Monthly Archives: August 2017

Thursday Trivia ~ Mobile Budgeting Apps

‘Take control of your finances!’ was the very first advise which Ramesh gave his son Jay. It had been 2 years since Jay had been working with a big multinational company but wasn’t able to save anything. For him, money would come in the first week of the month and by the next month’s first week he would go broke and wait for his salary to come.

‘When we were your age, we would write down each and every expense. It’s because we ran a strict budget, you were able to study in a good school and college. You people think we compromised or lived a miserly life, but the truth is it’s because we were strict with our finances that you are able to relax with yours.’ Leela (Jay’s mother) stepped into the conversation. Watching her son going broke every month was an alien concept to her. She had always saved enough and many times from her savings bought gold which helped her daughter’s marriage.

‘So what shall I do? I am not going to remember every expense that I have made. What’s the point of making so much money if it cannot be used for our own luxuries? All my colleagues live the same life, they are also hardly able to understand where they spend. It’s our generation thing, more advanced in every way then yours.’ Jay seemed to not control his emotions. Into his mid twenties, he couldn’t understand the very reason to save or invest. After all, youth has it’s impulses. Jay had dreams. He wanted to roam around the world, eat the best food, drive that sexiest car and drink the best possible wine.

‘Wait. Don’t get this conversation any further. Jay, there is a solution for you. It’s okay if you don’t want to write down your expenses. There is a solution to your problem – a mobile application which enables keeping a track of your finances. Plus the best part is when you swipe your card, the app will pick up that information from your message box and keep a record of that expense. Is that too hard to handle?’ Jay’s best friend Rahul stepped into the conversation. Being in the same age group, he knew how out of fashion it is to keep a book of expenses.

‘Have you used any?’ asked Jay.

‘Yes. Of course, otherwise why would I suggest it to you!’ answered Rahul.

Jay and his family smiled at Rahul, as Rahul started to explain about the Mobile Budgeting Apps in detail.

These apps are created available for free or paid basis on Google Play Store and iOS App store. Following are the features that are inbuilt into them.

Automatic Linking of Bank Accounts

Upon starting the app, it requests a permission to read the messages of your phone. Since, all of us spend through credit / debit cards and use net banking for major payments or transfer of money, our expenses are recorded with appropriate bank details.

The app pulls out the data and aggregates it those expenses. Also, balance of different bank accounts is automatically reflected.

Please note, only those bank accounts will be linked which will have your mobile number as a registered contact detail.

Managing Expenses through Gamification 

Manual input of every expense takes time. In this fast paced life, we often forget where did spend last. Just think about it, if every weekend your schedule is shopping, dinner and movies. It becomes tedious to keep a track of it, considering the hectic week ahead.

After downloading the app, just create a few categories of expenses. After that, you can simply arrange those expenses in different categories created. It takes less than 5 minutes to do the same. Also, since there are recurring expenses such as telephones and electricity bills, you can simply manage those merchant payments and next time those expenses will be directly reflected in those specific heads.

File your Income Tax Return

This can be a very personal choice for different individuals. Most would not opt for the same, as they already have their tax advisors doing the same. Although, it would be a good option to cross check and see whether you are paying the appropriate tax.

Please note, this feature would be more appropriate for salaried individuals and not those who run their own businesses.

Investments

In young age, investing is a boring job. After a certain age, the very same person feels had he done this job a little early in his life. Even the Oracle Investor Warren Buffet says, ‘I bought the first stocks at the age of 11, I was wasting my time till then.’

The App contains different features for making investments too.

Smart Deposit in a Liquid Fund

Idle money is sometimes devil’s taste. Even your financial advisor would tell you to keep 3 month’s expenses worth of contingency fund in your bank account. This contingency fund can be temporarily parked in a liquid fund which can be invested or withdrawn at any given point of time. It also helps to control unnecessary expenses, as watching the money sitting in the account leads to guilty spending.

Mutual Funds

These days, mutual funds is the flavour. With it’s simplicity of investing through systematic investment plans, individuals are becoming investors at a faster pace.

These Apps give an option to buy / sell mutual funds. Different funds are allocated under categories and with one click of a button, an investor is able to participate in the stock market. Now that’s a revolution!

Gold Deposit

Indians are obsessed with gold. It’s this obsession that paves the way for an option to invest in a gold fund. Generally, households in India have physical gold so investing in a gold fund would depend on the asset allocation on the investor.

Insurance

Currently, the App offers Car Insurance and Two Wheeler Insurance. Life Insurance, Health Insurance and Tracking of existing policies is also a part of the App making an access to insurance in a much easier way. One stop shop to compare insurance rates and get quotes.

Traditionally, we are used to buying insurance from our agent who not only looks after us but our family and relatives. For those, who have a financial advisor, the job is rested in those able hands.

Automated Bill Calendar 

A section where the user can put in various bill dates and it’s cycles. It’s build to remind about upcoming bills which can enable the user to utilise money better. However, we use this feature on our calendar in the phone. Off lately, merchants of our regular bills pertaining to electricity and telephone, give us remember messages on our phone itself. Hence, keeping one more calendar might not be that great an idea.

‘That’s brilliant!’ a cry of excitement came from Jay. His parents and Rahul knew that a solution is round the corner.

– Jinay Savla

Disclaimer : 

This Trivia is simply meant to educate our readers about tracking your expenses through a mobile app. Readers are requested to have their own research done before using any Mobile Budgeting App.

We also request to share your reviews on any of the mobile budgeting apps used by you in the comment section below.

Thursday Trivia ~ Pros and Cons of holding an Investment Account in the name of Minor

“Why are you so worried?’ enquired Rajesh while getting up in the middle of the night. Naina was sitting near their newly furnished balcony with her laptop, coffee placed on the table. Her right hand placed over forehead clearly displaying some huge concern on her face. ‘Nothing really!’ replied Naina. However, it was not a very uncommon scenario as both of them were high flying professionals in their career and working through the night was a part of their life. But this time, something seemed different to Rajesh. He got up to see what Naina was working on and saw her staring at a wide excel sheet where numbers seemed to be dancing in themselves. A name flashed above all numbers – Aditya.

‘We spend so much money each month that we can’t even save for ourselves. Looking at our projections we won’t be able to provide an international education for him. I am trying to see where we can cut back on our expenses’ Naina said. ‘But we have already started investing in mutual funds from last many years’ countered Rajesh. ‘Yes, you can see those mutual funds becoming a BMW in our garage but that wouldn’t pay for Aditya’s education in future’ nagged Naina. Rajesh understood the silent message and called his friend Manish, a wealth manager for meeting them over the weekend.

‘I understand your situation. There is one way since Aditya is just 9 years old, you have an option to open an investment account his name. Both of you can contribute to that account every month and create that basket for his higher education.’ Manish suggested while sipping tea. ‘Investment in the name of a minor is possible?’ asked Naina. ‘Yes’ replied Manish calmly.

‘But you must look at both sides of the coin – ie. pros and cons of investing in the name of a minor.’ added Manish with a caution. ‘Most certainly’ replied Rajesh.

Pros

Wider Capital Base

‘How can create a wider capital base since no new money is introduced?’ asked Naina.

‘Perfect question. If your money is invested in 2 asset classes such as real estate and mutual funds, the base is comprised of 2 instruments. But when you buy gold, you have one more option to invest your money in the future. In the same way, by opening an investment account for Aditya, you give yourself an option to create a new basket. Slowly, when you will water this basket, you will see a wide base for your capital. This will not only help in reducing risk on your money but also serve as an allocation to different goals of your child when he grows up.’ added Manish.

Allocation towards a specific goal of child

‘Yes, we are already thinking about Aditya’s higher education and that’s precisely the reason why we want to start investing in his name.’ Rajesh said.

‘Absolutely, that’s a smart move to make. Why don’t you also start thinking about his marriage or invest for initial capital if he decides to start his own business? That way, you won’t have to wait for the last moment. Financial security will enable him to achieve more.

For that, you can start small. Create specific allocation of money towards each of his goals in such a way as to it compounds over time and helps you to save more in the later stages of your career. Retirement from a job is also an active truth that we all have to deal with’ Manish said with a smile.

Gift to Child

‘Would the transfer money be taxable in Aditya’s account?’ asked Naina.
Manish replied, ‘You can also show it as a gift to Aditya and since Gift Tax is no longer in force, it would not be considered for income tax purposes in the hands of your son. On a lighter note, it makes a lot more sense to gift him a strong future.’
Cons

Clubbing provisions

‘But would not be clubbed under my or Naina’s account for tax purposes?’ Rajesh asked while looking at Naina.

‘No. The transfer in the form of gift would not be considered as income in the hands of Aditya. Hence, he won’t be subject to tax on the same. However, any income generated from those specific assets would be subject to tax.

For example, you decided to invest his money in mutual funds and for some reason, decided to sell those mutual funds at a profit before the end of year 1. The short term capital gains arising from the sale of mutual funds will be clubbed with either your Naina’s account upon your decision.

Hence, taxation on different asset classes will be the same irrespective of a major or minor. Once again, it’s the income from the asset rather than merely your transfer which would be subject to tax.’ Manish said.

Flexibility for use of money reduces

‘Rajesh you will not be able to use that money to buy your Mercedes, remember that.’ winked Naina.

Manish smiled and said, ‘Yes, you can wish to use that money but then again you will have to go through the pain of taxation and transfer of that money. So flexibility to use this money will be reduced and bring about a strict discipline to stick to the goal allocated towards Aditya.’

Access to money is lost once child attains majority

‘Last question, when Aditya becomes 18 years old, how will the account operate?’ asked Rajesh.

‘Typically, an investment made in the name of a minor cannot be operated by the guardian once the minor becomes a major. Once Aditya will attain majority status, he will have to apply for a change of status in the investment. All the investment formalities such as PAN and KYC will have to be complied with.

Also, once Aditya is major, then you will lose access to that money. Now he will decide what he wants to do with it. Your instructions to the bank or investment account will hold no value. I am sure, Aditya will not misuse that money but it’s better to be vigilant about it and work accordingly at it.’ Manish replied to Rajesh.

Upon listening to the conversation, Naina handed over the excel sheet and along with it the concern of Aditya’s future to Manish and sipped a coffee with great satisfaction. Rajesh also now was happy to see Naina relaxed and thanked Manish for the same.

– Jinay Savla

Thursday Trivia ~ Where are the stock markets headed?

It’s a Saturday evening, as a thumb rule Meera’s kitchen is on a holiday. Mahesh has already planned the evening with his school friend. As they are heading towards the restaurant, Mahesh is excited by the possibility of making investment in the stock markets. He told Meera, a story about his colleague who recently went on a vacation by redeeming his mutual fund investments.

How’s it even possible?, aren’t they supposed to be subject to market risk or something?’ enquired Meera. Mahesh with a smile on his face said, he has asked Rohit, school friend and now wealth manager to meet them at dinner. ‘You’ve become smart off lately’, chided Meera.

As dinner progressed, Mahesh asked ‘Rohit, markets seem to be booming, you must be making a lot of money.’ Rohit was not surprised as he has been listening to such conversations since quite some time now. ‘Mahesh, that’s always the case. People will always want to bet on a horse that won last 2 races. Same is the case with stock markets’ calmly Rohit replied. Meera with a twinkle in her eye remarked, ‘even Mahesh wants that horse which has won last 2 races.’ Three of them erupted in laughter.

Rohit on understanding Mahesh wanted to start investing in the stock markets, highlighted a few points which he needs to consider before starting the journey. ‘While starting your investment journey, don’t just get carried away by rewards. First try and understand where the market is and it’s risks at every level’, Rohit said.

Businesses are cyclical

‘After the crash of 2008, nobody ever imagined that markets would be back to all time high levels again. The atmosphere was so negative that we were considering ourselves lucky to have never invested our money. In fact, we used to hear horror stories of people who lost a lot of money’ remarked Mahesh.

“Exactly, that’s because businesses go through their cycles. Sometimes, a particular industry is in demand and when the peak is reached, it starts to fade away. At that time, a new industry is born. Think about it, 10 years ago, did we ever think that we would meet again by connecting through a social networking website. It would have been so hard otherwise.

As businesses have their ups and downs, so does our investments in those businesses made through markets go through a very similar roller coaster ride,’ replied Rohit.

An extremely positive environment

‘I am shocked to see so much positivity around. Even our neighbours are now talking about mutual funds all the time. Just see how geo-politically much better placed than most other countries.’ Meera replied with a hint of joining the conversation too.

‘Yes, the environment is extremely positive. Media has been speaking about India’s future prospects with some awe. Does that mean, even our markets will also perform the same way in future? Or think about it, has anyone been able to predict the future?’ This question from Rohit, put Mahesh in a deep thinking mode.

Early success

‘Isn’t trends of past an indicator of future success? I mean, just look at my colleague at office for an instance, in last three years he has made a decent return on his investments. We call him the wizard of investing, he won’t need to even work for a salary after a couple of years it seems.’ Mahesh tried to make his point.

‘Wow, that’s wonderful. So what were you doing three – five years ago? There are a lot of people who have made a decent return on their investment in the past. Same was the case from 2003-2007. But then 2008, did happen.

It’s called hindsight bias. Just because something has performed in the past, we think it will perform each time. Remember the horse story. There is no denial of markets doing good in last few years but would it perform the same way? A question we need to ask ourselves before starting the journey.’ Rohit seemed stern this time.

Over supply of money 

‘Rohit, so much money is going into markets each month. Do this businesses really need that kind of money right now? Would it not result in too much money chasing too few companies? Would that not result in eventual over confidence of businesses to perform?’ Meera, a finance student finally revolted.

‘Yes Meera. You are absolutely right. Suppose, there is only one horse who is consistently winning, everyone would want to bet their money on the same. You a finance student would understand, for horse winning the race, that much money is not required. It just needs to be healthy and participate in the race with a damn good jockey.

Suppose, jockey gets too overconfident about their odds of winning. Then there is a fair chance of horse not being able to win. Same applies to stock markets, if these businesses get money more than they require, will they be able to utilise it appropriately? Even if your answer is yes, does it mean that businesses will start earning a lot just because it’s getting more money through markets?’ Rohit smartly put both of them into one more dilemma.

This time it’s different

‘Rohit, you are right. But this time it’s different. 2008 happened because some greedy bankers in America couldn’t get enough. This is our time. We don’t need any external money to run our markets.’ Mahesh came back as a storm.

Rohit realised the storm, ‘Mahesh you are right but does that mean fundamentals of businesses have changed?’

Funda ka mental

‘Rohit bhai, sab funda ka mental hota hai (Hindi). [fundamentals of a company are just a mental disorder] Mahesh replied with a smirk.

‘Mahesh, you and Meera have studied finance. While you commenting on the basis of a company is not important is not acceptable. I am not saying to avoid stock market investments, but just understand whether you want to invest completely now or wait for a while. As this cycle ends, another will begin. Isn’t it so?’ Rohit now replied with great caution.

Fear of missing out

‘But Rohit, we don’t want to miss out on this journey. What if this cycle has no end. It will make us look fools to sit out while everyone enjoyed.’ Meera said with concern.

Rohit with a smile said, ‘Wasn’t this the same feeling of 2006 also. I am not saying that we are in those times at all. Nobody can predict when market is at peak or it’s at bottom. But on a general basis trend can be understood.

‘Be fearful when others are greedy and greedy when others are fearful.’ – Warren Buffet

Just look around, with so much optimism, people are getting greedy to invest in stock markets. Everyone is entering to make that quick money and dream of a lifestyle which their regular jobs will not give them. But are their good hikes in salary packages? Can companies afford them? Then what will they do of so much money coming their way?’

A bell rang in Mahesh and Meera’s mind.

Youngsters- systematic investment planning

‘Yes, you are completely right. But where is so much money coming from anyways?’ asked Meera.

‘Young salary professionals are easy targets these days. There is so much peer pressure for them these days. That if one person invests and makes some money, everyone wants to join the bandwagon. With tall claims of money doubling in 5 years or so, youngsters have already started planning which car they will buy and where they will spend their international vacation.’ Rohit commented with sarcasm.

‘So what to we do now?’ asked Mahesh.

‘A single simple rule holds true: make good decisions and you’ll succeed; make bad ones and you’ll fail. So, move forward, but with caution. Given these conditions, with even more caution than in the recent past.

The keys to avoiding the classic mistakes (in such market conditions are)

Awareness of History 

If History has to be ready in detail, one would be able to find businesses are cyclical (as discussed above) due to which even markets have gone through it’s own bullish and bearish cycles. When somebody says, they made Rs. 10 lakhs by only investing Rs. 1 lakhs in last 10 years, it doesn’t mean that every year there was a 10% growth. Some years may have seen negative return as well.

Skepticism regarding the Free Lunch

Just because markets have given good investment return in the last few years, it doesn’t mean that there s a free lunch being distributed. There is a cost always attached to it. When few people were chasing that lunch, it was cheap. But since, number of people chasing that lunch has increased, definitely it won’t be cheap anymore.

A great level of caution and prudence need to be exercised by Mahesh now since lunch has started to become expensive and too many people along with him are chasing it.

Asset Allocation and Goal Planning

It all boils down as to why hard earned money is being invested in the stock market? Is it just because bank rates are going down or property rates have been stagnating? Or simply because there is a peer pressure to invest in the stock markets.

It’s more prudent to have the right asset allocation and not merely put all the eggs in one basket just because that basket seems to be very attractive. Also, when purpose of that money being invested is defined, change in price will start to affect on a much lesser scale. Suppose, Meera wants to buy a house after 10 years and her budget comes to around Rs. 80 lakhs. Then by starting with just Rs. 45 thousand per month, she will be able to reach her goal with annual return of merely 8% where she doesn’t need to take a lot of risk in the stock markets.

Such goal planning helps to stop any irrational behaviour which might emerge as markets goes through their own cycles.

Adherence to these things invariably will cause you both to miss the most exciting part of bull markets. But they’ll also make you a long-term survivor.’ said Rohit with a broad smile on his face.

– Jinay Savla

Thursday Trivia ~ 5 Golden Nuggets for Every Young Star

It’s been 5 years since Rajesh started his full time job. In the past, he has done many part time jobs to support his education. Apparently, Rajesh comes from a very well to do family. But it’s his father’s wish to have Rajesh finance his own education and take care of his life ahead. It may sound hard but this has actually worked in his favor. There have been times in the past when Rajesh may have complained to his father innumerable times but his father didn’t seem to give it a second thought. As a result, today Rajesh is living a dream life just when his other peers are trying to get hold of their careers. But there is one problem. Despite of making a lot of money, Rajesh seems to be running out of money all the time. As usual, just like his peers, every month end he would look at his bills and say, ‘Mumbai – A City of Dreams’ and accept his fate that he will never be able to save anything. Just like what every son does, when faced with a problem the very first person to turn to is – father.

 

His father listened to the whole story with great patience. After a brief moment of silence, father said, ‘Rajesh just do 5 things that I say henceforth and money will never trouble you.’  Let’s look at those golden nuggets which changed Rajesh’s life forever.

 

  1. Save First – Spend Later

 

It’s not that people with the best careers or high income earning professionals have the most comfortable financial future post retirement. However, during the course of a career, everyone seems to think that way. The next job switch, promotion, bonus, commissions, etc. will lead to a better financial future, yet the reality is far from truth.

 

Rajesh was driven about creating a better career because of which he never gave enough thought to his money habits. His father gave him a small formula : Income – Saving = Spending

 

Budgeting for savings is equally important. Every month, a person is exposed to installments to be paid for home / office, car / bike, fees for children’s education and other adhoc expenses. Most of these expenses are directly debited from the bank. Hence, it’s wise to first decide how much to save and then spend.

 

  1. Emergency Fund

 

Rajesh’s father asked him, if he ever considered his job being lost? Answer was obviously No. However, Rajesh thought a lot of his colleagues stood the chance of losing their jobs. It’s a classic case of underestimating bad events that happen to a person and overestimating the same bad event happening to some one else. As a result, his father asked him if there was enough money in the bank to keep the house floating for 6 months if Rajesh ever lost his job. Again, the answer was No.

 

As a result, Rajesh now considered keeping an emergency fund which would sustain the expenses of his house for at least 6 months.

 

To add a small note, emergency fund should not be created for purchase of a gadget, downpayment for a car, or a vacation.

 

  1. Insurance

 

Everyone takes insurance when they start working. Usually, at start of career the cover seems to be adequate. But as life progresses, not many bother to look at whether their insurance cover would still be enough? Even the omega question of whether it’s a plain insurance policy or an insurance policy which has an investment option is never thought about.

 

On hearing this, Rajesh took a note of this and called up his insurance advisor to review his policy the very next day.

 

  1. Asset Allocation

 

Doctors always suggest every person to have a regular health check up done atleast once a year. However, it’s common to see very few follows such an advise. Most others visit a doctor only when something serious happens to them. When Rajesh’s father asked him to keep a wealth manager, the first sentence which he said, ‘I can’t afford a wealth manager, I don’t have enough money.’

 

More often than not, people miss out on keeping a wealth manager under a common notion that they don’t have enough money, just like they won’t visit a doctor because their health is not bad. In this notion, a person misses out on the fact that it’s important to start from somewhere. Starting small builds a solid foundation of future wealth. Also, it provides enough flexibility in terms of asset allocation.

 

Rajesh never thought about making investments in different asset classes. He always had invested his money in shares of a company suggested by his friends. A small fixed deposit was created just because bank managers had asked him to. Yet, he wasn’t aware about the return on investment in both his investments. When his father took a note of it, Rajesh replied with a stern voice ‘it’s not my job.’ To a large extent, he is right. It’s not his job to select a good company to invest or check out for any further options available. That’s where his father suggested on having a wealth manager look at it.

 

A plethora of investment options are available to every investor, such as mutual funds (equity and debt), commodities (gold / silver), portfolio management services, liquid funds, etc. Since, it’s not the job of every person, they don’t have enough exposure to the same. Even creating different allocation strategy with these investment options are not taken as seriously as they should be.

 

For more please read the asset allocation series we published some time back – Series 1, Series 2 and Series 3.

 

  1. Celebrate Life, Not Money

 

The real use of money is the very problems it helps to solve. Rajesh could never believe that in the very rat race of his career he had forgotten that it was his father’s birthday. Rather than celebrating a birthday, they were worried about his finances. To which his father asked, when was the last time he took his wife out for a long drive. Rajesh could barely remember, when he looked at his calendar it was already 6 months and they had not even taken a day off from work. Weekends were spent either sleeping or working.

 

If we are working so hard for money, does money work hard for us? Think about it for a while. If money is not working hard for us, then are we not missing out on the true golden nuggets of our life such as family, friends, life partner, children and our close confidants. When was the last time, you had a cup of tea with your friends without an inch of stress of work or when was the last time you played some sport with your children? That’s where it’s best to have an expert wealth manager who makes our money work hard for us, while we steal these little moments of life.

– Jinay Savla