Why can’t we handle Personal Finance properly?

I came across this post from Ranjan asking “why can’t we handle Personal Finance properly”? The reasons he mentioned sounded very superficial to me; they are just shallow in my opinion (with all due respect to Ranjan).

As per my understanding, “Personal Finance” implies detailed analysis of financial flow of an individual at various point in time. Please carefully note that Personal Finance is not synonymous to having knowledge about stocks quotes, mutual funds, insurance or pension policies.

The single biggest reason why we can not handle personal finance properly, is because from childhood we are never taught to think about money in that fashion, making us believe that it is a materialistic entity that is just a means to satisfies our immediate material needs. 

How many people remember their first lesson in personal finance or handling money given to them during childhood? I remember, the first time I was given money (it was 10 paisa), which I could independently spend, I rushed to the near-by kirana store to buy that juicy candy bar. When was the last time your parents tutored you on personal finance and importance of setting financial goals? (I am not talking about parent pestering for buying property etc). Also whatever limited parental advise that most youngsters receive regarding personal finance is based on their personal experience at burning their hands with specific financial tools.

In India, at the least, I’ve never heard about creating personal financial goals from my parents and I have not met anyone whose parents told them about it. In effect, people start accumulating their debts and then the financial situation blows out of proportion. I guess, they themselves never heard about it from their parents and did not find it important enough to be delivered to their off springs.

The biggest confusion among most people regarding financial planning stems from the fact that:

• They fail to understand their financial dreams
• They fail to prioritize and reach their dream financial goals
• They fail to learn and make the strategies either individually or using some professional advisor to achieve their goals.
• They lack the persistence to transform their dream goals into reality by executing and re-aligning their strategies.

And this confusion is carried over from them to their next generations and generations. Unless people realize that managing personal finance involve setting goals, creating strategies to achieve those goals and sticking to it, Personal Finance will remain an arcane and unmanageable subject.

Legal Guide For Indian Bloggers

I came across an astonishingly detailed guide for US bloggers on the legal issues that a blogger can face due to various acts. It clearly mentions that the guide is exclusively for US bloggers since there is strong constitutional protection for speech. I tried to search a similar guide for India and failed to find anything useful. With the advent of social networking, blogs have become an extremely viral media, so apart from the financial risks of social networking, there are definitely legal issues for any public dissemination of information including blogging.

(Picture courtesy Over the Top of NY)

India has been typically laggard with respect to cyber laws, not only in implementation but unambiguously defining it as well. One of the biggest reason I would assume would be that law makers themselves may not be able to keep pace with the fast changing technology. The first indian IT law was introduced in 2000 called the IT Act 2000 [Summary Slides from IIT-M - PDF]. This act was further modified in 2008 The Information Technology Act 2008.

The pertinent question is “Why blogging cause legal issues?”. The problem is the extremely viral nature of blogging, since it has now become more ubiquitous with millions of people getting influenced by what they read on blogs.

I would provide you a real world analogy. Let us say you bought a product from Company X, unfortunately it turned out to be a junk and useless product with not keeping up to the promise that was given before you purchased. You go to the customer care or their office and nothing happens, no-body listens to your complaints. But instead of “chalta-hai” attitude you decided to tell it to few of your close friends and let them be warned about it. It is still fine with the company, but now imagine you called up a public meeting and started talking about your rough experience with the product. Initially there might be just few of your friends but slowly hundreds and thousands of folks joined your meeting and started getting warned about the junk product and the pathetic customer service from Company X. That is illegal, you just de-famed the Company X.

This is exactly what happens when you blog. You are disseminating information for public consumption which can have significant influence on people either in their behavior or opinions about something. The first indian blogging controversy happened for exactly same reason.

It is so difficult to read through the mumbo-jumbo of legal laws, as Mark Twain rightly said

Only one thing is impossible for God: To find any sense in any law on the planet.

So how do bloggers (just about anyone with internet connection can become a blogger) keep themselves safe from the legal wrangle? Here are some simple DO’s and DON’Ts that will help any blogger to avoid cyber law (typically applicable to Indian bloggers):

• When in doubt about any post violating any legal law, just don’t publish it. It is better to be safe than to be sorry.


• Do not write “hate messages” against popular personalities especially political people, you might get caught by police like Nitin Sajja from Hyderabad or Rahul Krishnakumar Vaid from Gurgaon.


• Do not write “derogatory remarks” against organizations which Ajith D learned the hard way. A similar tamasha was done by Shiv Sena for anti-Shivaji Community on orkut (TOI 1, TOI 2, Rediff 1, Rediff 2, NDTV, Financial Express). Some of the interesting articles that criticize these are by Amit Verma and Sevanti.

The ultimate expression of a government’s lust for power lies in a term coined by Orwell in 1984: thoughtcrime. Thoughtcrimes are thoughts that have been criminalized, and if the technology to detect emotions existed, It is not unlikely that the Indian government would ban hatred. Or, at least, hatred of things that it deems should not be hated.

• Do not write negative comments about any religious personality, deity or organization.


• Do not criticize any company’s products or services. You may not like the product or services but publicly criticizing it for spreading the word is not the right way. If you absolutely have to do it like a review of a book or movie or mobile phone, please put a disclaimer mentioning these are your own personal thoughts with no legal liability on you. Defamation is extremely complicated subject in the books of law, and so is proving your innocense.


• Do not post pornographic material including anything slightly sexually explicit (especially pictures or videos). It may be just a fun video or fun pictures for you, but it can hurt someone’s sentiments and hence an absolute NO NO.


• Do not publish any confidential information from within your company. I would suggest do not post anything related to what you do within your company (unless you own the company and want to promote it through blog). Any information on what you are currently working on or what are the future releases or any inside information say company want to layoff people or planning to acquire any organization, absolutely everything is confidential. This information is typically governed by trade secrets which are complicated.


• Do not plagiarize. If you copy paste the text from another website or you copy that beautiful picture or video without the consent from the original author and publishing it without providing the link to original source, then you are plagiarizing. One of the biggest and innocuous way of plagiarizing is to search that image you need from Google Images or Flickr and put it in your post without bothering about copywrite issues. You should only use legal pictures from flickr or any other website for your blog posts. Also it is illegal to edit the pictures or videos (removing watermarks or just any editing action like cropping) that you downloaded without permissions and then publishing it. Note that small actions can lead to copywrite violations.


• Do not publish any data, numbers, figures, charts that you do not own. Always reference to original source from where you found the data. If you do not have the original source, stop and do not publish it.



• Do not share private information about anyone you know without his/her permission. So you went with your girl friend on that famous beach and posted those pictures without asking her, think again. You just gave your friends contact details or wrote that caustic remark providing private details of the person you hate, beware you are surely violating privacy laws. I would advise not to even post edited pictures of film celebrities.



• But if fate decides to screw you, it can not be avoided similar to when it caught Lakshamana Kailash and what he got is 50 days with 200 under-trials at Yerawada Jail, finally ending with a “sorry” from Police and Airtel.

Read some more interesting posts like “Bloggers and Defamation” and “Restricting Freedom with Excuses of Responsibility” on this issue. Here is an interesting video on this subject.

Please note that this list is not exhaustive (and definitely not legally scanned and is not a substitute for legal advise) in nature but just the common sense approach to avoid any legal issues. Just to be on safe side, here is the disclaimer, that this list does not guarantee avoidance of law-suite due to material published by you, so I would not be liable for any damages :-)

Credit Card Visual History

Source: The Big Money

The first credit card was created, as you would guess, due to an embarrassing situation faced by Frank McNamara, while eating out at a restaurant. When the check arrived, he realized, he did not brought his wallet. This gave birth to Diner’s Credit Card.

Then came the BankAmericard from Bank of America. The earlier versions were flimsier and hence American Express came up with first real plastic credit cards.

 

Then came the credit cards with all its variants since various players saw a great business opportunity.

Check out the The Big Money for the entire pictorial history of credit card.

Another interesting video that presents how the American credit card industry became so pervasive, so lucrative, and so powerful.

This is a video from Frontline - “Secret History of the Credit Card (2004)”.

I could not find the history of credit cards in India, but it looks like that Central Bank of India, launched the first credit card in India called “Centralcard” in the year 1980.

It would be interesting to know if we can get hold of the picture of the first credit card that was launched in India. Anyone?

Super Tips to increase your debt

Yep! you read the title correctly. So you want to live your life King Size, in a royal fashion with the meager amount of salary that you earn (peanuts huh..). Here are some of mind-blowing tips to spend you money faster than you can blink your eyes:

• Never read money saving posts or weblogs which may contaminate your mind towards efficiently managing your personal finance. These are evil!!
• Spend more than you earn. This is not the “common sense” approach, but who needs any sense, common or uncommon. And if you are struggling to meet your ends every month, then you are just about learning this art. Keep it up.
• Never pay your bills on time. Would a royal king in older times, bother himself engaging in such mundane tasks, like paying those insignificant telephone or electricity bills on time? It is for those mere mortals, who would setup email reminders or use those large desk/wall calendars with sufficient space to write notes and remind themselves of paying up these irritating bills, month after month, on time, thereby saving those tiny-miny amount on late fees. Such money-saving tips are a kill-joy for living life royally.
• Never worry about emergency fund. What is the use of the money lying idle when it should be running around with you in shopping malls. Some crack-pot websites urge people to keep six months of expenses as emergency funds Why should you worry about keeping such a huge amount, since you will never get hit with any emergency. Those nasty accidents, job-loss (Job loss insurance, OMG) or sudden illness happens only to others and not to you. So why bother about emergency funds?

• Never pay-off your credit card debt. You should keep a poster of John Biggins of the Flatbush National Bank of Brooklyn, New York and make him your GOD, since he invented credit cards. This is the greatest invention of man ever (forget fire, wheel etc). I bet that humans would still love credit cards even if it would have been invented during the stone age. Why credit cards are so addictive: 

• You do not need to think, how much your bank balance is, just think how much credit card balance exists on credit card. It makes it so easy to remember, even if you never done any math subject in your life.
• Also credit card companies are know to be generous enough to increase your credit card limit over the period of time sometimes without intimation. But isn’t it a pleasant surprise to suddenly find, during an impulse buying that your credit card just worked when you thought the limit has been crossed.
• You can have as many credit cards as you want with so many flavors and banks. Just look at in India and you have so many choices of type of cards.
• RBI has so many regulatory rules for credit card issuing banks that you are very safe. It has been seen on so many occasions that credit card companies flout these rules and also charge exorbitantly, but these are just small blemishes spread by the enemies of credit card industry.   Here is an example on how credit card companies make money.
• Buy on credit card and pay a meager amount monthly. This is called revolving credit and it is a revolution. Some people try to scare you with revolving credit maths, like this, but you can safely ignore such realities.

  Let us take a simple example. If you are spending Rs 30,000 every month and repaying half of it, you end up spending Rs 3.6 lakhs in 12 months. You pay back Rs 1.8 lakhs and owe the bank Rs 1.8 lakhs. But what the bank wants back is 40,000 rupees more than what you've spent...and keep this going for another year…this will become a runaway figure...On the same amount of Rs 30,000 spend, if you take it really easy and pay back only the minimum due, that is Rs 1500 a month, you will owe the bank Rs 2.3 lakhs. The bank will demand back, Rs 3.5 lakhs back from you and that’s Rs 1.2 lakhs more than what you've spent. Keep compounding this and you can fairly figure out where this could go.

• Credit card can get you cash from ATM if needed, what if they charge so much extra on cash withdrawals, think of the flexibility.
• Credit cards also offer rewards to customers (see here and here), although very few people diligently and consistently try to re-deem those reward points. But isn’t it so nice of credit card companies to offer rewards, which we do not redeem even when it can lead to significant saving, but that is just a small niggle. It is a supreme gesture from credit card companies.

• Impulse buying is the name of the game. We are talking about folks who are obviously above “roti-kapada-makan”, the basic necessities of life. So what good your money would be if you can not spend it when you feel like buying something. It is separate matter whether the thing you buy has any real value in your life but why worry about it? If you got it, flaunt it and if you haven’t got it, credit card will help you flaunting it. 

• Planning your money is insane. Why waste time and energy into something which is inherently unmanageable. If big companies like Satyam or Dubai World can not manage it, how would you? As you must have heard that “Money is the root of all evil”, they why keep the evil with you or try to manage the evil, get rid of it as fast as you can and you will be happy. So turn deaf when you heard words like tax-planning, investment, saving, retirement planning etc. You obviously want to turn religious during old age in post-retirement life  (to repent all your life’s sin) rather than having crores of evil roots with you.

So if you follow this advise, this is a sure-shot way to leading a luxurious life. The one lifetime you have, live it King Size.

PS: This post was written in humorous jest, so if you seriously follow the advise, you would not have enough money even to sue me for wrong advise. So get real and serious about your money!!

Is peer pressure leading you to debt?

 

[ Source ]

Your friends and peers influence your life. Wikipedia explains that

Peer pressure refers to the influence exerted by a peer group in encouraging a person to change his or her attitudes, values, or behavior in order to conform to group norms.

Peer pressure often starts at very early stage in life and it never stops. The term “peer pressure” has come to connote a very negative thing (as the cartoon above indicates), but it can be a significant positive force also. (example1, example2)

There is no doubt that everyone needs a peer group to act share one’s emotions and feelings. But, the problem begins when one starts changing their behavior or act according to peer group, just to remain “fit” in the group. This is also a very common complaint from parents, when confronted with un-acceptable behavior from their children.

The most vivid memory that I have of dealing with peer pressure is during my college days. I come from a poor family and it can be easily seen from my cloths or my bi-cycle wherein my classmates used to come dressed up impressively or in their two-wheelers/four-wheelers. I felt extreme pressure to match up but never had the money, and so I could never “fit” or got accepted into the peer group.

I recently shifted to a new apartment (just few months back) and started interacting with my neighbors, and I realized that there are many folks who have a habit of “showing-off”, making them prone to financial debts. So their wives will sport an iPhone, spend Rs 2500 on window-shopping randomly every week, esp on apparels (and despite that they dress shabbily), keeping a full-time servant, chauffeur (without any real-need) or commuting daily by cabs (wouldn’t it be cheap to own a car) or spending evenings in lavish restaurants (I know for sure that these are not their company paid facilities).

The motivation for these actions is not any real need but peer pressure to fit in the group. If we are surrounded by people who are rich (or showing-off that they are rich), then we would also feel the need to upgrade our cars, cloths or throw lavish parties. The whole problem with why we succumb to peer pressure is because we feel the need for acceptance.

Peer pressure can lead to significant waste of money and it's not just ourselves who we have to worry about. If you have a partner or children you'll also suffer financially whenever they come under peer pressure. So at one end you may want to reduce your monthly expenses but on the other hand you may be forced to spend unnecessarily on useless things just to satiate your family’s emotional needs, so they be part of some crappy peer group.

It is extremely difficult to fight peer pressure, since it can come in from variety of ways:

• Keeping up with others in terms of buying big cars or expensive plasma TVs or mobiles
• Impressing your girl-friend/wife/in-laws in terms of expensive gifts to justify your love or caring not only to the concerned person but also to everyone in your peer group.
• One of the biggest pressure for newly married folks comes in the form of this question, “So where are you going to honeymoon?”. Most folks will burn-out their entire saving just to mention that they went to Singapore/Bangkok (crowded place) rather than an idyllic Kerala/Darjeeling.
• Buying bigger houses just because everyone in their peer group has bought a house. This is especially true in Bangalore, since most people coming here are in some kind of strange hurry to own a house. It is termed as “biggest investment of your life”, even if it turns out to be crappy decision. I totally oppose it.
• Sending their kids to expensive schools (I was aghast when I got to know that my neighbor’s one year kid goes to a school whose fees is 15 lakhs a year) or throwing a totally unnecessary lavish party as a show-off. How can a one year kid distinguish whether his birthday was celebrated in a high end restaurant or their own house? The consolation given by parents – I want to give my kid the best I can afford. Duh.

So how to handle peer pressure and how to stop yourself from bleeding financially? How to stop accumulating debt by resisting peer pressure? Here are some pointers

• Stop worrying about what “others think about me”. Others are probably busy thinking the same thing and don’t have time to think about you.
• Trust your own instincts rather than following the herd. If you are convinced about your choices and reasoning behind them, then stick to it. You can only decide what is best for you. You should have the confidence in what you believe and the boldness to stand for it.
• Recognize peer pressure. If you are trying to spend money on something, ask yourself critically, as to why you are buying it. If you really need it, then only go ahead with the purchase.
• Be absolutely clear about your monetary priorities and be honest discussing it with friends. Remember that everyone’s priorities will be different, so there is no “one fit for all” solutions in financial world.
• If some friends are just putting pressure despite your resistance, then ignore them and find new friends. A friend who does not care about your opinions is not worth friendship.

Remember that if you don’t want to get under any peer pressure influence, try not to put anyone (especially your friends) into it as well.

Financial Risks of Social Networking

There has been a huge spurt in the social networking sites and the number of people addicted to it. If you just look at the Facebook statistics, it is mind boggling, check the screen-shot below

Facebook has more than 300 million active user (note that these stats might be a bit out of date since these are not dynamically updated). It is also estimated that young people are more attracted towards these social networking sites, as indicated below

These networking sites are great, but with the number of users growing enormously, the end-user is getting exposed to so many risks. It is growing like a jungle, where at each turn, you may encounter someone sitting with a trap to get on to you.

How many user, who subscribe to Twitter or Facebook actually read the privacy policy while signing-up? As an example, Twitter recently updated its privacy policies and I doubt any of the current user even knew about it. (Here's a link to the updated policy and a link to the old policy.) The twitter policy is way much simpler and easier to understand than say Facebook’s policy. It is extremely difficult to wade through this mumbo-jumbo of legal terms, so probably even if someone brave enough tries to makes sense of it, will fall flat on his/her face.

You would think, why someone should actually read or bother about these policies. Google has warned about privacy issues on social web in a paper [PDF] presented at the Web 2.0 Security and Privacy 2009 workshop.

There are multiple aspects to the risks associated with social networking sites and privacy is just one of them. The risks ranges from someone hacking into your profiles to the risk of infantilizing the human mind.

One of the significant aspects of privacy on such websites like Twitter is the website utilizing the data generated by their users. There is absolutely nothing from legal standpoint to prevent this usage. These types of applications are not that far-fetched, given reports of tools to analyze someone's social network and assess their credit worthiness ("Rapleaf") or psychological profile ("TweetPsych").

But how would these lead to financial losses (which is the main focus of this post)? Well these social sites can lead to huge financial losses to the users by

• Making you loose your job, similar to Heather Armstrong or @theconner
• Making you loose your insurance benefits similar to Nathalie Blanchard.
• Data misuse after hacking your personal information including degrading your credit rating.
• Making you have legal liabilities for using trademarks with-out following the rules. You may use some trade-mark symbols/names into your own merchandise (like this) or your website.

So it is extremely important to keep your eyes open about these risks when interacting socially. Any data that leaves your computer can come back to haunt you.

How to reduce your monthly expense?

I recently got a stealthy email from my a very good buddy. The content of the email was crisp asking me for some 15,000 Rs, he was short this month and needed to pay-back someone. I helped him out, but it got me thinking why he got himself into such a situation. He is earning decently (I would imagine around 20 Lakh PA), do not have any family responsibilities (all his sisters are married off) and just has one kid.

As per me, this is definitely not a good sign when you have to borrow from your friends. I am not against borrowing money, after all  friends are for helping you out, but it should be for a genuine reason.

Why so many educated people fail to manage their personal finance?

The single underlying principle for managing money is

Make your expenses lesser than your income

Is this so difficult to understand, that to save money, your expenses should be less than what your earn.  Yet, I find so many people struggling to maintain this equation, eventually letting themselves buried into debt.

So how exactly we should implement this in our daily life? How to spend less and save more? How to reduce expenses? The answer lies in getting into “good financial habits”. If you are single, you need to develop these into yourself, if you are married you need to share these thoughts with your spouse and inculcate these within both the partners. It is more difficult with kids, if you have any, but once these become part of your family, it will go a long way in helping your children in their lifetime.

Here are some great techniques to reduce your expenses:

• Start on 1st day of the month and every night note down all the money you spent that day. You can do it as a combined list of family (preferable) or you can do it separately for each family member. I assure you that this is extremely painful to start with since it wont bring any immediate relief but do it diligently without fail. Note down every detail of what you spent through cash, credit card, online purchase or any other mechanism. Also note down the channel you are paying through. You can use some software on your desktop or mobile to keep track of you expenses or use just a plain paper

                  You can also use application like this for iPhone

• Once you have this list (the hard-work has to give you some benefit) ready, then it is the time to walk through it and arrange the items in following categories
  • Must-Haves like rent, electricity bills, food bills
  • Emergency Purchases like medicines,
  • Casual/Impulsive Purchases like clothing, mobile phones, books, eating out etc
  • Social purchases like gifts
  • Useless purchases
• Then, go through these monthly bills or recurring expenses and see if there is something that you really need. For example do you really need to buy these costly books every month or you could just subscribe to a near-by library in your locality. I have actually reduced these expenses in my budget (I am a voracious reader). I used to buy books/novels worth more than 20K per year, this is exorbitant (not only in terms of buying but also in terms to keeping them, I spend more when I have to relocate since these books make those so many extra cartons). So I joined one of the local libraries and I have reduced by expenses to mere 1K per year along with gaining immense variety of books. There are hundreds of such expenses that you can cut-down without sacrificing your living standards or the returns in terms of value that you are getting.
• Some of the expenses can be saved just by tweaking your daily habits. You would be amazed that simple habits like switching off lights, fans or chargers can provide significant savings. We did that by switching off chargers or TV switch (not just switching off from the remote, but actual switch). These have given me a saving of as much as 100 Rs per month on my electricity bills (i.e. 1200 Rs per year). It may sound like too much pain for saving such miniscule amount, but think of it as serving to the society, doing this in the larger interest of the country. You can install CFLs instead of those big bright tube-lights or don’t run those geysers only when needed and not for long period. These are non-renewable energy and such saving by millions of people can be simply huge.
• One of most effective tip that I use consistently is to store my all credit cards in least accessible places like in the locker or a suitcase which is stashed away. The idea is not to keep credit cards at places where you can quickly pick up before going to a shopping mall. I also have a credit card with a credit limit of not more than 10K, this helps me to gain the real advantage of credit card (use it to so that you don’t need to keep the cash with you and useful during emergencies). So why keep those other credit cards with huge credit limits? Well they would be useful when I want to travel or for making those big purchases so that I can convert them into equated monthly installments with a small fee or to get those discounts at specific services (e.g. I get one ticket free when I buy two movie tickets on a ICICI platinum cards in PVR cinemas).
• Never buy on impulse, one of most crucial principle for money saving. The entire idea of those glitzy shopping malls and front displays is to attract the consumer and make him buy impulsively. Some people justify that impulsive buying is good sometime since you can get good bargains. I absolutely dis-agree, impulsive buying can never be good. What is the definition of impulsive buying:

An impulse purchase or impulse buy is an unplanned or otherwise spontaneous purchase. This can metamorphise into a serious disease.

• So if the purchase was not planned, it means the consumer actually do not need it and hence even if the product is free, it is a bad bargain. So it brings to another point is that when-ever you go on shopping make a list of items that you intend to buy and just stick to it. No additional purchases should be made even when it is so much necessary (it will automatically inculcate better habit of planning ahead more carefully for the next trip)
• I recently got invited to a birthday bash of a 1 year kid from my neighborhood. I was totally amused that how a 1 year kid would know at-all the difference between a small @ home birthday party vis-a-vis a lavish party in a fancy restaurant. It was an absolute useless expenditure and it was coming from the urge to show-off (I have loads of money or I care for my child etc etc) rather than a genuine focus on the child. I would rather invite only kids with their mothers in a small party at home, since seeing so many kids playing around will probably be more entertaining for the kid.
• Un-clutter your house, because clutter saps energy and money. Christopher Lowell says “Clutter is dandruff on the shoulders of your room”, so don’t give excuses for not de-cluttering your life. You need to get rid of “can’t-get-rid-of-that-because-it’s-valuable” gene, it is so harmful. check out this 9 Tips for Decluttering (Zen Habits)
• It is important to give up those harmful habits like cigarettes, alcohol or drugs. These not only save money in short-term, it also saves money in long-term by improving your health and reducing medical bills over the years. Invest that in a gym or personal improvement programs.

At every step in your life, while dealing with money, keep in mind that “Expenses have to be lower than what you earn”, and even after so many efforts in reducing your expenses you are hitting the debt, then it is time to look for earning more. That would be of-course another post.

Job Loss Insurance

Job loss always hurts, but people find ways to make money out of other’s misery. I knew about job-loss insurance being available in other countries, but recently it got introduced in India. So insurance companies are now willing to pay EMIs in case of job loss.

Under the cover extended by ICICI, customers will get their three EMIs paid in case of a job loss due to retrenchment or layoffs. Moreover the job loss due to the closure of a division because of poor financial condition or action taken by any public authority resulting in the closure will also be covered by the insurer.

Can a job-loss insurance give you a piece of mind after a job loss? I have my doubts!!

Excellent Article – Holes in the Ground

I earlier wrote about “why not to buy a house” (Part-1, Part-2). But I recently came across an excellent write-up from Deepak on a more balanced approach towards buying a house. He writes scathingly on the way builders cheat the prospective buyers:

Typical deals are: you sign on a piece of paper looking at a hole in the ground. The builder promises to give you a "ready" house in say three years. The apartment size is shown to you and the "amenities" you will get, like a swimming pool, a tennis court, water to drink, air to breathe etc. You then get a bank loan for 20 years for some part of it, and the rest will fall in place.

The most eye-opening was the youtube video by a Unitech buyer who got really pissed-off by the way the company delivered the house. This reminded me of one of my friend who purchased a flat (~1700 sq. feet) near Sarjapur Road at the exorbitant price of Rs 2350 per sq. feet. The worst it is located not on the main road, but almost 3-4 KM inside. He recently shifted with not even the compound wall completed (no question of amenities in place yet). It was shocking and I have begun to agree more so with Deepak that the best buy for a house is the one that is either “ready to move” or “second hand purchase” :

But I'll pay well to get a ready house: if I'm buying for emotional reasons I would rather not have the worry and pain.

So true!!

What to do on getting Pink Slip – Concrete Steps

One fine morning, you reach office and your manager says “Let’s talk”. You suddenly get hundreds of thoughts because these are tough times. Your manager (depends on how he handles it) gives you the pink slip. The first reaction is of-course the DENIAL. This could not be happening to me. Here are the things you should do on getting the pink slip:

• Keep in mind that pink-slip does not indicate you incapability or incompetence. This is extremely important to realize as quickly as possible, since self-confidence will open hundreds of other doors for you. A pink slip just indicates employer’s incapability to either keep you employed or to fit you in the organization. Period.
• Relax take a deep breath and discuss with your manager about
• Severance Package
• Other Policy details related to lay-off
• Thank your manager and ask him some contacts
• Call up your friends in office (if allowed to meet, do meet them), discuss the situation and make sure not to let people show mercy for you. Ask them for their help/contacts (note down their personal email address)
• The biggest mistake people do is not to discuss the lay-off with their family members (spouse/parents/kids). A family is meant to provide the moral support needed in the hour of crisis and here is one. So don’t be hesitant, you have not failed them, rather it is just a phase, so discuss it openly with them. Don’t be ashamed to talk about it and the reason for the lay-off, it helps them to understand your problems as well as a way for you to out-pour the frustration.
• Take a day or two off with your family and try to forget and think about it. Over-speculation on “why you” will lead to more frustration rather than getting any answers. It is really worthless to discuss/think on why you were chosen. Instead give your mind some peace, so as to deal with the crisis in a pragmatic manner.
• Usually it takes 1-2 days to finally sink that you have been fired. In those 1-2 days, thoughts fly at jet speed and the more you try to think or sort out, the more confuse you become, hence it is very important to take these initial few days as a vacation. It is difficult, but extremely important.
• Now start focusing on the financial aspect of your lay-off. It is not at all difficult and you need to keep telling yourself and your family that world is not about to end, rather this is the time for all family members to come together and provide inputs on how to handle the financial situation. What to do:
• List down your hard cash (at home, in banks, FDs etc)
• Do not touch the long-term investments, so don’t even think about them.
• List down the monthly expenses to extreme detail (include for e.g. toothpaste expense per month)
• Strike the items which can be done without (e.g. dining out, movies etc)
• The remaining list will tell you how much monthly money you need and how much cash you have will indicate how many months you can survive without earning.
• List down the loan EMIs, credit card balance to be paid etc. These are the items which will cost you the most. And these are the items you seriously need to re-think on “how to get rid of them”. Make sure not to panic and start offloading everything. Give yourself 1-2 months and see if you can get some job.
• Do not even think of using credit card or personal loans to tide the expenses. This is the time to reduce your debt and not to increase it.
• Start updating your resume. Also call in your contacts and start sending the resume. You can also search on google for some consultants or job search websites and upload your resume. Simultaneously, start refreshing your basics for any interview call. You need to be prepared for any sudden interview calls and give your best shot.This is the time when your networking helps you a lot.
• It is also important to understand that all work is good, just because you were earning a handsome salary of 1 Lakh per month doesn’t mean that now earning Rs 20000 per month on part time basis is a bad idea. The only thing important is that you are earning back as quickly as possible and the temporary job you are getting into is aligned to your field. As an example, if you were a software engineer, following jobs can be a good idea:
• Software consultant on part-time basis
• Teaching SW Engg in a college/training institute as a visiting faculty
• On-line software development projects or finding other genuine ways to earn money online [like documentation or creating SW training materials etc].
• You can even encourage your spouse to take up the temporary job (if he/she is not working) while making yourself available for the house-work.
• If you really ever thought of starting your own enterprise, this is the god-given opportunity. This is the time to take risk, since you can’t be worse off.
• Most importantly you need to be patient while searching for job and you have to have confidence on your own ability. Keep finding the doors which can lead you out of the crisis, it does exist!!

Stock Market FAQs

• What is a share?

Shares/Stocks are document which allows the holder to own a part of the company. This is an important definition, holding/buying a stock is just not holding a piece of paper (or in electronic form) but it is like owning a part of the company.

• Why companies sell shares?

Any company is initially owned by a single promoter or joint promoters with unlimited liability. The term unlimited liability implies that if the company goes bankrupt, the promoters are totally liable. Sometimes the company is owned by group of people (promoters & non-promoters) with limited liability.  The term limited liability implies that the owner’s liability is limited to their contribution to the initial capital.

When business expands, the owners decide to raise money. There are many ways to raise money, one of which is to approach the common public allowing them to own some part of the company for the money they will provide.

• What is the difference between debt and equity?

Debt: Similar to normal public borrowing from banks (loans). When companies issue debt instruments, they want to borrow money from specific investors or in general public. This is different from equity which is borrowing money by selling a part of the company ownership

 

Debt	Equity
No company ownership	Part of company owned by holders
Company legally bound to pay interest (similar to loans)	Company may or may not pay dividends (not called interest since it is not decided/declared)
High preference over Equity owners	Least priority

• What are primary and secondary markets?

Primary Market: The public buys the issue directly from company e.g. IPO (Initial Public Offering)

Secondary Market: The public (investor) buys the shares from other investors e.g. normal share trading (on NSE/BSE)

• What is Fixed priced Issue and Book Built Issue?

When a company decides to go public, it wants to float the IPO. This is essentially the first time the company shares will be sold and part of ownership given away to raise funds. So what should be the basis to decide the price of the initial offering?

Fixed priced Issue: The company decides the initial price of the share (taking the help from experts) and it is mandatory for the company to disclose in the IPO documents about the various factors that are being taken to fix the particular price. The price is fixed.

Book Built priced Issue: The company uses the free market to determine the initial price offering based on the supply and demand of the proposed shares. In essence, asking the public (taking bids) to decide what is the price they are willing to pay for the share.

• What is Face Value, Price Band and Cut-off Price?

Face Value: It is the value of the share printed on the share certificate. It is normally Rs 10. The importance of the face value is only for the company, in terms of the accounting entries. The actual value or price of the share is usually higher than the face value (the difference is called the premium).

Premium = Market Value – Face Value

The money generated by selling the shares of the companies are not entered in the same place in the accounting books of the company. For e.g. if the Face Value = Rs 10, Premium = Rs 90, hence the actual price that the company received for one share is Rs 100 (Rs 10 + Rs 90). If the company floated say 1 Lakh shares, then it actually received Rs 100 Lakh by selling those shares. In accounting books however, it will write :

Equity Increase (by selling shares) = Rs 10 Lakh

Reserves & Surpluses = Rs 90 Lakh

There are obviously benefits of doing this. Face value is also called Book Value and more information can be obtained from the wiki page.

In a Book Built Issue, the promoters/owners of the company decide a price range within which the bidding can happen. This is called price band. The final issue price decided by owners after the book-built process is called cut-off price.

• What is Red-Herrings Prospectus?

It is a preliminary registration statement that must be filed with the Securities and Exchange Commission or provincial securities commission. It describes the issue (IPO) and the prospects of the company.

LIC Jeevan Aastha – An eye opener article

Sandeep Shanbhag wrote an excellent eye opener article on LIC’s Jeevan Aastha. I am just re-reading it and admiring the author’s penetrating eyes to get the essential out of the marketing mumbo-jumbo.

Jeevan Aastha is a fixed-return investment plan that would offer a return in the range of 6.75% to 7.25% p.a in most cases.

Mutual Fund Tracking

Chandoo created this excellent Mutual Fund excel sheet that act as a simple Mutual Fund tracker. The USP of the excel sheet is that it fetches the MF NAVs from the website and uses that to track your funds. The problem with the excel sheet is that if you have subscribed to MF Systematic Investment Plan (SIP) then it is difficult to use the mutual fund excel sheet. So I modified the excel sheet to add your SIP investment tracking too. Here is the modified excel sheet. Here is a screenshot :

             

Here are the steps to use the excel sheet:

• Select the name of MF from the drop down list
• Enter the start date of MF SIP
• Enter the starting units (as of held today)
• Enter the amount per month

This will immediately give you the results for your portfolio. (Make sure to refresh the NAV sheet for latest NAVs).

You just need to open the excel sheet everyday. It will compare the today’s date with the MF SIP start date. If the date matches, it will automatically update the Units field (by using the today’s NAV and amount per month).