A life plan must precede a financial plan

With the increasing readership of my blog, I get a lot of requests to either make financial plans for people or to review an existing financial plan that was made by someone for them. What strikes me as amazing is that people by and large focus greatly on their financial goals and almost take their life goals for granted. This flies in the face of the obvious reality – your finances are there to support your life goals and therefore must come after you have thought through your life goals.

The first thing which surprises me is that people project their lives for the next 30 years or so without having the ambition to do more with it. Let us say you have passed out of college and got a job. While it may be a job which you like, you may still look at ways and means of improving it. An IT person who started his career just 5 years back may already be finding himself in the cross roads. There is no guarantee that your current job will last for 10 years, let alone 30. It is therefore imperative that you fix your life goals based on your current skills, future skills you may need to acquire and the kind of work you want to do. It may be necessary for you to take up your first job for many reasons, but there will be equally good reasons as to why you may want to do other things.

The same goes for people who are in their mid career with a family. Yes, changing your life direction may be more difficult now but it is not impossible by any means. I had a friend who was a hotel manager for 10 years, worked in Rediff for another 10 years, went on to do an MBA abroad and is now a professor in an US Business school. Note that the latter career moves were all done when he had a family. Another friend of mine who is from an IIT and an IIM, went to the US recently to pursue a second MBA as he was not happy with how his career was shaping up. In his case too he took his wife and a young daughter to the US. There is no doubt that these people had to go through a lot of tough times but they were clear as to what they wanted to achieve.

Changing careers are getting much more common nowadays than ever before. I just came to know of a Doctor, who practised for 7 years after his MBBS and has now got into IIM Ahmedabad for their one year Executive program. He wants to be associated with Health care but not as a practising Doctor and felt that an Executive MBA will give him the opportunities that he is seeking out.

The problem with financial plans is that they are done assuming people will proceed in their lives linearly. They will start with a job, increase their salaries every year, get married, invest and increase their investments, plan their finances, home buying and have other goals such as children’s education, marriage and retirement. This does not at all cater to real life and real people. For example, I started working at 24 and always wanted to retire at 45, or at least be financially independent by then. If I had been to a financial planner, he would probably have told me that I needed to work for 35 years and early retirement was just not possible in India.

The logic can get extended to any particular passion you have in life. Earlier it was difficult to take up your passion due to lack of resources and opportunity. However, many people nowadays want to take up their passion after they have fulfilled most of their responsibilities. I know of people who have taken up travel, reading, teaching and several other interest areas at a relatively late stage in life and have done very well in them.

So the point is your life plan must be dynamic in nature to fulfil the aspirations you have. We will not meet all our aspirations but there should be a clear and concerted attempt to do so. The financial plan must adapt to your life journey not the other way round. You need a financial planner who understands this.

How does one go about doing this? Let that be the subject of another post.

Educational costs & inflation – A personal perspective

May is that time of the year when all parents of college going children have to figure out ways and means of arranging the fees for the upcoming semester, term or year in college, as the case may be. I have been in this situation for 5 years now and am likely to be in it for a few years more, given that I have two children.

Let me give a brief background for new readers here. My daughter Rinki has graduated from BITS Pilani, Hyderabad campus with BE in ENI. After her graduation in 2016, she has joined XLRI for their BM program and has now completed her first year there. My son Ronju is doing a 5 year dual degree course from BITS Pilani, Goa campus in Msc Maths and BE Computer Science. He will graduate in 2019 from there. If you are interested in knowing more about the overall costs and how I arranged for the funds etc, you can read up several posts available in the blog under “Education” category.

In this post I particularly wanted to discuss about the overall costs of a college degree in BITS and the inflationary nature within the course. Unlike some colleges, which give you a total figure for the 4 or 5 year course when you join, BITS only talks of the first year costs and then increases it every year. They have been transparent to say that the fees can increase by up to 15 % a year and, more often than not, it actually increases by that much. Let me take the component of the Tuition fee and see how it increased during the time Rinki was in college :-

  • In her first year 2012-2013, Tuition fee was 70000 per semester or 1.4 lacs in the year.
  • In 2013-2014, it was 78000 per semester or 1.56 lacs for the year.
  • In 2014-2015, it was 89000 per semester or 1.78 lacs for the year.
  • In 2015-2016, it was 101000 per semester or 2.02 lacs for the year.

Now apart from these there were Admission fees, hostel fees, mess fees, personal expenses, travel, practice school fees etc. From my notes I can see that the total expenses for her college degree was approximately 12 lacs.

At XLRI the overall costs are in the range of 24 lacs and you can add another 2 lacs or so for travel etc. Therefore her total Education costs in college is about 38 lacs.

For my son Ronju the last 2 years of Rinki will be common. Beyond this the fees for the other 3 years are as follows:-

  • in 2016-2017, it was 1.13 lacs per semester or 2.26 lacs for the year.
  • In 2017-2018, it is 1.30 lacs per semester or 2.60 lacs for the year.
  • in 2018-2019 it will be 1.5 lacs per semester or 3 lacs for the year.

Therefore for Ronju’s graduation the overall costs will be in the range of 20 lacs or so. I have not thought about his PG yet, as he is not sure whether he wants to do one. However if it is from a good B school, it will be in the range of 28-30 lacs. Assuming this to be the case, his total costs of college education will be in the range of 50 lacs or so.

From the above data you will be getting a pretty good picture of the educational inflation too. In 5 years the tuition fees has increased from 1.4 lacs to 3 lacs. The other costs have also increased and as you can see, a 4 year course for BITS starting today will easily cost more than 22 lacs or so, all things considered. Just the Tuition fees will be 13 lacs or so.

How will this look if your child is starting college after 15 years? Well, at an inflation of 15 % the tuition fees alone will be 1.8 crores. I know this sounds fantastic, but remember just 10 years back the Tuition fees of BITS was 50000 a year and it has gone up more than 5 times.

I am happy to spend this amount on giving a good education to my children as it is going to be a huge competitive differentiating aspect. However, I was able to do so as I prepared for the same in terms of my planning. Even then the inflation was surprisingly high and I had to rejig some of my plans.

You need to work on your plans right now and put them in place.

An Italian odyssey

Writing this post is an anticipated event for me as, even before we left for our Italy trip, I got a lot of requests from several quarters to do this. I will directly start with the trip itself as I have already covered the planning of the trip as well as my thoughts and experiences with the tour operator Kesari in other recent posts.

We started off from Hyderabad on 5th May morning as we had to join the group for the night flight to Abu Dhabi and Rome. Though the wait in the Mumbai airport was somewhat long, we were quite impressed with the facilities, the only jarring point being the food costs. We connected with the Kesari representative on the appointed time, collected our hampers and checked in early. The tour leader welcomed us and wanted us to meet her before the transit from Abu Dhabi. The flights were largely uneventful, though tiring as usual. Breaking it up into two flights is a good idea as long as the layover is manageable. We reached Rome in the early morning. Immigration was a rather long process and freshening up in the airport with hordes of people wanting to do the same took it’s own time. We boarded the coach after that and the trip was well and truly underway.

We had a pretty comfortable coach which we would be using for the entire trip, the tour leader was articulate and knowledgeable and the visit to Pompeii was fulfilling a long time desire. The ruins of Pompeii are maintained rather well and we were lucky to have a good guide who spoke English very well. She explained the times of 2000 years back with a lot of imagination and some of the things such as the water pipe of those years, the stepping stones on the streets so that people could cross when they got waterlogged in the rainy season, the roadside eateries with ovens for cooking the food and a brothel with the services menu drawn on the walls were the highlights for me. As was Homer’s Odyssey drawn as fresco’s on the walls of an erstwhile commercial place.

In terms of sheer heritage, history and scale few places in the world will beat Pompeii. Our own Hampi is great too but it is not as old as this. Moreover only 25 % of the city has been excavated and that itself boggles the mind. A near perfect experience was made even better by an excellent 3 course lunch in a good restaurant.

Day 2 of our Italy trip was very different from the first. From history and heritage of Pompei we landed in Sorrento and Capri, with all it’s natural beauty of the sea and hills. The views all over were quite captivating and the sheer cliffs rising practically right from the sea. Much of Sorrento is perched atop these cliffs.

The highlight of the day was travelling to the highest point of the island in a chair lift. It is literally a chair hung from a cable. As we sat there, the mist rolling in from the sea quite engulfed us as the chair passed through some greenery with the sea to our right and the hills to the left. A surreal experience is probably not an exaggeration in this case. While I was sorry to miss the Blue Grotto, a cave with the blue reflection from the sea water, this was somewhat made up by the views from the highest point of the island – particularly, the myriad hues of the sea, I myself could count some six colours.

Day 3 of the Italy trip started with a whistle stop tour of the Naples square. Quite an impressive place with the Galleria and the Opera house, which was built way back in 1737.

Next stop was Rome and we spent the afternoon in Vatican City. I had always been interested in it and my keenness had grown over the years after I followed the Dan Brown novels. The Vatican museum was a treasure trove of Italian Renaissance creations and it was rather overwhelming in some sense. The Sistine chapel is definitely the crowning glory of Michaelangelo’s painting career and the vivid colours were remarkable just for their longevity as well as the artistic brilliance.

The Basilica is probably the most famous example of a Christian Church and the richness in terms of conception and execution is simply incomprehensible at first take. Finally, the square which finds mention in so many novels for the Papal conclave and election, the news of which is conveyed by the colour of the smoke through a chimney, was a fitting end.

Day 4 of the trip was dedicated to Rome. We saw the Trevi fountain in the morning and it was a great sight. It is maintained very clean, even though a lot of shops are around.

The Rome orientation done from the bus was rushed but we did get to know a lot of unknown stuff about the city. The Time elevator ride was a great experience and the show has been conceived very well.

The Piazza Venezia is a magnificent structure and I went and explored it on my own. Finally the Colloseum was a fitting finale to the day. Even with much of it being in ruins, it is easy to imagine the grandeur it had in the past and our guide was brilliant in conjuring up the visions of gladiators going at each other full tilt in a filled Colloseum with the spectators baying for blood.

Rome is truly a city where the past and the present live in complete harmony and we have been fortunate to witness it. Though I have posted pictures for each of the above and some of them are quite good, one will need to get a real experience to understand this.

Day 5 of the trip was spent in San Gimignano and Pisa, both of which were exceptional.

San Gimignano is a very well preserved medieval town and it got the award of an UNESCO heritage site in 1990. It is a living city but the structures of the past are all preserved. Walking through it you get the feeling of being transported to a long past age. Definitely worth a visit, even for the brilliant natural beauty of Tuscany surrounding it.

Pisa is of course known for the Leaning tower and seeing it in front of us was an amazing experience. The Square of Miracles has several other great structures such as the Baptistry and the Cathedral. As with most Italian structures these are very well maintained.

Day 6 of our trip was mostly dedicated to Florence with a worthwhile viewing of the Ferrari museum in the afternoon.

Florence is probably the best example of architecture and sculpture seen anywhere, though Italy and Europe will have close rivals. The Cathedral is undoubtedly the high point of the walking tour we had. The two domes and the Bronze door were just amazing. The main square with the replicas of David and Hercules will please any art lover. Finally, the Alexander point offers a great overview of the City landscape.

The Ferrari museum is a veritable feast for the eyes to any sports car lover. Just to see so many of these together is great and gives you a feeling of elation.

The 7th and final day of the trip was for Venice, aptly called the Queen of the Adriatic. The whole experience was great from the approach by the boat, the walk through the markets and over the bridges, the church of St Marks and finally the Gondola ride through the canals.

Venice is different from all other places because of it’s unique ecosystem and the way it has been preserved over the years. Yes, the motor boats have made it more noisy and a tad more polluted but, in today’s day and age, a place sans any surface transport is great by itself.

The memories of Venice will stay with us for long. In all ways it was a high point of our visit to Italy. I have been to several places over the years but for the sheer diversity of natural beauty, history and heritage this tour has been an unique one.

Coming back from such a trip is always laced with a tinge of sadness but the memories will last us a long time. The return journey was more tiring as we were not really looking forward to the Hyderabad heat after the salubrious climate of Italy.

For the interested reader, my recommendation will be to go through the pictures I have posted in Facebook. To be candid though, no picture can do justice to the real experience of seeing the statue of David, the waters of Capri or the Sistine chapel among many others. You really need to visit Italy if you love history, heritage and culture.

For me, it was the only major country in western Europe where I had never been and I will now be looking at Scandinavia, Africa and South America as possible next destinations for my travel.

My experiences with Tour operator Kesari

A lot of people have contacted me on my blog and Facebook and wanted to know more about my experiences with Kesari, the tour operator I had chosen for our Italy trip. Let me try and address all the queries in this post.

To begin with, this is the first time I was looking at an end-to-end tour operator. So far we had been to Thailand, Sri Lanka, Nepal, Bhutan, Netherlands, France and Australia and in all these travels we had booked the travel and the local tours mostly on our own. I am a firm believer that you should have a certain flexibility when you travel, for there may be things you want to do on your own and a group tour can be constraining in some ways. However, the reason we wanted to do this travel through a group tour was simple – it was difficult to cover all the places we wanted to see on our own within one week. If I was staying in Rome for 3 days I would definitely do it on my own but as we wanted to see Italy properly in the current trip a tour operator with a group tour was a better option. It also gives you the option of just enjoying the trip while the tour leader takes care of all the necessary arrangements.

Once we had identified the places we wanted to see, there was really only one tour that covered them all. It was Flavours of Italy by Kesari. When we contacted them with our queries, they were very prompt in their responses and we were quite satisfied with the inputs we received. The fact that they were covering all the meal costs and had local guides for the important tours was a definite plus point. As we were booking early there was a reasonably good discount that we got. Once we paid the 2.71 lacs as a one time fee we got into the process of arranging for the visa documents etc.

During the period between January and April we continued to interact with Kesari for purposes of visa documentation and application. They helped us with validating all the documents, taking appointment with VFS and keeping us updated about the reservations as well as the travel regulations that had come into vogue newly. The Tour leader sent us a WhatsApp message with details of how we had to meet in Mumbai and how things will proceed from that point. Kesari also provided us with the following for the travel :-

  • A stroller and a shoulder bag which were very useful during our travel.
  • A raincoat and a cap
  • A snacks hamper with Tea/coffee sachets
  • An Electric kettle
  • A power adaptor suited for Europe

From the time we checked in at Mumbai for our first leg of the flight to Abu Dhabi, our tour leader was in complete control of the situation. She got us to the transit flight in Abu Dhabi and once we were in Rome, guided us through immigration. Having travelled abroad frequently, these were no issues for me but there were many who were going out of India for the first time and were happy to get the kind of guidance she provided.

Over the next 7 days the tour leader was omnipresent in everything we did and she also let people do their own things if they so desired. The whole itinerary was managed very professionally – be it the hotel check-in’s, the meals, the transportation, the local guides and all the crises. For example when we went to Capri it was told to us that the Blue Grotto ( an underwater cave ) was not possible to visit due to the high tide in the seas. While many of us were disappointed at this, our tour leader took stock of the situation quickly and arranged an alternate activity of a chair lift ride, which we liked a lot. Through the long coach rides, she played the perfect hostess and got the group to know it’s members and to play games that were of common interest. She also had an plethora of stories, movies and music to keep people occupied.

So was it all good then? That rarely happens in real life and I would have liked to do some things had I done it on my own. For example, I would have definitely seen some museums in Rome and Florence. However, to be fair, that would have been impossible to squeeze into one week. On the whole, I think the itinerary planned out by Kesari was a really good one. Each day was an unique experience and if the objective was to give us the Flavours of Italy, I think the tour did achieve that.

The best part of the tour was definitely the tour leader and how everything was managed well. We could just focus on enjoying ourselves without worrying about any of the logistics. The worst part was we had to move as a group to see everything and sometimes that caused issues of timing and coordination.

Overall, I am happy to have taken the tour and may repeat it with the same operator in the future. If you have enough time and money along with an inclination to plan your own travel, you can definitely do so. However, most people do not have the above luxury and for those a group tour with a standard tour operator can be a great option.

Our travel to Italy – The plan

As all my readers will know by now, travel is one of the aspects I and my family are really keen on. We try to do it as much as possible and look for all possible opportunities to travel both within and out of India. A lot of my readers and connections in Facebook have asked me to write a travelogue on our recent Italy trip. However, I think it will be a better idea to do a few posts on it, this is the first of the series.

To begin with, after our last significant tour to Australia in 2014, our idea of the next trip out to Europe was really in 2018. The Australian tour was on a big scale as we took out two weeks for it and also had significant expenses – in the range of 6 lacs for both of us. The plan to do an European tour in 2018 was to celebrate our 25th wedding year. The reason I wanted to advance it in 2017 was that we wanted to get away from the Hyderabad heat in May for some time. Also, while our Australia trip was a great one, 2 weeks at a go is difficult, especially when I am working as a CSO in a company. After we took a fundamental decision to travel in segments of one week, it was easier to think in terms of a holiday outside India every alternate year. My wife was obviously quite pleased with the advancement and we got down to searching for places.

Our first idea was to look at South Africa but there were some difficulties involved in it. This was a place where we wanted to travel with our children and that was tough in 2017, due to their academic and other engagements. Also, both the trip costs as well as the time needed for it were more in the range of 12 days or so. Finally, we were unable to go in March etc as there was a little gap after our Kumarokom vacation in February. Based on all of this and the need to get away in May, we wanted to look at Europe for a week. Over the months of December and January we did extensive search of several tours in order to see which one would be suitable for us.

In terms of Europe, the following aspects were important for us:-

  • As we had already seen Amsterdam and Paris we wanted to avoid tours that spent time in these two cities.
  • We were good with the idea of Switzerland but here again, we would prefer the children to travel with us.
  • Eastern Europe or Spain were good options.
  • Italy was another good option.
  • We wanted to go with a tour operator this time as we had to cover several cities in the span of a week.

On going through all of the above, it seemed that a trip to Italy covering all the major cities over a week would be a good idea. We searched for such offers from all the reputed tour operators and settled on the Flavours of Italy tour by Kesari. It was covering all the places we wanted to cover – Pompeii, Capri, Vatican City, Rome, Florence, San Gimignano and Venice. The one advantage with Kesari is that they give you an all inclusive cost, so what you spend extra is only on indulgences and shopping. We got a Bonanza offer, similar to an Early bird thing, which came to 2.72 lacs for the two of us. On the flip side all Kesari tours start from Mumbai, so we had to make that arrangement on our own.

Once we decided on the tour and paid the money, the rest of the activities were coordinated very well by Kesari. I am sure a lot of readers might want to go on similar trips , so I will do a separate post on that. It will be right to say that the entire plan went smoothly and in the end we were really happy that we had chosen Kesari.

As far as the experience of the trip goes, for both Lipi and me it was a dream come true to see the places we have read so much about and seen so much in movies and news. We did manage to get away from the Hyderabad heat in a nice manner too.

But more details of our Italy trip in a future post.

My investment plans for next FY

The last day of the financial year is normally a good time to take stock on the investments of the year gone by and also to plan for the next FY. For me the current FY investments had gone pretty much as expected. I did not really sell much and, even though there were some redemption, I invested in similar avenues through the year.

There were 3 main issues that characterised my investments of the current FY:-

  1. I invested in several IPOs but got allotted only 3 of these.
  2. A lot of my FMP got redeemed and, unlike other years, this time I invested the principal proceeds in mostly hybrid products – Equity Savings Funds, MIP, Dual Advantage funds etc. I also put some money in Balanced funds. PPF was continued as an investment.
  3. I invested in MF selectively and not as much as I would really have liked to. This was due to the generally rising indices levels. I could have put a lot more money in December than I did – truth be told, I did not anticipate the strong rally from January onward.

So, given this backdrop, what are the investment plans for the next FY? As some of the readers will know my passive income from interest, dividends, house rental are enough to take care of my regular expenses. The expenses for my college going children are quite high but these are catered for separately. My active income from being a Consultant is reasonable – it is probably only about 40 % of what I could potentially earn as a full time CXO, but as I do it with only 20 % of my time, I am quite happy about it. Much of this money is used in equity investing – some for MF and the rest in stocks, IPO or otherwise. The rest is to be used for discretionary expenses, last year we replaced most of our household furniture. This year the plan is to change the laptop and also buy a new desktop. We are also planning a trip to Italy in May.

Finally, without further ado, this is my investment plan for the next FY:-

  • PPF investment of 3 lacs for both me and my wife.
  • Investment in select IPO to the tune of 2 lacs through the year.
  • Investment in stocks to the tune of another 2 – 3 lacs.
  • MF investment of average 40,000 per month, to be bought at the right times.
  • My FMP redemption will be to the tune of 20 lacs or so in this year. I plan to use the capital gains for my expenditure and use the principal for investing in:-
    • Equity Savings fund
    • Balanced funds
    • Monthly Income Plans
    • Arbitrage funds
    • Dual advantage plans
    • Capital protection plans
    • Short term debt funds
    • Gilt funds

A lot of my investments are market linked, so I will look at the Nifty and other indices closely through the year. While stock purchases do not always depend on index levels, I am keen to buy MF only at the right time. If the time does not come I just do not buy, as was the case for much of the first 3 months of 2017.

I am happy with the above plan and just hope that some of the better IPO allotments happen !!

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┬átheir 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.