This article appeared in Moneycontrol in 2007…(i have not changed any of the numbers!!)
Every call on a financial planning client is a huge learning experience.
No two situations are alike.
Smart husbands, irresponsible wives. Super wives, bum husbands. Husband and wife brilliant communicators, cannot talk to each other. Been there, done it all. So I thought I will share some experiences.
Lets start with the anguished cry of a 38 year old, who called me from Canada saying, My maternal uncle needs help. Will you please visit him in Colaba? Off I went. He was a 63-year-old bachelor, who had lived life in full and was now at the fag end of his life. Literally at 30 cigarettes a day, he really was at the fag end. He needed medical, emotional and financial help. Cut the emotional and medical part,
I really could not play too much of a role there.
Let’s come to his financials! He had a net-worth of Rs. 25 lakhs and a cash balance of Rs 15,000. The networth was a nice flat in Colaba. Apart from that, no shares, no fixed deposits, no national savings certificate, no insurance. Basically, no assets other than three millionaires as nephews staying abroad.
No cash to last him for even one month. Let alone money for food, medicines, taxi to his sister�s house. He had no cash.
His sister was in another part of Mumbai, and constantly kept in touch. He was not used to such a situation. He was a big-hearted man and had helped people all his life. He had attended 500 odd funerals, helping in burials and cremations. Had liberally given pocket money to his nephews, had helped his sister buy a house. Paid for her daughter�s wedding.
It took him three months to tell me about his financial condition. But I was touched. He was too proud to ask. I blasted his nephew the first time I saw him. Not a great way to start a relationship, surely not as a client and a planner. I suggested the nephews who were rich (ok a relative term but all of them had one fixed deposit of $1 million in a foreign bank operating in Mumbai) �buy� the flat and take possession of the same at a later date � the doctors had anyway given him only about 36 months to live. I could not think of anything other than a reverse mortgage.
However, the story had a happy ending. The nephew felt rotten. He later told me he was too ashamed to see my face for a day, so he called me two days after he reached Mumbai. The nephew said his uncle would feel insecure about an arrangement of reverse mortgage. So he asked for an alternative. I suggested a Rs 10 lakhs fixed deposit with a nationalized bank (where his uncle had a savings bank account) as an either or survivor and the interest being credited to his uncle�s account.
Done quietly. No fan fare. Only three people knew about it � the bank manager was extremely helpful � he offered to use his personal cash in an emergency after banking hours. Soon after this arrangement he died. But died a peaceful death, passed away in his sleep. Surely satisfied that his nephew had paid attention to him.
The nephew realized money is not about how much you have. It is about how useful it is for people around you. How you make it go around. It is about how good you feel using it. It is about how helpful it is for people around you who are too proud to ask. It is for people whom you love, but are now on hard times. It is about helping without hurting. It is realizing how important money is for people who do not have it. And I thought financial planning was about finance! It was a lesson in growing up. So what was this reverse mortgage that I suggested to the nephew?
A regular mortgage (what we call a housing loan) is a forward mortgage, and hence it depends on the borrower�s ability to earn and therefore repay the loan. A reverse mortgage on the other hand is a loan that looks only at the value of the asset, not at your current income at all. For most senior citizens and those nearing retirement today, the biggest fear is the need for money to live comfortably after retirement. In their era, the only investment they made was in their Provident Fund and of course, they bought their own home, which is an extremely illiquid asset that doesn�t generate cash if you�re living in it. Reverse mortgage can make the same home pay for your living expenses and that too, without having to move out of it.
Read more at: http://www.moneycontrol.com/news/management/no-moneyyour-home-could-bail-you-out_211117.html?utm_source=ref_article
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