The transience of life

When I was in class X at St Xavier’s School, Durgapur we were taught the Shakespearean play Julius Caesar as part of our ICSE curriculum. I consider it the best work of the Bard and it is full of memorable quotes that had made an indelible impression in my formative mind. The part I best liked was the one where Caesar’s wife, Calphurnia, is beseeching Caesar to avoid venturing out that day, citing the several omens that had occurred. Caesar’s response to it is an all time classic :-

Of all the wonders that I yet have heard, 

It seems to me most strange that men should fear,

Seeing that death, a necessary end,

Will come when it will come.

I do not wish to be morbid but it is a given that all of us will die, some earlier than others and some later. Given that this is an essential truth, it will seem logical that all of us should try to add value to our own lives and that of others while we do live. However, it is really not so for most people. Many of us are obsessed with some facets of life and hold ourselves back from enjoying life fully. Once common fallacy is that we need to be focused on financial responsibility and therefore cannot indulge in some of the things that will greatly add value to our lives. The sad part is that life, as you know it, may well be over tomorrow morning. Let me give you some examples, which brought home this truth to me powerfully over the last one year :-

  • In a get together of our school friends, I was shocked to learn that many of their parents, who I knew very well while in school, have passed away. I felt rather fortunate that my parents are still there and in reasonably good health.
  • When I shifted from Delhi to Chennai a Recruitment consultant had helped me find the job in Sify. Got to know last November that he had passed away, he was only 55.
  • In our school we were a batch of 70 and this has already seen 4 deaths.
  • Look around yourself and you will see examples of people passing away suddenly and unexpectedly.

Death and taxes, it is said, are the only certainties in life and in the Indian context the former is the unique certainty. Therefore, it makes a lot of sense to do worthwhile things in life in an early part, give yourself time and money in the end and finally find time for things you genuinely enjoy. I have tried to do this to a large extent in my own life, though I do not claim to have all the answers. A suggested blue print could be this :-

  • Focus on building your knowledge and skills through education in the early part of your life. However, if you enjoy sports or any other hobbies and are reasonably good at it then you must take it up. Find time for it, can always be done.
  • While making a living is important, do not get into believing that work is your life as that will be a very sad way to view it. Strike a balance – you work to earn money so that you are able to do things you genuinely enjoy doing. It could be reading books, watching plays, acting in group theater or traveling.
  • Children do need to focus on education but do not make them one track people, there is a lot more to life than school marks and college grades. Spend time with them to understand  their potential and try to develop the same. As parents our responsibilities should be to enjoy our time with the children when they are young, they do grow up very fast and will go away long before you want them to.
  • Unless you have a venture of your own or are really passionate about a profession, try to organize your finances in such a manner that you are financially independent by 45 or 50. This will give you enough time to do the things you love and enjoy while you are still physically fit. If you do a job till you are 60 then you will have very little energy to do other things in the rest of your life.
  • While it is impossible to get a general blueprint for everyone, for most in modern India who want to get professional qualifications and work thereafter, follow this :-
    • Focus on Education, sports and hobbies till you are 22 or 24 depending on what qualifications you go for. This is the time to build skills and value to yourself.
    • Focus on your career for at least 4-6 years before you think of marriage.
    • Between 28 and 48-52 focus on your career and your family life simultaneously, making sure you have a rich life as a professional and as a person.
    • If you do things right then by this time your children will be in college and you will be financially independent. Once this happens, you can figure out how you want to spend your next few years.
    • At this time arrange your finances in such a manner that you can live comfortably without having to depend on any active income.

Living life well is important as it is the only one we have. Making it useful for others will make it worthwhile, but we first need to take care of ourselves and our families before we can think of others. As such the earlier we can get to financial independence the more chances we will have of being of use to others.

You may want to read several other posts in this blog to understand how you can achieve the above.

 

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My cash flows and investment plans in 2019

The start of a new year is always full of excitement and hope. There are new opportunities to explore and you hope for a lot of significant events to take place in the year, irrespective of what may ha e happened in the earlier one. In my previous posts I had outlined how 2018 was a fairly poor one both for my own active income generation as well as for the markets. In this post let me talk about my plans for 2019.

One must always start with the cash flow outlook for the year. Fortunately, with both my children becoming financially independent of me now, courtesy their careers, my major head of cash outflow is gone now. Currently their college education fees are all done and even though Ronju may get into a B school sometime in the future, we can always look at it through Education loans. On the flip side our expenses on travel are ever increasing due to the number of trips as well as the way we travel. Last year we had 2 vacations outside India, 2 full vacations in India as well as several shorter trips for leisure or family issues. 2019 looks similar as we already have a planned visit to Phuket in March. Our children are fortunately staying with us now though that may change through the middle of the year. Based on all these I am looking at cash outflow in these terms :-

  • Regular household expenditure likely to be in the range of 6 lacs
  • Travel expenses can be estimated at 3.5 lacs to be on the safe side.
  • Family support will be in the region of 2 lacs.
  • Rent for our Hyderabad apartment is around 3.5 lacs.
  • So overall cash flows required will be in the range of 15 lacs

Against these the cash inflows I am expecting in 2019 are as follows :-

  • Interest from Tax free bonds, InvIT funds and POMIS will be about 4 lacs
  • Dividends from Stocks and Equity MF schemes will be about 4 lacs
  • Capital gains from FMP redemption will be about 3 lacs
  • Rental income from our Chennai apartment  will be about 3.6 lacs
  • Income from Debt funds and stock trading will be about 1 lac

The above looks good but what if the markets continue to do badly and the dividends dry up? Well, as a backup plan I have the PPF accounts of both me and my wife. At present it earns about 5 lacs in interest per year and I can dip into it if needed. Another way could be to redeem some of my Debt MF schemes, to the extent I need the money. A final option will be to sell some stock that is doing really well but I do not feel this will be needed.

What about investments then? Well, in my present stage of life I am not looking at too much investment obviously. Even then, I had started a secondary stock portfolio in 2018 and have invested about 7 lacs in it so far. My idea is to let this portfolio grow and also do selective trading in it, something I have wanted to do for a long time. I do not want to do this on my primary stock portfolio where the plan is to have it for the really long term. Based on all of these the new investments I plan to do in 2019 are as follows :-

  • 3 lacs in the two PPF accounts that we have.
  • Put all FMP redemption money in Hybrid funds – this will be about 10 lacs in the year 2019. Part of this may also be used in my secondary stock portfolio.
  • Build the Secondary stock portfolio to at least 10 lacs by putting in a minimum of 3 lacs in this year.
  • Look at any interesting NFO themes as they become available.
  • Keep adding to my Primary stock portfolio based on available money.

Where will the money for this come from? Well, what ever income I have from my Consultancy services will all be invested in above avenues as my passive income is adequate to take care of my cash flow needs.

So things look rather good right now, hoping that the markets will recover this year !!

Financial Independence at 41 – A reader query

India is truly a land of great contrasts. On one hand we keep hearing about difficulty in getting jobs and job losses in a variety of sectors. On the other hand we see people just coming out of colleges getting salaries that their parents did not get even when they retired. The vast majority are forced to work till very late in their lives, yet we have some who plan to retire at a relatively early age. In this post I wanted to share about a reader who wanted to check with me as to whether he could retire at 41.

This person, let us call him Ravi, is atypical in many ways. He is currently employed and is 27 years old. Even at this young age he is clear that he would like to pursue his passion seriously when he is 41. So much so, that he is unwilling to get married and start a family, which he feels will hinder him from achieving his goals. His parents are also self sufficient and have even contributed to his NPS till he got started in his job. The objective of giving this background is simple – I want readers to understand that not all of us can look at this plan, most of us have families and will need a whole lot more to run our lives as well as to retire.

With that proviso, let us look at Ravi’s current situation :-

  • His current NPS balance is 9 lacs. We will assume he keeps it at this and lets it grow at a rate of 10 % every year. He will have 34 lacs in 14 years time.
  • His monthly surplus is 60000 Rs today. We will assume it stays at this level for 6 years and then goes up to 90000 for the rest of the period.
  • We will assume that his Equity to Debt allocation is 60:40. So for first 6 years he will invest 40000 per month. This will lead to 1.7 crores in 14 years at 12 % return annually.
  • For next 8 years he will invest 58000 in equity every month. The extra 18000 for 8 years will add up to 29 lacs at 12 % rate of return.
  • For the debt allocation, these figures will be 62 lacs and 16 lacs at 8 % annual return.
  • Ravi’s total corpus when he is 41 years will therefore be 3.12 crores.

Let us now look at how much Ravi will be needing :-

  • As he lives in a smaller town his current expenses are only 25000 Rs per month or 3 lacs annually.
  • At 41 we can assume this to be in the region of 7 lacs annually.
  • Let us assume Ravi will live for another 45 years from 41. At a conservative level his corpus should be 45 x 7 lacs or 3.15 crores.
  • How should he deploy his money so as to get a passive income of 7 lacs annually? In this case as he has enough money, so keeping it in any instrument which matches inflation will suffice. However, as a good financial practice he should deploy his money as suggested in some of my blog posts earlier.

So, Ravi can retire at 41 which is great for him. What works for him is lesser responsibilities and ability to invest a lot at an early age. His parents have also contributed to his NPS which adds up. People with wife and children will find it really hard to retire at 41. However, something like 50 is still quite possible.

I will be happy to receive and answer any queries that the blog readers may have.

 

Read for HELP

I have been writing this blog for over 3 years now and one of the most common queries that I get from readers is whether I provide any Financial Planning services. Let me be upfront about this at the start – I do not provide such services in the way they are normally understood, nor am I a SEBI registered Financial Planner. In fact, I have absolutely no intention of being one too as I do not see this as my profession.

However, I do provide a service to select people who approach me directly. I have given the acronym of HELP to it. The expanded form is Holistic Engagement in Life Planning. In this post I will explain about this service and explain as to how interested people can avail of my services for this. As I have explained in several posts of my blog, life planning must precede financial planning. As an individual or as someone responsible for your family well being, you will need to plan the important life events as well as the lifestyle choices you want to maintain. Note that the typical financial planning process assumes that people will by and large plan for typical goals such as children’s education, marriage, own retirement etc. I find this a completely unsuitable way of doing things as the life of each individual is unique and needs to be catered as such.

So what is HELP then? As I said, the starting point is to take stock of your life in terms of where you are today and what are your dreams as a family – individually and collectively. So if you are a family of 4 with two teenaged son and daughter, your dreams could look like this when you are 42 years old :-

  • Son wants to take up a career in Bio technology, daughter wants to be a film maker.
  • Your wife is 38 and gave up her career for her kids 10 years back – she now wants to open up a boutique of her own in the next 3 years.
  • You are interested in starting your Consultancy practice by the time you are 50 and for that you need to be financially independent.
  • All of you like travelling and want to take a domestic vacation every year apart from short trips and also an international vacation every alternate year.

The idea of HELP is to bring out these life goals and lifestyle choices clearly, so that it can be determined what kind of financial support these would require and how can that be organized. Yes, the last part will involve financial planning but it will be in a very different way than just how to buy MF through SIP etc. 

As I said, I have provided HELP to several people and all these were people who have approached me after reading my blog. Some examples will make interesting reading:-

  • Advised a Colonel in Indian army as to how he could fulfill his dream of migrating to Canada in a teaching role.
  • A software professional in Kolkata was worried about longevity of job and worked out an alternate plan should such an event occur.
  • Got several people started on building a stock portfolio from scratch.

Note that in all of these cases, the people already had a financial plan made through a SEBI accredited Financial planner but they were not happy with their life and lifestyle.

The question that will definitely be asked is why am I the right person to do this? Let me start by giving some background of myself :-

  • BE in Computer Science & Engg from Jadavpur university, Kolkata in 1986.
  • PGDM from IIM Calcutta in 1988, with major in Marketing and Systems.
  • Overall experience of 30 years plus, 27 years in regular corporate roles and nearly 3 years now in my Consultancy practice.
  • I have worked almost entirely in the software services and BPO space.
  • Have worked as a CXO for 15 years plus, nearly half of this in 2 publicly listed companies.
  • Lived in Kolkata, Delhi, Chennai and Hyderabad besides having travelled widely all through the world for my work.
  • Have been financially independent since 2014 and writing a blog since 2015 June. The blog has had views in excess of 3.5 lacs till date.
  • My daughter is BE from BITS, PGDBM from XLRI and working in a Consultancy firm now. My son is in his final year at BITS, doing a dual degree – Msc Maths + BE in Computer Science.
  • I am associated with helping students in career counselling for Engineering / MBA.
  • Am in the Hyderabad panel for IIMC admissions.

I believe in the Indian context, I am one of the few people who are able to deliver a service such as HELP. This has been proven by the 10 situations where this is done.

So if you are interested in knowing more about this, how do you get started? Well, the first step will be to write to me at rajshekhar_roy@yahoo.co.uk expressing your interest to avail of this. I will then ask a few questions over mail to assess your current situation and then we can have an introductory call. After this I will let you know if I can do this for you and what will it cost.

Typical duration for the complete exercise is 1 month, with 2 interactions over phone per week and there is a one time cost initially. Yearly reviews after first year will be 25 % of the year 1 costs.

If you reach out to me, do not get offended on my inability to take you up ( if that happens ). I am doing this to add real value to the lives of the people and therefore cannot spread myself too thin.

Look forward to hearing from some of you – believe me, your life will undergo a serious transformation once you go through this exercise.

FIRE considerations – parents and children

What are the most important considerations for you when you are planning to FIRE? For sure, your lifestyle and expected longevity are two most important considerations but there are a few others which are paramount. These relate to your parents and children. Let us address both of these in the current post.

If you are thinking of FIRE today or in the next 2-3 years, you are probably 50 plus now. It is quite possible that your parents are around still and that is a great thing. Fortunately my parents are both living but I know many of my friends who have lost either one or both parents. Given what our parents mean to us, we would all want them to live as long as possible. In several cases, they will be living on their own. Now the issue is this – when they retired 20-30 years back, the corpus they had would have been sufficient to generate enough income but it is woefully inadequate today. My father retired in 1990 and at that time he only had about 10 lacs as a corpus. It seems impossible today, but it was true then. Now those were the days of 12 % interest rates, so 10 lacs would give you an amount of 10000 per month. In 1990 it was still possible to live reasonably well with that amount if you had your own house. However, it was soon to become difficult.

Fortunately, I passed out of IIMC in 1988 and started working so I could contribute to the family finances. Over a period of time, the inflation increased the expenses considerably and the interest rates generally went down. If you look at the situation today, the costs are at a level of 4 lacs annually, even though they live in a fairly simple fashion. Their original 10 lacs is only fetching 75000 Rs today. Thankfully my sister, who is a Doctor in UK and I are able bridge the gap. How did it affect my FIRE considerations?

Well, for my parents the situation was simple. I know that I need to contribute some amount regularly over a long period of time. I therefore just add this amount to my own monthly expenses and look at the total amount. So, If I am contributing 2 lacs and my own expenses are 10 lacs in a year, then I need to plan for 12 lacs.

As far as children go the issues are a little different. If you are doing FIRE at 50, it is possible that your children are still in college. I am saying this as most people will marry around 30 years and have their first child around 32 years or so. Therefore when you FIRE at 50, your child will probably be just starting college. In my case when I FIREd in 2015 start, my daughter was in her third year of Engineering and my son was only in his first year of his 5 year dual degree course. The overall expenses annually for them were in the range of 6 lacs and it was increasing at the rate of 15 %.

I had the following strategies to deal with the situation:-

  • I needed to fund the Graduation expenses of my children and had told them that if they wanted to do an MBA then it would have to be through an Education loan.
  • For the immediate next year, I put some money in FD in their accounts so that they would mature in time for their semester fees.
  • I also started my Consultancy services which resulted in some active income. To the extent possible, I used the money to create new FD’s with the same strategy as before. This meant, I always had enough money kept away for paying the fees for the next 2 semesters.
  • In 2016 when Rinki passed out of BITS and joined XLRI, we decided to take a loan of 12 lacs whereas the 2 year fees were in the range of 23 lacs.
  • Over the next 2 years we actually used only 6 lacs of that loan as I was able to fund the rest of the money through my Active income.
  • Now she has completed XLRI and will be joining her job in June.
  • My son has now completed 4 years and I will have to pay 2 more semesters, each to the tune of 2 lacs or so. As before, this money is arranged for.

So what is the bottom line? When we talk of FIRE, it has to take into account the situation of your parents and children. In all likelihood, you will have to contribute financially to your parents, assuming they are not staying with you. Build this into your monthly expense estimates and deploy your corpus in a manner so that you are getting this amount in a regular manner. For your children, their regular expenses can be catered through your monthly expenses. However, Education expenses in college are a different story altogether and you need to handle it differently.

Take care of both of these and you are ready to FIRE.

A TOI article on FIRE

As most of the readers will know, the acronym FIRE is for Financial Independence Retire Early. This is a very commonplace jargon in the US and is becoming popular here too. I was recently approached by a journalist from TOI who wanted to discuss my journey in this as she was writing an article on this.

For those who have not read it, click on this link to read the article. I found the article to be interesting though the writer has not addressed some important issues. In fact the How to part of the article is directly taken from our conversation.

If you go through the comments you will see that many of them are overly negative. That is really unwarranted as it is possible to achieve FIRE without compromising on things such as your old parents and well being of your children.

I will address this in the next post.

Financial independence is central to living life in your terms

Over the course of the past 3 years or so when I have been writing my blog, several people have asked me as to why I focus so much on financial independence ( FI ) as a goal when most people automatically keep working till they cannot do so. In some posts I have explained as to why FI is an imperative, even if you want to continue in your present job or profession and retire normally. However, the most important idea of being in an FI state is that it gives you the ability and confidence to live life in your terms.

What do I mean by living life in your terms? It simply means that you are able to do the things you want to do without having to worry about the financial impact of them on your future well being. There are only two conditions where this is possible. Firstly, you can inherit a lot of money and secondly, you work towards and attain an FI state on your own steam. Remember, in your life the terms are set by you, so it is not necessary that they will align with other people. For one person it may be the ability to stay in a huge mansion with all amenities, for another it can be the flexibility to travel as and when he wants and for a third it may be playing the stock market with some capital without the fear of losing it. Let me give you some more examples of what you may be able to do in the FI state – these are real life happenings with people who I know.

  • A couple in their 40’s take 2 vacations outside India every year because there is just too much to see and they have the cushion of FI.
  • A man who is a car enthusiast has bought a luxury car recently surprising many of his friends and family. He said that he wanted to buy it for about 2 decades but was able to do it when he understood that he was in an FI state.
  • A batch mate of mine who is a Banker, left his job and started to do workshops on personal finance as it has been his passion for a very long time.
  • A lady who has been a lawyer for 3 decades was able to switch to taking cases free for the poor when she realised she was well over the FI line.

I can go on with more examples but I think the point is made. Whatever your terms are, you need to be in an FI state to live life with those. Most of us work because we need to earn certain amount of money, for now and for the future. While we are doing that, we are unable to live life in terms of what we want – it can be a money issue or a time issue or both. Once you are in the FI state you will be able to reorganise your life in a way so as to do these things in a manner that fulfils your aspirations. To me, that is the essence of living – yes, there are times when you live for responsibilities and need to compromise on your personal aspirations but that is surely not a desirable state.

Coming to my personal example, what does being in the FI state mean for me? Also, to respond to the curiosity of many people, what do I do now and what do I plan to do in the future? Let me try and address it here :-

  • I do some Consultancy work if it is of interest to me. As I do not depend on the money from it to fund my lifestyle, the flexibility of choice is great.
  • As many of you know, I write this blog and am advising several people who seek me out. I have also made Holistic life and Financial plans for a few people who have reached out to me. Note that this is not my profession in any manner.
  • I have been involved very closely with the education of my children and that is coming to an end now. Interaction with many IIM and B school aspirants through public sites is something I am passionate about. I am also part of the admission panel for IIM Calcutta.
  • Conducting high end Consulting workshops for corporate organisations is something I love to do and will expand it significantly this year.
  • Travel has been a passion for me since long and I am able to do it much more now. In the last year and quarter we have been to Kumarokom, Araku valley, Italy, Goa ( twice ), Konkan beaches, Durgapur, Ayodhya hills, Khajuraho and are now planning a short trip to Bali.
  • Sports is another passion I have and I am really happy to be able to watch almost anything I want to nowadays. Looking forward to the FIFA world cup.
  • I am toying with the idea of writing a book. Something may or may not come out of it but I will make a fairly serious attempt this year.
  • I am also keen to explore the idea of forming a venture. The ideas for it are crystallised now and I will be looking for some founder partners soon.

When I measure all of the above against what I could have done as a CEO in a regular corporate job, I must say that I find this infinitely more preferable. The bottom line however is that I am able to do this only because of my FI state.

What is your ideal existence in life? If you are already having it in your current job or profession, great !! If it is very different from what you are currently doing then you need to think seriously about being in the FI state so that you can live in your terms.

After all you have only one life to live !!