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.

 

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.

The dark side of being obsessed with finances

There is a bright side of earning well and investing wisely. Availability of money, in the present and future allows us to do what we need to today and also provide for the future in a good manner, to sustain the lifestyle that we need to have. Awareness about personal finance and investment through financial blogs, Facebook groups and other medium have helped create a culture of being aware of money issues, which is largely good.

There are however, some dark sides to it as well. Over the past couple of months I have personally experienced some situations and have read about several more which has made me wonder whether we are getting way too obsessed with money, Let me share with you some of these, so that we are on the same page on what I am trying to convey here.

  • Read a discussion of a Facebook group last week where a person has posted about how he avoided tipping a delivery person. Others added to the discussion justifying it by saying how much money would the delivery boy earn monthly etc.
  • A friend of mine was earlier contributing to a charity regularly has recently stopped. Since he can easily afford it, I asked him why. The reason he gave was how much the money will grow in 15 years and what all he could do with it !!
  • At a recent gathering the conversation turned to domestic helps and their salaries. It was interesting to note that most people felt quite upset that these people demand an increase of salary of 10% or so every year. Remember, these are the same people who will crib majorly with their annual increments or with the seventh pay commission recommendations, despite both normally be over 10%.
  • A neighbor whose son plays very good cricket, was reluctant to send him for a tournament in Bhopal as it was costing 20,000 Rs. Some of us got together and finally convinced him. His plan was to invest this money in buying stocks !!
  • Another friend was postponing the replacement of his car, despite the earlier one being on it’s last legs. When I had a discussion with him, he told me that he had learnt from some seminar to utilize assets to the maximum. After my strong urge, with some help from his wife, that the present car was a liability rather than an asset, he changed his car last month.

I could go on with more examples but you would have got the point. Over the years, I have felt quite strongly that the value of money is only in what you can accomplish through it. Yes, we do need to invest for our goals including retirement but it makes no sense to me, not to utilize the money in a productive manner today also. Some of the things which I would advocate my readers to try out are as follows:-

  • Get associated with a couple of charities and give to them as much as possible for you. There are many who are not as fortunate as us because they do not have the opportunity. Any help extended to them will help them in making these people self-sufficient and contribute positively to society. I contribute to CRY and Helpage and have continued to do so even after giving up my regular corporate career.
  • Focus on things which give you true happiness and spend on it. Be it travel, reading, seeing live musical performances, pursuing a hobby etc, you need to do it today. Not save money today and try to do it after 20 years when you will not enjoy it.
  • The same is true for your family. Put your child in a good school rather than worrying about how much she will need for college. While both are important, compromising on school education because it can be expensive is likely to be quite harmful to her.
  • Be generous with tips and salaries to domestic help, drivers etc. These are the people most affected by inflation and any extra earning will help them. It is almost inhuman to grudge them this when it means so much to them and is so affordable to you.

Money is important, but we need to use it in the right way both in spending and in investments. Being obsessed about it by constantly thinking how much will the amount grow to if we do not spend it today is completely senseless.

After all, if you do not need to spend, then why do you really need the money?

One year of writing the blog

It is said that one week is a long time in politics and, if Indian politics is any indication, we can probably take the saying to be fairly accurate. I do not know what is the right time frame for assessing the performance of a blog. However, I feel one year will be a good time to take stock of my experiences with the blog.

So how did it all get started? Well, when I wanted to get out of my regular corporate career and get started on my own Consultancy, getting my own financial situation organised was a top priority. This led me to think through the financial aspects a lot more than before and I started to realise that financial independence was an imperative for all people, it did not really matter whether they wanted to retire early or not. My following some Facebook groups and other blogs caused the realisation that there were hardly any good information available in the public domain that could guide investors in reaching the desired state of financial independence for themselves. The final push came through my daughter Rinki, who pointed out that if I felt there was some valuable knowledge to share then I should not shy away from the effort.

The response to the blog has really been stupendous, in fact I still find it difficult to believe that so many people read it, say that they have benefited from it, engage with me actively in terms of queries and suggestions and have changed their investing styles based on what they have learnt from the blog. More than the numbers, it is the interaction and engagement that I have had with many people I do not really know at all, which is really a rather humbling experience. It had inspired me to work hard initially to create a knowledge store which will be of use to many investors for a long time to come.

Of course, there have been some detractors too but that comes with the territory. In my investment life I have always tried to follow my gut instincts based on common sense and fundamental principles and it is that same sense that I have tried to bring to the blog. In the investment advice given in the blogs and Facebook groups, the only solution given is to invest in equity MF and only through SIP. This is completely flawed and I have tried to point it out in many of my posts, much to the consternation of the MF and SIP brigade.

What has been the greatest source of satisfaction in writing the blog. Well, there are several but the ones I can think of instantly are as follows:-

  • Several readers have understood how they could be financially independent and have started their journey towards the same goal.
  • Many investors have seen the flawed approach of investing in MF through SIP and have started looking at my suggestions of how it can be done otherwise.
  • My blog has inspired many people to get started on a direct stocks portfolio. I believe this is important for retirement which cannot be done well only through the MF route.
  • I have been able to remove the stigma from products such as PPF and SSY to a great extent. These are good products and must find place in your portfolio. The bashing that they get in social media is due to the half baked knowledge of the authors, rather than any intrinsic deficiencies with the products themselves.
  • Readers of my blogs understand the characteristics of equity and debt as asset classes and are able to see where these fit into their portfolio.

These are very interesting times and there will be a lot of changes in the investment landscape in India over the next 2-3 years. I plan to continue the blog and take up writing on such opportunities that can pave the road for financial freedom of my readers.

Finally, I would like to thank all my readers for having made the blog what it is today. Had it not been for their response this may not have lasted the time that it has. I look forward to a similar level of support over the next year and hopefully beyond it.

Learn to be uncomfortable with your investments in 2016

I have read in many places that you must follow a route in investment that seems comfortable to you or does not cause any discomfort. This has seemed a rather strange way of going about things. As a practitioner of change management, where I advise organizations on transforming them into a different and improved state, I know for a certainty that any growth is always accompanied by change which is bound to cause discomfort.

The easiest thing in the world is to maintain status quo. You are used to doing something and if you just continue to do the same then you should be fine and it will not cause any discomfort. However, this mindset also impedes growth as you are unlikely to grow without changing anything. The classic definition of the term insanity is, “Doing the same thing in exactly the same way and expecting completely different results.”

So in the Financial planning or investment context, learning and creating a plan on the basis of it is good. Having the discipline to commit to the plan, execute it well and monitor it periodically is better. But the best by far is to keep learning and change things if it makes sense, even if it means that the change will cause a certain amount of discomfort. Let me give you some examples from my financial life where I made changes:-

  1. While I had some investments in stocks through IPO, I started buying from the secondary market only in 2004. The volatility was a serious impediment mentally, to start with, but I got used to it.
  2. Despite being comfortable with my stock portfolio, I realized after the 2008 crash that there would be some value in regular investment in MF. I started this and kept at it in a disciplined manner for 7 years. As someone used to a stock portfolio, I did find this mode of investment fairly staid, but the discomfort here was minimal.
  3. When I wanted to give up my corporate role, a lot of my portfolio was in equity except for PPF. For a 3 year period between 2012 and 2014, I invested much of my newly available money into debt instruments such as FMP, Tax free bonds, other Debt MF with the objective of creating a base for tax free passive income. This was clearly not comfortable as I could see myself missing out on a lot of equity investment opportunities, that I would have otherwise taken.
  4. Finally my shifting from SIP mode of MF investments about which I have written extensively in the blog.

What are some of the changes that you may want to make in 2016 even if it causes you a certain level of discomfort? Well, while the specifics will always depend on the individual and his context, here are some of the changes that may apply to a large number of investors.

  • If you are not into equity at all, make a start. You can start with a small investment in a Balanced fund, if you are really worried about your risks but do it now.
  • Open a PPF account if you do not have one already.
  • If you are having a MF portfolio and are investing through SIP then look into the possibility of buying MF units at appropriate times, it will clearly benefit you more.
  • Start creating a stock portfolio if you do not have one today.
  • Examine each opportunity by it’s merit. Remember the tax free bonds being derided by some experts in 2013 are now the best return instrument of the market in 2015.
  • Close all FD unless it is for the very short term of less than 1 year.
  • Pre-pay your home loan as much as you can. Do not listen to arguments linked to tax savings, they are clearly wrong.

The point is we all evolve as persons in terms of knowledge, skills and expertise which is driven by new learning. Also, new learning will come only when you make an effort. Keeping a closed mind, just because you have heard some so called experts say so is a poor substitute to figuring out things on your own.

So in 2016, learn more, try out new things and embrace discomfort. That is the only way to grow, not only in financial management or investment but in all aspects of life.

 

Junk these financial myths in 2016

A new year is just round the corner and this is normally a time for great joy and cheer. Families and friends come together at this time, happiness is shared and life feels good, despite all the problems that we face otherwise. It is also a time when great resolutions are made, some which are followed up through the next year and many which are unfortunately forgotten. I think it will be a good idea to do a series this week on how to invest in 2016, in the different asset classes.

However, prior to this I wanted to list out some investment myths which are injurious to your financial health. Like all myths, these have got created over a period of time due to a variety of reasons. Firstly, there are vested interests which want to promote their products or services. Secondly many bloggers and Facebook posts repeat things without really understanding what the actual implications are. Thirdly, people who invest in these products or services become fiercely loyal to these due to the endowment effect and try to shout down anyone who says anything that is contrary to the accepted belief.

In the last 6 months I have written about many of these myths and I will not explain these here. If you are interested in knowing more about them go through my blog to learn more. I will simply point out the myths here and ask you to junk them in the year 2016. Our conceptual flaws get reflected in our investment actions and that is a bad thing as far as your financial life is concerned. So on to the myths now:-

  • Equity returns compound – sorry, they simply do not no matter how many people tell you that they do.
  • Direct stocks are risky – well, they are as risky as any equity MF as they invest in the same underlying assets.
  • Balanced MF are ideal investment – they are not, you must ideally keep your equity and debt portfolios separate.
  • SIP is the best way to invest in MF – except in a continuously declining market, there are far better ways to invest in MF.
  • PPF is an old and stodgy product – in the debt universe there is no better product and this can be used in many innovative ways.
  • You should have separate portfolios for each goal – this one is a seriously bad idea, it increases clutter and your returns are going to be sub-optimal.
  • Tax free bonds are bad investment – clearly people know better than self proclaimed experts as the NHAI issue got oversubscribed in 3 hours!! For people looking at regular income, these are ideal.
  • Mid cap and small cap funds should be avoided – another bogey and a bad one too. These funds have given and are likely to give higher returns as compared to diversified equity funds, albeit with volatility.
  • Home loan is a good loan – no loans are good as you end up paying huge interest. Take a loan if you must but pay it off as soon as you can, that is the only sensible way of dealing with it.
  • Keep home loan going because of tax savings – silliest idea I have heard in life, just do a cash flow analysis and you will see why.

There are, of course, many more myths but these are the ones you need to junk first. I will be happy to discuss more on these but only after you have read the relevant blog posts and understand my viewpoint. Believe me your financial life will be a whole lot better after you get rid of these myths and decide to do nothing with them in the future.

In my next post I will look at things more positively and start the series I talked about in the beginning of this post.