Financial worries and how to overcome them

What do we need money for?

The most common answer to this will be about money as being the primary source of comfort in our lives. At the same time, money is also the primary reason behind most of our fears and worries. If we emulate our financial fears to our mortal fears such as death or loneliness, even that shouldn't come as a surprise to us.

Never let these concerns make you weak. Rather than letting these fears hamper our emotional and mental state; we should instead be wise enough to be aware of the likelihood of our financial situation transforming.

Let us here learn about the biggest financial fears of people and how can we overcome their effects in our life with a little planning and your financial acumen. This tally is a result of a public survey conducted recently.

1.Living a monthly salary mentality:

This trend can be observed more often among young adults, or people who are at the outset of their career. This kind of mindset can result into minimal savings. This can also land you in a cyclic trap of waiting for the salary day, to clear your chunk of bill payments. However, this attitude can be very well overcome in case you have enough savings.

How do you build ample savings?

There could be several ways you can accomplish this goals of yours. You can begin with putting a fixed amount out of your monthly income into a savings account. Once you are able to successfully accomplish this for a few months, you can try increasing the amount gradually.

Always ensure that you are doing it systematically, and if not increase; you are at least not cutting it short. Step by step as your savings start boosting, you can thereafter go on isolating some money for your emergency fund.

2. Losing employment:

If you are into a job, then it is apparent that your organization's performance will have a direct impact upon your job, and even whether you will be able to maintain it. Here, an emergency fund can be a valued resource that can help you survive your unemployment fear.

The Thumb Rule: A wise act here would be to save up to 6-8 months of your salary for a satisfying emergency fund.This emergency stock can ensure to keep you sheltered, in an unfortunate time including the loss of job.

3. Excessive Debt and Homelessness:

Arising out of the fear of joblessness, causes this fear to penetrate our minds. No job means pending bills, rapidly accumulating  debts, and sometimes may even land you into losing your home.

How to ensure that this fear doesn't become true? You should be consistently growing your savings and investments, along with maintaining liquidity. You can consider downsizing to a smaller and an economical housing option. This will ensure that you have a shelter, along with managing other life expenses.

4. Severe Indebtedness:

If you have piled up cumbersome debt on your credit cards, student loans, car loans, etc. it may seem really difficult to clear up all. It is truly likely to occur. Debts can result into strapping your cash reserves and consequently, make everything else mount up. This situation becomes more difficult for people with a meager debt-to-income ratio. For those, it can be struggling to qualify for the loans and other financial products they need, or even get a loan with a decent interest rate.

How to defeat this? Again here, developing a good savings will alleviate your debt fear. Such a person will be able to cover upon his/her unexpected expenses, and also be in a position to place more money up in advance while applying for loans.

5. Stolen Identity:

Pertaining to the increase in security breaches, identity concerns are much quite predictable. Any mishandling of our banking and security info, may lead to draining of our hard-earned savings and credit history.

How do we protect our identity? There are certain precautionary measures that can be taken to keep our identity info secure. Let's have a look at a few.

Always use secure passwords for all of your online transactions that include the input of any kind of banking information. Be cautious of suspicious calls or emails, especially when they are asking for any of your personal security information. Most importantly, being proactive will always help you defeat this fear.

6. Fear of Working Immortally:

With people now starting to work at quite an early age, this has become a much avertible fear. Pondering how?

Because they have the strongest means, Time, on their side. Therefore, they are able to opt for the pension and retirement plans within their company as early as possible. With this, they can ensure having a sufficient amount at the time of their retirement.

Dealing with this fear: How do we empower ourselves to save enough for our retirement? The answer to this may not be very difficult to accomplish. Always put your future wants on a high priority compared to your present needs. If you start saving early and be consistent with your savings habit, then gradually its worth will increase with time and the growth rate.

Consequently, your wealth will accumulate enough for your future sustenance.

7. Fear of loss in the Stock Market:

Never ever risk all your life savings in the Stock Trading. Rather, disperse your money between multiple assets. Be aware of your abilities and comfort zone, in order to invest accordingly. Always attempt for a healthy long term portfolio to become wealthy.

Fix: It may be true that with higher risks comes higher returns. However, you should only opt for an investment option, which you are comfortable with. Try gambling only if you are ok with the possible option of losing and also ready to bear its repercussion.

With these 7 points, we have learnt about our biggest financial fears and possible ways to beat them. Rather than being unaware, facing the fear to find possible and viable ways to overcome the same will near you to conquer. It is evident that a coherent insight of the situation, will surely take you closer towards finding a strong financial solution.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

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10 Principles to an Intelligent Investment Strategy

Making a smart investment is not a rocket science. It requires you to learn and follow the appropriate principles, with discipline.

An unfortunate thing about investment strategy is that most of what is taught is hazardous, as being only a half-truth. This abstract information could even prove to be expensive, many a times.

Let us now present before you the ten principles that have proven to help an investor advance higher up achieving investment success.

1. Follow the ‘Expectancy principle’:

a.       This applies relying on a systematic and analytical investment plan. Any other strategy will not give you the confidence to eventually profit. Investment is not like gambling. A good investor should rely on a calculated expectancy, in order to certainly profit from his strategy.

b.       It is important to be clear about whether you are investing for fun, or for profit. ‘Growing wealth’ is a science that is based on the fundamental principles of mathematical expectation. Therefore, you either invest scientifically with all the odds known, or you gamble with your financial future.

2. Don’t fall prey to delusions:

Never be influenced by financial forecasts, from the media or your investment prophet, while building your investment strategy. Forecasting can be explained as unknowable information. Any investment plan on the basis of future foretelling is essentially flawed, as it does not have any mathematical expectancy.

3. Invest in what you understand:

One of the best ways for expanding your investment knowledge is via due diligence process. Never neglect this and hurry into any strategy, due to timelines, anyone’s suggestion or just to put your money to use. This is about learning what one needs to know for making informed decisions.

Firstly, we should determine the mathematical expectation for your investment plan. This will help you consider only those investments that increase your portfolio’s expectations. Secondly, find out the correlation of your strategy. Doing this will help you build a portfolio to minimize the overall risks. Lastly, understand the risk management strategies, applying to your investment. This will help you accurately access your risk-to-reward ratio as well as get to know about how your capital is protected from permanent losses.

4. Compound Returns:

Compound growth is a measure of how any average person can attain extraordinary wealth. To work this out requires these actions: early investing, trust only known investment strategies that have a positive mathematical expectancy, reinvest on all profits, and add your earned income to your investment principal, to accelerate your compound growth.

5. Diversification:

The purpose behind diversification is lowering your portfolio’s risk profile. This can be done by adding the inversely correlated or non-correlated investment strategies. The idea behind this is to never add more of the same risk profile to any of the investment portfolio. Eventually the result is higher and consistent profits and lower portfolio risks.

6. Watchful Investment:

What does an investment strategy aim for? First is its “return of” capital, and only after that comes the “return on” capital. Profitable Investment is all about controlling permanent capital loss, via risk management disciplines.

How do you examine an investment strategy? Check if it has safeguards for managing risk exposure and controlling losses to such a level acceptable, under both normal and worse conditions.

7. Invest Offensively:

How do you balance your defensive investing strategies? While investing defensively, you must invest offensively. Each is incomplete without the other. While one manages risks and control losses, the other is for pursuing gains. Simply stating, offensive and defensive investment strategies are two sides of the same coin.

Instead of being too conservative or too aggressive, it is better to be moderate.

8. Liquidity: 

This refers to the ease with which an investment can be sold to convert to cash. Examples of liquid investment include bonds and large-cap stocks. Losing liquidity is equivalent to losing flexibility. Illiquidity eliminates the possibility of controlling risks and places extra premium on all other risk management tools.

9. Respect, but not obsess about, expenses:

Do your expenses add value in excess of your costs? Striking a balance between the two is the key. Therefore, one should neither be a miser or a wasteful. Rather, be smart by paying gladly for services that add value to your investment.

10. Improve your financial intelligence:

Benjamin Franklin has said, “An investment in knowledge pays the best interest”. Ever thought what is the best investment one can make and why? The answer is investing in yourself, the reason being no one can take it from you and most importantly, it will pay you dividends throughout your life.

These 10 investment strategies will help you make your financial dreams come true, whether it is building wealth from zero, or managing the already accumulated wealth better.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

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What you may not know about Timing the Market?

Timing is everything. Is it true in every case? In the financial world, you hear a lot of solicited and unsolicited advice about the right time and timing, with respect to investments. Which is the right strategy with regard to investment? Is it ‘doing it at the right time’ or ‘the best timing to do it’?

Let us say you and your friend plan a long train journey from Kanyakumari to Jammu. You are risk averse and you stick to one single train from Kanyakumari to Jammu, while your friend decides to be adventurous and changes trains whenever there is a layover. What’s his motive in doing that? He believes that he will get to Jammu faster than you will by 'saving' the layover time. He doesn’t want to wait in the interim stations. He wants to be on the move, constantly. What happens at the end and why we are giving this case study here.Read ahead to learn more on this.

Demystifying time vs. timing:

Timing is the active hunt for entry and exit of investments. Timing helps you get in and out of investments and make huge profits at the end of the trade. It is like fishing in troubled waters. You buy a stock when it is at a lower price and expect it to go up. You then sell when the stock is about to fall. You expect that these actions to give you handsome profits. You portfolio grows with each profit and diminishes with each loss.

Time is the amount of time an investor gives his investment to grow.

Let us consider the example of a crop. To get the best results, you follow a well-tested process. You have to plant the crop at a specific time- based on rainfall, seasonality, temperature etc. This is TIMING. The period it takes for a crop from seeding to harvest is TIME.

Which is the right strategy while investing?

So, how do you think the scenario proceeds, between Kanyakumari and Jammu case study we gave in the beginning?

While you are on a set path, cosy and comfortable in your reserved seat and berth, your friend is running pillar to post. You can catch a nap, watch the scenery, listen to music, and eat in peace with your fellow travellers while your restless friend is constantly getting in and out of trains, lugging his bags and baggage across railway stations and unreserved carriages, caught in a medley of conversations with ticket clerks speaking unfamiliar languages.

He swats flies and mosquitoes trying to sleep on platforms, misses connecting trains, misses a lunch or dinner and sleeps through a departure. His connecting trains might be delayed. They might just be unavailable. His cost increases dramatically.  Unless, of course, he ‘jumps mathematically’ between trains, to quote from a fiction Phineas Fogg from ‘Around the world in 80 days’. What does that tell you?

Hyper Investor Vs Regular Investor

So, your friend is similar to a hyper investor who just cannot be regular with investments. He believes that a well-timed entry and exit in a trade will get him great results. He tracks the stock market, equips himself with financial knowledge and watches market related news every day.

He tries to implement strategy advice from well-wishers and random strangers. He works with 'timing’ as his investment mantra. He looks to buy when low and sell when high. Does that sound simple? If only it were as simple as that. Figuring out market trends is as easy or tough as figuring what's going on in a woman's mind. Have you accompanied a freaky shopper to shop when it’s sale season? If you have, you know what I am talking about.

Coming back to the travel situation, a traveller like you, who chose to stick to one train, gets in to a scheme and sticks to it for a long time. You invest in an equity scheme for specific purposes, like your child's education, your retirement plans etc. You do not take it out and invest it elsewhere or play an arithmetic game with it. You choose, based on your investment advisor's suggestions, a 10 year plan where you invest a fixed sum every month.

The yield is realistic, say, 12% per annum. In short, you are not a gambler. Your friend plays Russian roulette. You are the metaphorical tortoise, as opposed to the hare, your restless traveller friend.He spends sleepless nights, thinking of how the market will perform and affect his investments. He wins a few, he loses a few... He has no certainty. His assets fluctuate.

Conclusion:

Long term goals like retirement plans or children’s education and marriage need long term saving schemes and necessarily, long yield periods.

Market timing definitely pays. But it is a risky game. It is quite a hassle and transaction costs are pretty high. Your adrenalin becomes highly dependent on the ups and downsides of the financial market.

Patient and steady investment schemes are recommended for assured long term returns. After all, it is slow and steady that wins the race.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

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Before booking for a flat, understand What you need to do

What factors do you look for, while comparing properties? Without any doubt, the property’s location, price and possession, will be the first and foremost parameters one might consider for his/her short listing. However, apart from these primary ones, a few more things are necessary to check before finalizing upon a deal.

Let us now find out those legal documents one must ask for, before making any kind of financial commitment. Asking and checking for the copies of the following necessary permissions and clearance certificates, will avoid you from being stuck into any judicial tangle in future.

Title Deed:

  the ownership rights, obligations and mortgages (if any) on the property. Therefore, this document is a validation of whether the property land is registered, and its development rights transferred. You can obtain a copy for this from your builder and get the same verified from the land record office.

Certificate of the Project’s Commencement:

This document is necessary to mark beginning of the property’s construction. Post the analysis of the construction’s foundation and inspection of its boundaries, one can get this clearance certificate issued from town planning and engineering department. This is also a good indication of the builder obtaining the required licenses and permissions for the map. Even before you actually start digging up, you must have all these things sanctioned.

Verify of the plan’s approval:

It is advantageous to verify for the approval of the building and layout plan. This is like running an additional check to ensure that the plan does not violate or break any by law applicable in the construction area. In addition, you should also make sure the floor area, where your flat is booked, approved well in the building plan.

The design plan must be in accordance with the NBC guidelines. NBC, or National Building Code of India, is a code to understand the regulation of building’s construction activities throughout the country. One must get this checked with the local municipal authorities.

Some construction projects also claim for a green stature. In this, either of the Indian Green Building Council, or GRIHA should certify of the project. GRIHA is Green Buildings Rating System India, which is a TERI University’s initiative. These certifications focus on a rating a building, based on energy, water and waste management. GRIHA stands as the most popular rating system available in India right now, also having standardized norms.

Certificate for Land Use:

Having residential property in a commercial or an industrial zone is illegal. Therefore, ensure that the property you purchase lies in the residential zone, by applying to the urban development authority and check the certificate for the same. With the expanding cities, you may often find agricultural land converting to non-residential purpose by paying some fees to the government. During such situations, check for the endorsement order from the zonal deputy commissioner (or tahsildar). This order is a license for residential construction on the land.

Master Plan:

Many a times, you will find builders claiming future infrastructural development planned in the area, such as a highway or an upcoming metro. Before believing everything blindfolded, you must look at the area’s master planning personally for verification. You can very easily find such plans available with the town planning department.

Check for the NOCs:

Wherever applicable, ask for a No Objection Certificate of your urban land ceiling from your builder. You may also check the NOC for environmental clearance, as well as from the electricity and water authorities, if present.

Take the Expert Opinion

To verify whether or not, your project has clean and transparent paper work, a very simple and convenient way is to check if the same has loan approvals from the financial institutions. Banks have quite tough rules for lending, due to which they do all the important due diligence before clearing the loans. This may not be always error-free. There were many cases in past where the builder had the support from bank, still the project landed in to financial troubles.

Therefore, it is always on your advantage to get some professional help. If required, you may even seek for a paid opinion from an advocate specializing in property transactions, and even get your document verification done.

Once you are sure of the above-mentioned documents to be in their proper place and done with the verification, you may proceed with making your final decision without much anxiousness or worrying around. To decide these kinds of real estate investments need to be part of your portfolio or not, you need to have a financial plan mapped with all your financial goals.  If you are looking out to create a financial plan for yourself, then you may want to check our financial planning process.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

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