Lights, Camera & Action: 3 Steps on How to be a Smart RupeeManager

Featured

Posted on May 22, 2011 by Ranjan

There were several reasons for being away, and the main reason is that I am writing a book on how to be a Smart Money Manager. And in the process I am left pulling my hair all the time (of whatever is left )

I want your help. I want two things from you.
1. Feedback on the following structure.
2. Share experiences and case studies and be part of my book.

I have arrived at a structure of the book and the structure of this book is similar to the making of a movie. Lights, Camera and Action! The making of the movie has a lot of time going into story writing, screenplay, actors’ selection, and the shooting itself, scene by scene.

Money management is not just about investment advice, setting up a retirement plan or buying the right financial products. It involves the right understanding of some basic concepts (Lights), using the right financial planning process (Camera) and then taking decisions on financial products (Action).

Here’s the structure of the book that I have in mind

Lights!
I. Psychology of Money
II. Playing with Numbers
III. Asset Allocation
IV. Magic of Compounding
Camera!
V. Financial Planning
VI. Using Tools and Technology
Action!
VI. Taking Cover
VII. Tax Planning
VIII. Selecting Investments
IX. Retirement Planning
X. Loans
XI. Credit Cards
XII. Child’s Education/Marriage

I also want you to share your experiences on
1. how you are managing your money and
2. what have you learnt from this blog.

Your experiences can be source of learning for others and I want to write a useful book. Please share and be a part of my book. Thanks.

Coming Soon! RupeeCamp "Financial Planning Workshop". "Join us"

Welcome back! Join me on this journey to improving our financial IQ and sharing what we know. Updates at RSS feed or Email. And spread the word please Thank You!

Share/Save

Play Soccer & Become A Personal Finance Champion

Posted on July 13, 2010 by Ranjan

Spain is Soccer World Cup 2010 Champion. Analysts say that is because of their mental strength, their wily forwards, a strong defence and the hardworking midfield.

Imp: Do remember that what the analyst say is on the basis of hindsight of course. Spain was pilloried for losing their first match by the same analysts!

Apart from the mental strength, which is invisible, what’s visible on the field are three important components.
1. Forwards, to score the goals.
2. Midfielders, to control the game.
3. Defenders, to save, not leak goals.

I know you have this idea that I would be comparing soccer with Personal Finance. Here it is.

Personal Finance has three important components too.
1. Investing, to get more bang on your money.
2. Maximizing your income, to control the game of money.
3. Frugality, to save and not leak money .

And yes, you also need to have that mental strength not to be dragged down by “fear and greed“. And keep coming back even after failure.

In any case, personal finance is not just about investing. It’s also about optimizing your expenses as well as maximizing your income.

I talk to a lot of people on managing money and I can classify them in three categories.

1. I know how to manage money. I save a lot. I have kept it safe and have put all my money with Bank FDs.

2. I know how to manage my money. It’s all about making more and more money. If I have a good income, everything else will be okay.

3. I know how to manage my money. I focus on investing my money in equity which is the best asset class. I focus on maximizing my money.

All of them know that they are managing it well. Infact, they are. But doing one component of it very well does not complete the entire task of managing your money.

Coming back to soccer, a team may say that they have excellent forwards. Like Lionel Messi. But their defenders leak goals. Or the midfield isn’t able to control the game. That’s what happened to Argentina, I guess.

As an aside, when I tell my son (who plays as a forward) that I played as a defender in school, he frowns. He says, “What does the defender do? The real work is done by the forwards”.

My son is less than 16 years old and can be excused. But what about us grown ups? Who think investing is personal finance. Or saving money is personal finance. Or, increasing our income (legally) is personal finance.

Defending, controlling the midfield and attacking relentlessly is what makes a Soccer Champion. So if you want to be a Personal Finance champion, you need to take care of your investing, savings as well as maximize your income.

What do you say? Do share your own perspectives. Thanks.

I edit Personal Finance Online Resources, nurture Financial Literacy Foundation, deliver Financial Awareness Workshops and have built a desktop RupeeManager.

Invite me for a talk. Email me on ranjan@ranjanvarma.com or Call me on +919867755615

Share/Save

Do We Really Need A Money Management Software?

Posted on June 13, 2010 by Ranjan

Balancing our checkbook and listing out our investments in a notebook (In MS Excel these days) is all we need to be doing about money management. No?

Most of us would not bother about setting up a detailed system that tracks our expenses, optimizes our income and tracks our savings and investment.

But there are several downsides for not maintaining any records or just maintaining a manual notebook for all your financial transactions.

Notebook records don’t give you the options of retrieval of data in any desired format other than the one you are using. For example, a list of fixed deposits will not give you another list which is sorted in a way that shows in an order when you will get the redemption or maturity of those FDs.

Excel is a powerful spreadsheet and can be used by trained users in a very effective way. But the caveat here is that you need to be a trained user to make use of the spreadsheet software. Even with trained users, getting reports in charts, tables, etc will not be easy.

Record keeping is a simple, easily implemented, and cost effective management tool. Complete, well organized records can help ensure proper management of your money.

But it is also important to be aware of the limitations of good record keeping. We need to take care of the following:

Records must be updated regularly.

You must update records correctly.

The records need to be readily accessible.

Records containing any confidential information must be secured.

I believe that available technology can help create a strong system to manage your money. But they also need to be easy to use. It should not be like a Jet’s dashboard which has hundreds of powerful utilities and features but very complicated to understand.

There are some desktop softwares that are coming to the market and promise loads of features.

An option that is growing in popularity is software that is kept entirely online. You never actually download a program to your computer and can access your information from any computer connected to the Internet, including SmartPhones.

This is referred to as “cloud computing.” Some websites offer a low monthly fee to use the software and other sites are free and entirely advertising supported. Some people prefer this method for its convenience and other people stay away from these programs due to security fears.

Once you begin to use personal finance software you’ll wonder how you ever managed your finances without it. I believe that people might become addicted to seeing the computer generated reports of exactly where their money goes each month. They should find this makes it easier to create a budget and stick to it.

That’s the premise that I am working on right now. Do you have thoughts on using software to manage your money. I’m listening.

Share/Save

What Is The 88% Solution?

Posted on June 7, 2010 by Ranjan

This post is about a simple solution to setup your investments. I call it “The 88% Solution”. Why 88%? Because it works for 88% people. It works 88% of the time! This is the third and the final part.

Part 1: The Background & Part 2: The thought process.

There are more than 300 life insurance schemes, numerous health insurance schemes, over 1000 Mutual Fund schemes, 2500+ stock scrips to choose from. Then there are 100+ deposit schemes with Banks, Corporates and the Government itself.

Wouldn’t it be a good idea to bring down the choice galore to a maximum of 20 products to choose from? Can’t this group of 20 products be the best in class and stands validated through a reasonable thought process?

The answer, to my mind, is yes! Read the following 7 points that gives you the a set of 20 products to choose from for your investments.

Before we go on to investing our money, it’s a good idea to take a bit of cover. Let’s start with the emergency fund.

1. Emergency Fund: Keep an amount of three times your monthly expenses in your Bank in a Savings Account.

2. Insurance: Many of you who are just started having an income, are single wouldn’t really need insurance now. But some of you who have started a family need to get a cover. Trying to find how much insurance do you need from the internet will throw multiple calculations and options. Each one of them have their own logic. A simple thumb rule for me is to get insurance worth 60 times your monthly expenses. Not 60 times your gross monthly salary, mind you. Insurance is for taking cover, not profiting out of it. Two products that I would recommend choosing from is LIC’s Anmol Jeevan and Religare’s iTerm. The first one a trusted name in Insurance and the other one is the cheapest one available.

You also need to get health insurance. A group health insurance privided by your company should be enough. If not, start with a mediclaim policy with one of the General Insurers.

To start investing, you need to first exhaust your tax planning options.

3. Tax Savers: Apart from the PF that might be deducted from your salary, getting a PPF account is a good idea. Plus you might go for equity linked tax saver Mutual Fund schemes. HDFC Tax Saver, SBI Magnum Taxgain, Sundaram BNP Paribas Tax Saver, Franklin India Tax shield and Sahara Tax Gain have given a return of 20%+ over the last 5 years.

From the money left after taking a cover and exhausting your tax planning options is available for investment.

4. New Pension Scheme (NPS): NPS is THE best & effective tool that covers capital protection and also provides growth for your retirement plans. With its lowest charges, it also is the cheapest way to get an exposure to the market. Despite being such a fabulous product, there’s not much sales to boast. This is because there’s no commission for an agent there.

Infact getting a PRAN (Permanent Retirement Account Number) under NPS is not easy. I’ll do a detailed post later.

5. ETFs: This Pdf will tell you why ETFs are the best. Nifty Index ETFs which benchmark the Nifty that are available in India are NiftyBEES, KotakNifty, UTISunder, .QNifty

6. Debt Index/ Balanced Mutual Funds At a young age, you can take more risks and I will not ask you to invest in debt funds. But to get a bit of diversification in your portfolio, I will recommend investing in a few balanced funds. Balanced funds have exposure to both equity and debt and their fund managers take a call on when to focus on equity or debt. HDFC Prudence, DSP Blackrock Balanced, Birla Sunlife 95, Tata Balanced are balanced funds which have done well. In fact some of them are at par with Equity Funds!

7. Gold ETF: Gold has been outperforming the equities for the last decade!. Looks like it’s on a dream run. For diversification purpose, investing 5-10% of your money in Gold ETF isn’t a bad idea. Gold ETF is seeing the highest turnover these days and there are a lot of players which are offering Gold ETF these days.

So the 88% solution has shortlisted a set of 20 odd products out of 5000+ financial products. Does it help you get started?

Advantages of the 88% solution:
It tunes out the noise of the market place which is worse than the fish market.

It takes care of Diversification, Rupee Cost Averaging, Asset Allocation principles, Magic of Compounding and all principles and theory of investing.

It also gets you real bang for every Rupee at a very low cost.

And once you set it up, you can forget about it and focus your life on more happening things!

Disadvantages: It’s boring and non-happening. More like a Cricket Test match when it’s the age of Twenty-20.

But the question is, do you need an audience for your finances? Or do you need to perform infront/for the benefit of others? Remember, it’s “personal” finance.

I’ll wait for your questions and your views on the 88% solution. Thanks.

Share/Save

RupeeManager in Private Beta Now

Posted on October 1, 2009 by Ranjan

“……… I don’t know where I’m going, but I’m on my way.”

This edited quote by Carl Sandburg sums up my feelings as I ask you to download the first/private beta of RupeeManager.

RupeeManager is a easy-to-use personal finance software to manage your money. It primarily helps organize one’s finances and keeps track of where, when and how the money goes and comes.

Measuring something has an uncanny tendency to improve it. And that’s what RupeeManager helps you to get started with.

Other than tracking your earnings and your expenses, it is important to see if your money is working for your future. We have a feature where you can allocate your income among fixed expenses, discretionary expenses, short term savings and long term investments. It’s like assigning goals for your money.

Also, you will get an idea how to balance your portfolio according to your risk profile. You will match the portfolio with your risk appetite and see if you can take more risk or go more conservative. In other words, you get to decide your asset allocation strategy.

It is always good to remember that the software can only be as good as the data it has to process. Garbage In Garbage Out. But if you have started thinking of even using a Personal finance software you are well on your way to making every Rupee count

The guiding principles behind the RupeeManager has been posted before. Link

You may like to see the updated Manual before you want to participate in the private beta.

I have some of my friends participating in the private beta. Would you like to participate too? The comments section is awaiting your response.

Share/Save

How I Made Rs 1,27,535 in One Day!

Posted on August 12, 2009 by Ranjan

Okay, that looks like a scam. Well, it’s a header bait. But actually, I saved myself that amount of money by making an informed decision about my home loan.

Along the process of making an informed decision on my home loan, I learnt that paying 10% rate of interest is better than paying 8.75%. It’s a pretty unique situation of mine that makes it TRUE!!

How? Let me share you my story. But before I begin, a big Thanks to BankBazaar. Because the story starts and ends with them. On BankBazaar.com, you can get instant customized quotes for loans and easily compare the total costs of the loan offers made to you.

Let me share my home loan details. I took a loan of Rs 10 lacs in August, 2004. The starting rate of interest (ROI) was 7.25%. After going to a peak ROI of 11%, it has now come down to 10.25%.

The starting EMI was just Rs 7900.00 but as the rates skyrocketed, the EMI was raised to Rs 8951.00.

I have prepaid an amount of Rs 3 lacs from time to time. As on date, the outstanding principal balance is Rs 6.20 lacs. In other words, the outstanding balance would have been Rs 9.20 lacs if I had not prepaid Rs 3 lacs.

That also means that for the last 5 years when I have paid over Rs 5 lacs in EMI, the actual Principal that has been repaid is just Rs 80,000!! (Phew, the EMI principle is so skewed in favour of lenders!)

Anyway, let’s come back to my home loan story. The banks are beginning to advertise attractive rates for new home loans with some hovering around 9% ROI. And when I checked with my own home loan ROI, they said it’s still 11% and will be reduced to 10.25% from August, 09 onwards.

It was time, I thought, to look around for a better home loan and get my loan transferred to a better rate.

I knew about BankBazaar. It’s a very powerful engine to search for the best quotes on loans. In a few minutes, I figured out a quote which looked very attractive. I was offered 8.75%.

The support functions at BankBazaar worked really well and within a few hours I got the phone call from the Bank offering 8.75%. They offered to collect the documents from me. The document required were already specified in the BankBazaar process and they added a foreclosure letter to be obtained from my existing lender.

While getting the foreclosure letter from my existing lender, I also asked for the amortization schedule for my loan. This amortization schedule tells you the portion of interest and principal in your EMI and tells you the reducing balance principal after every EMI payment. You also get to know how long it will take to repay the loan. Check this Loan Amortization Schedule

Now I saw that the total number of EMI payable is just 110. So the loan will be repaid in roughly 9 years. The total interest portion that has to be paid is Rs 3.66 lacs. (A)

On doing a similar exercise for my new loan offer @8.75% for 14 years, the total interest payout is Rs 4.75 lacs. Add the prepayment charge of 2% to be paid to the old lender and 1% processing fee to the new lender, the total interest and fee works out to Rs 4.94 lacs. (B)

The difference between these two scenarios (A & B) is Rs 1,27,535.00!!

So even though I get an offer @8.75% instead of the 10.25%, my total interest/fee cost is less than the lesser offer!

Learnings:
Surprising? Not if you figure out that the enhanced EMI is enabling me to make a part prepayment every time I pay an EMI. So even though I had taken a loan for 20 years, the enhanced EMI is helping me prepay the loan in just 14 years!

Another learning is that it is important to consider the repayment term of your loan. If I go in for a loan @8.75% for 11 years, the difference in interest/fee would be negligible. For less than 11 years, I will make some savings by transferring the loan.

Check out BankBazaar’s powerful Refinance calculator

Do you have anything to share about your home loan? Or do you have any questions? The comments section is awaiting your response.

Share/Save

How to Maximize your Income

Posted on April 15, 2009 by Ranjan

In the last post on personal finance, I represented personal finance in an equation, which was:

Income(t) – Expenses(t) = Savings(t) + Investments(t) where time t signifies moving money, or purchasing power, backward and forward in time.

Now, Deepak Shenoy has a lucid post on the difference between Savings & Investments. In his intro, he says and I quote:

There are two kinds of people, really – those who have extra money left over at the end of the month, and those who don’t. I’m assuming you’re one of the former, otherwise you shouldn’t even be here.

Totally agree with Deepak on the difference between S & I. But the point I want to make is that even when you have no money left over at the end of the month at present, there’s still hope. Go back and see our equation on personal finance.

I mean we can take a shot at maximizing our income and/or practicing some frugality to optimize our expenses. And thus have something to save/invest though there’s no surplus as on today.

This post is about maximizing your income.

An year ago, I would have looked derisively at the post title and would have muttered, “Oh, here comes another preacher” or “BS, that’s easier said than done”. But today I think it’s possible.

Before I share my own learnings (Showing not Telling!), a few links that talk about maximizing income from popular bloggers:

Spend Less Than You Earn: The Wrong Way to Think

Ramit Sethi’s “Earn More Money Using Your God Given Skills

Update: The Simple Dollar’s 50 side business you can start on your own (Tip thanks to Swaroop)

For a laid back, unambitious guy like me, increasing my income was not really a priority. Even more so for my wife. But we discovered that we enjoyed doing things beyond our daily/professional life.

My wife always enjoyed being with the kids. And she enjoys learning and singing rhymes. Even writing a few of them herself. Since last year she has started going to a nearby preschool. Parents to a few special children requested her to give personal attention to them at home. And even though she is embarrassed at accepting money from the School/Parents, she earns enough to take care of our daily expenses. And btw, her salary increase in 1 year of recession is over 100%!!

Recently, I too, sold my first software. It’s a Money Manager application and had more than 600 free downloads in the last two months before I made it a paid software. Mind you, I’m not a techie and perhaps too old to learn programming now (?).

I also have some earnings from my various websites. And I learnt all this in the last two-three years.

Together my wife and my earnings have resulted in more investments for our future. Without cutting back on our eating out, chocolates, icecreams, et al.

In essence, we have (inadvertently) taken the route of increasing our income rather than minimizing our expenses to achieve our Saving/Investment targets.

You can do it too. Infact the best argument is that if we could do it, anybody else can!

So what do you do to increase your income? I can give a few clues but ultimately you need to decide it for yourself.