Investing for your children? Invest in them instead

I often get asked about how I was able to positively influence my children into focusing at the right areas as far as their academic careers go. In reality much of it has been done by themselves, though I have been a constant presence. More importantly, I think many parents try to emphasise on the financial part of the education by investing for their children, so that they can pursue a course of higher learning, when the time comes. While this is definitely very important, a much more important aspect, often neglected, is what are you doing to invest in your children?

Whether we like it or not, parents remain the single most important source of influence for their children, till pretty much the teen years, when their peer groups and friends take over the role. If you are able to guide them properly and instil the right values in them during the pre-teen period then you would have done something really good for them. The mind of a child is akin to a blank canvas in the first 6 years after birth and this is really the right time to influence them in the right manner.

So how does one go about doing it? Well, for starters, even without any effort on your side, you have already played a role by just being their biological parents. The genes you have passed onto them will determine to a degree, how they turn out to be in future. In many ways, they will inherit your good qualities and unfortunately, most of your poor ones too. While this is something, you cannot do much about, how you come across to them is going to play a large part in the creation of their value system.

It is important to understand here that children learn the most from observing things. If there is a contradiction between what a parent is saying and doing, the child will pick up the second. Therefore, it is pointless to pontificate on the virtues of punctuality if you do not go to office on time yourself or are unable to keep some appointment you have fixed with your family. Yet, this is precisely what I have seen many parents do, time and time again. One of the key areas for you to look at as a parent is to achieve consistency between what you say and what you do. This will instil a core value in your child – words are important to honour, and your credibility as a parent will also be on a good footing.

So, in very simple terms, be a living example for your child. Whatever attributes you want him to pick up such as good manners, usage of proper language, honouring your commitments etc, must be things he sees and observes in you with unfailing regularity. Falling short of the standards ourselves and then complaining that our children have not grown up to be like how we wanted them to is really meaningless. 

How can you play a role in personality development of your child? The problem is most parents try to focus on what career they want their children to have, rather than what kind of individual persons they should grow up to be. Focus on the process and the outcome will take care of itself. Give confidence to the child that he/she can attempt all that they want, it is all right to fail at times. Our role as parents is to guide, provide for and facilitate – leave the acting to themselves. Building the self esteem of the child is really the most critical aspect of their growing up and we must never forget this. So, be it in studies, sports, music, reading or any other activities, encourage the child to try out the best possible and do not be worried about the results.

Specific to academics many parents get very agitated if their children are not doing well in school in terms of the marks that they get. It is important to be ambitious for your children but, here again, focus on the process and not the outcome. Try to guide them into being interested in what they are learning, once they are keen on that their efforts will be automatic and the results will follow. For example, if they develop an interest in Maths they will do well in it at whichever level they study it. Unfortunately, way too often we focus on short cuts, not realising that even if this brings in some short term results, the effects of these are not going to be lasting.

At the end though, you also need to steer them in the right direction when they falter. This will inevitably occur in their teens, when they are confused and a little insecure about how fast their world is changing. As a parent, you need to help them focus on the important stuff. I keep reminding my children that while college life must be fun and they need to have their fair share of it, it is also a crucial stepping stone to their future careers – one that needs to be on a firm footing. I think I recognise the potential and capability of my children, it is important for me to point it out to them.

Of course, in terms of directly being involved in their academic careers, I have been so from their early school days and continue to do so to the extent possible even today. I have been able to do it as they have chosen streams where I have a great deal of knowledge. However, even if they had studied Medicine or Commerce, the basic principles would have remained the same.

To summarise, help your children to become better human beings and they will be successful in whatever they choose to do. Even if you have not got their college fees covered, they can always get an Education loan. The question really is whether they can secure admission to a good college – that is something you can play a role in.

Is a B school education worth it?

March is that time of the year when B school fever is at it’s peak. Most of them have had their placement season’s, leaving some outgoing students ecstatic and others rather forlorn with the job options they have landed. Throughout the country, a lot of activities are going on with the new admissions. Finally, the first year students are looking forward to the summer internships – their first exposure to significant money in corporate world.

To several students and their parents, B school education is like a holy grail that promises a lucrative career like nothing else does. The type of admission seekers we have to the B schools can be roughly divided into the following categories:-

  1. Students just graduating from college who are looking forward to earning more qualifications that will lead to better job options.
  2. Young people in the first 1-2 years of their careers and not liking it much.
  3. People in their careers for 4 plus years who are not able to see much career growth in the future – this is especially true for IT professionals.

If we simply go by available data then there is no doubt that an MBA degree from a B school of pedigree will definitely help in terms of getting the kind of initial breaks like no other alternative. People in all 3 categories listed above will see significant benefits to their careers and exceptions are rarely there. However, there are a few caveats which these people will need to keep in mind:-

  1. Selection of the right set of B schools and your ability to get into one of these are important considerations. Remember, the top 20-30 B schools will give wings to your career, the rest may not be so hot.
  2. Irrespective of which B school you get admitted to, you have to evolve as a professional manager and present yourself well in corporate life, both at the time of interviews as well as thereafter.
  3. Learning is a lifelong activity, a good B school will set you on the path but you have to traverse it through your career.

So if we broadly agree on the efficacy of doing an MBA from a leading B school, the question is where do you do it from? Let me try to answer it by a ranking hierarchy I have for the B schools when I advise students and others who seek my counsel.

  • IIM Ahmedabad, IIM Bangalore, IIM Calcutta.
  • IIM Lucknow, XLRI, FMS
  • IIM Kozhikode, IIM Indore, SP Jain, MDI, IIFT
  • IIT B schools, IIM Shillong, Other IIM’s
  • Newest IIM’s, Good private B schools

If you are able to get your MBA done from any of these you should be fine. Any other places can also be OK but then you are depending more on your ability as an individual to do well and not so much on the institution’s brand power to get you started.

How much will all this cost? Well, the figures can range from 10 lacs to 25 lacs for a 2 year education. FMS is the cheapest among the lot and XLRI is currently the most expensive. Fortunately, this is not too much of a problem as there are many banks which will give you loans covering the entire cost of education. The pay back will really not be a problem even if you are able to get a reasonable paying job and, for most people, the loan can be squared off in the first 3 years of their careers or so.

How much does one earn? The range can be quite wide and is obviously depend on which B school are you from. For the top B schools an average or median salary can be around 20 lacs per year in India. The highest domestic salaries can go upto 50 lacs or so and the salaries outside India can be 1 crore and above. More importantly, even the lowest salaries in a good B school will rarely be less than 10 lacs a year.

So, if you have the aptitude and the ability to get into one of the top notch B schools of the country, it is always a good idea to try for it. Remember, it is hugely competitive and ,unless you are blessed with the benefit of reservation, the elimination process is rather brutal. I was just in an IIMC panel the other day and we could recommend only 3 out of the 20 general category candidates we interviewed. This was after all of them had scored more than 99.5 percentile in CAT.

But that is life for you – to get the best you have to be the best too, more often than not.

What does being wealthy mean ?

In many ways life is a race and we are all participating in it to reach completion. Fortunately, unlike in a real race there isn’t only one winner here, each one of us will end up at different positions and all of us can choose to be happy or unhappy about it, depending on our expectations and our actual achievements.

If you have studied Maslow’s hierarchy of needs, you will understand that the driving force for most middle class or upper middle class people should really be self actualisation, at least after the other levels of needs to lead a reasonably good life are met. This will also explain why many of us are dissatisfied about our lives, even though we may be doing well in the financial context. Wealth definitely has a financial dimension but it is really a whole lot more than that.

Think of it in terms of the scenario below in order to understand this better :-

  • You have a 5 year old son and your worry is to get him to a good school which hopefully does not cost a bomb.
  • Based on your reading of all the Facebook groups and books written by people you believe in, you invest in MF through SIP for his college education.
  • When the time comes for college, if he does not get through his own ability into a good one, you stretch yourself by paying capitation fee in some private college.
  • Beyond graduation if he does not get a decent job you again look at PG etc.

You will see that in all of this, money plays a very minimal role, though it is important. Even if you did not invest for his college education through MF etc, he could still continue his education through loans etc, assuming he has the capability to get into a good college. The real investment here is therefore, how you have guided him since childhood to attain the standards required for getting into a premium college. If you have that ability then you can consider yourself wealthy not otherwise.

The bottom line therefore is that you are seeking some outcome or you are being sought out by others as they feel you can add great value to them – this makes you wealthy. Very often such skills or knowledge can be used to earn money but even if you give it away without any monetary benefit to yourself, it still makes you wealthy. For example, when I write my blog and as a result, several people interact with me for advice, it definitely gives me a feeling of being wealthy.

When I was thinking about the times when I have genuinely felt I was wealthy, I could think of the following situations:-

  • My ability to do things which are important to me such as travel, attending sports or other cultural events, sampling different types of cuisine etc.
  • The luxury of time I have had earlier and today to read up on any subject I like.
  • The success of my children in their school, college and a variety of other areas which give me the feeling that I have brought them up well.
  • Mentoring of hundreds of my erstwhile colleagues, many of who are working in leadership positions now, in the corporate world.
  • The mentoring which I do with many IIM aspirants which has played some part in their getting admitted to these institutes.
  • The professional work in Consulting I do with SME companies in order to help them scale up from where they are today.
  • The fact that many people look up to me in different ways is a source of great pride and joy to me, which in turn makes me feel wealthy.

In several ways, being wealthy is really the ability to give in order to make a difference to the lives of other people in your personal or professional sphere. Money is definitely one medium of distribution but there are many others. Importantly, it is an ongoing process you do not need to wait for it till you have finished your work life or have assets of a few crores etc. Start in whichever way you can and to whatever extent possible, you will feel the power of being wealthy quite soon.

If you were to look at yourself and ask if you were wealthy, what will your answer be? If you want to share it with me, I will be happy to hear it.

Experiences and money – my take

As I am writing this blog post on Monday, sitting in our unit in Karma Chakra at Kumarokom, I cannot but feel somewhat philosophical. I think it partly has to do with the backdrop of the beautiful Vembanad lake which stretches out in a seemingly endless manner and can be viewed really well from our balcony. So instead of the usual investment related post, let me write one on the quality of experiences and whether you need to have a lot of money to spare if you have to undergo these experiences.

Let me start by admitting that some experiences you seek will definitely require a fair amount of money. For example, if you are keen on visiting the Swiss Alps or the Great Barrier Reef in Australia, you will need a certain amount of money to get there. If you do not have that amount then you simply cannot do it and need to accept the same. However, even here the kind of experience you seek will define the quantity of money you need to have to go through it. So you could go to Australia with 2 lacs or do the same thing for a much higher price.

The concept that we must understand here is what you consider to be the core of the experience versus the peripheral frills. It is much like the cake and the icing concept – the icing looks attractive, tastes good and enhances the whole experience of having the cake BUT it does not really decide the quality of the cake. The core of your experience is like the cake itself, the associated frills are akin to the icing. So it really boils down to the kind of person you are and what are you temperamentally suited to. Is the movie important to you or do you want to lie down in a sofa while seeing the movie?

Let me explain with an example that happened just today morning and led me to think about writing this post. Many of you will know that the backwaters of Kerala and the Vembanad lake is famous for the different kinds of boats that ply through them. You have simple rowing boats, ferries and also the large house boats that come with all kinds of comforts and trappings from air conditioned bedrooms to authentic Kerala cuisine which is prepared in the boat while you relax. Now, if you have not been to one of these Rice boats or Kettuvalams, I will recommend you do it once in your life. It is an unique experience and will stay with you life long. In one of our visits to Kerala earlier, we had taken one such boat from Aleppey and enjoyed our overnight stay immensely. This was about 15 years back and it had cost 5000 Rs then – expensive but entirely worthwhile. Note that in this case, the experience we were seeking as a family was being in the House boat and having an authentic Kerala backwater experience. Here the House boat was very much part of the cake itself and not the icing.

Cut to the present – Lipi and I are visiting Kumarokom after a long time and our resort is right on the Vembanad lake. The location of the resort is breathtaking and you can have your fill of the Vembanad lake, including the surreal sunsets and bird watching. Now this resort has a House boat of it’s own which they rent out to the guests, either for overnight or for a 5 hour lunch cruise. The cost of the first is 17,500 Rs and the second is 9000 Rs. It is a happy situation that we can afford to spend the money, but should we? Going by the cake analogy, what is the cake here? For me it was clearly to experience the Vembanad lake and getting closer to the birds to watch their hunting of fish. Yes, it could be done very comfortably from the house boat, but the rest of the facilities there were really an icing.

We chose to visit a local boat jetty reasonably nearby where there were ferries plying from Kumarokom to Muhamma. It was a great slice of local life, with people driving onto the ferry in their bikes and getting to see the regular inhabitants of Kumarokom. The ferry transported us from one end of the lake to the other in about 45 minutes on way. Through the whole journey we got a great view of the Vembanad lake, got to see the water birds at really close quarters and I can vouch that the experience I was seeking was fully met by my criteria – luxury was of course nor one of them and neither was it available. Note that the core requirement had changed from our earlier backwater cruise as I had already experienced it once before. The cost here was obviously a trivial one – tickets were only 10 Rs each on the ferry and we ate at a local bakery close to the jetty for 200 Rs.

So next time you are looking at an experience, separate the core from the extraneous. If you can afford designer holidays and want them then go for it by all means. However, if you love travelling do not deny yourself just because you cannot do it in style. You really do not need an upscale seaside resort to enjoy the views of the sea, nor do you need a private beach to enjoy swimming there. I think many of us are unable to separate the cake from the icing, so I will give you some examples here :-

  • If you like reading, become a member of a library. Do not give up reading just because you cannot buy all the books you want to read.
  • If you want to visit a place but cannot afford the rates in peak season or in the popular resorts, check out home stays and other less expensive hotels.
  • In case you cannot afford the local cuisine in a 5 star joint, check out the local eateries for the same – many of these will be as varied and taste good too.

Coming back to this trip and separating the cake from the icing, I will conclude with how I have looked at it :-

  • Our stay at Karma Chakra is really the cake – we wanted to stay in a comfortable place and have planned for it over the years through our Timeshare investment.
  • Our travel to Kochi by air was also the cake – read my post on air travel to understand more on this.
  • Experiencing Vembanad lake is the cake and doing so by house boat is the icing.
  • Experiencing good food is the cake – we went to a local hotel yesterday with some friends where the local food quality was superb. It was not really inexpensive but clearly lacked the frills of a high class restaurant. Our resort has one such eating place and we are happy to eat there as well.

The point is have both the cake and the icing as your experience if you can afford it. But too often in life, we ignore the cake because we cannot get one with an attractive icing. Maximise the number and quality of your experiences within your means and you will be leading a much more meaningful and happier life.

My expense audit for 2016

In the last post I wrote about the experiences in 2016 and how they have enriched the lives of me and my family. While I do believe that the best things in life are free, many things do cost money and one needs to plan for it and also keep track of it. I have now done an expense audit for 2016 and some of the results were definitely surprising.

To begin with, this has definitely been the most expensive year of my life so far. While that by itself was kind of expected, I did get jolted by the extent of the spending. As you can see from my 2015 audit, last year was significantly more expensive than other years, therefore a high growth on that already elevated level is a little worrying. A closer look at the expense categories and my earlier assumptions reveal some rather interesting highlights.

My assumption that Rinki would finish her Graduation in 2016 and subsequently join a job did not hold true but I was quite happy to be wrong here. On the balance, I had always wanted to do an MBA from a good B school immediately and this was probably because I had taken the same route 3 decades back. Her excellent result in CAT and the superlative result in XAT, were kind of an icing on the cake. She was very happy to join XLRI over IIM Kozhikode or a job in Accenture which she had got. XLRI is the most expensive B school in India today and the overall costs for 2 years would come to about 24 lacs. We went through a lot of discussion about how to fund it and, while our initial plan was to take an education loan for the entire amount, I finally decided to part fund it. This would leave her free to choose her own path without being burdened by the entire loan. Thus we took an Education loan of 12 lacs from the SBI branch at XLRI, and decided to use it in the second year largely to mitigate the interest costs.

The upshot of this was my having to spend about 12 lacs in this year for Rinki’s education, which was completely out of the earlier estimates. For Ronju the costs were lower at about 4 lacs and this was part of the spending plan. If you look at the total spending it will be about half of our total expenditure in 2016. I am quite liberal about what my children spend in college as long as they are having fun in a responsible manner. After all, these are the best years of their lives and there is no point in not enjoying them.

Rent was the next highest category in terms of expenses, it did increase a little as compared to 2015. However, that was not much of a concern as it gets covered by what our Chennai apartment rental earns. Travel was the next category – we had been to a lot of trips in 2016, some for pleasure others for needs like Rinki’s admission etc. I always consider this as money well spent and such experiences enrich your living , not to speak of broadening your mind. If you are interested you can read about my travel experiences in other posts of the blog. 

Insurance was the next category – I have an LIC policy, one ULIP and one Pension policy apart from the Health and Car insurance. Have never had Term insurance as I did not see a point in my situation. Subscriptions to our Timeshare, where we got ourselves upgraded to the next category, along with services such as Library and internet etc was the next one.

Our discretionary purchases for the home was fairly high this year. The furniture we had was age old, though of very good quality. After the uncertainty of the past couple of years where we vacillated about moving from Hyderabad, we decided to bite the bullet this time. Replacing our Sofas and Dining table along with buying some Balcony chairs and Table set us back by about 75000 Rs. I went ahead and bought an Android TV from Sony too, the deal being sweetened by the cashback from credit card and the exchange of old TV. We also bought a new phone for Lipi and replaced our Tata Sky set top box with the HD variety.

So, on the whole it was a great year full of good events and experiences along with some asset replacements. The cost of all this in terms of our total expenses would be as below:-

  • Children’s education + other expenses  : 50 %
  • Rent : 9 %
  • Travel : 8 %
  • Memberships + Subscriptions : 5.5 %
  • Insurance : 5.5 %
  • Cash expenses : 4.5 %
  • Asset purchases : 3 %
  • Taxes : 3 % 

I did end up spending a whole lot more than my plan for 2016, much of it due to changed assumptions and discretionary purchases. Fortunately, my earlier plans of keeping a separate account for the higher education of my children came in handy and I did not need to redeem any of my investments.

But more of that in the next post, when I talk about my income audit.

How does one pursue happiness?

If you ask most people what they would really want to achieve in their lives, the answers will vary over a spectrum. However the most frequent answer is unlikely to be money or fame – it is equally likely to be happiness. This is not surprising if one considers the fact that earning money or acquiring any material possessions, is all done with the ultimate objective of being happy.

While the above is intuitively easy to understand, the ways and means of being happy varies widely from one individual to another. Over the years, I have come to the conclusion that happiness is really the sum total of all the good experiences that a person has had in his or her life. These experiences will, of course, differ between people and the value each person puts on such experiences will also be unique. For example, an athlete will find it a supreme experience to breast the winning tape ahead of the others, an actor may feel blessed on winning a critic’s award, a mother may feel the happiest on seeing her child for the first time and a father may be ecstatic when his children achieve something great. Even though the happiness is our’s it will very often be linked to the achievements of some near and dear one.

So how does one pursue happiness – I have a very simple way to look at it. So much so, that many others have expressed grave doubts as to whether it is possible. However, it has worked for me and will probably work for all others too, if applied honestly and properly. As happiness is the end result of enriching and good experiences for the individual, the basic requirement is to engage in things that make you feel good about yourself. For example, a soldier may feel good about a fitness drill, a cricketer may feel good about net practice and an author may feel good about conjuring up a complex plot. The corollary of this is also simple – if you are not doing activities on a regular basis that make you feel good about yourself then you are unlikely to be happy. This explains why many people are not happy with their jobs – they do not feel good about doing what they do day in and day out. The best fit is of course when you have a job that lets you do what you want to anyway.

I have applied this formulation to myself and looked at experiences which make me happy and instances when I feel good about myself. This requires a fair bit of thought but each one of us will be able to arrive at their own list of things when they put their mind to it. For me the list is as follows, in the order of priority. I feel good about myself, when:-

  • My sharing knowledge with others help them achieve something.
  • My grooming of my children contribute to their academic and personal success.
  • My mentoring of colleagues have helped them become successful professionals.
  • I am able to spend quality time with my wife.
  • I am able to contribute to some deserving cause, monetarily or otherwise.
  • I get the opportunity to learn something new and useful.
  • I succeed in a complex business situation through my knowledge and initiative.
  • I travel to different parts of India and the world.
  • I am with friends in a casual atmosphere with no time deadlines.
  • I am able to read good books of all kinds, eat a variety of food, see some good cultural performances and watch all kinds of sports live or on TV.

So my happiness in life will depend on whether my time being spent is linked to experiences which have the above characteristics inherent in them. If my time is in areas completely different from the above then there is a problem.

What are the times you feel good about yourself and is your current lifestyle having a good amount of these? Only you can think about this and see why you are happy or unhappy.

Expenses = Income – Investment ?

When I was starting out in my career and had some money to save, the financial equation prevalent at that time was ” Savings = Income – Expenses”. This made sense in those times 25 plus years back, when most savings went to fixed deposits and LIC with only a handful of intrepid people investing in the stock markets. Over a period of time, with more options available to put your money in and a distinction being made between investment versus savings the equation changed to “Investment= Income – Expenses”.

This was intuitively simple to understand. You earn money through income and then spend money for expenses. The surplus amount you have is channelized into investments for meeting your future financial goals. Over a period of time as financial products industry grew stronger, a new profession of financial planners got established, new modes of investing like SIP in Mutual Funds came into being, there was a concerted attempt to turn the equation on it’s head. The logic primarily went like this – you need to plan for your goals first and need to ensure that your future life is good, even if it means you have to cut corners for now. Complex calculators, built in with mostly wrong assumptions, try to convince you that unless you invest heavily right now and keep doing it, there is no way you will be able to manage anything in future. The outcome of all these efforts is to twist the above equation as follows : ” Expenses = Income – Investment”.

What does this really mean? You are being told that your first priority is investment, so much so, that you need to get it done every month as soon as you get your salary or other income. You will then have to manage your expenses out of whatever is left. Now, this will not be an issue for people who have an income high enough to invest the required amount, as they would still have a lot left for expenses. For these people, it does not really matter how the equation is written, it will work any way. Unfortunately, for a vast majority of people this is really not the situation. For them needing to invest a certain fixed amount mandated by their financial planner or calculators mean that they are not able to have much leeway for any discretionary expenditure at all.

Let me explain through a real life example. One of my readers wanted me to advise him on his current plan. The basic information gathered from him, made very interesting reading:-

  • His post tax income was 1.5 lacs, not low by any standards.
  • 50000 of this was going to the home loan EMI which has 5 years still to run.
  • 10000 was going to PF and another 40000 to SIP through MF.
  • He therefore had only 50,000 available. Out of this about 25000 went to the schooling and other expenses of his 2 children.
  • This left only 25000 for other expenses and he therefore had little or no room for any discretionary expenses. The family had not been for a good vacation in years and has to depend on any bonus etc for making any purchases of Durable goods.

Much of this was because he had boxed himself into thinking that the recommendations from his financial planner were mandatory. I was able to show him rather easily that there were much better ways of making an investment plan which will allow him enough surplus cash to spend on activities he and his family really wanted to do. With the kind of income he was having, it is absurd that they could not go for vacations etc.

While I can explain my recommendations in another post, the key thing to understand is this. You first need to lead the life that you and your family want to. There is nothing like “paying yourself first” through investment. You are paying yourself first when you are spending on activities or items which are important for you and your family. Yes, you should not be reckless in spending but then, most of us are not like that.

So the equation is very much “Investment = Income – Expenses” and not the other one which has been cleverly concocted by people having serious vested interest. If this results in your not being able to invest enough, there are other solutions to it.

Will take up that issue in another post at a later date.