Thoughtful Thursday #07 – When you INVEST, you are buying a day that you don’t have to work..

“Today,  I woke up relaxed, had steaming-hot home made breakfast, read the newspaper and went through my day’s schedule. No rushing up, no boarding crowded trains, not running after auto rickshaws to drop me to office. My day was planned full of things I love doing. So as I headed up for my shower and I noticed my hair had turned grey..” And then MY ALARM RANG..

Was this A dream? Yes, A Dream to Retire, A Dream to work on things I love, A Dream to Not work for Money..

This Dream can be true. If we Plan for it. Yes, you can live your dream life, follow your passion, work at your start up, do social work, anything you dream of..

One of the most Important and Ignored Financial Goals is RETIREMENT. Retirement doesn’t only mean sitting at home doing nothing. It means, having enough money to do things you love and live your life comfortably. Some may want to Retire Early, while Some may want to Never Retire. But everyone wants Financial Freedom.

It is worry some that people do not give the deserving Importance to Retirement Planning.

Retirement Planning 

Wondering about Planning your Retirement. Follow these Five simple steps below :

1. WHEN YOU INVEST, YOU ARE BUYING YOURSELF A DAY THAT YOU DON’T HAVE TO WORK

Youth in their late twenties believe that its too early to think about Retirement.  But friends, its better to Start Early. Lets see in the example below, the Benefits of Starting Early. Assuming that the Target is Rs 1 crore and Rate of Return is 10%, the following are sums are required to be saved by individuals ageing 25, 30, 35, 40 and 45 years.

Don’t you think even an auto driver or office boy can afford to invest Rs 2,610 per month? But they Fail to Plan due to lack of Financial Literacy.

START INVESTING FOR YOUR RETIREMENT THE DAY YOU START EARNING 

2. NEVER BREAK YOUR RETIREMENT CORPUS FOR ANY REASON

Generally, people don’t earmark investments for RETIREMENT Corpus. As a result they end up spending their RETIREMENT corpus whenever the need arises say, to pump in money for purchase of house, child’s higher education, etc. But please REMEMBER – you can get education loan, home loan, other personal loan but you will not get A SINGLE PENNY for RETIREMENT..!

3. DETERMINE YOUR RETIREMENT CORPUS DILIGENTLY

Determination of Retirement Corpus is one of the most important steps which requires utmost care and attention.

(Taxation, Lifestyle Inflation, increase in Healthcare costs post retirement and other factors are ignored for sake of simplicity)

4. STAY INVESTED

Some people are highly enthusiastic at the beginning but stop investing half way or withdraw the amount too soon. The Investment Journey is a roller coaster ride. Enjoy the ups and downs, do not panic in downfall and do not get excited in at a high point. Stay invested till you reach your Destination / Goal.

In the above example, invest consistently Rs 19,335 per month from Age 30 to Age 60 or invest lumpsum Rs 22,36,962 and stay invested.

(Assumed Pre Retirement return 10%, Post Retirement Return 6%, inflation 6%. Taxation, Lifestyle Inflation, increase in Healthcare costs post retirement and other factors are ignored for sake of simplicity)

5. ITS PERSONAL FINANCE, PERSONALISE IT..!

Some people get duped by the Pension Plans provided by a few market players.

Don’t go for ready made plans, it will hardly beat inflation.

Customise your own Retirement Plan by planning the systematic withdrawals required each month and make sufficient investments in your earning years.

You may reach out to us for a customised Retirement Planning at info@nimitwealthmanagement.com

CA Nitesh Buddhadev

CA Mitsu Buddhadev

NIMIT Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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Thoughtful Thursday #06 – Are you KYG (Know Your Goal) Compliant..?

As you all are aware, without KYC you cannot start your investment. I wish it was equally mandatory to have KYG (Know Your Goals) !

As we believe,  “People Don’t plan to fail but They Fail to plan..”

Everyone has their own list of Goals such as vacations, child’s education, child’s marriage, a bigger house, a holiday home, a dream car, a peaceful retirement, etc. All of these Goals, have a financial implication. To accomplish these, we either take a loan or make an investment or a combination of both.

Generally, following are the Goals as per human life cycle.

Definition of SMART Goals

Lets make it more Simple. Ask yourself following 4 questions for SMART Goal setting.

We will see one example of setting a SMART Goal.

Say, Mr. Kapoor has a daughter aged 3 years. One of the Goals he is considering in the Financial Plan is Child’s Education.

Goal Details Post Graduation
Fund Required at Today’s Cost  Rs 15,00,000
Child’s Age will be 21 years
Goal Year 2036
Inflation
(Education Inflation is considered @10% based on data available)
10%
Future Value (Corpus Required in 2036)  Rs 83,50,000

YES! You read it right, Rs 15,00,000 Today will cost you approx Rs 83,50,000 in 2036.

So, if the Goals are not appropriately set we may have to use our Retirement Corpus or other investments for this Goal and I am sure no one will allow their child’s education to suffer because of lack of funds. But what we will compromise here as our Retirement Corpus will also impact us in Future. So take caution in setting Financial Goals.

The SMART Goal here in the example is : Mr. Kapoor requires Rs 83,50,000 in 2036 for his daughter’s  Post Graduation. Now, Mr. Kapoor has 3 choices to achieve this Goal:

Particulars % in CAGR*
7% 10% 12%
Monthly Investment Required                  19,400               13,900                  11,000
OR
Invest Lumpsum             23,95,000             14,11,000               9,94,000

*Compunded Annual Growth Rate

This is one of the many Goals Mr. Kapoor will consider as a part of his Financial Plan.

Guys, Please Remember, its Personal Finance, always personalise it. Define your own Goals and get a customised Financial Plan for yourself. What may be applicable to one person may not be applicable to another.

We will help you to set your Financial Goals and Develop a customised Financial Plan for yourself. For more details contact us at info@nimitwealthmanagement.com

CA Nitesh Buddhadev

CA Mitsu Buddhadev

NIMIT Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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Thoughtful Thursday #05 – People Don’t plan to Fail but They Fail to plan..

Sometimes life’s best lessons are learned through stories, so let me start today’s blog by a small story..

A foreman, who was given the charge of a gang of extremely lazy labourers, asked them to dig ten feet holes near a large steel mill. The lazy workers were further agitated when they were told to dig the holes here and there. As time went by, they kept digging, and finally they dug up nine holes.

 

The labourers could not understand why they were being made to dig so many holes near the factory. They also grew desperate, tired, and extremely agitated. They decided to stop right there and not to work anymore. As they were about to retire, the foreman told them something which made them spring back to action forgetting all their agitation and tiredness.

 

The foreman told them that he was actually looking for a broken pipe which supplied water to the quarters where these workmen resided. The labourers sprang back to work at once.

 

What is the implication of this story?

 

To work without definite goal is not just uninspiring, but also difficult. On the other hand, when a man knows the purpose of what he is doing, he is able to focus better, be more sincere, creative and diligent in what he is doing.

 

Lets now, modify this story,

The Labourers – Our hard earned money,

Foreman – We, the investors 

We have investible surplus of Rs  10,00,000 and we decide to invest in 15-20 stocks / mutual fund schemes. We start investing and tracking the returns. Everyday, on our way to office we observe the price of stock / NAV of mutual fund schemes.

Mostly, many of us can’t stomach the short term volatility and become desperate, tired, and extremely agitated and so we decide to stop i.e. withdraw the investment and decide not to invest in Equity anymore or we start trying to time the market.

BUT

Whenever we feel like this, we must ask ourselves 2 simple questions:

1. What is the Purpose/Goal of this investment?

2. Where will I invest this money by withdrawing it?

We realise that this amount of Rs 10,00,000 we do not need now. We saved it for buying our dream car after 5 years.

Now, we look at the long term returns of the stocks/ mutual funds schemes and forgetting all the tiredness and agitation, we continue with the investment and do not track the schemes daily and are at peace as we need the money only after 5 years.

“Going half way and then thinking of the destination is not a good idea. Its always better to have clear idea about the destination before starting  the Journey.” 

Conclusion:

To invest without definite goal is not just uninspiring, but also difficult. When one invests with a Goal in mind he is able to to focus better, be more sincere and regular in investing.

Always remember that,

” People Don’t plan to fail but They Fail to plan..”

In upcoming Thoughtful Thursday series, we will discuss more about how to set financial goals and relevant considerations for the same. Stay Tuned..

CA Nitesh Buddhadev

CA Mitsu Buddhadev

Nimit Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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Thoughtful Thursday #04 Inflation – The hidden enemy

Just the other day at lunch we all colleagues were discussing about our school / college days.. and one of my seniors said they had only doordarshan on tv while juniors discussed about nickelodean, hungama and so on.  Seniors were nostalgic about the Vada Pav they had in break time for Rs 5/- and juniors were boasting about burgers in Mc Donalds.

Just then it hit me that inflation as generally understood by people is the simple equation of change in the price of a commodity over the years viz.  Vada Pav costed Rs 5/- in 2005 and it costs Rs 15/- in 2018.

 

There is also concept of Lifestyle Inflation which most of us are unaware of. Simply, Lifestyle inflation means that the youth of yesterday were having Vada Pav for Rs 5/-, today we could get that for Rs 15/- but Today we do not want to have Vada Pav. We want to have Burger starting from Rs 50/-. This increase in cost due to jump from Vada Pav to Burger is termed as Lifestyle Inflation.

Here, simple inflation is only 8.82% (difference between Rs 5 and Rs 15 for 13 years) but for us inflation is way higher i.e. 19.38% (difference between Rs 5 and Rs 50 for 13 years).

Now, the concept to understand here is that when we plan our finances we have goals like Children Education, Children Marriage, Retirement, Foreign Holidays etc. Generally people recommend to consider inflation but tend to ignore Lifestyle Inflation. 

Statistics show that normally, Household expense doubles every 5 years due to CPI and Lifestyle Inflation. If you do not plan your finances well, you will have a huge gap in your income and expense.

Lets assume that you kept Rs 100 in your locker in 1990 and today you take that Rs 100 note and you want to spend it for your household needs. Do you know the purchasing power of that same Rs 100 note would only be Rs 15?

 

Now, Lets assume that your monthly household expense is Rs 25,000 and after understanding somewhat about savings and investments you keep Rs 25,000 in Fixed Deposit today in 2018 and you want to spend it for your household needs after 15 years in 2033. Do you know that you will have a huge gap of approx Rs 1,28,000 between your fund inflow and outflow (not considering Taxation).

 

So the thought to carry this week is that Planning your finances is very important.

And while planning the most crucial point to consider is Inflation.

Please share this article and help us spreading Financial Literacy.

We will be back with another interesting topic on Personal Finance and Investments next Thursday.

If you have missed earlier articles of this Thoughtful Thursday series then click here to read those articles.

 

CA Nitesh Buddhadev

CA Mitsu Buddhadev

NIMIT Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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