ifw2
TRANSCRIPT
Financial Wellness Enhancement Program
Welcome to the Program
Pre-Workshop Questionnaire
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
Managing Expenses
Telephone Calls
Before 2000
5 Calls in Year
After 2000
5 Calls in an Hour
Clothes
Before 2000
Bought only for
After 2000
Bought whenever
Water
Before 2000 After 2000
How to increase our savings?
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%
There is only one way to increase savings
Income – Expenses ≠ SavingsIncome – Expenses = will be most likely 0Income – Savings = Expenses
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)
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 ?
Why Invest ?
Why Invest?
How much is required for Retirement ?
Let us do a case Study -
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%
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%
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
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
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
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
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
Our Nature
• Investment
– Will do it tomorrow
• Consumption
– I want it today
This attitude and behavior leads to consume more and Invest less
To over come our Nature
1.Automate Investments – use SIP2. Set up SIP on the day your salary is credited
Successful Investing
Invest with a Purpose and end goal in mind
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
Short term needs
• Take “0” Risk “0” Return is OK
• Protect the Capital
• “0” Risk Investment – Only FD or RD
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
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
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
How to buy Stock Market ?
• ABC –Index Fund – Sensex –– Growth
• ABC –Index Fund – NIFTY –- Growth• Through Monthly SIP
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
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
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
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
Basics of Finance
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
If money is doubling – Apply Rule of 72
72
---------------------- = r where n= No. of years taken to double money
n
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
Or
Every 3% decrease in Returns makes one poorer by half
Every 3% improvement in Return doubles wealth
Same rule applies to borrowing
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
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 ?
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
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
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)
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 ?
3 Habits for Effective Financial Wellness
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
Measure your Financial Wellness
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.
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
Your Valuable Feedback
Please fill in the feedback forms to help us improve the program
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