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Financial Wellness Enhancement Program

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Page 1: Ifw2

Financial Wellness Enhancement Program

Page 2: Ifw2

Welcome to the Program

Pre-Workshop Questionnaire

Page 3: Ifw2

Expectation from the Program – What we heard from 3000+ Participants

1. My Expenses are increasing faster than the Income – How to mana

ge expenses and increase my savings?

2. What is the best way to Invest my Savings?

3. Do I really need to worry about Tax and Insurance ?

4. What is Financial Wellness, Why it is important and ways to enhan

ce?

5. Any other Questions ?Which is a bigger problem ?

Not enough money to Invest or Have Enough Savings, but don’t know where to Invest

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Managing Expenses

Page 5: Ifw2

Telephone Calls

Before 2000

5 Calls in Year

After 2000

5 Calls in an Hour

Page 6: Ifw2

Clothes

Before 2000

Bought only for

After 2000

Bought whenever

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Water

Before 2000 After 2000

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How to increase our savings?

Page 9: Ifw2

What is our nature?Marshmallow TestResearch conducted over 40 yearsKids 6-10 years of age are asked to go to a room

where chocolate is kept and asked to wait for 15 minutes

If they resist 15 min without eating chocolate, they will get 2

Every Kid wanted to have 2 chocolatesGuess how many walked with 2?Just 1%10 years later – same kids who walked away with 2

chocolates – got better grades in the examAnother 10 years later – they had better jobsAnother 10 years later – they had better investmentsWhat prevents us from being in that 1%

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There is only one way to increase savings

Income – Expenses ≠ SavingsIncome – Expenses = will be most likely 0Income – Savings = Expenses

Page 11: Ifw2

How to increase savings ?

1. Treat Savings as your first Expense

2. Take maximum benefits of Employer sponsored

Retirement benefits (EPF, NPS, Super Annuation

Schemes)

3. Measure Savings as % of Income

4. Improve Savings % by 2-5% every year

5. Aim for 30:30-40:50-50:100 (for Pvt Sector) and

30:30-40:40-50:50-60:100 (for PSU)

Page 12: Ifw2

Expectation from the Program – What we heard from 3000+ Participants

1. My Expenses are increasing faster than the Income – How to mana

ge expenses and increase my savings?

2. What is the best way to Invest my Savings?

3. Do I really need to worry about Tax and Insurance ?

4. What is Financial Wellness, Why it is important and ways to enhan

ce?

5. Any other Questions ?

Page 13: Ifw2

Why Invest ?

Page 14: Ifw2

Why Invest?

Page 15: Ifw2

How much is required for Retirement ?

Let us do a case Study -

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Normal Food, Clothing, Shelter

LuxuryFood, Clothing, Shelter, Car , Vacations

Super Luxury

Food, Clothing, Shelter, Car+ Driver, International Vacations

Year Normal Luxury Super Luxury2014 रु 360,000 रु 720,000 रु 1,440,0002015 रु 385,200 रु 770,400 रु 1,540,8002016 रु 412,164 रु 824,328 रु 1,648,6562017 रु 441,015 रु 882,031 रु 1,764,0622018 रु 471,887 रु 943,773 रु 1,887,5462019 रु 504,919 रु 1,009,837 रु 2,019,6742020 रु 540,263 रु 1,080,526 रु 2,161,0522021 रु 578,081 रु 1,156,163 रु 2,312,3252022 रु 618,547 रु 1,237,094 रु 2,474,1882023 रु 661,845 रु 1,323,691 रु 2,647,3812024 रु 708,174 रु 1,416,349 रु 2,832,6982025 रु 757,747 रु 1,515,493 रु 3,030,9872026 रु 810,789 रु 1,621,578 रु 3,243,1562027 रु 867,544 रु 1,735,088 रु 3,470,1772028 रु 928,272 रु 1,856,545 रु 3,713,0892029 रु 993,251 रु 1,986,503 रु 3,973,0052030 रु 1,062,779 रु 2,125,558 रु 4,251,1162031 रु 1,137,173 रु 2,274,347 रु 4,548,6942032 रु 1,216,776 रु 2,433,551 रु 4,867,1022033 रु 1,301,950 रु 2,603,900 रु 5,207,800

Average Annual Expenses for Retired Couple

Factors to be applied

Non Metro 0.75

Rented Home 1.3

Less than Rs. 5 Lakh Health Insurance

1.1

Example:

Today ‘s age : 45, Retiring at 60Expected life : 80 years

Year of Retirement : 2029

Annual Expenses : 9,93,251

Corpus required : 20 * 993251= Rs 1, 98,65,020

Assumptions – After retirement : ROI = Inflation, current inflation = 7%

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Normal Food, Clothing, Shelter

LuxuryFood, Clothing, Shelter, Car , Vacations

Super Luxury

Food, Clothing, Shelter, Car+ Driver, International Vacations

Year Normal Luxury Super Luxury2034 रु 1,393,087 रु 2,786,173 रु 5,572,3462035 रु 1,490,603 रु 2,981,205 रु 5,962,4102036 रु 1,594,945 रु 3,189,889 रु 6,379,7792037 रु 1,706,591 रु 3,413,182 रु 6,826,3632038 रु 1,826,052 रु 3,652,104 रु 7,304,2092039 रु 1,953,876 रु 3,907,752 रु 7,815,5042040 रु 2,090,647 रु 4,181,294 रु 8,362,5892041 रु 2,236,992 रु 4,473,985 रु 8,947,9702042 रु 2,393,582 रु 4,787,164 रु 9,574,3282043 रु 2,561,133 रु 5,122,265 रु 10,244,5312044 रु 2,740,412 रु 5,480,824 रु 10,961,6482045 रु 2,932,241 रु 5,864,482 रु 11,728,9632046 रु 3,137,498 रु 6,274,995 रु 12,549,9912047 रु 3,357,123 रु 6,714,245 रु 13,428,4902048 रु 3,592,121 रु 7,184,242 रु 14,368,4842049 रु 3,843,570 रु 7,687,139 रु 15,374,2782050 रु 4,112,619 रु 8,225,239 रु 16,450,4782051 रु 4,400,503 रु 8,801,006 रु 17,602,0112052 रु 4,708,538 रु 9,417,076 रु 18,834,1522053 रु 5,038,136 रु 10,076,271 रु 20,152,543

Average Annual Expenses for Retired Couple

Factors to be applied

Non Metro 0.75

Rented Home 1.3

Less than Rs. 5 Lakh Health Insurance

1.1

Example:

Today ‘s age : 24, Retiring at 58Expected life : 80 years

Year of Retirement : 2048

Annual Expenses : Rs.35,92,121

Corpus required : 22 * 35,92,121= Rs 7,90,26,662

Assumptions – After retirement : ROI = Inflation, current inflation = 7%

Page 18: Ifw2

How much is required for Securing Retirement ?

1. Decide the Year, when you want to retire2. Find out the Annual Expenses in that Year3. Calculate No of years of expenses required after retirement

1. Age on Retirement Date2. 80- Age on Retirement3. Corpus = Annual Expenses X (80-Age on Retirement)

4. Example : Sumit wants to retire by 2032, his age in 2032 will be 60. How much will he require for safe retirement1. Annual Expenses for Normal Living in 2032 – Rs 12,16,7762. Age on 2043 : 603. 80 – Age on Retirement = 204. Corpus Required = 20 X Rs 12,16,776 = Rs 2,43,35,520

Page 19: Ifw2

Retirement Savings in 20th and 21st Century

20th Century

• Managed by company

• 12%-12%-12% Guaranteed

pension for life time

21st Century

• Best Plan from company–

12%-12%-8.5% (only 20% of

companies offer)

• What 12% 8.5% means ?

• Employee has to double the

contribution -12% to 24%

• If company has no EPF

Scheme – then Employee to

save 25% on own every month

Page 20: Ifw2

Retirement Savings - T 20 Match

Only 2 Strategies will work

1. Sanath Jaysuriya or Virender Shewag (Slog in

the first 5 overs)

2. Virat Kohli (Consistent Scoring in all overs)

Treat Every month like an over

Don’t allow maiden overs – They increase the run rate

Keeping it for last 5 overs (years) is sure way to loose

the match

Page 21: Ifw2

What if I want to start saving for retirement from tomorrow and not today ?

In a recent consumer study, 21 percent of individuals surveyed – including 38 percent of those with income below $25,000 – reported that winning the lottery was "the most practical strategy for accumulating several hundred thousand dollars" of wealth for their own retirement. In addition, 16 percent thought that winning the lottery was the best retirement strategy for all Americans, not just themselves – Consumer Federation of America and The Financial Planning Association, 2006

Page 22: Ifw2

Two Most Important Savings – So you will never have to borrow (or even if you want to borrow

may not be able to borrow)

1. Short Term Expenses (About 5 Lakhs)

2. Retirement

Page 23: Ifw2

Our Nature

• Investment

– Will do it tomorrow

• Consumption

– I want it today

This attitude and behavior leads to consume more and Invest less

Page 24: Ifw2

To over come our Nature

1.Automate Investments – use SIP2. Set up SIP on the day your salary is credited

Page 25: Ifw2

Successful Investing

Page 26: Ifw2
Page 27: Ifw2

Invest with a Purpose and end goal in mind

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Purpose/GoalsNo 1 Priority – Short term expenses (Mobiles, Appliances, Unexpected Travel, Medical, Impulse

Buy)

No 2 Priority – Retirement Savings : No other Need is bigger

No 3 Priority Aspirations

Home, Education :

Vacations/Car/Celebrations

Page 29: Ifw2

Short term needs

• Take “0” Risk “0” Return is OK

• Protect the Capital

• “0” Risk Investment – Only FD or RD

Page 30: Ifw2

Retirement Purpose

• Take Advantage of Tax Free Returns

• Tax Free Return Products - EPF, PPF, ELSS

Funds, INDEX Funds

• Keep reinvesting and withdraw only on the

day of retirement

Page 31: Ifw2

Stock Market (NIFTY) has always gained

94-0

4

95-0

5

96-0

6

97-0

7

98-0

8

99-0

9

00-1

0

01-1

1

02-1

2

03-1

3

04-1

4

0100020003000400050006000700080009000

1226 938 1009 1200 942 1183 1495 1100 1068 110015371537

22113150

43133896

43405251 5627 5278

5950

7637

Year

NIFTY

Page 32: Ifw2

It does not matter when you invest, 10 years later Stock Market was always higher

Buy, Stock Market – Not StockStock Market will be there after 10 years, Stock may not be there after 10 years

Page 33: Ifw2

How to buy Stock Market ?

• ABC –Index Fund – Sensex –– Growth

• ABC –Index Fund – NIFTY –- Growth• Through Monthly SIP

Page 34: Ifw2

Guaranteed way to returns from “Stock Market”

Year

Stock Market

Amount Invested

Units Bought

1 10 10000 1000

2 8 10000 1250

3 5 10000 2000

4 2 10000 5000

5 1 10000 10000

6 2 10000 5000

7 5 10000 2000

8 8 10000 1250

9 10 10000 1000

10 12 10000 833

Total 1,00,000 (Total Invested in 10 years)

29333 (Total Units bought in 10 years)

Option 1 – Invest Rs 10000 every year for 10 years

Value at the end of 10 years = 29333 * 12 = Rs 351996

Rs 100000 has become 3.5 times

Option 2 : Invest Rs 1 Lakh lumpsum

Rs 1 Lakh will become Rs 1.2 Lakh

Page 35: Ifw2

Last 15 Year Performance

Date

Well managed ELSS

Poorly Managed ELSS InvestmentUnits-Best Units -Poor

PPF Interest Interest PPF Balance

1-Jun-00 18.3 26.46 100000 5464.480874 3779.28949 11.00%1-Jun-01 16.96 14.58 100000 5896.226415 6858.71056 9.50% 11000 2110001-Jun-02 18.45 13.29 100000 5420.054201 7524.45448 9.00% 18990 3299901-Jun-03 21.71 12.5 100000 4606.172271 8000 8.00% 26399.2 456389.21-Jun-04 38.16 20.32 100000 2620.545073 4921.25984 8.00% 36511.14 592900.3361-Jun-05 76.16 45.98 100000 1313.02521 2174.85863 8.00% 47432.03 740332.36291-Jun-06 116.12 41.32 100000 861.1780916 2420.13553 8.00% 59226.59 899558.95191-Jun-07 154.68 46.79 100000 646.4959917 2137.20881 8.00% 71964.72 1071523.6681-Jun-08 146.65 50.46 100000 681.89567 1981.76774 8.00% 85721.89 1257245.5621-Jun-09 145.44 46.99 100000 687.5687569 2128.11236 8.00% 100579.6 1457825.2061-Jun-10 205.19 55.72 100000 487.3531849 1794.68772 8.00% 116626 1674451.2231-Jun-11 233.23 59.08 100000 428.7613086 1692.62018 8.00% 133956.1 1908407.3211-Jun-12 203.86 54.64 100000 490.5327185 1830.16105 8.60% 164123 2172530.351-Jun-13 231.2 65.26 100000 432.5259516 1532.33221 8.80% 191182.7 2463713.0211-Jun-14 336.75 88.38 100000 296.956199 1131.47771 8.70% 214343 2778056.054

30333.77192 49907.076310214897.69 4410787.4

Total Units AccumulatedTotal Value of ELSS Units

Well managed ELSS scheme after 15 years – Rs 1,02,14,890Poorly Managed ELSS scheme after 15 years – Rs 44, 10, 787PPF after 15 years – Rs 27,78,056

Even a poorly managed ELSS scheme has given better results than PPF, Since Past performance may not be repeated, name of the Funds are not disclosed purposely

Page 36: Ifw2

Invest based on Purpose to maximize return

For Short Term Need Choose NO RISK NO RETURN

Invest in RD/FD/Debt Mutual Funds

For Retirement choose MEDIUM RISK – MEDIUM RETURN

Invest in NIFTY MF, EPF, PPF, NPS, ELSS

For Aspirations

Home & Education : Borrow

For Vacations/Car/Celebrations

Top 200 /Top 100 Funds

Page 37: Ifw2

Simple Solution to achieve all goals

Purpose/Priority Risk/Return Products Monthly Investment

Mobiles, Appliances, Impulse Online offers, Unexpected Travel and any other unexpected expenses

No Risk – No Return Recurring Deposit or Fixed Deposit

10% of Net Income

Pension Medium Risk-Medium Return

EPF, PPF, Index Funds, ELSS

10% of Net Income + 12% in EPF by Employer

or 25% of Net Income

Down payment for Home, Vacations, Car

High Risk – High Return

Diversified Equity Mutual funds

10%

If home loan availed this can be ignored

Page 38: Ifw2

Basics of Finance

Page 39: Ifw2

Fixed Deposit doubles in 9 years – What is the return?

• What is the formula for calculating returns ?

• A = P(1+r)n

• There is no other formula in Money Management

Page 40: Ifw2

If money is doubling – Apply Rule of 72

72

---------------------- = r where n= No. of years taken to double money

n

Page 41: Ifw2

Why Returns are important?

2014 100000

2022 200000

2030 400000

2038 800000

2014 100000

2020 200000

2026 400000

2032 800000

2038 1600000

Return on Investment – 9%

Years taken to double – 8 years

What happens to Rs 1 lakh investment In 24 years

Return on Investment – 12%

Years taken to double – 6 years

What happens to Rs 1 lakh investment In 24 years

Page 42: Ifw2

Or

Every 3% decrease in Returns makes one poorer by half

Every 3% improvement in Return doubles wealth

Page 43: Ifw2

Same rule applies to borrowing

Page 44: Ifw2

How basics of Finance can help us ?

1. If you borrow Rs 10 Lakhs and you can only repay Rs 10000 a month,

the interest rate charged by the bank is 12% how many years will you

take to repay the loan ?

2. What do you think about this scheme ? - You pay Rs 50,000 per year for

10 years and you will get Rs 50,000 per year for 100 years

Page 45: Ifw2
Page 46: Ifw2

Expectation from the Program – What we heard from 3000+ Participants

1. My Expenses are increasing faster than the Income – How to mana

ge expenses and increase my savings?

2. What is the best way to Invest my Savings?

3. Do I really need to worry about Tax and Insurance ?

4. What is Financial Wellness, Why it is important and ways to enhan

ce?

5. Any other Questions ?

Page 47: Ifw2

Save Tax or Increase Net Income

80 C 1. EPF2. PPF (or for those with Self Discipline ELSS

from Mutual Funds)3. Company Sponsored NPS4. Principal Repayment on Housing Loan5. School fees for upto 2 children

Medical Insurance Premiums

Rs.15000 for Self and Rs.20000 for Sr. Citizen Parents

Interest Payments on Housing Loan or Education Loan

6. Rs.2,00,000 for Self Occupied house7. Unlimited for Rented House8. Unlimited for Education Loan

Have more Exempt Income

HRA, Dividend, Other Tax Free Income

Tax Benefits

80 C 80 D Set off

Limit Rs 1,50,000

Rs 15,000 for Self, Rs 20,000 for Sr Citizen Parents

Rs 2,00,000 Interest paid on self occupied house,Unlimited interest on house given on rent and education loan

10% Rs 15,000

Rs 3500 Rs 20,000

20% Rs 30,000

Rs 7000 Rs 40,000

30% Rs 45,000

Rs 10,500

Rs 60,000

Page 48: Ifw2

Home and Education Loans – A Must have

Home Loan Interest : 10%Tax Benefit on Interest : 30% Net Interest Rate : 7% onlyEven if money is available, it is better to invest at 9% and pay 7% on home loan

Similarly Education Loan Interest : 12%Tax Benefit : 30% Net Interest on Education Loan : 8.4%Still there is a benefit in borrowing for Education Loan

Page 49: Ifw2

Insurance – Purpose : Covers any Financial Loss (not emotional loss)

Cover for Life Risk – Loss of

Income

Cover for Accident Risk – Loss

of Income

Cover for Illness –

Hospitalization Expenses

Cover for Critical illness –

Prolonged Treatment

Cover for Vehicle – Third Party

Loss

Thumb rules

Life + accident : 10 times Net Annual Income

Hospitalization : Rs 5 Lakhs for Family

Critical Illness : Rs 20 Lakhs (may be considered after 35 years of age)

Page 50: Ifw2

Expectation from the Program – What we heard from 3000+ Participants

1. My Expenses are increasing faster than the Income – How to mana

ge expenses and increase my savings?

2. What is the best way to Invest my Savings?

3. Do I really need to worry about Tax and Insurance ?

4. What is Financial Wellness, Why it is important and ways to enhan

ce?

5. Any other Questions ?

Page 51: Ifw2

3 Habits for Effective Financial Wellness

Page 52: Ifw2

Knowledge

1. A=P (1+r)n

2. Stock Market has always been higher after 10th year

Skills

1. Buying Financial Products online

2. Automating Investments

Attitude

1. Income – Savings = Expenses

2. Investment Purpose is more important than product

3-Powerful Habits

1. Savings before spending2. Automate and transact

Online3. Invest with Purpose –

Make Retirement Savings the most important purpose

Enhancing Financial Wellness

Page 53: Ifw2

Measure your Financial Wellness

Page 54: Ifw2

Start your Journey towards higher Financial Wellness

Level 5: One now focuses on implementing the plan to share wealth with society by creating and providing

jobs. At this stage one is secure on Short term and Long Term Financial Needs.

This is the highest level of Financial Wellness.

Level 4: Financial Freedom is achieved, but now savings and investment are being done primarily for

accumulating wealth for the next generation

Level 3: Savings have reached a stage where they is more than what one needs to achieve for financial

freedom. However, one is now saving & investing to meet one’s aspirational needs.

Level 2: Primary focus is on implementing the plan to make Financial Freedom a reality. One has started to save & invest enough consistently each month so as to achieve Financial Freedom in the near future

Level 1: One is able to comfortably meet normal financial needs even if pay cheque is delayed up to 3 months. However one is still over-dependent on the monthly pay cheque, and monthly savings are far lesser than what is needed to make Financial Freedom a reality

Level 0: Even if salary is delayed by one day, one is put to a lot of stress, due to committed monthly cash

outflow like Insurance Premium, mortgage EMI, etc.

Page 55: Ifw2

What Next?

Keen to Enhance your Financial Wellness of Self and othersActivities you must do today

1. To download ppt visit www.slideshare.net/imoneyplant/ifw

2. Automate your Savings – 10%-10%-10% - All Participants

who succeeded did it on the same day of presentation

3. Be part of PM’s Jan Dhan Yojana – Make it mandatory for

your servant maid’s to have JDY bank A/c (benefits : Free

Insurance cover) – Credit your maid salary directly to their

Bank to make Financial Inclusion a success and Financial

Wellness for all

Page 56: Ifw2

Your Valuable Feedback

Please fill in the feedback forms to help us improve the program

Page 57: Ifw2

Disclaimer

The information provided here is intended to provide helpful and informative material on the subject matter covered. It is given with the understanding that owner/author/publishers of this material are not engaged in rendering professional services through this material. If the reader requires personal assistance or advice a competent professional should be consulted. The owners/authors/publishers specifically disclaim any responsibility for any Loss, Liability, or Risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents. The contents are general information that is intended, but not guaranteed, to be correct or updated. The information is not presented as a source of Investment, Tax, Insurance or Legal Advice. You should not rely on statements or representations made here or by any externally referenced sources. If you need investment or tax advice upon which you intend to rely in the course of your financial or business affairs, consult a competent, independent financial adviser. The contents should not be taken as financial advice or as an offer to buy or sell securities/insurance/fund or any financial product. It should not be taken as endorsement or recommendation of any particular company or individual and no responsibility can be taken for inaccuracies, omissions or errors. The Information presented is not to be considered as investment advice.

The owners/authors/publishers do not assume any responsibility for actions or non-actions taken by people who have read the content and no one shall be entitled to claim for detrimental reliance based upon any information provided or expressed herein. Your use of any information provided herein does not constitute any type of contractual relationship between yourself and the providers of this information. The owners/authors/publishers hereby disclaim all responsibility and liability for all use of any information in this material.

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