ABP Session on Financial Wellness

Below 40 Age Group

Vivek Jalan
[FCA, LL.M (Constitutional Law), LL.B, B.Com (H)]

E-Mail – [email protected]
Call - +91 98315 94980

[ MUMBAI BANGALORE KOLKATA DELHI]

Agenda
 Topics for Discussion

1. Discussion on 'well being' wholistically 3. Focus on actual Investment post inflation

including physical, mental, social, etc adjustment

 What is Holistic Well-being?  How inflation will impact investing in different

 Aspects of Holistic Well-being - physical, asset classes
 What is Real/Nominal Rate of Return
mental, social, spiritual, etc
 Real Return Calculator
 Ways to Achieve Holistic Well-being  The effect of inflation on cash flows
 How to Get Started  Net Present Value/IRR
 Integrating Holistic Well-being into Your Daily  The effect of taxation
Life How is Financial Well Being an integral  Real/Nominal terms NPV calculation where tax is
part of Whollistic Well being deferred
 Frequently Asked Questions (FAQs)
4. Focus on Individual inflation rather than
2. Setting goals and objectives, defining a country inflation
time period, purpose and plan of action to  How does the Country Calculate its inflation rate
achieve each goal, and cost of reaching the  How do you Calculate your own inflation rate
objectives
 How to set SMART Financial Goals FREE TOOL FOR PARTICIPANTS – YOUR OWN
 Financial Goals vs Financial Objectives INFLATION CALCULATOR
 Steps to Creating Better Financial Goals
Discussion on 'well being' wholistically including physical,

mental, social, etc

 Test your Holistic Well-Being

Rate Yourself -

1. Do you control how you're thinking, feeling and behaving or do you get affected by someone else
- (1 is lowest and 5 is highest)

2. Do you feel that you are achieving 100% of your potential - (1 is lowest and 10 is highest)

3. Can you manage ‘Change’ well - (1 is lowest and 5 is highest)

4. Whenever there was a setback, did you come out stronger - (1 is lowest and 10 is highest)

5. Are diet, exercise and sleep hard to prioritize under pressure - (1 is lowest and 10 is highest)

6. Do you do good for people.. Like giving money to needy, helping people without charging, talking
kindly with the weak, etc (1 is lowest and 10 is highest)
 Holistic well-being: The future will not be compartmentalised

Consider physical, mental, emotional, social, intellectual, and spiritual

Well Being…

A. Why – Know the ‘Dal’ Philosophy

B. Radio Taiso

C. When I am….I will be happy

D. Annual Medical Check Ups

E. “Pran” Techniques

F. food, herbs, supplements, teas, homeopathic remedies, and essential oils as

“medicine”
 Holistic well-being: The future will not be compartmentalised

G. Movement

H. Dancing, singing or chanting, sound and vibration, drumming, prayer,

meditation, mindfulness, and touch

I. Pet a dog or cat

J. Company you keep

K. Hush the rush

L. Substance abuse

M. Be kind to yourself – Understand that you are in your ‘time zone’

 Holistic well-being: The future will not be compartmentalised

N. Differentiating ‘personal’ and ‘professional life’ – Really???

O. Try out Whole Person Model (WPM)

P. Have a Coach

Q. Build Relationships – Invest time

 Financial Well-being as a part of Whollistic Well Being

A. People know that its difficult to live ‘poor’ but its even difficult to ‘die’ poor

B. If we do not make money work when we sleep, then we will work for our whole
lives

C. Costly and average quality health Infrastructure in India.. Especially WB

D. Peer Pressure
 Plan of Action

Step 1: Select a mental well-being goal you want to improve this month.
Example: I will only think positive about all people

Step 2: Make a plan. Focus on how you will integrate the mental well-being goal
into your daily life.
Example: Everyday in morning list down how many people you interacted with
and how many times you achieved your goal

Step 3: List down the benefits everyday. You are more likely to stick to your
goals if you focus on the benefits rather than your motivation level for the task at
hand.

Step 4: At the end of the month see the difference

 FAQs
1. Is it vital to engage in all the areas of wellbeing at once?

2. My family member is suffering from a terrible disease. I have to take care of

him/her as well as maintain my livelihood. How then do I have ‘whollistic well-
being’?

3. I do not get time for myself.. So how to I achieve well-being?

4. I just cannot exercise or leave my craving for rich food

5. I cannot get spiritual at all…That’s what I am.. I can’t change

6. I am a spendthrift.. Money does not stay with me

7. I am an introvert and hence cannot be social at all?

8. I am a ruthless professional… That’s what I am.. I can’t change

 Setting goals and objectives, defining a time period,

purpose and plan of action to achieve each goal, and cost

of reaching the objectives

 What is Financial Well Being
Ability to -

1. Spend wisely

2. Invest Wisely

3. Build savings for the short- and long-term

4. Manage credit and debt

5. Handle things life may throw at you while planning for the future
Test Your Present Financial Wellness
Can you meet your current, ongoing and future financial obligations

Present Future

Are you in Control Do you have

over your day-to- enough financial
Security day, month-to- Capacity to absorb
a financial shock
month finances

Are you on track

Freedom Do you have
Financial freedom to meet your
Of Choice to make choices financial goals
to enjoy life
 Test Your Present Financial Wellness
1. Are you withdrawing loans against your retirement savings?

2. Are you asking for payday advances?

3. Are you spending time dealing with personal finances while at work?

4. Do you sometimes skip paying your bills on time due to financial crisis?

5. Do you have outstanding debt?

6. Are you having preventable medical issues that could have been avoided, but you didn’t go to the
doctor because of cost?

7. Do you have less than 6 months of living expenses in your savings account

8. Do you not have a monthly budget

9. Are you not saving for retirement?

10 .Do you pay one credit card bill with another credit card?
 Tips to Achieve Financial Wellness

1. Practice contentment and cut down mindless spending

2. Stay out of debt and use credit responsibly when it’s needed

3. Identify specific, realistic goals

4. Make step-by-step plans to reach those goals

5. Figure out how to take the steps needed to put decisions into action
 Budgeting is the 1st Step to Financial Wellness

How to make your budget

Step 1: Set your savings/investment goals for the year and break it up into
months

Step 2: Calculate your income and expenses.

Step 3: See what’s left.

Step 4: Monitor your budget.

 Smart Financial Goals

Specific, Measurable, Achievable, Relevant, and Timely.

A. Strategize a clear and actionable plan to attain the outcome

B. Utilize both quantitative and qualitative analysis to measure the progress

C. Set a goal such that it is encouraging and pushes towards its realization

D. The goal must not make you lose sight of the core vision

E. Allow a realistic time frame to achieve goals

 Short Term Financial Goals

A. Making a contingency fund or emergency fund for the family.

B. Saving for school admission of kids.

C. Saving for purchase in the near term like a domestic appliance or for treatment
of a recently diagnosed ailment.

D. Saving for life insurance premiums.

E. Investments for tax planning.

 Medium Term Financial Goals

A. Retiring a loan or debt.

B. Planning for a foreign trip or a vacation.

C. Saving for college or pre-college expenses for your kid.

D. Saving for starting a family in coming years.

E. Planning for a new or change of vehicle.

F. Saving for home/property investment.

 Long Term Financial Goals

A. Building retirement corpus. (both, expenses and medical included)

B. Saving for providing inheritance.

C. Saving for daughter’s marriage etc.

D. Planning a home for post-retirement life or a farmhouse.

 Steps for Financial Planning

1. Budgeting

2. Goal Finalization

3. Developing a Financial Plan

4. Implementing the Recommendations of the plan

5. Reviewing & Monitoring the Financial Planning recommendations

 Your Biggest problem is your behaviour

1. Buying a stock that has appreciated in price significantly for the last
couple of months because you have been hearing your colleagues talk about it
and everyone around you have been buying it.

You might end up buying it at a high valuation which can lead to losses later on

2. You invest your money only in bank FDs. You are scared to invest in any other
assets fearing losses. This is irrational as you have to understand and analyze
other investment options and decide on a healthy mix of investments.

3. Many products are heavily advertised. When it is time to file tax returns,
you invest in a few random products that catch your eye to save some taxes. This
is not the best way to make investment choices. You should understand your risk
tolerance and financial situation and only then invest in appropriate assets.
 …Your Biggest problem is your behaviour

4. Spending on WANTS/DESIRES rather than only needs

5. Making a Portfolio similar to your parents

6. Saving but not investing – You are saving but what about investment? There
is huge amount laying in our saving bank account or for investment we use
insurance endowment plans – these are examples of driving your vehicle in
reverse gear. You are not moving ahead but going back every passing year due to
investor’s biggest enemy that is INFLATION.

7. Practically, Equity should be for Long term and Debt for short
term, but investor does the opposite, Equity for short term and debt for long.

8. Equity investments are best when you invest through SIPs in a well
diversified Equity oriented Mutual Fund. For Debt, one can opt for FDs in case
tax liability is low and if tax liability is high, one can go for Fixed Maturity Plans as
well.
 How to Change

1. Let go of the herd mentality and research and analyze on stocks before
investing in them

2. You should visit financial portals and blogs to understand other investment
options

3. Plan your taxes well in advance

4. Get “Value for Money” spent

5. Making the right portfolio

 Financial Planning for young people

1. Insurance for young people –

A. You may opt for Term Insurance only, for at least 15 times your annual
income. For example, if the income is 5 lacs a year, the sum assured should be
Rs.75 lacs. Term insurance for such an amount may cost around Rs. 10-12000/-
depending upon your age, health, and habits.

B. You may avoid any other kind of Life Insurance or Unit linked insurance plan.

C. If there are no depended no need of a term plan also.

D. Accidental and Mediclaim Policy if not provided by the employer should be

taken separately
 Financial Planning for young people

E. Property Investment - One should look for property investment only if one is
going to stay in such a house for at least the next 10 years. There is really no
hurry to take an immediate decision.

F. Emergency Corpus - One should start putting some amount in Short Term
Funds to create an Emergency corpus of at least 6 months expenses. Avoid 100%
reliance on credit cards.

G. PPF Account - You should open a PPF (Public Provident Fund) account as soon
as you get into the job even if you are investing through EPF (Employee Provident
Fund). We are not suggesting to young investors that they should put the
maximum amount. But one should open the PPF account and just put a little bit
so that at least the account completes its lock-in period as soon as possible.
 Financial Planning for young people

H. SIP - One must start SIP (systematic Investment Plan) in Diversified Equity
Funds. This should be at least 10% of your monthly income.

I. SIP of Blue Chip Shares

J. SIP of High Dividend Yielding shares

K. Start Saving for Retirement - You should not think that you are too young to
start thinking of retirement. Even a very small contribution towards retirement
corpus at this stage would become a huge amount at the time of retirement as
you have the POWER OF TIME in hand.

L. Loans for young people - Loans like Education loans or Home loans are good
but in case one takes a loan for buying an expensive Car or exotic holidays that is
the wrong approach.

K. The use of credit cards should only be to substitute handling of cash and ease
of payment and strictly it should not be used as a tool to get a loan.
 10 thumb Rules you should know at this stage

1. What should be my asset allocation or how much equity should I have?

This is the most common rule of thumb which is used in the investment world.
The rule says Equity percentage in your portfolio should be equal to 100 minus
your (age + 30) or in other words, debt should be equal to your age. For eg if you
are 30 you should have 60% of your investments in debt & 40% (100 – your age
- 30) in equity. This doesn’t take care of risk appetite, risk tolerance, or how far
your goals are.

2. How much emergency funds I should have?

Emergency Fund helps people in case of a sudden loss of income, medical
emergency, etc. The Thumb rules say one should have an emergency fund equal
to 3 to 6 months of monthly expenses. You can keep it at 3 months if you are
a government servant but in the case of a private job or profession, you should
keep it on the higher side of the range. Make sure you don’t use this amount for
day-to-day needs/wants. For a retired person, an emergency fund should be
equal to 1 year of expense.
 10 thumb Rules you should know at this stage

3. How much money will I need in retirement or how much corpus I

should build?
You should save 5% of your annual income from now for another 20-25
years so that you have a retirement corpus of almost 20 years

4. How much money should I save every year?

If you have just started to work & would like to have a very simple lifestyle &
retirement at age of 60 you can do it with saving (read investing) 33-40% of your
income. If you are planning for an early retirement start with 40% savings.
Another rule says if you are in your early 30s Save 10% for basics, 15% for
comfort, 20% to escape. If you are late by decade add 5% more in each
category.
 10 thumb Rules you should know at this stage

5. How much insurance should I have?

Here insurance means insurance. The rule says one should have a sum assured of
8-10 times of his yearly income. I think this rule is far from perfect but still can
be used as starting point. This does not take care of any of your goals, liabilities &
even complete expenses. Some modified version of this rule says that if you are
in your early 30s insurance should be 12-15 times your annual income & if you
are in your 50s take 6-8 times.

6. How big should be my House?

The value of a house should be equal to 2-3 times your family’s annual income.
So if you & your spouse are earning a total of Rs 20 lakh – you should buy a
house in a Range of Rs 40-60 Lakh.
 10 thumb Rules you should know at this stage

7. Maximum EMI that I can have?

Ideally, 0 will be the best answer but a few of the big assets like homes require
some loan to buy them.

Experts agree that your EMIs should not be more than 33% of Gross Monthly
Income at any point of time. It should be even lesser when you are close to your
retirement.

If you want to talk about home loan EMI, it should not be greater than 28% of
your gross income.
 10 thumb Rules you should know at this stage

8. Rules of thumb for buying a car

This is one of the biggest purchases after your home. And this is a depreciating
asset – today morning you purchase a car for Rs 10 lakh & by the evening it will
be worth Rs 5-6 Lakh.

After 5 years it will not be even of 20% value but still, you keep buying cars
regularly – buy at 10, sell at 3-4 & lose 6-7. (repeat the cycle) There are few
rules that you can follow:

•The value of a car should not be more than 40% of the annual income of the
owner.
•Purchase a used car or buy a new & use it for 5 years.
•While buying a car with a loan stick to Rule 20/4/10 – Minimum 20% down
payment, loan tenure not more than 4 years & EMI should not be higher than
10% of your income.
 10 thumb Rules you should know at this stage

9. In how many years my amount will double?

If you divide 72 by rate of return you will get the number of years in which your
money will double. For Eg. If you expect a rate of return of 12% your money will
double in 6 years (72/12=6) & what about if the rate of return is 8% – 72/8=9
years. This can also be used in reverse order at what rate your money will double
in 5 years – 72/5=14.4%

Rule of 114 & 144

These can help you in how many years your money will be triple (114) or
quadruple (144) at some rate of returns.

Rule of 70
You know it or not but inflation is your biggest enemy – the rule of 70 will tell you
in how many years the value of money will behalf. You just need to divide 70 with
the rate of inflation so if the rate of inflation is 7% – 70/7=10 years. So in 10
years, your Rs 100 note will be worth Rs 50.
 10 thumb Rules you should know at this stage
10. Rule 10/5/3
This is a US rule of thumb which says in long term you can get –
- 10% return from equity
- 5% return from bonds (let’s say FDs)
- 3% from the t-bills (liquid funds – these returns are more or less close to the range of inflation)

Indian economy is growing at some different pace & even inflation numbers are different.

If inflation is 6% (t-bill rates) we can get 7%-8% from the fixed deposits & 12% from the equity or
in other words – in long term equities will deliver 2-4 times the return of inflation?

Combining with Rule of 72 – in FD your money will double in 10 years and in Equity in 6 years

Sometimes Rules of thumb will give you a false sense of security or wrong guidance – so
take them with a pinch of salt.
 …

….
Inflation – The Financial Diabetes
 How Inflation Sucks

Eg. Calculate your value of money of Rs.100 after 1 year incase FD rate in
6% and inflation is 7%

PV/NV of money Int Rate Inflation RV/PV after 1 year of money

100 6% 7%100*1.06/1.07
99.07
 How Inflation Sucks

Let’s take a figure of Rs 10,000.

Assume an inflation rate of 10% and take a time period of 20 years.

In 20 years, you will need a figure of Rs 67,275 to have the same purchasing
power as your Rs 10,000 today.

You have 3 choices of where to invest your Rs 10,000 today – the bank savings
account, a debt mutual fund, and an equity mutual fund.

Let’s see how each one fares against an inflation rate of 10% over 20 years.
 How Inflation Sucks
The amount you require to simply keep the purchasing power of your money
constant is Rs 67,275. Inflation at 10% has eaten into the value of your money so
much that over 20 years, even investing in a debt product at 7.50% p.a. post tax
(such as a long term FD) is not enough. You need to earn at least 10% post tax
every year to just match inflation and keep the purchasing power of your money
intact.

In the table above, it is only equity earning 15% p.a. that matches and beats
inflation. You can also match and beat inflation by investing into a mix of equity
and debt instruments i.e. diversifying your investments across different asset
classes.

So remember, inflation can and will eat into the purchasing power of your income.
It is important to invest wisely so that your investments can beat the rate of
inflation and you can achieve your life goals.

An asset allocation across equity and debt will help you to achieve your goals and
also protect your investment corpus.
 Ways to beat Inflation

1.Look at Your Entire Portfolio One Piece at a Time, and Inflation-Proof it

In each asset class, especially today thanks to the current high interest rate
scenario, you need to choose investments that have beaten inflation consistently.
If, in your fixed income portfolio, you invest in a corporate FD that yields 8% p.a.
post tax (considering indexation), you should note that the real return is actually
closer to 2% per annum, after considering 6% inflation.

Include inflation hedged investments such as gold and if you can, real estate.
Traditionally, a portfolio mix should consist of:

1.Fixed income: low risk, safe yields, bank and corporate deposits, bond funds
2.Equities: high risk, high capital appreciation, mutual funds and direct equities
3.Pure Inflation Hedges: gold provides a low to medium risk inflation hedge that
also offers a hedge against equity market volatility. In the sub-prime crisis, when
equity markets fell, gold rose 30% due to the flight to safety.
 Ways to beat Inflation

2. Bump Up Your Gold Exposure

Typically, your invested portfolio weight should include 10% exposure to gold at
all times. Increasing gold exposure to this level is not easy to do in one step, so
start an SIP or invest regularly into a gold ETF. But also keep in mind, that gold is
not without its own risks.

Gold has two very strong qualities: it is a true financial asset i.e. it is not backed
by paper money that governments can print at will, and it has a demand for use
in jewellery and manufacturing.
 Ways to beat Inflation

3. Real Estate

People have also used real estate exposure to successfully hedge against inflation
and in some cases, beat equity as well, but the real estate market is murky and
difficult to advise on.
 Ways to beat Inflation

4. Slowly and Steadily Continue Increasing Equity Exposure

Historically, inflation has been in the range of 6-7%, while equities have given a return of 15-18%
and even averaged above 20% per annum during the period 1980 to 1996.

While inflation will likely only go up from here, and equity returns are unlikely to stay that high, you
can still expect that over the long term assuming inflation is 8% per annum and equities give a
return of 12-15% p.a., your equity portfolio will beat inflation, delivering a healthy 4-7% post tax,
post inflation, real return.

But remember that when including equity in your portfolio, whether by way of safe, less rewarding
mutual funds or riskier, more rewarding direct equity, you must do so only in the proportion that
your life goals indicate within your Financial Plan.

If you have less than 3 years to a life goal, your investments for this goal should avoid equity
completely and be only in debt funds and other fixed income products. If you have more than 3-5
years left for a life goal, you can have some equity exposure and balance it out with debt and gold
exposure.
 Your Inflation Calculator

https://www.euro-area-statistics.org/digital-publication/statistics-
insights-inflation/bloc-4a.html

Choose Germany - The annual inflation rate in Germany was at 10.4% in October
2022, matching the preliminary reading and hitting a fresh peak since the
reunification, amid euro weakness, a deepening energy crisis, and lingering
supply chain issues. The goods inflation rose to 17.8% in October from 17.2% a
month earlier, led by high cost of energy (43.0% vs 43.9% in September) and an
acceleration in food prices (20.3% vs 18.7%). Also, cost of services quickened
(4.0% vs 3.6%), with rent prices rising further by 1.8%. The prices of energy
products increased sharply, especially for natural gas (109.8%), heating oil
(35.6%), electricity (26.0%), and motor fuels (22.3%). On a monthly basis,
consumer prices were up 0.9% in October. The CPI, harmonized to compare with
other European countries, increase 11.6% on the year, the highest level on
record; and went up 1.1% month-on-month
References for future Use
 Financial Health Check Up –

Get a Financial Health Check Up –

https://scripbox.com/user/login?after_login=%2Fact%2Ffhc&ref=fhc

Inflation Calculator –

https://scripbox.com/plan/inflation-calculator/
To Sum Up

Spends Category Value

Inflow 100
Fixed Expenses 40
Variable Expenses 20
Real Estate Investment 10
Equity 5
Gold 3
Retirement (Equity) 5
FD 5
Car 10
Term Insurance Premium Mediclaim and Other 2
Insurance Premium
Outflow 100
 THANK YOU

E-mail-
Vivek Jalan [email protected]
[FCA, LL.M (Constitutional Law), LL.B, B.Com (H)]
Call:
+91 98315 94980

[ MUMBAI BANGALORE KOLKATA DELHI]