com/Leisure/H4BBeZbIjvLsBjlrGyhTGM/Health-plan-or-mediclaim.html

Difference Between Mediclaim and Health Insurance

Please feel free to write back , if you have some thoughts to share  and if you need additional information. I shall research and get back . 

Best Regards

Deepa

deepanittala@gmail.com

 

 

image source : medindia.net

“Deepa’s money tips “: Ask ,Ask and Ask for More !!

 

Hi ,

Firstly ,would like to wish my readers a very Happy and prosperous 2014 .

Many were asking me the reason for an intermittent halt on my writing . To share on a positive note, it’s the zeal of starting the year on an action packed note by many of you which kept me busy . I am happy that many have moved from “the resolutions on paper to resolution in action mode . “

There came  queries from some  of you which needed to be resolved   . I wanted to resolve those queries so I could share them with you all . The information collected by me on couple of topics will shortly follow this article , and I am sure every one of us will benefit with that kind of information.

In sciences ,no amount of theory can give us clear understanding of a topic than a practical. In every article of mine in 2013, I had directly and indirectly requested you all to ask any query related to any financial topic . Today , if I have gained all the respect for my knowledge , its not my achievement , rather your support which has tagged me as a resourceful individual. If there is no give and take of information , imagine how the world would have progressed !!

I am also glad that I see more and more individuals setting aside their inhibitions and coming forward to ask me for  personal, one to one discussions . The feedback I have received from every such individual is that the reason for their comfort are my promises which I keep repeating time to time . Taking this opportunity to repeat them again :

1. I will not ask for any income ,assets and net worth details during the discussion.
2. A discussion will be  treated as exchange of ideas, and therefore comes with no obligation to bind us into a client planner relationship . A yes or no are treated equally as long as we have had a meaningful, constructive discussion.

Mails, blogs, writings are one way communication methodologies . They may give generic awareness on specific topics but does not provide specific solutions to individuals . Every individual has unique needs and requirements which need to be addressed individually and no amount of book reading ,net surfing  can help one arrive at a personalised solution

So thank you for asking and asking for more . Every query received has helped us learn something new. Every discussion I have had last year helped us grow together . You will see more and more coming your way this year from me . Do not hesitate in sharing feedback . I am sure a constructive feedback can do wonders  and I am open to it.

 Thanks again

Best regards

Deepa

deepanittala@gmail.com

 

 

Deepa’s Money Tips : “ A Snapshot of year 2013 and a learning for 2014 “

 

Hi ,

The year 2013 comes to a close ,and we look upon a great beginning of the year 2014 . With the start of every year , every one of us have either a small list or a long list of resolutions . 

I also had some resolutions in 2013.Unlike all the previous years where resolutions were made only to be broken , this year came with a difference and determination. I had resolved that:

 1) I will spread awareness about importance of savings and planning finances across 10,000 people this year.

2) That my work will not impact the time I spend with my family .

3) That I will spare some quality time on my hobbies which make me happy .

And  worked towards keeping these promises which I made to myself .

Today I can proudly look back and pat myself for fulfilling all the above resolutions I had made. So the only change I made was to list down the  action steps which can ensure fulfilment , that’s what is planning all about.

• Put things on paper ,
• understand where we are today ,
• devise strategies  ,
• implement the strategy and periodically monitor it ,
• make changes where necessary to bring the plan back to track.

I knew I cannot talk to 10,000 people and there came an idea about writing ,where I have practically  achieved so many views on my blogs, mails and network . I chose to work on flexible timelines and with an entity which believes in balanced work life .I joined a musical group and consciously dedicated time to my hobby . That was about me .

About 2013,this year brought with it very interesting revelations .I held one to one discussions with individuals on taking their life financial plan forward.

 When I asked them , when can one call himself / herself “Wealthy”.

Is it when we cross a threshold income level , or when we buy a premium property or when we have luxurious possessions , or is it when we can spend lavishly?

Interestingly , I got different responses , and I am sure anybody can relate to these . Some of the responses were :

1. When I am debt free and have no burden of liabilities on me.

2. The day  I have income generating assets and I do not have to depend on a paycheck .

3. The day apart from expenses , I can also save prudently.

 They then disclosed to me that in the process of creating wealth , they tried out various options .After trying out all options , they had come to me to achieve the above …

1. They tried investing in the best products they are aware of , and were able to achieve success in saving to some extent . But are not confident that the direction they have taken is right or wrong .
2. They tried purchasing insurance , but realized that its an expensive method of accumulating  post death benefits but when we are living , we don’t see it fulfilling our needs to a large extent . We are talking about longevity and taking care of responsibilities ,which is not strategized for at all .
3. They tried the financial planning templates available online , but never got a chance to take it to execution as there was no personal guidance .

So what is their takeaway  from the financial planning exercise ,which the above couldn’t provide :

A very familiar response I get from most of my clients:

• The Financial Planning exercise gave them a clarity on action steps to be taken.
• A pure mathematical analysis helped them to verify their situation today , corrections to be done and the steps to be taken in future to achieve what they aspired for .
• Most importantly , here was a situation where they had a planner with them who could assist them in analysing the past and implementation and execution of the plan for the future.
• They now have more clarity in where they are heading .

So here comes a day , when I feel gratified for being the reason for many people’s confidence and at the same time ,lisiting down new benchmarks to achieve, creating new resolutions for 2014 .

Are you?

Here’s wishing the best !

Have a great , thoughtful and full of action year 2014 ahead !!!

Best regards

Deepa

deepanittala@gmail.com

9849620066

 

 

 

 

image source : wallpaperswala.com

Deepa’s Money tips :” How to decide whether to invest in Inflation Indexed bonds ?”

Deepa’s Money tips :” How to decide whether to invest in Inflation Indexed bonds ?”

I have received many queries  about the inflation indexed bonds being issued under the scheme IINSS -C ( Inflation Indexed National Savings Scheme) exclusively for retail investors . I have done a small analysis on this , with key points highlighted below . It may be useful and will help in taking a prudent decision .

Please refer the link mentioned here for details

regards

deepa

Deepa’s Money tips : Why Conversations Matter ??

 

Hi,

There are different ways to communicate and I use all media to interact with individuals for their financial planning queries. While the best form you all know that I indulge is through my blog ,mails  . The other forms are through telephonic conversations , corporate presentations, gatherings at communities  and in person conversations .

When I write, it is a one way communication and information flows from me alone. Some do feel free to write back to me and ask their doubts , but there are many who keep it to themselves . One reason is hesitation to write and the other obviously is lack of time . The squeezing work schedules leave one with very little scope.

When in group, nobody likes to discuss personal finance in public. It’s a well known and well accepted fact. When they meet me in person , they reveal their doubts . I have always believed that a two way communication is always called an “ effective communication “.

Personal financial planning , how to plan for fulfillment of responsibilities , current financial situation : is it good ,or fair, what are the areas of correction .. these are topics which cannot be explained on mail neither can one relate to them if it is written in  generic message .There may be two individuals in same age bracket , same income bracket , similar family structure , but can we say that they will have similar dreams, similar aspirations ,similar emotions related to family ? Quantitative data may match , but qualitative data…Never !!

In my experience, with all my clients or the people I have met for such conversations , I have not seen two individuals with same financial planning requirement. Hence , it can be derived that a Financial Plan created for one individual cannot be replicated or copy pasted for another . What works for one ,doesn’t work for another. Therefore, I chose to encourage in person interactions

When I meet individuals in person , I keep the forum extremely free .The discussions come with a commitment from my side ,always.

• They need not disclose any of their income or net worth details . The discussion can be taken forward only basis household expenses.
• I tell them that at the end of the discussion ,they need not sign up for my services nor do I expect them to sign up. This brings in lot of comfort during discussion.
• Since it’s a two way communication , all the doubts are clarified then and there , and there are many takeaway’s too for  either party.

 

The number of financial planners /unbiased advisors are very less in India compared to other developed countries but they are definitely there  .

Time is money and awareness is the key. When in doubt , find somebody to speak . There is nothing to loose .When we spare 12 hours minimum everyday for our hard earned money , the money also deserves some dedicated attention for optimum utilization.

“Kaal kare so aaj kar, aaj kare so ab “ .. Kabeera also knew probably there is a cost to procrastination !!

Have a great weekend !!

Thanks

Best Regards

Deepa

 

Image source : wheelerblogs.com

Deepa’s Money Tips : Money has great potential !!

 Hi ,

Yesterday I received a special request from one of my readers. He also wrote to me if I could share the same with all at the earliest . In most of my mails, I had been mentioning that we should understand that money has great potential and we should use this potential to the best . My reader made a request that in theory this sounds great , but how to put it in practice is not clear . He asked me to illustrate this with example .

So here I go .

There are different ways we deploy our surplus. One such common way that most of us resort to is Insurance : Endowment or ULIP plans .

For e.g.,  This is the case of a 38 yr old who has Rs 2 lakhs with him annually  and multiple choices of saving it .Lets do a comparison.

What if using an Insurance Endowment?        

 

                                                                                                                VS

Alternatively , the same 2 lakhs can be divided :  separately take a life cover and create a saving fund in below manner.

A part of it used to purchase a term Insurance plan with small premium and high cover and remaining amount is saved in a tax effective manner

 

As a planner , it gets important for us to list down various options with a given scenario and help implementation of that option which is most beneficial to the individual. The option obviously has to be :

1. Most cost effective.
2. Most tax effective
3. Within acceptable risk of the client .

I thank the reader for the suggestion and hope this article helps.

Thanks

Best  regards

Deepa

 

 

“Deepa’s Money tips : The reason Behind “

 

 

Today , I would like to share the secret behind me writing these articles and sharing with all. There was a time when people would misinterpret my role . A few months back when anybody would call me for a discussion  ,  I would ask “ What is top of your mind ,when you called me ?”

people had some specific questions in mind :

“What is the best return you can get me ? “

“ What products do you sell?’

“Ohh ,you don’t sell products , you only advice “?

( even after last 10 years history has evidences how people burnt fingers by investing without  proper advice and by purchasing products without guidance)

It used to take a while to explain and put my point across that personal finance is not all about investments .  Not anybody’s mistake , since the environment itself is like that these days .

I therefore decided to write and  dissipate the knowledge I have as daily experiences . This relentless writing for past few months , brought in new experiences for me . Today I see people giving a serious thought to every decision they take .  Even  when they call me for a discussion , specially in the last 2 months , I see a sea change in the thought process . My question even today is the same :

“ What is top of your mind ,when you called me ?”

But the responses have changed .Would like to share a few .

1.“I am earning , I am spending and I am saving  but I don’t know if the direction I have taken is right. Can you help me analyze it ?”

2. “Is my saving pattern sufficient to fulfill all my requirements and aspirations in future. What additional income should I create to fulfill all of them? “

3.”I have a surplus but I am not sure if I am deploying this in the right proportion across different saving instruments . Can you guide ?”

4. “Are my choices tax effective , what is the tax implication on each ?”

“I have understood Deepa , that these are questions can’t be answered by my insurance or investment advisor . It’s a financial planner who can take a holistic view of my financial life and guide me the way forward .So I have come to you . What is the best advice you can give me ?”

I am glad with this change in perspective that I have seen , and I thank all my readers for taking my messages in the right spirit.I have never written much in my life except essays in school and official correspondence at work, but its all your encouragement and queries ,that showed me the way forward to write more and more .

A big thankyou , and my best wishes for a great financial future . Lets take these right decisions , let’s think before we act , let’s act immediately and lay the foundation , to start with a great year 2014 ahead.

Good luck and have a great day !!

Thanks

Best regards

Deepa Nittala

 

 

 

 

 

 

Sharing a Testimonial

Hi ,

There are times when I am having discussions with individuals for planning their finances . One would wonder why I keep repeating trillion times “Take products which match your need ” . Understanding our needs and matching them with appropriate ,cost effective and tax effective products can make a world of difference, and give much more confidence of moving in the right direction ,than directly picking up a product can .

In this context ,would like to share a testimonial by one of my clients . Refer my linkedin profile as below for the original extract .This is the same expression of thought which one can get when they plan their financials and follow the plan .This inturn is the power of unbiased advisory .

http://www.linkedin.com/pub/deepa-nittala/17/6ba/499

On 2:15PM, 10/12/2013, Bhaskar Mukherjee wrote:
——————–

Dear Deepa,
I’ve written this recommendation of your work to share with other LinkedIn users.

Details of the Recommendation: “I have been trying to get hold of a financial planner for a while and after talking to many many people, I gathered that there is no one out there who is not thinking about his or her gain even as they advise me. That was until I came across Deepa.

Deepa has been entrusted the role of keeping my finances in check and planning for the future based on my family situation. She has won over our confidence with her knowledge, integrity and the willingness to go the extra mile. These are traits that distinguishes a person from the rest of the pack that a degree never reflects.
Just knowing that I can rely on Deepa for her advise without ever having to think twice is testimony to what she has accomplished with us as a family.

I look forward to many years of working together with Deepa and for those that need a financial planner I will strongly recommend her.”

Thanks
Best regards
Deepa