Life Planning

Not just Personal Financial Planning

 Common Approaches

• Create Budgets
• Save and scrounge
• Ensure you have enough money in stock
markets
• Listen to the experts
• Have a bit of trading money
 Alternative Approaches

Creating a lifestyle that does not place money

at its core.

Peace of mind had little to do with big

salaries or high living.

(Consumer Reports National Centre, US, 2010)

 Active Steps taken by people

Live within means

Enjoying good health
Planning ahead
Maximising savings
Having hobbies and friends
Staying in a job with a defined-benefit pension
providing regular income in retirement for life
 Are you a conscious spender?

• Spend on What You Love and what you deem

important.
• Have the courage to make those tradeoffs
– Longer commutes for more money in hand to buy
books
– Smaller flat for more money in hand to buy a 3D
LED TV
 Reflect

WHAT EXCITES YOU?

WHAT DO YOU LOVE DOING?

WHAT WOULD YOU WANT TO DO IN LIFE?

 Your Financial Plan has to help
you do what you love.
You need to develop a financial plan for
yourself—not for your money.

It’s not just about earning money

The Happiness Equation

H=S+C+V
Level of happiness = H
Biological set point = S
Conditions of your life = C
Voluntary activities =V
Chronic Happiness
Conditions/ Circumstances
-Biological
-Financial
10

50
40
Happiness Set Point
- Genetic Voluntary Activity
-Goals
-Exercising
-Reading
-Creating
Money can make you less sad but not
more happy
 Conscious Spending - Rules
Spend on what YOU love and
1. what you deem important.

Have the courage to make

2. tradeoffs
 Research on shopping
Don’t browse; shop
with a purpose

Only seek employee contact

when you need help.

Say NO to samples

The Science of Shopping, Paco Underhill

 The KonMari Method

The Life Changing Magic of Tidying: A Simple,

Effective Way To Banish Clutter Forever by Marie
Kondo, the creator of the KonMari Method
 Pain of paying
• It is more painful to pay cash than using a card.
• Invoke the pain of paying to save yourself a wad
of cash.
• The Pain of paying adds a moral tax to
consumption
• The timing and method of payment affects our
enjoyment of the item purchased.
• Other ways to increase pain of paying:
– Notification
– Pay per use – increase salience
 Living Modestly

• Living within means has its benefits:

– Never being extravagant means you can easily
cope in tough times
– You can easily manage any emergencies.
– Try and make friends who do not believe in
spending money for the sake of it.
– Have a little imagination.
– Always keep track of what you spend in a month
– Do not increase this amount even if you get a pay
hike
 Do you need it?
Yes No
Really?
Yes
Wait 30 days
Did you need it
(or until you need
yesterday?
it)
Yes No Do you want to
Can you borrow or maintain it?
rent it?
Yes No Yes No
Do that!
BUY IT DON’T BUY IT!
(but try to buy quality)
Making a Financial Plan
Spend right in the right places
Guilt free spending money
PS3, Dining out, Movies, parties, clothes,
10% shoes, fancy mobile phones; Trading

Investments
Mutual Funds, Pension plans, PPF, EPF, VPF
10%
Spend Right
Savings
Marriage, Vacation, House down payment,
20% Emergency funds, unexpected funds, Gifts

Fixed Costs
Rent, utilities, loans, term insurance, health
60% insurance
 What If You Don’t Make Enough
Money?
• Negotiating a raise
– A raise is not about you but your company so
demonstrate your value
• Get a higher paying job
• Moonlight – do freelancing
 Lessons from
Catalyst –
By Chandramouli
Venkatesan
 Keep formulating and refining
Lesson 1: your algorithm for how things
work

T M R R
Target Review
Measure Reflect
What could I have done better
 Keep formulating and refining
Lesson 1: your algorithm for how things
work

In the first half of your career

Lesson 2: focus on depth over width

Complete major learning cycles;

Lesson 3: usually 2-3 in a career
Key components of a plan

Speculation
High Risk
Art|Coins
Wine|Crypto

Accumulating Wealth Financial Goals &

Savings|Home Ownership Priorities
Retirement planning|Investments

Managing Risk Protecting Financial

Life Insurance|Health Insurance Security
Wills|Emergency Funds

Financial Plan
A written financial plan to create a solid foundation
 Life Insurance

• Do not buy traditional insurance plans

• NEVER buy ULIPS
• Insurance is for protection and not an
investment product.
• Buy ONLY term insurance.
 Health Insurance

• Make sure you have adequate health

insurance regardless of whether your
employer provides it or not.
 Accident insurance

• It is designed to compensate you or your

nominee in the event of — Death, Total
Disability and Permanent Partial Disability.
• There are comprehensive policies available
• For a cover of Rs 5 lakh, the annual premium
will only be Rs 590.
 Emergency Funds

• Always keep emergency funds of 6 months

household expenses.
• Job security is a myth
 Education loans

• Do not be in a hurry to pay them off.

• Work the numbers on the rate of interest, the
tax break and compare it with the fixed
deposit rates in the market
• Only if market rates of interest seem to be
higher than the benefits above – pre-pay
 Consumer Loans

• If you need to buy durables – do not use credit

cards
• Use a personal loan and make sure you
aggressively pay back.
 Home loans

• Traditional Advice

बेटा, घर खरीद लो |
• Buying a house in most major cities is no
longer worth it.

• So do the math and figure out whether it

makes sense to buy or rent.
 Public Provident Fund

Good long term debt

option with tax savings
Since illiquid, treat as
retirement savings
Cannot be attached by
authorities
Pay the maximum amount before the 5th
of the month in order to get the interest
for that month.
Make your contribution before the 5th of
April.
 National Pension System
• Mandatory
Tier I • Lock-in till 60
• Tax breaks
• Voluntary savings facility
Tier II
• Free to redeem

Low cost fund management

Forced savings; good for retirement

Annuity options are limited

ROI on Asset Equity (Sensex) Cash (Money Market MF)
Gold Fixed Income
classes in
India
14.89

11.29

6.80 7.55 6.85

6.97 6.90
5.75 6.00 6.75

2.24
0.58
0.13

-0.30
-1.63 -0.77

1 Week 1 Year 3 years 5 years

 Returns across asset classes
-1 0 1 2 3 4 5 6
Global Equities

Wine
Stamps

Average Violins
Real Estate
Annual Real
Returns Global Bonds
Art
1900-2017%
Platinum

Gold
Silver

Diamonds
 Over the long term – the sensex is a bond
• Total return index considers appreciation with dividends.
• If you had invested between Aug 1996 and 2014 (before the bull
run after May 2014)
Length of Holding Probability of
(in years)
Returns
Loss/Profit

1 32% 68% -52% to + 93%

-12% to + 50%
4 13% 87%
0 to + 40%
7 100%

10 100% +10 to + 23%

 Investments that beat inflation
Equity Mutual Stocks
Asset Funds

Mode of SIPs SEPs

investment

No hassle Index funds ETFs

investing
Financial Adviser Your own
For help OR reading and
Websites instincts
 Rule of 72

How long will it take to double your money?

Time taken to
Interest double the
Rate investment

72 ÷ R = T

72 ÷ T = R
 Tax Breaks

• 1.5 lakh on 80C • Health Insurance (80D)

– PPF (1,50,000) – Self, spouse, kids (25 K)
– EPF – Senior citizen parents (50 K)
– VPF (maximise)
– Principal on Housing • RGESS (80CCG)
loan – One time deduction of
– KVP 50000/-
– ELSS
– NPS (1,50,000) • NPS (80CCD)
– Deduction of 50,000/-
 Tax Breaks (contd)

• Housing loan • Educational loan

interest – Entire interest is
– Upto 2 lakhs deductible
interest deductible

• In case of rental
income
– Available up to 2
lakhs from FY 17-18
 Managing Tax
Register for the 26AS
and get familiar with
the format

Invest in a good
CA if you need
one!
&

Be prepared
to pay for the
service
 Do more before doing less

Doing
Nothing
Amount of
(except
Effort
worrying)

The next few weeks

unlikely to change once a few setups
01 Power of defaults
are made like VPF, SIPs, NPS etc.

SIPs, payments of bills, payments

02 Automatic Transfers
of credit cards, other investments
 Automation

5%
Salary EPF/VPF
100%

5%
Savings 10% Salary Account SIPs
60%

Fixed Expenses Credit Cards

 Reminders
• Daily reminders
– Exercise like you brush your teeth
– Eat healthy (at least 6 days a week)
• Monthly reminders
– Check credit card bills and compare with charge slips (if any discrepancy, call and
report) (1 hour)
– Change passwords on all banking/broking accounts (30 minutes)
– Check whether any excess spending under any head. Analyse and reconsider. (30
minutes)
• Quarterly reminders
– Check all SIPs are running smoothly
• Annual Reminders
– Get complete health check (1 day)
– Apply for credit report (30 minutes)
– Review your portfolio and rebalance if required
References
References
 References
• Rich Dad Poor Dad, Robert Kiyosaki
• Cash Flow Quadrant, Robert Kiyosaki
• Your money: the missing manual, J D
Roth
• I will teach you to be rich, Ramit
Sethi
• Influence, Robert Cialdini
• The science of shopping, Paco
Underhill
• The 7 secrets of the Money Masters,
Robert Shemin, Peter Hirsch
• 15 ways to never run out of money,
Consumer Reports, Feb 2011
• Barking up the wrong tree – Eric
Barker
• How much is enough – Skidelsky
• How much is enough – Arun Abey
• Willpower – Roy Baumeister
• How will you measure your life –
Clayton Christensen
• Authentic Happiness – Martin E
Seligman
• Give and Take – Adam Grant
• Deep work – Cal Newport
• Drive – Daniel Pink
• A whole new mind – Dan Pink
• Quiet – Susan Cain
• The year of less – Caitlin Flanders
• Enough – Laura Nash
• Catalyst – Chandramouli Venkatesh
• Happy ever after – Paul Dolan
 For any help
Reach me at:
sreeram.s@sbm.nmims.edu
sreeram.s@hotmail.com
@sreerams11

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