The purpose of Insurance

Insurance is a tool to mitigate financial risk. However, risk should be uncertain, unplanned, and unexpected. Insurance restores & puts you back to your existing financial status, neither better off nor worst off. That means no one can make a profit from getting insurance claims. 

However, the penetration of insurance in India is just 10% and still considered a highly miss-sold product. 95% of the people buy insurance primarily not to protect their risk or fulfill their needs but for investment purpose to generate returns and/or to save taxes. As they fail to quantify their need specifically, they have to rely on the insurance agent's knowledge and get tempted by the future benefit shown to them in a spreadsheet. Buyers fail to calculate the time value of money and thereby compounding benefit, the effect of inflation, and potential losses if had taken pure investment plants separately. 

It is always recommended to have your investments and insurance separately. There are n numbers of products/schemes/policies that fall into these segments. The motto should be to get 'sampoorna suraksha' (entire security) via insurance by choosing the following categories. 

• Term Plan (TP)
• Health Policy - Medical (HP)
• Critical illness (CI)
• Personal Accidental Plan (PA)

Insurance also serves another purpose, to provide a lifetime annuity post-retirement. No other product is available in India which provides a guaranteed pension for life. 

For investments portfolio, the recommended asset allocation categories are :

• FD
• Small Savings Schemes
• Mutual Funds
• Equity Share
• Bonds & Debentures
• Gold
• Real Estate

The problem with investment tools is that people don't keep a long-term vision of 2 - 3 decades and start timing the market, exit from MF in panic, stop their SIP, etc. and fail to create the required corpus. Insurance has an advantage here as a policy is taken for a pretty long term, you are bound to pay the premium every year.  

If you are not a disciplined investor and can't maintain consistency in investments, better to go via insurance root. Although return would be low, compounding will play out gradually if appropriate time is given.

 

Financial blunders responsible to destroy our Life

We all do a lot of financial mistakes during our lifetime. However some of them fall into the blunder category which not only ruins our finances but also puts us back many years behind in lie journey. One should avoid all these blunders at any cost, some of them are listed below:

• Don't keep track of your cash flow from where money is coming & where it is going. 
• Not maintaining an emergency fund for contingency needs can put you in embracing situation to borrow from friends & relatives
• Taking health & life for granted. Understand there is no guarantee of health & life both and health deteriorates faster than your anticipation. Need to protect it with all kinds of adequate health, life, critical & personal insurance to provide comprehensive coverage. One accident can shatter all your financial goals. The cost of treatment is huge nowadays.
• Not setting financial goals early in life. Financial planning is a must for everyone due to uncertainty in life is extremely high.
• Spending most of your savings on showoff like parties, marriage expenses, costly holiday trip, fancy stuff, luxury car & maintaining a high-class lifestyle
• Fail to understand the difference between asset & liability. Keep on accumulating liabilities considering as assets.
• Procrastinating your investment & insurance decision and/or hesitate to take corrective action. Time is precious having value & power. Once it is lost can not be restored again.
• Taking decision-based on emotions - Frear & Greed, should not rule your investment decision. Blindly invest their hard earn money in the hope to double in a short span of time and lose everything eventually.

Money is Power

Mediocre people still hesitate to accept the fact money contributes a lot to our lives. On one hand, people want to get rich and on the other hand, they curse either the money or wealthy people around them. Both can not go hand in hand. And because of their thought process & attitude towards money, they are deprived of being wealthy. 

Money provides a lifestyle, financial freedom, luxury, comfort, lavish life, big bungalow, foreign trips, power, respect, relationship, love, health... almost every materialistic thing.  Although money is not a substitute for natural resources available to us by nature at free of cost. 

How & where we born was never in our hands, but how we will go would be in our hands. Money is not everything in life and there could be a list of things that money can not buy. However, money can buy all that which makes our life comfortable. We, humans beings are the only species on the planet earth who need money even to deliver babies. Then how can we rule out the importance & necessity of money in our life? 

Since childhood, it is been hardcoded in our brain that money is the problem of everything. Whereas the actual problem is not able to manage the money in a proper way. Money never brings the problem but lack of money does.

There are lot many quotes against the money. Make sure you earned enough before you speak against the money. To become rich, one has to maintain a very good relationship with money. It can not be like that you curse the money and at the same time you want to be wealthy.

Paisa Khuda toh nahi par Khuda ki kasam Khuda se Kam bhi nahi.

    

Beware of Tips Base Advice

Equity market participation in India is still below 5% w.r.t. the total population and this includes both direct equity and indirect equity route via mutual fund & insurance etc. There are mainly three kinds of participants in the equity market:

• Investors (short term & long term)
• Traders
• Speculators

The majority of people who take equity exposure either have a short-term horizon (< 1 year) or intraday traders or speculate in the market to get instant gains. Very few people invest in the equity market having a decade-long horizon. In fact, for any shares allotted via IPO, 90% of retail subscribers sell on day one and happy with listing gains.

Because of this mindset, the share market is still considered a place for gambling for many. People who want to participate in equity have only one thing in mind to earn maximum profit as earlier as possible. And because of this quick money tendency, many advisory firms started giving hot tips to their clients. People avail of this paid service subscription and start getting daily tips. However, the majority of them make losses eventually. They forget the basic facts that the stock market is not a place for speculation. It has the potential to create wealth in the long term on a consistent basis. Moreover, some of them even go ahead and start trading in derivative (F&O) segments on a tip basis. 

Always remember the basic rule of equity investments:

• Retail participants should either go with the mutual fund route or acquire knowledge of fundamental & technical analysis first.
• Take a long-term (>5 years) view of the equity market.
• Create a diversified portfolio.
• No one can make you rich by simply providing hot tips. If I know that particular stock is going to rise, then whether I take my own position to make me rich or start distributing tips to the entire village, think?
• The dealer (terminal operator) can not make you wealthy if his income is lesser than yours.
• It is also observed such hot tops belong to penny stocks or operator driver stocks.

Although SEBI is taking strict measures to curtail this kind of activities and also issue various guidelines that who can advise their client after taking payment from them. But SEBI can not change the human tendency or psychology of the investors who generally fall into greed. 

Financial education & awareness is the only way. We have to be more alert & cautious and understand that this market is not casino gambling. Never ever fall into the trap of so-called hot tips.

Success is a process not a mere chance!

Many people think that success is an overnight process and can be achieved if their luck starts supporting them. To get success in life (or in finance), certain steps are required to be followed over the years or decades of practice.

Step I: One needs to have a visionary outlook. Think about what exactly you want to achieve. Don't worry about resources or constraints at all. Just start dreaming day & night. Never ever think whether it is realistic or achievable or not. Find out the reason or purpose why you want to achieve that goal. This step will set your WHY.

Step II: Next step is to set a roadmap via goals setting. Dream without a goal is just desire. We need to convert our dreams into reality. Make your goal specific, measurable & time bond. You need to work on these three parameters without thinking about how that could be possible. This step will set your WHAT.

Step III: Now time is to take action or better to say massive & focused action. Don't procrastinate anything and do not think about the end result. A small baby step on daily basis is more than enough. Consistency is the key and records your activity/action. Make a journal and track your activity. This step will set your HOW. 

Getting success is not a linear achievement. you need to undergo a lot of pains, uncertainties, failures, etc. Those who have the capability to bounce back win eventually.

Yaha Party Ho Rahi Hai...

Ye Hum Hai, Ye Hamare Dost Hai Aur Yaha Party Ho Rahi Hai! (This is me, that is my friends and we are celebrating a party here). This trend & song is popular on social media nowadays.

This is one more new culture we have imported in India from abroad to celebrate the weekend after 5 days of working. Enjoyment & celebration is very much necessary and should be happening on regular basis. However, creating a hype and showoff party will cost you a lot.

Beware that spending unnecessary money on weekends just for a few hours celebration doesn't make sense unless you belong to the HNI categories. There could be enjoyment for some hours but will not get long-lasting happiness for sure. Even then, if you need this kind of celebration, go ahead but do prepare a budget for it and allocate the fixed amount.      

Pubs are jam-packed on weekends where people spend like anything. By the end of the month, they are left with no money. And if you are someone who finds difficulty with managing your finance especially during month-end, it's high time to change your habits.

Happiness & enjoyment can also be received with a simple tea party as well!

A Victim of LifeStyle Inflation

Getting Lifestyle is a new fashion trend for the youth belonging to Gen Y (Millennials) or Gen Z generation. For them having everything that provides comfort and luxury even if it is costly, branded & meant for high net worth (HNI) categories. Whether it is a big premium car or bungalow or high-end mobile or big TV or big flat or staying in a 5-star facility. 

Not everyone is a celebratory nor business tycoon and spending too much on this stuff just to show off put them into a debt trap, anxiety, and finally into depression, if they fall into a middle-class category. Maintaining a lifestyle is not an easy task unless you have a huge cash flow to support expenditures. Everyone should know their limit at least for expenses and try to maintain it as far as possible. 

One should focus on increasing your income/revenue first rather than expenses straight away. Funda should always be... first you earn, invest, and then spend. And should not be like overspending through a credit card or taking a huge loan and keeps on paying EMI throughout a lifetime.

If you have limited resources for income and belong to a middle-class family, better focus to create assets rather than creating liabilities. And this is the foremost reason why people are not able to upgrade their living status just because they keep on buying liability rather than assets. Always know what is your needs and wants. Finally, create an asset first, and from that asset, income is required to be generated to cope with your expenses and lifestyle.

Lifestyle inflation is over & above general inflation. Normally the general inflation we get around 8% p.a. appx. and add a further 4% towards your lifestyle inflation, again this depends on how deep you are into that kind of luxury & comfort. 

Let me quote some live examples... if you own a two-wheeler costing Rs. 75,000 and that provides an average of 50 km/liter. Now you upgraded to a sedan car worth 10 lacs that provides an average of 15 km/liter. Now depending upon your monthly usage, one can calculate how much it would put an extra burden on your daily expenses. Moving from 2 bhk to 3 bhk just because you have got a good salary hike or upgrading your existing hatchback car to a sedan car as you have got handsome incentives & bonuses are some of the examples of lifestyle inflation that are bound to destroy your financial lives.

It also doesn't mean that one should never upgrade in their life or maintain lifestyle. The motto should be to acquire assets first and generate returns from them before you plan to opt for another liability with you!