[writetotanveer]

Am not sure if it is completely relevant.... but posting an expense organizer in Excel that helps us calculate savings at our disposal..

Regards
Tanveer

[writetotanveer]

From an article in Outlook:

Your Personal Financial Barometer

Liquidity (Liquid assets/Monthly expenses)
This ratio indicates the contingency fund that you have created and how many months this will support you

WHAT IT MEANS

• It is a measure of your ability to meet unexpected expenses (eg. medical emergency).
• Helps you tide over periods of reduced or eliminated earnings (eg. tax payments on closing month).
• Allows you to take advantage of financial opportunity that may appear (eg. down payment on the house).

COMMENTS

• A target of 3 to 4, that is having easy access to funds (like FDs) thrice the amount of your monthly expenses, is a reasonable reserve.
• A figure of above 6 indicates over cautious nature and you may be losing out on using your funds prudently
• Anything below 2 is risky.

Debt Service Ratio
(Monthly loan payment/Monthly take home income)
Measures the ability of repaying debts promptly.

WHAT IT MEANS

• Shows the percentage of assets financed
• with borrowing.
• Indicates your debt quotient.
• It should ideally go down with age.

COMMENTS

• Housing loan: 40-45%; auto/personal loan: 20-25%; credit card:10-15%.
• Overall EMI servicing across
• categories should not be more than 40-45% of take-home pay.

Savings Ratio (Cashsurplus/Income after tax)
Whether you are saving as much you think you should

WHAT IT MEANS

• lndicates proportion of your post-tax income being saved.
• It is a measure of your risk profile­whether you are proactive with investments or not.

COMMENTS


Anything above 10% is fair
If it is above 25%, you can use your money much better through superior investments.


Solvency Ratio (Net worth/Total assets)
Indicates the degree ofinsolvency or cushion thatyou have.

WHAT IT MEANS

• Indicates your risk bearing ability
• Is a measure of true worth. Unpaid home loans means you do not 'own' that Rs 30-lakh house.
• The net worth of your stocks will plummet if the markets go into a tailspin.

COMMENTS

• A cushion of above 50% isbeing safe, indicating quality assets.
• Anything less than the 30 level indicates a 30% variation in your assets could make you insolvent

While these are benchmark figures, in certain cases it will vary with income level and age. However, this should give you a fair idea of your financial standing.

[arun agarwal]

Originally Posted by mbaankit

i get a monthly sal of some 20,000....

i have given all of it (8 months)to my parents..they are managing it...i have no idea how much 'I' spend...

wat should i do..??shld i manage myself???

Dear Ankit,

From your reply, it appears that you are staying with your parents while working, hence you hand over all your salary to your parents. In indian tradition this is normal style and I will not like to advice you against that at the moment.

Also many financial decisions depend on many extrnal factors like:-

1. What are your current liabilities (Like sister's marriage).

2. What is the financial status of your parents, whether they are self sufficient or will they need your financial help.

3. whether your parents already own a house and you will inherit it. or you have brother and hence you may have to buy a house at some stage in your life.

4. When you plan to get married and will you be staying with your parents after that.

Any money management will be just an futile excercise till your goals are clear. Hence we have to link your savings to your future requirement.

Please post some more info, before we can decide on your action plan.

All my reply here are for normal middle class background. Persons who have enough money at this stage, may not find my replies very useful. But my replies will be useful to guys who want to start from a low level and lead a financially comfortable life.

Arun

[arun agarwal]

Originally Posted by reachmonil

Good thread Arun!

Lets take my example, no need to snip the name or anything!

I woke up to saving and investments last year, when I went to my CA in October. I showed him my income statements. He said, 'Invest karo, else your IT this year will approximately be Rs.50,000.' (Remember, I have multiple sources of income). He suggested I invest Rs.100,000 and my IT would reduce to Rs.17,000.

This is a common situation faced by all. Where to invest? How much? What is the perfect blend to suit my needs?

My Investment Background:
I had no prior investments.

My Investment Plan:
Preferences:
- My motto was diversity. I cannot put trust on one source.
- I wanted good returns in short term investment.
- I didn't was to take too much risk.

I decided to go for a Insurance + NSC + MF mix.
- LIC Insurance (Jeevan Anand) - Rs.25000 yearly premium.
- Rs.40000 in Tax-Saving Mutual funds. (Invested in 6 MFs - Diversity)
- Rs.35000 in NSC.

Why?
Insure was opted for coz I needed a life cover, earlier you start, lower the premium.
The MFs was choosen coz Lock-in period is only 3 years. Expected better returns.
NSC because I didn't know a safer option with lesser lock-in period.


Now a few Questions:
1. Can anyone suggest a better split of investment, considering my preferences?
2. How is ULIP as an option? How does it work? (I am clueless.)

I think these are questions everyone faces. So, lets get more ideas flowing and surely we can save a buck more!

Dear Monil,

First of all welcome to financial world. I am really fascinated by this and I am sure after sometime many boarders here will also be. Your's is a very limited query and let me reply to best of my knowledge.

1. First of all a big for your investment in Tax saving mutual fund. Studies have shown that, this instrument gives very good return, even more than normal mutual fund. However if you don't need money in short term don't withdrwa this money even after lock-in period. Some investment in equity is laways good in long run. One suggestion, keep an eye on the NAV of the fund from time to time.

But 40,000 in six different MF is too much diversification and may be a big nuisance, if it is not online. Imagine 6 Mfs every year for another 10-20 years. At best you should have gone for 2 MFs based on some small research ( and not on sales rep.). Now adays it is very easy to compar the performance of various cshemes within half an hour.

2. Also a big for your investment in NSC, this de-risks your portfolio/saving, as it is a fixed return instrument and will give you some money at the end of six years. Once you have this cycle after six years, this becomes self sustaining cycle without any financial requirement form you. Till you need money, you can continue to multiply it. Also as you can be sure of some liquid money every year, you can even plan for some big acquisition.
In worst case, where you are unable to earn for sometime due to ill health or any personal reasons this money will sustain you. Hence I will suggest, if possible segragate your investment four times a year. Small things go a long way in future.


3. Coming to your investment in LIC, I am not sure whether this is such a good investment. Even I have some LIC investment but they are the lowest paying ones (made this mistake long ago when I was a newbie in finanace). This 25,000 per year will give you avery low risk cover due to built in investment plan. You can get a higher plain risk cover with lower premium but salesman will not try to sell you this due to low commission.


I am always in favour of seperating insurance with investment. But many people have a mental block and don't want to give a plain premium on Term policy where you don't get back anything, but in the process lock-in higher amount in unproductive investment. Find out what it will cost you to have a long term Term plan(pure insurance cover). At your age premium will be very low and you can select the final amount based on your need.

In addition, I don't know whether your company has PF and you and your company invest in it or not. Please let me know this as it is very important investment option and should be used by all without fail. In NSC, the interest you earn is taxable but PPF interest is completely tax free, as of now and does not apear on your tax statement at all.

Arun

[arun agarwal]

Originally Posted by harshadk

Hello !

Good initiative, Arun !

I think we Indians are very quickly losing our traditional attitude of saving money, and prefer 'living for the moment' ( read : blowing it all up )

I'll give a personal example : I had a very well paying job in a big company for 7 months....... earned a lot, spent a lot too - till my parents came to know about it - and they forced me to invest in a mutual fund with a lock-in of 3 years. i now have a nice corpus which i cannot touch for 2 more years !

I currently have my own firm - but things are going terribly from a financial perspective. Over the last year or so, I have understood the real value of money, how difficult everything becomes when you go broke, how you have to think twice even to have dinner at an expensive restaurant - things which we rarely think of before. On many occasions, I have joined my friends for dinner at some place after having dinner at home.

After going through this, I have decided on a fixed course of action when i land up a decent job after my mba.

assuming conservative estimates for income and slightly luxurious estimates for expenditure, my typical savings plan would be:

Total annual earnings : 5 lakh p.a AFTER TAX( dont think this should be a problem, as all of us are mba aspirants ! )

Direct Savings : 30% - 1.5 lakhs

Investments in mutual funds : 50000 to 1 lakh, depending on comfort levels, condition of markets. spread across different funds to minimise risk.

FDs / PPFs / other less risky options : balance

Home Loans : 40% - 2 lakhs

This is of course on the higher end of the scale.... but paying off as big a chunk of the home loan when you dont have to foot your kids' expenses and wife's ( / wives' ) jewellery bills would be much more sensible.

In case I have not bought a house, this would go into an account specifically for that purpose.

Expenses :

Rs. 5000 pm for accomodation would give Rs. 60000 as annual costs.

Rs. 150 per day for food would give approx Rs. 55000 as annual costs.

balance remaining : Rs. 45000 per annum, which works out to slightly less than Rs. 3800 per month for miscellaneous expenses.

This is of course, when you start off your post-mba career. for those geezers who get high salaries, the percentage saved should be much higher, say around 50-60%.

how does it sound ?

cheers,
Harshad

How true Harshad,

All our parents/grand parents followed this policy but all these new banks are trying their best to change this and make us spend junkie and in process, make us their slaves.

Also thanks for sharing your experience here. After going thro' a tough patch only we realise value of money. Till such time it is easy come easy go.

I can very well visulaise what you are trying to say. I have walked kilometers in hot summer during 1990-91 to save few bucks on transportation. However later on I was able to travel international with my family in business class at my own expense. All courtesy to good financial management and some good luck.

Arun

[cruiser_cusat]

Originally Posted by arun agarwal

How true Harshad,

All our parents/grand parents followed this policy but all these new banks are trying their best to change this and make us spend junkie and in process, make us their slaves.

Also thanks for sharing your experience here. After going thro' a tough patch only we realise value of money. Till such time it is easy come easy go.

I can very well visulaise what you are trying to say. I have walked kilometers in hot summer during 1990-91 to save few bucks on transportation. However later on I was able to travel international with my family in business class at my own expense. All courtesy to good financial management and some good luck.

Arun

really nice initiative arun..

currently i m studying... still i m finding this thread really useful.
may be i will start working in a few months and it provides really insight of the money..
it will be really helpful for many ppl like me..
thnx again
Gopal

[reachmonil]

Originally Posted by arun agarwal

But 40,000 in six different MF is too mjuch diversification and may be a big nuisance, if it is not online. Imagine 6 Mfs every year for another 10-20 years. At best you should have gone for 2 MFs based on some small research ( and not on sales rep.). Now adays it is very easy to compar the performance of various cshemes within half an hour.

I get your point. I did analyse close to 15 Tax Saving schemes from www (dot) mutualfundsindia (dot) com (I suggest this site for the sheer amount of information it has, all up-to-date). But, since I was still new to the MF market, I couldn't convincingly zero down to which scheme would work and which won't. Hence, split the investments so as to ensure good returns, if not really handsome.

This year I plan do a similar excercise and invest almost the same amount in 3-4 schemes. Another point I would like to mention out here is that MF industry is not yet in the groove as it may seem. Fund Managers keep changing often, so do their investment portfolios. Something which may work now may not a year down the line. But you are locked for 3 years, right?

Originally Posted by arun agarwal

Hence I will suggest, if possible segragate your investment four times a year. Small things go a long way in future.

Exactly what I am now thinking of. Even last year after I took up LIC policy, I thought I should have opted for quarterly or half-yearly premiums rather than annual one.
I desire to chalk out an investment plan throughout the year, roughly in 4-5 nodes. Per node, the money pumped into investment ideally 20,000. But, looking for options now.

Originally Posted by arun agarwal

I am always in favour of seperating insurance with investment. But many people have a mental block and don't want to give a plain premium on Term policy where you don't get back anything, but in the process lock-in higher amount in unproductive investment. Find out what it will cost you to have a long term Term plan(pure insurance cover). At your age premium will be very low and you can select the final amount based on your need.

I am lost. Please throw some light. Or, give a link or so, where I can read something. Maybe I sound stupid, but have never heard about it before.

Originally Posted by arun agarwal

In addition, I don't know whether your company has PF and you and your company invest in it or not. Please let me know this as it is very important investment option and should be used by all without fail. In NSC, the interest you earn is taxable but PPF interest is completely tax free, as of now and does not apear on your tax statement at all.

Arun

Ya ya! PF investment on. Roughly 15,000 p.a. Oops, 15k from my side, 15k contributed by company, 30k total.

[sanjayg]

I m getting 2.5l per anum and investd 65K in VPF........is it a good investment

[DreamRun]

wow ..this is such an awesome initiative.....i started wrking abt 2.5 yrs ago and at that time didnt kno much abt Savings and Tax Planning... but thanks to my domain ( Finanace and Banking software) and some very knowledgeable ppl around me in office i got to understand the very basics of savings and taxes....i wud like to contribute my bit....

The best ways of savings are : (in decreasing order of reliability)
1. Provident Fund
2. NSC
3. Life Insurance
4. Fixed deposits/Term Deposits
5. ELSS

For tax saving :
1. PF
2. NSC
3. Life insurance
4. ELSS
5. Home loans(if any)
6. Study loans(if any)

If you are knowledgeable abt the stock market then u only shud u invest in equity since its the most risky investment and if u dont have much knowledge then Mutual Funds are the best bet. And even in MFs u shud not go for those schemes that invest 100% in equity .... u shud always go for a Balanced Fund .... also u shud try to invest in Bonds.
There is one theory about the investments in Equity and Fixed income instruments.....it says that u shud subtract from 100 ur actual age. eg. my age is 25. So 100-25 = 75. Now if i want to invest in the stock market then i shud have only 75 % (max) of my money into equity or equity related instruments (i.e. equity MFs) the rest 25% shud be strictly in Bonds.
This is only regarding the money u keep apart for investment in stock market.

The rest : you shud increase the contribution to ur PF to as much as possible ...many companies allow u to chose how much u wannna contribute to the PF and the company has to contribute the same amount.... so ask ur HR dept this question abt how much max u can invest in ur PF.

Then Life insurance is a must. The younger u start the better . and i think the Term Life insurance is better(though not sure abt this)

if u r taking a home loan and if u r married then both Husband and Wife shud share the loan....it'll ease off the tax burden for both.

and also u shud have enough cash in ur bank account that u can meet your expenses for the next 6 months incase u leave ur job today itself and have no source of income for the next 6 months. So u shud take an average value of ur monthly expenses and keep 6 times that amount in ur account.
ans then some extra money for any emergency as well.

But first of all u need to sit down a with a paper and plan out ur forseeable expenses in the future eg: education , home, car etc... and u shud start saving some money for each of these goals...

and the golden rule of investment: "the sooner u start , the better it is "

also i remember reading the Rich Dad, Poor Dad , thats a fantastic book for anyone who wants to get started ....... it gives a golden line : "all the people are educated but only very few are financially literate."

if u make ur money work for you then u'll be spared of all the tensions of life ( well....almost all if not all)....then u'll no longer be in a hurry to rush to ur office every morning 'cos u'll know that ur money is making more money and u shud relax....

[DreamRun]

our parents always advise us to put money in some Fixed Deposit in some bank....but its not such a good option. 'cos
Nowadays the banks offer only abt 8-9% interest rates on FDs and the rate of inflation is almost 7% ...so in 1 yr u'll only have a net return of 1-1.5% on your investment in FDs...thats a pathetic performance by any standards.....
u shud always keep in mind the Inflation ....thats the biggest value of Money distroyer........