I admit that it seems too difficult thing to do. You cannot change the status quo just like that.

And it’s not that the financial services industry is immature or fragmented. It’s a mix of seasoned, professional people as well as snake-oil sellers. There are very good financial advisors as well as the agents mis-selling for their own self interests.

Somehow I get a feeling that we get the financial service we deserve. Part of the blame of getting lousy financial service lies with us.

However there are a few common pain points with the financial services industry which is not being addressed in totality. This brings me to my three components model of managing money. Take a look.

Lights-camera-action

Learn, Focus and Manage

The Three Components
To my mind, the Financial Services industry is not addressing all the three components of the above model. Let me explain what I mean.

Lights or Learn
The industry has a responsibility to spread greater financial awareness among the buyers. But the information asymmetry present in financial services is huge. Maybe it’s because of the buyers own reluctance or old habits. But I think there’s a good opportunity for someone to come up with a business focused on this education vertical. There doesn’t seem to be any competition (+) or big money making (-) right now. But who knows!!

Camera or Focus
After you get the knowledge, you need to translate it into action. But not before you start using the tools for such actions. Measuring your money would be the first steps towards managing your money or taking concrete action.

In India, the tools available for managing your money are not very popular or easily available. I know a few efforts (including mine). Again, I guess the perceived lack of market/potential or money making opportunity is responsible for not many efforts in this vertical.

Action or Manage
This is where the action (pun intended) lies. It’s a huge market where every Tom, Dick and Harry makes a mark for himself with a little bit of effort. So, as I said earlier you can get a very good advisor and a equally bad one! In any case, everyone is after your cheque and not bothered about your needs (Knowledge, aka Learn) or (Tools, aka Focus).

And as I write out this post, I realize that:

• The financial service provider has an incentive to get the cheque out of you. So he’s only bothered about the third component (Manage). That’s a given.
• You, as a financial service receiver have an incentive to learn more and use tools to manage your money. This means you must focus on the first and second component (Learn & Focus).

In any case, it takes all the three wheels (Light, Camera, Action!) geared together and work in tandem to manage your money in a holistic manner. Half baked efforts at doing one/two of them at a time wouldn’t make a good picture!!

Reminder to self: कार्य कठिन है , इसलिए करने योग्य है

What do you think? Agree/Disagree?

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Godin says that people are afraid of anything with too many choices and the first article says that, “The reality is that simplicity is highly appealing in a world that is getting more and more complex — where consumers have too many choices, where technology is constantly evolving….”

My attempts at building a personal finance business is focused on the principles of simplicity. For example, take a look at my website screenshot v/s the most popular personal finance online website in India.

Personal Finance Online Resources for Indian Users

Money Control Wealth

I do need to add more content on my site. But I’ll keep it simple, for sure.

But what about you? Which one do you like more?

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Just take a look!

Screenshot, dated 29.10.2009

Infosys trades @ Rs 2207/ today!

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1. Behavioural Aspects of Investing in Stocks: All of us have behavioural biases while we manage our money. More than deciding what’s right or wrong, it’s important to be aware of the biases.
2. Second Quarter Review of Monetary Policy 2009-10: RBI has kept most rates unchanged other than the SLR, indicating a tightening in view of the inflationary pressure in the future. Higher provisioning for lending to the Real Estate sector also dampened the spirits of this sector.
3. 25 Things That They Will Not Disclose: Original story on Outlook Money on the 51 things they don’t disclose.
4. Childrens Education and Marriage Planning: A primer on how to get started when you want to plan for your future stars, your children.
5. Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost: A lucid comparison on Insurance and Investments.

I also have been adding resources on my Online RupeeManager Workshop. Check it out.

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He responded immediately to my questions that I have asked fellow finance bloggers. I found the answers full of insights and am sure you’ll do too.

1. Why is it that generally people avoid or have a fear of financial planning?
Just like having a health check up – you do not know what you will find! And the doctor may say “No drinks, no smoking, do exercise….” Who wants to? What is the fundamental problem? Man is a victim of his habits, not what is good for him NOT EVEN WHAT HE ENJOYS. Look at a cigarette addict – he hates smoking, but smokes (I am happy I am a shareholder of ITC)

2. What are the various options available for investments? What would be your recommendations?
Equity, Equity and Equity sensibly. Closer to the event debt. If you know how to do it on your own great, or go to a mutual fund.

3. Can you give a brief overview of how should one’s portfolio be at different ages.. Eg at 25 years, 35 years, 45 years etc.
Wrong question. Each person is different. I know most people try to create ‘ideal portfolios’. I call it “Personal Financial Planning”. Trying to commoditise it is wrong.

4. Is it advisable to have a personal finance consultant who maintains ones portfolio?
No harm, but do not allow operational authority. Are there people who do this? No idea whether it is available for retail. For HNIs yes, at a Rs. 20 crore + portfolio it is worth it. If so how much do they charge? Rs. 5 lakhs + Are they really helpful in the first place? Extremely.

5. Are there some online resources that you would recommend for readers to handle their money?
I use and like myirisplus.

6. Do you visualize a growing use of personal finance software to track and manage money in India?
Mostly people are too lazy to do all this. Unless the INCOME TAX authorities ask for too many details (which they will shortly) that too in electronic form.

7. What prompted you to start your Blog?
Students asking for notes. What motivates you to keep on blogging? I tell them the syllabus is the whole blog….so I have to keep adding.

8. What are your three best blog posts?
Readers should answer this, correct?
Ranjan’s Note: A few that I liked:
a. Archive for National Pension Scheme (NPS)
b. Do you need an Investment Advisor?
c. Financial Problems: How to tackle?

Do hop over to Subramoney for more insights from PV Subramanyam

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Check out the two articles posted this week:

1. Riders: Top up your Policy at Low Cost
2. Retire From Work, Not From Life

The two articles are written by Gopal Gidwani. He can be contacted at gopal_gidwani@yahoo.com for any queries on Financial Planning, Tax Planning and Investments. He is an qualified Associate Financial Planner (AFP) in Investment Planning, Tax Planning, Insurance Planning and Retirement Planning.

Do you want to write? Or share your personal finance experiences? Let me know.

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Happy, Lucky and Chintamani (Who are they?) have come to Agra. It has been a long planned getaway for the three of them, along with Happy’s and Chintamani’s family.

During the journey, Happy told Chintamani that he wanted to start investing.

Chintamani: So, what are your goals?

Happy: Goals? I just want to invest my money, that’s all.

Chintamani: Let’s say you want to go to Agra. Like we are going. That’s like investing. But there are a whole lot of things that has to be done before you go to Agra.

Happy: Like?

Lucky: Arre, you need to decide you want to go to Agra first. And not to Timbucktoo!

Chintamani: Yes. And there are things like tickets, packing, arranging money for food, Booking hotels for stay, etc.

Happy: Ya, I got it. Okay, but how do I decide my financial goals?

SMART Goals

Goal setting is your map to reaching your financial dreams. Questions to ask yourself are:
Where do you want to go?
What is your vision for the future?
What would you do with your money if you didn’t have bills to pay or debt to extinguish?

Dreaming is a big part of goal setting. Let your imagination go wild: what would you like your financial future to look like?

But do remember to keep it SMART. SMART stands for Specific, Measurable, Attainable, Realistic, and Timeline

Needs and Wants

Before spending money on a goal, think about how important it is and whether it’s a want or a need. Ask yourself:

Why do I want this?
Do I really need this?
What is most important right now?

Taking Care of a Few Things

Having decided your financial goals is a very educative affair. It teaches you a lot about yourself and your own life. Having done that, a few things are worth taking note of. They are:

1. The time frame for your goals can be broadly classified into short term and long term goals. You may have a intermediate goal for say, 5-6 years, too.

2. If you find that after all of your planning and goal setting, your dream isn’t attainable as is? Does that mean you scrap the whole dream and move on to the next item on the list? Maybe! But there might also be another solution for you: consider “stepping down” your dream.

The Step-Down goal allows you to achieve a version of your dream. It may not be the exact goal you had in mind, but it will get you to the similar destination.

For example, if you want to go to Las Vegas, the step down goal would be to go to Goa and have fun.

Does this help you with setting your own financial goals? Let me know how I can improve this post and the series on Rupee101.

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Gururaj Singh (Happy), Sunil Pandey (Lucky) and Mani Iyer (ChintaMani) are unlikely of friends. The three of them were born decade/s after each other and have very different occupations and lifestyles. But still they are very good friends. How? We will tell you, but a bit of each one of them first.

Happy is 33 years old and runs a small business. Happy lives in a rented place with his vivacious wife and two small kids. This Sardar loves his Patiala peg and takes life as it comes. He has a gut instinct of managing his money and though he doesn’t understand the number crunching & jargons, he is fairly comfortable with his own money management skills. And he wants to take his business to the next level.

Lucky is just 24 and has joined a MBA course. His parents doubt that he will complete the two year course. Though he starts everything with a lot of enthusiasm, he gets bored with it very soon. He has dabbled with so many ideas and has left them midway all too soon. He has worked in Call Centers, started some trading activities, day traded stocks and commodities. Lucky thinks he’ll get lucky and gets restless at the waiting.

ChintaMani is 42. He is employed by a leading Bank and stays at their staff quarters along with his wife and two children, a 14 yr old daughter and a 10 year old son. Savings has been in his genes as his parents saved everything they could lay their hands on. From their salary to every nut & bolts used in the house. ChintaMani is progressive and wants to move ahead from just savings to a few investments. Right now, he is confused between two themes: One, “you can’t teach an old dog new tricks” and two, “learning never stops”.

Now you’re curious that how such different people can become friends. Neighbours? No, they were not even neighbours. There’s a clue above.

All of them wanted better control of their money. And they thought that some education was required. So they joined an Executive MBA course together. And they ended up being in the same class and group. Normally the group of students working on project assignments given by the Faculty keeps on changing. But the three guys begged, cajoled the Faculty to keep them in the same group.

And now they are buddy friends. We bring to you the uncensored version of the discussions between Happy, Lucky and ChintaMani. Some of it may be on Rupee101!

Rupee101 would be a series of posts on managing your rupee. It will cover the basics of setting financial goals, savings, tracking expenses, budgeting and ofcourse, investing.

Stay tuned. Do you have your own wish list for me? Tell me in the comments below.

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1. Why is it that generally people avoid or have a fear of financial planning? What is the fundamental problem? Is it specific to India or is it a global phenomenon.
I am not sure at the international level, but I can talk about India. There are two things that go here.
First is our obsession with saving income tax and all instruments that help in achieving this. This means that most of the time, we end up “investing” just to save income tax instead of following a well planned path. Thus, the concept of financial planning itself is quite alien to us.

Secondly, we are used to getting free “advise”. Be it from TV, newspapers or from the so called insurance and MF investment advisors, we have been getting it free. Most of these people drive clients towards what is beneficial to them (read: fat commissions), which tempting them with things like saving income tax!

2. What are the various options available for investments? What would be your recommendations?
There are quite a few options – equities, real estate, gold, and of course, fixed income instruments.
My personal favourite is equities. India is on a long term growth trajectory – and I am talking in terms of the economy. This would of course reflect in the stock market as well. This is a great time to invest and ride the growth curve.

3. Can you give a brief overview of how should one’s portfolio be at different ages.. Eg at 25 years, 35 years, 45 years etc.
The traditional belief is that you should take more risks when you are young, and less when you are older. So, traditional advice says: more equities in 20s, more debt in 40s, 50s and 60s.
I agree and disagree. It depends not just on the age, but also on the risk taking capacity of the individual and the time frame. So, if someone is in his 50s, but has no liabilities, has good cash flows, and can set aside the money for 8-10 years, why not invest in equities??

4. Is it advisable to have a personal finance consultant who maintains ones portfolio? Are there people who do this? If so how much do they charge? Are they really helpful in the first place?
Nope. Investment advise and investment management has an inherent conflict of interest, and should be kept separate as far as possible. And a financial planner should definitely not handle your investments.

5. Are there some online resources that you would recommend for readers to handle their money?
We do not have too many such resources in India.

Outside India, these are websites where you can consolidate all your incomes, expenses at one place – automatically. The website collects all your data from your bank account, credit cards, etc. So, tracking expenses, categorizing them and budgeting based on them becomes very easy.
We lack such a service in India – maybe its an opportunity waiting to be tapped?

6. Do you visualize a growing use of personal finance software to track and manage money in India?
Yes, definitely. With increase in incomes, awareness towards money is also increasing. So, I definitely see a push towards personal finance software.

7. The Regulators are cracking the whip on Asset Management Companies and Insurers. What’s your wish list from the Regulators?
They are doing an awesome job – I just wish that the stick that is applied to MF agents is also applied to insurance agents.

8. What prompted you to start your Blog? What motivates you to keep on blogging?
I realized that the people working with me in my job were earning good amounts, but did not know how to invest it. They had no idea about the various investment options. They also lacked awareness about income tax rules and tax saving avenues.
These are the people who could have excellent financial stability in their life, or could be living hand to mouth – depending on the investment choices they made.
Since I have a keen interest in personal finance, and am also well qualified in the field of finance, I thought why not help everyone, while doing something that I am passionate about? That how www.RaagVamdatt.com was born!
And it’s the same driving force – helping people understand various investment options and make right investment choices – that keeps me going even today.

9. What are your three best blog posts?
It is really difficult to arrive at just 3 good posts. Here are a few that I consider helpful to readers:
Goal Based Investing
Want to own a company? Buy stock!
Saving Income Tax – Understanding Section 80C Deductions
Your Personal Net Worth – Importance & Calculation
Start saving early and gain from Compounding – Early bird gets the worm
Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage

10. What would be the three blog posts of other Bloggers that you would like to share?
How much emergency cash
Where to Invest
Income Clubbing Provisions

Thanks Raag. Keep the good work going.

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A bigger question to me is “How” to get started on a financial plan. Common sense tells me that I need a plan to execute my targets. Moreover, unless I have an emotional connect with my plan, just being rational doesn’t help me.

Let me explain. If I need to reduce the potbelly around me, or run a marathon, I know it’ll not happen overnight and I need to plan for it. Having decided that you want to run the marathon, the “Why” fades and the “How” looms larger and larger.

It has been known that for adult training, the biggest motivation for learning a new thing is WIIFM: What’s In It For Me. So understanding why we need a financial plan is a good way to get started on your money management.

Once you have decided to build a financial plan, how should you go about it?

Let’s associate this, say, with increasing your height. So here’s how (Please add your thoughts on how to build a financial plan in the comments below)

Link to post on LifeMojo on increasing height.

Yoga
Meditate on your current financial situation. Assess where you want to be with your financial goals.

Swim & Swing to get taller
The financial plan must be enjoyable to you. For this, Numbers must be interesting for you and it’s good to be able to play with them. Once you start enjoying playing with the numbers, the rest, they say, is easy.

Stretching Exercises:
Numbers will tell you the need to stretch your limits slowly and steadily. Get to know your own financial goals. Schedule your activities that suits your style and goals.

Running uphill:
Now that you have your goals and can play with numbers, it’s time to invest in wealth creation. It may be like running uphill against inflation, but really is the key to your financial plan.

Hang upside down for brief periods:
There will be ups and down in the financial journey. There will be phases of happiness, anxiety, depression and hope. Be ready for the downsides. When markets are down, invest more. So that when it eventually rebounds, you make a killing. So, isn’t hanging upside down really helpful!

Prioritize/Organize
It’s good to be able to do all of the above. But actually you may need to choose among them. That’s where diversification comes in. Invest in a judicious mix of debt and equity products according to your own risk appetite.

Well, these are my thoughts on how to build a financial plan for myself. What about you? Would you like to add/ modify anything?

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