The one with Joey Tribbiani

Joey is undoubtedly one of the most beloved characters in the show. An aspiring actor who is always auditioning for different roles ends up getting his big break through ‘Days of Our Lives’. He had previously relied on Chandler for rent and other needs. After he got his break, he went on a spending spree and purchased useless items for his new apartment, oblivious to the credit card bill. He soon lost his spot on the show because he irritated the writers. And he’s left with thousands of dollars in credit card debt and no money.

There’s nothing, and I mean NOTHING, that has ever stopped him from overspending. On the brighter side, while Joey has his flaws, he isn’t also afraid to work as a waiter in Central Perk when his acting career flops and his finances get weak.

Financial takeaways:

• You should live within your financial limits.
• No work is too low to pay your debts.
• Don’t spend money you don’t have.
• Keep an eye on your finances.
• Don’t succumb to lifestyle inflation.
• Don’t make financial decisions rashly.

The one with Chandler Bing

One of the show’s funniest characters is Chandler Bing. Everything he says is tinged with sarcasm. He had a 9-to-5 job that had something to do with WENUS, and he hated it. In his mid-thirties, he switched careers and began working as a marketing intern, even though in his previous job, he was highly compensated. He has been paying for his gym membership for over a year, but he is unable to cancel it because there are attractive women. Finally, he realizes that he is spending his money for nothing and manages to muster the courage to cancel his membership. He ‘pivots’ his strategy and closes his bank account while failing.

Chandler is a resilient and realistic individual. He turned down Monica’s desire for a fancy wedding and explained to her that he had saved all these years so that they may have a lovely future rather than blowing it all up for a party.

Financial takeaways:

• Prior to spending, start saving.
• When necessary, revise your budget.
• While you’re young, take risks.
• Don’t blow your budget by overspending.
• Prepare for the future.

The one with Monica Geller

Monica is the most anxious, immaculate, skeptical, and obsessive-compulsive of the group. Although Monica is usually cautious, the thought of losing her job never occurred to her. Accepting the gift of 5 steaks and one eggplant from one of the vendors was deemed bribery, which was against the company’s rules, and as a result, got sacked. But she hadn’t planned for the possibility of losing her job.

Also, she hasn’t saved up for the wedding she has always dreamt of and had to rely on her parents for her wedding funds. Her parents, on the other hand, spent her wedding budget on a beach house. She should have saved money for her fantasy wedding if she had wished for one.

Financial takeaways:

• Keep tabs on your expenses and financial situation.
• Build an emergency fund.
• Always be ready for the worst.
• Life is a roller coaster of ups and downs, whether you like it or not.

The one with Phoebe Buffay

Phoebe is one of the show’s wackiest personalities. But she holds her ground and speaks her mind. After Joey, Phoebe was the only character who didn’t have a steady job or career. She works as a masseuse. However, she repeatedly loses her job. She also has a bizarre singing skill, which comes in handy when she needs a little extra cash.

Also, when she and Monica began their catering business, and their customers resort to drama to avoid paying, she truly digs in and refuses to leave until they are paid. She was never afraid to try new things and career opportunities.

Financial takeaways:

• A side hustle can help you get through difficult times.
• Demand payment for the services you provide.
• Don’t be scared to take chances and experience new things.
• Perseverance until success.

The one with Rachel Green

Rachel is one of the most uplifting characters. She has grown as a person, from cutting her father’s credit cards to working as a waitress and ultimately achieving the position of corporate leadership. Her willingness to be a self-sufficient woman pushed her to elegantly complete even the most menial tasks (let’s ignore the coffee swaps). Rachel learns what her aspirations are and works hard to achieve them. She finds herself and finds her place in the real world. She never gave in to peer pressure and ruined her budget when she couldn’t afford it.

She is the character we all aspire to be one day; because starting from scratch and being able to sustain oneself is a blessing and a skill that only a few people possess.

Financial takeaways:

• Learn to be financially independent.
• Don’t feel compelled to spend money.
• Do not give in to peer pressure.
• Keep a clear head and set priorities.

The one with Ross Geller

Ross is most likely one of the most literate and competent individuals in the group. He became a professor at NYU when he was 30 years old. Whether it was a career or a love affair (I still think he loves fossils and dinosaurs more than he loves Rachel). Change my mind.), he always followed his gut. He is a doctor (pun intended), a rational thinker, and a man with a plan.

Ross always kept thinking about the future. Whether it’s blind dates or lectures, this man plans and prepares for just about everything. When his friends want to buy lottery tickets, he tries to persuade them not to by informing them how slim their chances are. He doesn’t want to take part in the bet, and he also doesn’t want his friends to make a loss. After Monica purchases tickets on his behalf, he tells Joey that he will invest the money if he receives it.

Also, Ross’s behavior in Vermont was, to put it politely, awful. I’m not suggesting that you take away everything from the hotels you stay at, but in his defense, he just wanted to make sure he got the most out of his financial investment by leveraging it to its full potential.

Financial takeaways:

• Do not engage in gambling.
• Always look out for financial stability.
•  If you get a windfall, you should always invest it.
• Make the most of your money, make it work for you.
• Make long-term plans.

Written by: Arpita Chatterjee 

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Team, MyGoalMySip.

Benefits of ULIPs: 

With a long-term investment in ULIPs, several benefits come organically. 

1. Insurance Plus Investment: A ULIP offers a safe way to create wealth while also providing life insurance, which are the two primary areas of concern for most people.
2. Flexibility to Switch Between Funds: ULIPs allow you to smoothly switch between funds based on your risk appetite, which is likely to alter over time and as you get older.
3. Premium Waivers: Some plans offer an inbuilt feature that allows the premium to be waived off in case of the parent’s unfortunate demise, without affecting the plan’s validity. 
4. Tax Benefits: A policyholder is eligible for a tax deduction during all three phases: investment, earnings, and withdrawal. The premium can be deducted under Section 80C of the tax code. Furthermore, partial withdrawals and the maturity amount are tax-free. If certain conditions are met, Section 10 (10D) of the Income Tax Act exempts the policy’s maturity returns from income tax.
5. Ease of Additional Investment: When surplus funds are available, you can purchase a ULIP at a reduced premium or top-up later during the policy’s duration. Top-up premiums provide the same tax advantages as regular premiums.
6. Flexible-Premium Paying Modes: ULIPs provide several convenient premium payment options to assist you in planning your finances. You can pay your premium(s) in one of three ways: single, limited, or regular. One-time premium payment; restricted premium yearly, half-yearly, quarterly; monthly recurring premium are some of the choices.

What are the charges? 

Premium Allocation Charges: 

When a ULIP insurance is issued, the insurer must complete several activities, including underwriting the policy, medical tests, commission costs, and so on. These are all one-time costs that must be paid in the first year because the insurer will deduct them from the first-year premium. If the ULIP plan premium allocation charges are 15% and the premium is ₹50,000, the ULIP charges will be removed at ₹7,500, leaving ₹42,500 to invest.

Administration Charges: 

The administration of the policy attracts a fee. This fee is charged every month; the charges are levied by canceling the units from the funds in proportion to the rate. 

Fund Management Charges: 

These expenses, which are regulated by IRDAI at 1.5 percent per year and charged as a percentage of the fund value, go toward administering your money.

Discontinuance or Surrender Charges: 

A discontinuation charge is imposed if the ULIP plan is surrendered prematurely within the first four years.

Partial Withdrawal Charges: 

Investors have the option to prematurely withdraw the ULIP plan after the first three years if they need to. However, according to the policy terms, early withdrawal incurs some penalties.

Mortality Charges: 

These charges are collected by the insurer for providing death cover to the insured; and are calculated after considering the age, health conditions, and the insurer mortality table.

Switching Charges: 

Investors are free to switch the fund into which their premium is invested a couple of times per year, without a charge. Following the free-limit exhausts, each switch is subject to a charge of between ₹100 to ₹500, depending on the insurer’s terms.

Premium Redirection Charges: 

You can direct future premiums to a lower-risk fund without changing the fund or making any changes to the existing fund structure. You will incur some additional charges as a result of doing so.

Rider Charges:

The additional charges are applied whenever an investor adds a rider to a ULIP plan to receive additional advantages. An investor, for example, must pay extra premiums for a critical illness rider on a ULIP policy.

Guarantee Charges:

If an investor opts for guaranteed returns in the policy, then there are certain charges imposed by the insurer to ensure the payout. Because most ULIPs offer market-linked returns rather than guaranteed returns, they’re utilized. These are typically found in ULIPs that have a high NAV guarantee.

Miscellaneous Charges:

Under the category of miscellaneous costs, the insurer imposes some modest charges on a few things, such as if a policyholder chooses to alter the premium frequency from half-yearly to annually, they must pay a little fee, and so on.

Should you invest? 

If I am honest, investing in ULIP is not recommended because it doesn’t provide adequate life cover and the return generated is sub-optimal when compared to other investment options like Mutual Funds. Insurance is an expense and should not be equated with an investment. 

What’s wrong with them? 

They neither give appropriate insurance nor a viable investment solution.

Let’s look at the two factors separately to better understand the idea.

Insurance:

The majority of the time, consumers are unable to determine what type of insurance coverage they require. For example, if you are the sole earner in a family of four, a life insurance policy of Rs 5 lakh (see example below) is just insufficient in the event of your untimely death. If you haven’t left them much in the way of inheritance and/or if you owe them money, the effect is amplified. Then there’s inflation, which eats away at your savings. To give some perspective, a ULIP will cost Rs 5 lakh per year if a term plan with a cover of Rs 50 lakh costs Rs 7000 per year.

Investment:

The most significant aspect working against them is the expensive fees. A considerable portion of the premium you pay is removed in the form of various fees and levies, with distributor commissions being the most significant component. It minimizes the proportion of your premium that is invested to generate returns. It has a significant impact on the total wealth you can accumulate over time. We’ve highlighted one element of ULIP, its various charges, below.

ULIP: Unit Linked Insurance

The charges levied by ULIPs are listed in the table below. Keep in mind that these charges aren’t precisely concealed. You’ll find them in your policy documents, but you probably won’t give them any credence. After deducting the following charges, which account for about 7% of the total invested amount, the real invested amount is calculated.

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Team, MyGoalMySip.

“If you only have a single source of income, you‘re one step away from poverty.”

In this article, I will brief you on the 5 easiest and most beneficial assets which can help you become rich.

When you’re no longer dependent on just one income stream (like your job), you have so much more opportunity to pursue financial freedom. Hence, most income-generating assets are those assets that could earn you money even while you sleep.

Income-generating assets can help you move closer to your long-term financial goals by diversifying your income streams.

Below is a list of assets that can turn out to be the best source of your passive income.

1. Real estate: Investing in real estate can help you create a good amount of finance in two ways – “Flip or Hold”.

Flipping the asset means purchasing an asset for an amount that is less than the circle rate of the area in which the property is situated (rates may be less due to any reason may be some sewage pipe from a nearby factory is opening behind that property), and then selling/flipping it after renovation or rectifying the discrepancy in it, (in our case maybe by managing to get the disposal head of sewage pipe turn in some other direction).

Holding it is another alternative wherein you Purchase the Asset by borrowing money through a loan, let it out to people on Rent, payoff the EMI through the Rent received, hold it, and then dispose of it after a significant time.

This option will benefit you in the following manner: 

• The value of the property will appreciate without your blockage of funds, increasing your net worth; on the other hand, you can take financial benefit through tax planning by claiming exemption in Income Tax Return on the amount paid in the form of interest on loan taken to purchase house property.

That’s called a “Win-win situation…!”.

2. Buy shares of the Company:

Not every one of us can do business – hence, another best alternative for that is to invest in the successful businesses of others.

One of the most prevalent issues that people have is a lack of understanding of how to trade in shares. The simplest answer to this, as suggested by Peter Lynch, is that a common man gets at least 2 to 3 opportunists each year, in which he can purchase the shares for those companies which can be held in long term.

To simplify this sentence, you need to look around you and analyze.

Unfortunately, we do the opposite, i.e., a doctor instead of focusing on medicine, start focusing on an oil company, and on the other hand, a person working in an oil company, instead of focusing on products around him, start investing in a pharma company which proves to be a wrong decision for both, landing in losses.

That is why it is perfectly true, “a stock market is a tool which takes money from impatient people and transfers it to a patient person”.

3. Licensing:

This type of investment is not common in the upper-middle class, but it’s one of the main sources which provides recurring income to people in the form of passive income.

Best, e.g., to describe is Bill Gates, who still gets paid in form of royalty for each copy of Microsoft when downloaded on a computer.

Precisely, “It’s someone else’s company, i.e., their investment but your idea”.

4. Digital Assets:

This form of asset creation is the latest form of passive income and is profitable because of very little to no cost of re-production, which means, “you create once, sell a number of times”.

Another benefit of these assets is there is no issue of scalability since it is based on cloud computing, and most of these assets use blockchain technology, which has already proved its worth through cryptocurrencies.

For small instances, all you can do is create a digital course or create your own NFT and bang…! you are on the go…!

5. Mutual Funds:

One of the most prevailing investments nowadays is Mutual funds. It is an investment option wherein some asset management company pools money from various investors and purchases securities of different companies. Very commonly called “the basket of funds”.These are very famous because of their nature of diversification resulting in High/Neutral returns, and it gives its investors an added advantage of investing money monthly in the form of SIP, or at one go which is a lump-sum payment.

Written by: CA Aanchal Agarwal

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Team, MyGoalMySip.

As the month that honors resolutions continue, it’s important to note that, to be as strong and self-reliant as Wonder Woman, we need to set some resolutions of our own and not the kind we make every year. For instance, my last year’s resolution was “I will stop eating junk food,” but I failed miserably. As a result, I decided to keep things basic and practical this year. Financial resolutions, for example, are something I would never break. 

Financial goals are directly or indirectly interlinked to every other goal on our bucket list. Thus, financial resolutions are as real as it gets. Who doesn’t want to save more money?   

Let’s get started with some financial new year’s resolutions that are practical and easy to achieve over time. 

1. Save more: Obviously, the most important financial resolution has to be “save more money”. There are practically infinite ways to go about this — you can start investing, or if you already do, you can increase it. Set up automatic transfers to a high-yield savings account and spend less, especially over the holidays. 

1. Improve/Initiate credit score: If your credit is below stellar (scores below 700), or if you don’t have any then consider making it a priority to improve or build it in 2022. Paying your bills on time and accurately (which might also entail setting up autopay), debt repayment, minimizing the number of accounts created, and limiting expenses are all ways to boost your credit score. 

1. Make a personal budget: A budget may seem restrictive to some, but tracking your expenditures may be helpful in understanding where your money’s going. A detailed budget helps you in determining how much you can afford to spend and where you can save money. By listing all of your fixed expenses, including rent/mortgage, phone bills, grocery, and investments, you can see how much money you have left over to spend on things like restaurants, clothing, and entertainment.

Steps to follow if you really wish to keep your resolutions: 

#Step-1: Identify your driving force: We set resolutions at the start of the year because it seems like a good time to make a change. However, “It’s January 1st!” isn’t a strong enough reason to keep your financial resolutions. Instead, think about how this action will help your life in the long run and find what is motivating enough for you to keep going.

#Step-2: Strive for improvement: “Attain financial stability by the end of 2022” is a generic aim that doesn’t specify what you’ll need to do to get there. We don’t have any identifiers to indicate when we’ve completed a goal, track the improvements, or even identify what has changed. To make your resolution more effective, you must continue to evaluate yourself and your improvements (even if it is modest).

#Step-3: Get Rid of Your “All or Nothing” Mentality: Supposedly, inspiration turns into motivation, and motivation turns into action. When we expect ourselves to perform every action perfectly, every single time, it becomes a big challenge. Notions like “all or nothing”, “we’ve got to get it right, or we’re a failure”, are just stupid. 

Written by: Arpita Chatterjee 

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Team, MyGoalMySip.

Who should invest in the NPS? 

The NPS is a fantastic alternative for those who want to start saving for retirement as soon as possible and aren’t afraid to take risks. A regular pension (income) in retirement will undoubtedly be beneficial, especially for individuals who retire from private-sector jobs. Salaried professionals wanting to take a maximum of tax benefits can also choose this plan. 

Features & Benefits of NPS: 

Returns/Interest: 

A portion of the NPS is invested in stocks (this may not offer guaranteed returns). However, it provides much higher returns than traditional tax-saving investments like the PPF. 

This program has been in place for more than a decade and has produced annualized returns of 8% to 10%. In case you are not happy with the performance of the fund, you can change the fund manager. 

NPS allows you to diversify your investment across four asset classes: 

Equities (E) 

– The funds are invested in stocks and other equity-related securities of Indian companies. 

Corporate Debt (C) 

– The funds are primarily invested in Money Market Instruments and Bonds issued by Infrastructure Companies, PSUs (Public Sector Units), and PFIs (Public Financial Institutions). 

Government Securities (G) – 

– The funds are invested in money market instruments and bonds issued by state and central government. 

Alternative Investment Funds (A) 

– The funds will be used to invest in new investment vehicles such as Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Commercial Mortgage-Backed Securities (CMBS), and Mortgage-Backed Securities (MBS), notably. 

Choosing Your NPS Investment’s Asset Allocation:

NPS gives you the flexibility to decide how much gets invested in each of these asset classes mentioned above. As a result, you can customize your investment bucket according to your risk profile. 

NPS now provides two asset allocation alternatives for every NPS portfolio: Active Choice and Auto Choice. 

Let’s take a closer look at both of these alternatives. 

Active Choice:

NPS’s Active Choice plan gives you the most freedom in deciding how much of your portfolio should be made up of equity, corporate debt, government securities, and alternative investment funds. 

Subjected to certain restrictions –
Maximum allocation permitted towards 
Alternative Investment Funds (AIFs): 5%
Equity exposure permitted in NPS:75% up to the age of 50 years. 

There is one additional criterion in addition to these two limits. From the time you are 51 years of age, the maximum exposure to Equities allowed under NPS Auto Choice will decrease by 2.5% every year till the maximum Equity Exposure drops to 50%. So, at 60, your Equity Exposure will be 50%. 

The NPS Equity allocation limit for Active Choice investors of various ages is as follows: 

The main advantage of Active Choice is the flexibility in selecting the NPS asset allocation that you believe is best for achieving your investment goals. 

Auto Choice:

The second option allows you to automate the allocation of NPS assets. Auto Choice is based on the idea that as you become older and closer to retirement, you should focus on preserving your wealth by lowering your overall portfolio risk. It is accomplished by adjusting your NPS asset allocation based on your age. 

There are three asset allocation models available in NPS Auto Choice. These are known as Life Cycle Funds, and they differ from one another in terms of how much money is invested in each asset class and how modifications are made as you get older. 

1. Aggressive Life Cycle Fund (LC75):

You can receive up to 75% equity exposure with the Aggressive Life Cycle Fund until you’re 35 years old. From your 36th year onwards, the NPS Equity allocation is decreased by 4% every year, and that money is moved to Corporate Debt and Government Securities.  

2. Moderate Life Cycle Fund (LC50):

It has been the default choice under the NPS Auto Choice option, often known as LC50. Up to the age of 35, if you choose the Moderate Life Cycle Fund, your highest equity exposure will be 50%. From your 36th year onwards, your NPS asset allocation towards Equities will decrease by 2% every year and get reinvested into CD and G-Sec.  

3. Conservative Life Cycle Fund (LC25):

The LC25 option is by far the most conservative of all the choices. The Conservative Life Cycle Fund limits your NPS Equity allocation to a maximum of 25% till the age of 35 years. When you turn 36 years of age, the NPS portfolio allocation towards Equities will decrease by 1% every year which gets reinvested in CD and G-Sec.

Withdrawal Rules After 60:

You are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered insurance firm. The remaining 60% is tax-free now.  

Early Withdrawal and Exit rules:

You must keep investing in your pension scheme until you reach the age of 60. However, if you have been investing for at least three years, you may withdraw up to 25% for certain purposes. 

These include, among several things, children’s weddings or higher education, building/buying a house, or self/family medical assistance. You can make a withdrawal up to three times (with a gap of five years) in the entire tenure. 

These limitations apply solely to tier I accounts and not to tier II accounts. 

Types of NPS Account:

Tier I and tier II accounts are the two most common NPS account types. The first is the default account, and the second is an entirely voluntary addition. The two account types are explained in detail in the table below.  

The National Pension System is a long-term investment that is designed to secure your financial security once you retire. Asset Allocation’s purpose is to assist you in creating an investment portfolio that minimizes risk while maximizing profits. Thus, selecting the appropriate NPS Asset Allocation will potentially help you in balancing wealth building and wealth preservation; so that you can retire without concern about your financial well-being throughout your senior years.

Account Opening:

There are two ways to open an NPS account:

• By visiting the POP-SP (point of presence service provider) which could be a bank branch, post office.
• Online through the eNPS website using PAN and bank details.

Written by: Arup Kr. Mondal

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Team, MyGoalMySip.

If I were to buy a house, though, I’d make a minimal down payment possible and borrow the maximum amount possible. Here’s why:

With a little forethought, I can not only retrieve my interest but also make money, making my home not only interest-free but also less expensive. Bear with me as I do some number crunching in this article.

Suppose I wish to purchase a home for Rs. 50 lakhs. I also have Rs. 15 lakhs to pay ahead. Therefore, I take out a loan for Rs. 35 lakhs.

Instead of a 35-lakh loan, I now take out a 40-lakh loan. It means I simply have to pay Rs. 10 Lakhs in advance! (Many banks and builders may approve it if you have a good credit score) 

At the present rate of interest, I’d pay a total of Rs. 33.28 Lakhs interest over 20-years.

This is where the fun begins: If I invest the remaining 5 lakhs on the day I start my EMI in a Mutual Fund that provides me an average annual return of 12%, the total return after 20 years will be 48.23 lakhs.

So, after 20 years of paying a total of Rs. 83.28 Lakhs (Down Payment + Principal + Interest) for a loaned home. My mutual fund investment of Rs. 5 lakh has already yielded Rs. 48.23 lakhs. As a result, the house will cost me Rs. (83.28 – 48.23) = 35.05 Lakhs!
The reason for this is that while a home loan is the cheapest credit available, with interest rates as low as 6.8%, smart equity investment can yield returns of anywhere between 10% and 15%. Over 20 years, the margin between the loan rate and the return rate compounds to provide a much higher return than the interest you pay.

Written by: CA Suraj Kar

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Team, MyGoalMySip.

While dealing with one of our clients, who is in her 70’s, we came to know that the bank branch which previously used to manage her wealth has dubiously sold her insurance policy disguised as bank FD’S and this is not an isolated case there are innumerable other cases, which is much worse.

In the above case, the beneficiary was uninformed and deceived, but there are other cases where the insurance agents sell substandard products to earn a higher share of the commission.

The insurance business is dependent on commission, and there is no secret to it. While buying an insurance policy, you need to know whether the person sitting at the other side of the table has the best interest of you or them.

Now the question is, how to go about selecting an insurance policy?

1. You need to identify your goals: Don’t go by the products but rather focus on the solution. Insurance products are designed to solve a problem, e.g., health insurance will help you cope up with the cost of rising medical expenditure. Therefore, depending on your age and health condition, you need to get a health cover for yourself or your family. A better approach would be to consult your financial advisor before getting one. Just because there’s a hot product in the market, which is selling like crazy, doesn’t suggest it would serve your purpose.
2. Understand the product and take your time to decide: Compare different products and understand the intended benefits it provides. Would you randomly go to a mobile store and buy a phone? I guess not. At first, you will compare its features, consider your budget, and then buy it. Similarly, in the case of insurance, understanding,  comparing, and taking time before making the decision is equally important. Also, the discount factors of policies should never influence your buying process. As insurance is a long-term commitment, it’s better to scrutinize everything and make rational decisions.

Do I really need it?

If I’m being honest with you, you only require two insurance coverage. The first is health, and the second is life. It’s better to avoid the rest of the floating policies in the market. I am pretty sure you have heard about the endowment plan and a bunch of ULIP plans, and what not? I can bet only a handful of people need these products; the rest of us would be better off avoiding them.

If these products are so shabby why are they being sold in the market?

The answer is very simple, they come up with an inherent feature of guarantee – ‘A guaranteed amount‘, and most people trade an optimal return for a guaranteed amount. Insurance is an expense and not an investment, so next time when you plan to get one, ask yourself if you really need one or not.

A Good Financial Adviser + Good Insurance Product + You = Life-long Commitment 

Your primary concern as a policyholder is that the insurance you purchased fulfills its purpose. 

Imagine a not-so-pleasant scenario: you or a loved one is experiencing a medical emergency, and you made an insurance claim that was either denied outrightly or was not covered. At that vital moment, it is only your advisor who will assist you in settling your claim. In case of your term insurance and get your family claim settled, ensuing hiccup-free experiences. Now you can notice that a lifetime commitment requires not only a product but also an advisor.

Till now we have covered the need for identifying goals, comparing and selecting a product, and also the importance of financial advisors, so we are left with one last important question, how to identify the right advisor?

A salesperson discusses the product he or she will be selling, which is an exciting new product that has recently entered the market as he is interested in the hefty commission and concluding sales as soon as possible.

On the contrary, an advisor would prioritize goals over the product, they will identify your need, and only if required they will ask you to get insurance. They will not be in a hurry to conclude sales and offer you enough time to take the final decision.

Most importantly, your financial advisor will be there for you every step of the way. Long-term relationships are more important to them than short-term profits.

Written by: Bappaditya Roy Chowdhury 

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Team, MyGoalMySip.

But, women tend to lag behind men in terms of gaining financial freedom and security, and the majority of them rely on men to make financial decisions for them about their hard-earned money. Honestly, it exacerbates the economic barrier and widens the gender gap already present in society because women lag behind men in all aspects of finances, with the biggest gaps in investing and saving.

Especially, women confront varied obstacles when it comes to retirement planning. For both men and women, the math of retirement is quite similar. But, there’s an obvious catch, as women are known to live longer than men and face additional challenges due to conventional gender roles; after the age of 65, they are more likely than men to be poor. But, women are more likely to be wise long-term investors too, who, I believe, can retire comfortably with proper planning and awareness of the challenges they confront. 

Challenges faced by women:

• Life Expectancy: According to statistics, a 65-year-old woman has yet another 20.7 years of life left, compared to 18.1 years for the average male. That means, regardless of age, women must save for more years of retirement than men. For example, in a married couple, there’s a good chance of the wife outliving the husband and being responsible for her health and household bills alone. The financial strain of not sharing expenses, combined with a longer life expectancy, makes it much harder to retain resources.
• The Wage Discrepancies: Indian society, as a male-dominated society, has a significant lack of women’s participation in the workforce and GDP. Studies conclude that females earn 20-29% less than their male colleagues. It is problematic because it can have a significant influence on your retirement. If your job offers a pension, you might also receive less retirement-saving assistance from your employer than your male counterpart, as it is usually calculated based on gross income. When there’s less money coming in, it can be hard to save, or save as much, for retirement.
•  Contributions in Finances: In India, most women leave financial decisions to their husbands. Even if their plan prior to marriage was to be equally active in household finances, it still continues to happen the other way around. It’s tempting to believe that it only applies to previous generations, but this isn’t the case. Women may be left out of the loop about domestic debt ratios and retirement security because they have little to no visibility into day-to-day finances and long-term planning. If obliged to manage everything on their own suddenly, they will struggle to keep things rolling. In situations of crisis like financial abuse or identity theft by a spouse, getting your own apartment, automobile, or bank accounts can also become next to impossible. That’s also a reason why it’s so important to keep track of your finances.

Women’s Retirement Planning Checklist: 

Take your steps now to resolve these issues and ensure a happy and healthy retirement life. 

#Step1: Play an active role & be involved: Married or not, start participating in the financial decisions, and keep yourself up-to-date on your household’s financial health. You don’t have to undertake every financial activity yourself (you might be too busy or prefer other chores), but you do need to be aware of what’s going on. Maybe, try scheduling a ‘money meeting’ with your family once a month or once a quarter for discussing finances and long-term plans.

#Step2: Plan & Strategize: With a strategy in place, you can boost your financial confidence, build productive habits, and solicit feedback on crucial issues that may have slipped your mind. Ask yourself questions like when do you want or when will you be able to stop working, how much can you save each year, or if you have any obligations, etc., which should also include health care expenses and taxes. Eventually, you will have a projection of how your retirement life would look, depending on how much you save and how your investments perform. Your plan won’t be thoroughly predicting the future, but it’ll guide you to spot problems, avoid unwanted situations, and increase your chances of retiring comfortably.

#Step3: Weigh the Risks of Your Investment: Women are more likely than men to be wise long-term investors, as they are less prone to respond to fleeting market movements and make a loss. If you’re overly cautious, you can miss out on long-term progress that could help you achieve your goals, and of course, being aggressive might backfire too and result in huge losses. The best investment mix for you is driven by your needs and wants. Certainly, the best course of action is to seek professional assistance.

#Step4: Make the Most of Your Money: During your working years, growing your wealth should be your top priority. Investing in equity funds (such as ELSS or company shares) is riskier than FD’s or PPF’s, but it has a higher potential of generating more profit. 

Conclusion: Financial independence and security, enable a person to continue living even in the face of financial difficulties and adversity. Today’s earnings may not guarantee financial security in the future. For a stress-free retirement, financial independence must be achieved early in one’s career and life. It can be accomplished only through prudent money management and sound financial judgments when it comes to investing and creating passive income. 

Written by: Arpita Chatterjee 

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Read Next: Behavioral Biases in Investing.

For more information, reach us at support@prudentwealth.in

Team, MyGoalMySip.

Mr. Joy advises him that he should make a plan for countryside holidays this weekend, so he can break free from routine life and enjoy a little, thereby reducing stress.

After his last call, Mr. Happy calls his other long-time friend Mr. Calm and discusses with him, the same routine life and stressful work.

Mr. Calm suggests that he should meditate a little in, the early morning before going to his work so that he can reduce his stress and feel peaceful all day long.

If we carefully look, then we find that both the friends have suggested options for reducing stress to Mr. Happy, but each one has a different approach.

It may be because of bias towards a particular type of trait & behavior, i.e., Mr. Joy is an extrovert & loves to socialize a lot, whereas Mr. Calm is a religious & peace-driven person.

In the same way, in the Investment world, we Investors show biases to a particular type of mentality, which is also known as Behavioural Biases, which leads to our Investment decisions.

Today we shall discuss some of them. Starting with:

Loss aversion: 

Meaning:

Averse means “having a strong dislike of”. We, as Investors, are Loss averse investors rather than Risk-averse investors. Loss aversion is a bias toward avoiding losses over seeking gains. i.e, We as Investors are more sensitive towards our losses than we are towards the equivalent amount of gains we make. 

For example, let’s say that Mr. A bought 6 shares of Paytm @Rs. 500 each totaling Rs. 3,000.

Now, let’s take 2 scenarios:

1. The next day the shares went from Rs. 500 to Rs 600. He gains Rs. 600 (Rs 100 * 6), or,
2. The next day the shares fell to Rs. 400. He loses Rs. 600. 

Here Mr. A will be more upset over the Rs. 100 per share lost in Scenario (b) then he is happy over the same Rs. 100 per share he gained in Scenario (a) i.e Upset> Happiness, for the same Rs. 100.

The learning here is Mr. A is willing to risk his Rs. 3,000 but he is afraid of loss, which implies that he doesn’t dislike risk but he dislikes losses.

Impact on Investing:

Often we hear that people don’t like to invest in the stock market or other asset classes, and their reason is “Share Market bohot risky hai”, which is true. But what they don’t understand is that by eliminating all risks, they are foregoing their probability of gains also. Loss aversion causes us to avoid small risks even when they’re probably worth it. This is why many people save money in their bank accounts rather than invest, even though inflation will erode the value of their savings, while many investments when held for long enough, pay off.

How to deal with it:

Start small even if you dislike risk. Don’t rely on emotions. Even if Rs. 500 is put in several stocks, it can give better returns than Saving Bank accounts. The BIGGEST risk is NOT taking risks.

Overconfidence bias:

Meaning:

Overconfidence bias is the tendency to see ourselves as better than we actually are. Where we are of the view that whatever we think is true and will happen.

Impact on Investing:

The problem with the overconfidence bias is that it makes an investor overestimate their abilities and knowledge. 

For example, often when we invest in a stock, some investors do their research which may be an hour of reading about some news about a particular sector, or about the stock in which we are considering investing. Based on that we may conclude that it will go up by some amount in the next 2 days (say) and we buy it. Often we may incur losses, and then we end up saying that the “Stock market is a gamble”. 

If we just think for a second that our one hour of research may mean nothing compared to the research a Portfolio manager or Investor or even a trader (sitting in front of the screen, the whole time during market hours) does and is going to put thousands and millions of Rupees into a stock. He may have far better quality & quantity of information than we as Retail investors have access to. Ultimately we over-assume our abilities and become a gambler ourselves.

How to deal with it:

For a novice investor, you may consider passive investing i.e., buy and hold the stock strategies, with a long-term perspective or, you may consult Retail Wealth managers (such as Prudent Wealth).

Herd behavior bias:

Meaning:

Herd behavior bias is when investors follow others rather than making their own rational decisions based on financial data. In other words when Investors move in herds of Sheep and are driven by a common behavior rather than rational judgment.

For example, often we have seen investors investing in a stock, just because their friend has bought the same stock or, they read that some ace Investor (say Mr. Rakesh Jhunjhunwala) has bought a particular stock, and they often sell a stock just because Some mutual fund has offloaded their position in that stock.

Impact on Investing:

We don’t understand that herd behavior can backfire, it can lead to financial bubbles, such as the popular Harshad Mehta scam of 1992. We don’t know the intention of the person we are following, and in the event of a crash, he may have access to better strategies to cut losses, than we have.

How to deal with it:

Don’t fall prey to the stocks promoted via SMS/Calls or by some random Internet forum. Always check for the companies fundamentals before investing your hard-earned money.

Written by: CA Dhiraj Kejriwal

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Team, MyGoalMySip.

The truth is more like either the parents have no idea about investments altogether because they think the mutual funds, stock market, real estate, and other investment vehicles are fatal, or they think it’s not important enough. Even the school system in India does not include personal finance in its syllabus. We end up not adopting the habit of saving money; even if we used to save money as children, we forget about it as we become older.

In the contemporary household, both the husband and wife bring in money, but somehow, the man oversees the majority of financial decision-making because, when it comes to finances, particularly investment, women have always taken a back seat.

While the widespread opinion, particularly among men, is that women do not know how and where to invest, women, too, are not optimistic in their very own monetary skills because of the lack of education and discussion, of course.

Women are considerably better at saving than men, but they are hesitant to invest since they don’t know where or how to begin. Although it’s a matter of debate, but, it is what it is! 

So, the question that arises is, should women also try to learn more about investing and embrace these responsibilities? If you ask me, they absolutely should. Here’s why,

1. Women outperform men when it comes to generating profits: 

According to several pieces of research, women’s portfolios outperform men’s. Women investors, for example, have achieved better returns than men every year from 2017 through 2020, according to a poll conducted by ET Money and published in March 2021. In fact, during the pandemic in 2020, they contributed 14 percent of the returns, compared to only 11 percent for men. 

2. They are more likely to succeed as investors because of their nature:

Women may be able to outperform their male counterparts in terms of investment performance due to particular behavioral traits. Women are more risk cautious than men, trade less frequently, conduct more thorough research, are more disciplined, and are less overconfident. As a result, they tread carefully, investing more in mutual funds than stocks; they stay invested for the long haul without frequent transactions and changes; and they are conservative in their asset allocations, avoiding knee-jerk reactions or abrupt redemptions. Women outpaced men by 0.94% every year on average.

3. They have a higher chance of achieving their goals:

If the wife invests, the husband can be confident that all of their financial goals will be met because women not only invest with an outcome-based approach but also with a longer-term perspective. It means that, because they are focused on the financial goal rather than the excitement of investing, they invest in a way that allows them to meet their objectives within the time frame allotted.

Let’s keep the conversation going by outlining the basic to-dos. So here are some of my suggestions, for you.

1. When a financial decision is being made, never accept a pessimistic or disapproving attitude.
2. Address major financial decisions in a more private and comfortable environment.
3. Start inculcating the habit of not making significant financial decisions on the spur of the moment in your family. Let everyone make evaluations and add new elements. Allow that conversation to continue for a while, a bit each day, before deciding.
4. Prepare the groundwork for the principles. Don’t get caught up in petty disagreements. Make sure your income and spending are on the same page. Build a sense of responsibility and accountability in the home.
5. Rather than interjecting with a buzzer attitude every time a spending choice is made, talk about your financial goals.

Written by: Arpita Chatterjee 

To learn more, get our Journal: PW Insider for FREE!

Read Next: How to analyze Mutual Fund Schemes?

For more information, reach us at support@prudentwealth.in

Team, MyGoalMySip.