1. People borrow to buy assets : buying a car, a motorcycle, a house…..etc. requires sums of money that a person may not have, so borrowing becomes a must.

2. To pay for losses made: In equity markets, commodity markets, real estate, or wherever….etc. people borrow to trade, and when they make losses they need to borrow money to repay the losses.

3. To pay off a pressing loan – if the lender is a mafia don you might as well borrow from the bank and replace the goon…

4. To pay for medical expenses..- an emergency normally happens in case of medical needs. This could be a big expense and totally unexpected..

5. Living beyond one’s means: for whatever reasons people live beyond their means! so many people earning well (and knowing that they are lucky to be earning that amount) buy latest gadgets, cars, take vacations, family believes that they can travel only by taxi and air, ….when they borrow it is for living beyond their means.

Can this be avoided?

Of course 2, 3, 4 and 5 HAVE TO BE AVOIDED and can be avoided….how?

2: if you do not know how to trade, do not trade. Understand that it is not easy, but people do fall for such trading calls, till they lose their money. Some times all the money.

3: if you have a loan – see how did the loan arise….AND then solve THAT problem…whatever it is.

4. take medical insurance, adequately, you

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Infosys: My investing guru asked me to buy it when this share was available at Rs. 100, I did not. Luckily for me met him again when the price was Rs. 300. I bought 300 shares. Then in a very short period it went to Rs. 700. I sold. Then did not buy Infosys again. Oh la la la!

Learning: Held on to Hero Honda from Rs. 40 till date, but sold a few shares in between. Holding period: 24 years +

Bharti Airtel: The same person asked me to buy this share at Rs. 80. I told him…Oh God I missed it at Rs. 30. He said you WILL tell me the same thing at Rs. 400. So I bought at Rs. 80 and sold at Rs. 1200. Why am I cribbing? Bought only 200 shares.

Mistake: Betting too little.

Learning: Really nothing. For me betting 10% of my net worth looks IMPOSSIBLE. However if a share grows to that level, I am comfortable holding on to it. Sounds stupid? Behavioural finance at work!!

Ask Parag Parikh what this means…ppfas will have the answers…

Gujarat Ambuja Cement: Bought at Rs. 18 held for 2-3 years sold at Rs. 40 or Rs. 50 (not sure)…maybe even Rs. 70. Mistake: Selling too early.

Financial Technologies: Same adviser asked me to buy it at Rs. 50. Ignored the advise. He sold 3000 shares at Rs. 2500. Nice lesson.

Satyam: Was asked to buy it at Rs. 30. Did not buy it. Reason: Did not like the broker who recommended it. He has never been trustworthy. Frankly no regrets.

DLF: At various prices many people asked me to buy it (even at Rs. 200 when it hit its low). Did not understand the balance sheet. Still do not understand land banks…no regrets though.

Missed all the KP shares – because they were in the portfolio of a mutual fund – most people who have been around long enough know which fund! No regrets, have my pants intact!

So many mistakes made – some cheap, some expensive, some not so stupid in retrospect!!

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1. Should I delay my saving/ investing for retirement BECAUSE I am saving for my children’s education ?

2. Should I dip into my Retirement kitty to pay for my children’s education ?

Sadly in the Indian context education is just a broad word I am using. It includes marriage too. I was recently stunned to see a man earning about 9 lakhs gross salary (age 55) wanting to spend about Rs. 23 lakhs on his daughter’s wedding. Apart from a house that he owns, this amount wipes out his net worth – well almost, his PF and PPF are untouched, but they add up to a princely sum of Rs. 20L, that is all.

One major thing for parents to realize should be that retirement is a necessity, but parent funded higher education is a luxury. Not to say that parents should not or cannot fund children’s education, but can the parent afford it.

This post is NOT MEANT FOR THE rich. If you have Rs. 5 crores as your retirement corpus and you need to spend US $ 75000 for a one year Ivy League school fees, by all means do it. However if you are RETIRED, have about Rs. 1 crore in your retirement kitty (including uncertain equity!!) and your son needs Rs. 19 lakhs for his education, you will have to baulk.

Your children have a chance to get a scholarship, work for a couple of years to pay for their education, borrow, get their employer to pay – but you have NO such funding option. Retirement, sadly, has to be self funded. If it is NOT self funded, it has to be pity funded by somebody else – son, sibling, daughter, or society.

Personally I know people who agonize over spending for their children’s education or marriage. I also know those who have a stupid ‘My parents did not do it for me, so I should do it for my kids’ kinda logic.

I also know kids who think ‘hey my Pop has money let him pay’. I also know kids who have borrowed – asking the parents to stay away.

The next question is:

If I do fund my kid’s education, should I make a loan agreement? (okay frankly only ONE person has asked me this)

My answer is a resounding yes. If you do not have the heart to make an agreement, at least have a repayment schedule. This brings in some element of discipline in the kid to repay the loan. When such formal agreements are not in place (and the boomerang kid is staying with you), and is choosy about which job he/ she will take, YOU are going to fret and fume. Take a chill pill dad, I am finding myself, I will take up a job soon.

By the way Dad will you sponsor my honeymoon too? Hmmmm

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Be aware that short-term goals leave you with lesser flexibility in planning. If your short-term goals require extraordinary returns on your investments, it’s time to do a little prioritizing. Drop some of the goals; push some for later; make tradeoffs – pick a Maruti 800 over a Santro if it is critical to buy a car.

Next, list out your long-term goals. These can stretch over a period of 10-30 years.
These goals could include: available cash for emergencies, education for children, care for family members, retirement, a nest egg to permit a career change, buying or selling a business, estate planning, financial independence or personal objectives such as a special vacation or second home.

Remember to rank these goals in order of priority too. The idea is to know your goals with a mathematical precision so you can play around with options, and re-allocate investments and expenses without contemplating over it every single time. The crisper your goals, the more easily you can pull off the whole game with whatever you have to begin with.

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Did you know that airlines will soon be owned by foreign capitalists?

that the retail will soon be opened up for the Marks and Spencer?  and the like?

that the black and yellow taxi will be soon eliminated for large taxi companies – which will eventually be owned by the gora?

Indian textiles are today the raw material providers for the gora brands?

Amazing how we will be happy that the intermediary’s exit will be celebrated – the kirana shop will die. Now we will say ‘see it is far cheaper’. Correct. But when you realize that he is your neighbor, the question to ask is what will he do? Well he will (like you) work for a big gora brand.

Slowly we will see the death of the small bank, small brokerage houses, small taxis, …………….and then we will ask ‘why is the aum in the mutual fund industry slipping?’. Hmm hey these were the potential investors and they have been wiped out.

Amazing we will sell out of good companies, so your Hdfc will have 90% held by goras….

What is to be done?

Well, well, nothing. Really nothing.

Accept it. We are happy to let some one else rule us. We are not capable of doing anything on our own….have fun…

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I have spent half a century on the planet so have a lot of friends, classmates, cousins, friends who have spent similar amounts of time on planet earth.

I have a lot of friends who are runners, and cyclists too.

A few days ago one young friend was cribbing about the price of petrol. I had no clue how to react, so ….

Well, well, I do own a car, but it is largely meant for my wife. She does some small time shopping (eeks! 5km rides max), and occasionally for some event where my parents want to go with us. I must hasten to add that in 4-5 years this car has done about 12000 km. Really a waste physically, and even emotionally. It is an Indica and owning this does nothing to ones ego or status – immaterial of what my wife thinks.

Given this background I met a young girl cribbing about the price of petrol – and I made some polite noises and said ‘you know I remember my dad saying petrol costs 0.60 Re a litre…and now it is Rs. 100…blah blah blah

I also knew that she travels to her office – about 1.8km from the house in a mid sized car. She actually need not have cribbed about petrol, but this car is surely a guzzler. I said ‘why do you not bike to work’….and she said the expected things:

a. Mumbai weather is too hot

b. What will I do during the Monsoon?

c. Can I really bike wearing formals and carrying my laptop?

d. You look cool wearing a helmet and flares…but u think it will be ok for me to bike?

e. And hey I do not have a bike!

I was wondering if I did sell of my CAR..and lived without it (I am NOT using it) …and I told my friends..

I DO NOT HAVE A CAR….

I am sure it would be greeted with “OMG!! You do not have a car?” – this is currently (in my circles at least) the equivalent of saying “Congress is not corrupt” or “BJP has clarity”. It will be greeted with complete disbelief.

However, I wonder how many times can I greet my friends with:

“OMG, you do not have a bike????” God what is wrong with you?

……well life is like that…

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There are certain things that I ‘forgot’ to tell you in 2011. It is also called ‘suppresso veri’ – well it is a legal language to mean ‘hiding of the truth’ but my job did not allow me to tell you the following.

The following is also the main reason why I do not get to teach / address students in MBA schools. Some people call me cynical. Some call me sceptical (some of you spell this skeptical I am told). Younger people of course call me senile, but people older than me, cannot call me senile, because …you know how it goes, right?

So for a list crazy generation, here is the list:

1. When we said the average salary in our campus was Rs. 800,000 – we took the top most salary of Rs. 14,50,000 and the bottom of the salary of Rs. 150,000. Mean, median, mode, geometric mean we did not bother to calculate. Standard deviation be damned.

2. We will teach you things that are completely irrelevant: we will teach you platitudes like ‘if it ain’t broken, do not fix it’ . However in the real world the best time to sell a business might be at the top of the cycle.

3. The world is not really waiting for you: We beg, plead, grovel in front of corporates so that they come here for placement interviews. We offer easy PhDs in HR – so that the middle level exec in HR is tempted to call us his alma mater – but you need not know that…or must you?

4. Do not over analyze and think your analysis is right! Unless you are working as Exec Asst. to a guy who likes presenting papers to high sounding scholars, you will do very little analysis. Real life is about action, not unending, silly ppt presentations to all and sundry. However if you cannot do a ppt, well you will not be hired. Oxymoron? well that is your boss – as stubborn as an Ox and a moron at that!

5. What you think is over promise is now the standard, sorry kids standards have changed…

6. Corporate India is not waiting to take you and put you through 2 years of training! You join Monday and attend target meetings on Wednesday. That was because Tuesday was a compulsory National Holiday. By Friday you have been screamed at once for not doing anything – unmindful that HR is yet to send your card for printing…

7. In corporate India the ‘Dhurva’ story will get reinforced day in and day out. The projects which the ‘Lala’ likes will get done. Others will not. Period. Read it again. Corporate world is run for egos not necessarily what is profitable, ethical, moral or right….If the project on which you are working is not priority, well it is not priority. So what?

8. If your boss (read the guy who is going to decide your promotion) does not like a project, ignore that project. Simple knowing who is the immediate king is a MUST in the jungle. So a deer has to respect not only the lion but also the cheetah. If you are in operations the branch manager is NOT your boss, it is the Operations Director. I hope you have no doubts…….

9. The fees that you pay us is not really justified, but we priced it to include the premium your father and mother will pay to satisfy their ego. Sorry, but so what?

 http://economictimes.indiatimes.com/news/news-by-industry/jobs/placements-at-iims-are-not-an-entitlement-determined-by-mood-in-corporate-india/articleshow/19501418.cms 

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Well politics aside, this is a question that you should keep asking yourself EVERY year. In case of your personal life, hobbies, work, relationships, etc. you need to frame your own questions.I do not subscribe to the thought that a person is better off and happier if he/she has more money, however, 99% OF THE people who I know work for money. So the aim is financial betterment, right? So,

However, you should also ask yourself:

“Financially speaking, am I better off than I was 5 years ago?”.

Well the questions could be as follows:

a. Has my net-worth gone up at a rate greater than inflation?

b. Has my income kept pace with inflation or beaten it?

c. Have I repaid my loans as per schedule or am I behind in making the payments?

d. Is the corpus that I am creating sufficient to meet my goals?

e. Are my investments taking me towards my goals?

f. Have I improved my returns and REDUCED my complexity in my portfolio?

g. Is my medical and life insurance cover enough or do I still to make some changes in that?

h. Do my spouse and my older kids know about my financial position?

i. Is my will in place? If not when do I hope to put it in place?

j. Does my family know about where all the financial documents are kept? Have I written a letter to all the insurance companies confirming the existence of my policy?

k. Are my nominations in place?

Of course there are many more questions…but this is a good beginning….so do make a start.

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1. Personal financial planning is SIMPLE. This does not mean it gets done, but it means it can be done.

2. Statement 1 leads to statement 2: You can and must do it yourself.

3. There is just too much of writing on personal finance.

You just need the following 10 steps:

1. Earn well, and for heaven’s sake spend less than you earn. Sounds simple? you will be surprised by the number of people who cannot do it!

2. Insure against known ‘should not happen, but can happen’ events. Term insurance, medical insurance are a MUST.

3. Do start a SIP – in a good ELSS fund and in PPF.

4. Pay off all your credit card dues on time.

5. Do not be proud of a big balance in the savings bank account – your banker is also celebrating that.

6. Build an emergency fund, quickly. Keep it in a liquid fund instead of keeping it in a bank account.

7. Understand your gross salary, net, taxation – get smart and act smart.

8. Learn to save and invest for goals instead of borrowing…

9. Be aware of why you are earning, spending, and Investing. This will help you select right products and avoid toxic products

10. This was just a ploy to get you here….each line is a chapter, this is an index, not the full book!!

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But those are the exact three words that can help you retire with Rs 40 a day. Let me show you exactly how. Say you can set aside Rs 40 every day for your retirement. Where do you get Rs 40 a day? Why not cut down on those cigarettes? Then, let’s see what could happen.

Let’s also make some assumptions (do allow for the fact that all may not be valid). Let’s also suppose that these are valid for the next 30 years.
Instrument    Yield (%pa)      PPF    8   Sensex    18      Equity     21

Retirement Chart
Money saved per day    Rs 40       Rs 80    Rs120
Money saved per year  14,600   29,200    43,800
Money earned if invested over the next 30 years
Sensex                     Rs 11,547,841       Rs 23,095,681        Rs 34,643,522
Equity                     Rs 21,099,200      Rs 42,198,399        Rs 63,297,599
PPF                          Rs 16,53,935         Rs 33,07,870            Rs 49,61,805

Nice chunk of change, eh?! Doesn’t that make your retirement look so comfortable?

Of course, if you spend Rs 120 per day on cigarettes, you probably won’t live for 30 years! That still leaves your dependant spouse needing a retirement corpus!

Ah, now you are saying you don’t smoke? Maybe you’re a frequent restaurant-hopper? That would easily mean Rs 2,000 per week. Keep at it for 30 years and you would have said goodbye to Rs 15 crore.

Gastronome’s chart
Money spent per day                                   Rs 750                         Rs 1,500                         Rs 2,000
Money spent per year                                  Rs 39,000              Rs 78,000                    Rs 104,000
Money earned if invested over the next 30 years
Sensex                                                             Rs 30,846,972      Rs 61,693,943           Rs 82,258,591
Equity                                                              Rs 56,360,876      Rs 112,721,752        Rs 150,295,669
PPF                                                                       Rs 44,18,045           Rs 88,36,090            Rs 11,781,454
Don’t fit into the smoker or the gastronome’s category? But you have one weakness — you love shopping. Say, you spend about Rs 10,000 per month on retail therapy.
Hmm. Over 30 years, a Rs 10,000 investment in an equity fund could fetch you Rs 17 crore. I won’t even go into what you can do with that kind of money!
Money spent per day    Rs 3,500     Rs 5,000     Rs 10,000
Money spent per year    Rs 42,000    Rs 60,000    Rs 120,000
Money earned if invested over the next 30 years
Sensex              Rs 33,219,816    Rs 47,456,879    Rs 94,913,759
Equity              Rs 60,696,328    Rs 86,709,040    Rs 173,418,080
PPF                  Rs 47,57,895         Rs 67,96,993        Rs 13,593,985

Why do you think the otherwise smart, educated people fail to understand this? Allow me to tell you what I think.

Your life is a function of your habits, not common sense. It’s tough to change your habits. Consider this. Most smokers know the damage that 54,750 cigarettes can do to their health.

But that ‘one’ cigarette never seems to matter.

Ditto for that ‘just one’ cold drink or chocolate.

If you feel very deprived reading this – and think your retirement corpus can come only from sacrifices let me add there are some other things that you can do. Switching of all electrical appliances when not in use, not racing the car while waiting, using CFL lights instead of tube lights, giving your monitor a break, using a lesser horse power car,  – this is not ‘depriving’ you of anything. Just make those small changes in life and your Rs. 40 would be there available to be invested. Now I hope you are not feeling deprived!

Why do people not do this? It used to stun me till I heard “It takes a complicated mind to think of simple things”. Here is my explanation for the current state of affairs:

Most people don’t care about small numbers and wait for that big amount to come by for them to save. Funny thing is, if I tell you saving (and investing) money is very simple and needs very simple methods to make large amounts of money, most people, including you would laugh at me. But it’s just so easy. Start small. Start simple. Save big! Then invest it. You do not need complicated tools such as day trading, brokerage accounts, futures and options, etc.
When you tell them that they can make a lot of money by just being disciplined they will just not believe it!

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