Financial Wellness Enhancement Program

What do we do with Money?

Earn Invest

Spend Borrow

Income – Expenses : Impact

How to increase Earnings?

Earn

1. Enhance Skills

2. Monetise Hobbies

3. Income from Investments

4. Save Tax

Invest

Spend Borrow

Monetising

HobbiesKris Sanchezwww.twitter.com/KrisSanchez

141,000 Followers on twittwers

www.twitter.com/UberFacts

75,00,000 Followers

Tweets Facts with sponsored links

Earns $ 500,000 in a year

Full time Job : After School Counsellor

– Earns $ 50,000

Took 5 years to get Follower base

Save Tax or Increase Net Income80 C (Maximum Savings of Rs. 50,000 per year - 30% of Rs.1,50,000)

1. EPF

2. PPF (or for those with Self Discipline ELSS from Mutual Funds)

3. Company Sponsored NPS

4. Principal Repayment on Housing Loan

5. School fees for upto 2 children

Interest Payments on Housing Loan or Education Loan

1. Max of Rs.60000 Savings (30% of Rs.2,00,000) for Self Occupied house

2. Unlimited for Rented House

3. Unlimited for Education Loan

Medical Insurance Premiums

Rs.5000 for Self and Rs.6000 for Sr. Citizen Parents (30% of Rs.15,000 and

Rs.20,000)

Have more Exempt Income

HRA, Dividend, Other Tax Free Income

Where does Insurance Fit in this?

Earn

1. Enhance Skills

2. Monetise Hobbies

3. Income from Investments

4. Save Tax

Invest

Spend Borrow

Insurance

What happens to Premium we pay for Car or two wheeler ?

What happens to Premium we pay for Health Insurance every

year ?

Why do we pay this ?

What should logically happen to life insurance premium we

pay ?

Insurance is an Expense (most important)

Earn

1. Enhance Skills

2. Monetise Hobbies

3. Income from Investments

4. Save Tax

Invest

Spend

1. Insurance Premium (Less than 5% of Net

Income)

1. Life Insurance (6 times Net Income)

2. Accident Insurance (6 times Net

Income)

3. Health Insurance (Upto Rs 5 Lakh)

4. Critical Insurance (Age > 35, 20

Lakhs)

5. Motor Insurance (depending on

vehicle)

Borrow

What are the Investment Products ?

Earn

1. Enhance Skills

2. Monetise Hobbies

3. Income from Investments

4. Save Tax

Invest

1. Banks (FD, RD)

2. Retirement (EPF, PPF, NPS)

3. Mutual Funds (Debt Funds, Index Funds,

Equity Funds, Gold Funds)

4. Real Estate (Flat, Land, Commercial

Property)

5. Metals (Gold, Silver etc)

Spend

1. Insurance Premium (Less than 5% of Net

Income)

1. Life Insurance (6 times Net Income)

2. Accident Insurance (6 times Net

Income)

3. Health Insurance (Upto Rs 5 Lakh)

4. Critical Insurance (Age > 35, 20

Lakhs)

5. Motor Insurance (depending on

vehicle)

Borrow

Investment Basics

No Risk – No Return

Medium Risk – Medium Return

High Risk – High Return

But, Taking Risk does not guarantee Return

No Risk – No Return Products

FD/RD/Debt Mutual Funds

Interest – 9%

Tax – 30% of 9% = 2.7%

Net Interest = 6.3%

Inflation = 7%

Return after adjusting for Inflation : -0.7%

Hence – NO RISK – NO RETURN

Why Invest ?

Atleast Capital is protected and can be withdrawn in emergency without loosing

capital

Invest only minimum amount – (Say 6 months Net Income)

Advantage of Debt Mutual Funds over FD – If no withdrawal happens for 3 years

tax is less than 1%

Medium Risk – Medium Return Products

EPF, PPF

Interest Rate : 8.75%

Tax : 0%

Net Interest – 8.75%

Inflation – 7%

Return over inflation = +1.75%

Why they offer more return than FD?

For taking Risk

Risk – Liquidity (Can’t be withdrawn), Interest rate (Not guaranteed)

Any Other Medium Risk – Medium

Return Products ?

Stock Market Index – NIFTY or SENSEX

Stocks Can Loose – Stock Market (NIFTY) will not

loose

(RISK is only Time)

Year NIFTY Year NIFTY Year NIFTY

Jul-94 1226 Jul-04 1537 Jul-14 7634

Jul-95 938 Jul-05 2211

Jul-96 1109 Jul-06 3150

Jul-97 1200 Jul-07 4313

Jul-98 942 Jul-08 3896

Jul-99 1183 Jul-09 4340

Jul-00 1495 Jul-10 5251

Jul-01 1100 Jul-11 5627

Jul-02 1068 Jul-12 5278

Worried about ups and downs of NIFTY –

Why it is good?

Year Value 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 29333

Value at the end of 10

years = 29333 * 12 =

Rs 351996

Rs 100000 has

become 3.5 times

On the other had if Rs

1,00,000 is invested in

Year 1 – It would have

become only Rs

1,20,000

High Risk – High Return

Diversified Mutual Funds

Expected Returns : 12-15% CAGR over 7+ years

Tax : 0

Net expected returns : 12%-15%

Return over inflation : 5-8% (expected)

Very High Risk and Very High Return

Real Estate

Individual Stocks

Guaranteed ways to loose money

Earn $ 1000 in 3 days –

F & O Gambling

Vanila Plantation

Cattle and Ghee

Scheme

Teak Wood Plantation

Solar Power Generation

Home and Education Loans – A Must have

Home Loan Interest : 10%

Tax Benefit on Interest : 30%

Net Interest Rate : 7% only

Even 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

When borrowing is not good?

No Credit Card Outstanding

Even if you one month full payment is missed, credit card has to be surrendered

No Personal Loan

No Car Loan

4 lakh car loan for 5 years – EMI : Rs.8700

To accumulate Rs.4 Lakhs in 5 years (@12%) – Need to Invest only Rs.4900 p.m.

3 Cars required today for life time – If first car is bought on loan all cars will be

bought on Loan

No Interest Free EMI’s

Strictly No Loans for any depreciating asset

Why Invest ?

Why Invest?

Prioritize Investment

No 1 Priority – Emergency & Short term

No 2 Priority –

Retirement Savings : No other Need is bigger

No 3 Priority Aspirations

Home, Education :

Vacations/Car/Celebrations

Invest based on Priority to maximize return

For Emergency 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

For Aspirations

Home & Education : Borrow

For Vacations/Car/Celebrations

Diversified Mutual Funds

What are the Investment Products ?

Earn

1. Enhance Skills

2. Monetise Hobbies

3. Income from Investments

4. Save Tax

Invest

1. Emergency (Short term) FD/RD/Debt

Funds

2. Retirement (Long Term) EPF, PPF,

NPS, NIFTY MF

3. Aspirations (Medium Term) Diversified

Equity, Gold Funds

1. Down payment for home

2. Car, Vacation, Festivals

Spend

1. Insurance Premium (Less than 5% of Net

Income)

1. Life Insurance (6 times Net Income)

2. Accident Insurance (6 times Net

Income)

3. Health Insurance (Upto Rs 5 Lakh)

4. Critical Insurance (Age > 35, 20

Lakhs)

5. Motor Insurance (depending on

vehicle)

2. EMI or Rent

3. Food & Clothing

4. Bills

5. Unplanned Expenses

Borrow

1. Home

2. Education

How do I break up my Income ?Earn

1. Enhance Skills

2. Monetise Hobbies

3. Income from Investments

4. Save Tax

Invest Monthly

1. Short term Aspirations (Mobile, Gadgets,

Festivals, India Travel) -10% of Net

Income in RD/Debt Funds

2. Retirement (Long Term) Age < 30 – 10%

else 25% of Net income in PPF, ELSS,

Index Funds

3. Aspirations (Medium Term) 10 % of Net

Income in Diversified Mutual Funds

1. Down payment for home

2. Car, Vacation Abroad, Big Family

Functions

Spend

1. Insurance Premium (Less than 5% of Net

Income)

1. Life Insurance (6 times Net Income)

2. Accident Insurance (6 times Net

Income)

3. Health Insurance (Upto Rs 5 Lakh Sum

Assured)

4. Critical Insurance (Age > 35, 20 Lakhs,

Sum Assured)

5. Motor Insurance (depending on

vehicle)

2. EMI or Rent

3. Food & Clothing

4. Bills

5. Unplanned Expenses

Borrow Rightly (EMI to be Max 25% of Net

Income)

1. Home

2. Education

Caveat Emptor

Fine Prints while buying Financial products

0% EMI

Guaranteed Returns

Promise of high returns

Fixed Interest on home loans

Finance Basics

To understand fine prints

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

5 Level Model – To Enhance Financial Wellness

Measuring your Financial Wellness

Simple Spreadsheet – Soon a Mobile ap

What Next?

Keen to Enhance your Financial Wellness of Self and others

Activities you must do today

1. To download ppt visit

www.slideshare.net/imoneyplant/fwep

2. Automate your Savings – 10%-10%-10% (If it is not done

today, it will never be done. Less than 1% of the

participants do it the same day and succeed, rest succumb

to Procrastination behavior). If you need forms to start your

SIP visit www.imoneyplant.com/forms

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 their salary directly to their Bank

to make Financial Inclusion a success

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