Skip to content

Let’s Talk Money by Monika Halan

2 don’t stash that cash

first part of this chapter is just focus on building your money system. Original idea is just to keep all of your bank accounts in order. Keeping seprate accout for your income, spending and investing. I am already doing this so there’s not much i can learn from this chapter but it’s good advise for beginners

3 Emergencies need a fund

first part of this chapter explain importance of emergency funds. Amount of emergency funds should be in terms of your 3/6/9 months of expenses. this also depends on risk of your household, so if you’re sole earner of your family, have wife, kids or parents to take care of then keep higher margin. If you and wife both earning with no kids then you’re okay with only 3 months of expenses as emergency fund. this is very logical reason and makes lot of sense. i am definitely on low risk side so i should be okay with only 1 lac as my emergency fund.

Second part is about where to keep this money best solution is autofd like i am using but fixed fd also is option for some people.

4 Building your protection

first part mostly talk about importance of medical cover and also buying right medical cover.

second part mostly discuss about how to choose right cover. seem like it’s super complicated to pick right medical cover.

  • As you look at the ratings online, the most important thing to knwo is that the cheapest policy is not necessarily a good plan. Agreed that a low premium is good and important factor in your choice of a policy, but it is not the only factor.
  • Look at the policy as a three part decision
    • how it perform on the metic of price
    • how it perform on the metric of benefits
    • how it performs on the metric of claims
  • Price
    • Unlike life cover, where your premium gets locked when you buy a term cover, the premium of a medical cover changes as we age.
    • you need to look at two things in price
    • how does the price compare with plicies from other companies right now and how does the price compare over the years? your policy may cost the least today but may become the most expensive when you hit age sixty or seventy
    • If you are buying from an agent, ask him to show you the price comparision at ten year differences. your agent will be getting commision on your purchase now and every year after you buy.
  • Benefits
    • we buy medical cover so that when faced with a hospital bill we don’t have to dip into our savings. The deal is simple: you pay an annual premium and when you get hospitalized, the insurance company pay the bill.
    • But it’s complicated world. Insurance companies have the ability to set up the game so that you lose. And given how technical an insurance product is, there is no way you will know all that there is to know.

  • Claims

    • search for good policy is not over until you understand the claims history of the company you finally choose.
    • you know if a telecom service is good or not when you use it. same for medical policy, the moment of truth is when you file a claim. does the insurer pay up? how much does he pay? is the process easy? how quickly does the company respond to complaints?
    • Unfortunately, in india, claims data is not standardized and is difficult to get. the regulator has not thought the disclosure of data through so as to make it meaninful to consumers.
    • Ask your agents how many claims does the company settle? out of 100, if the company’s claims history does not settle more than 95% of claims, don’t buy from the firm
    • claims are a tricky area because the companies club together group and individual claims data. Group claims get paid far more than individual claims. Ideally the disclosure on claims should be product wise and not clubbed as one big number.
    • Look at the claim complaints data and look for policy that has less than thirty complaints on every 10,000 claims made. Be careful of firms that give data on complaints as a percentage of policies sold. what is relevant is how many people, how many made a claim, then how many went on to complain. this number should be low in the policy you finally choose.

    what to do if you are not getting cover because of pre-existing disease?

    • do sip in separate mutual fund as emergency medical fund

5 What if you die

we buy life insurance for all the wrong reasons - fear, greed, pity, frustration, taxes. The real reason for a life cover, to protect your family if you die

this basically explain importance of term plan and normally advise to stay ahead of any other type of policy.

What about taxes

You have plenty of option in 80C basket. But for investment, you can do special five-year bank deposit that gets you the same tax break. You can invest in the public provident fund(PPF), the National Pension Scheme(NPS), or tax saving mutual funds.

These mutual funds are called equity-linked savings schemes (ELSSs) and are my favourite for long term investing while getting a tax break.

When do i not need life cover?

  • when you don’t have dependence
  • when you’re financially free means, you’re not depended on your job to pay your bills, you already have enough in your bank to take care of your expences
  • You inherit large amount money from your family
  • You get very rich midway by selling your company or any other way.

the job of life insurance cover is to serve you till you are debt free and financially independent. The moment that happen you can stop your term insurance plan. Term plans are annual contract , if you terminate it you won’t loose nothing.

6 : Finally, we are investing

I found that if you look hard enough, you will find the money for things that are important to you. You need to decide what is important. So if you began reading this chapter thinking - where is the money to invest - all i can tell you is that look harder, you’ll find it. We all go through tough times.

Money is never in plenty in the early years. But getting into debt to fund current spending is not the way out. Either find a way to raise income or spend less. There is no third option. I did both. I requalified myself so that I could earn more and till then, I harshly cut spending. And I still managed to support the extended family financially despite the tight money squeeze. my only regret is that i left investing in mutual funds for much later. I should have started earlier.

Why we resist investing for long term

  • not having money is one of the four big reasons
  • desire to keep money in liquid form
  • fear of making a mistake
  • lack of knowledge

7 : Let’s De-Jargon Investing

  • Debt
    • The role of debt products in your money box is to provide money at short notice and to provide stability to your long term investments.
    • There’s multiple items in debt category like debt mutual funds who lend money to corporate companies for short term, PPF , EPF
    • this are normally very safe product but only downside is that this don’t offer much growth-
  • Gold
    • Good is good hedge against inflation. This means price of gold rises over the years, so that your money does not loose purchasing power
    • Not more than 5-10% of your total portfolio goes into gold. You do not buy jewellery as investment. Because you loose lot of money as making charges
    • As of 2017, the smart investment decision is to buy the bonds issued by the government of india, these bonds give you not only full market value of gold when you sell the bonds in the future but also 2.5% interest on your investment each year
  • Real Estate
    • Indians are obsessed with real estate investment but it’s bad investment choice, only buying home makes sense since you’re living in it
    • It’s is horrible, clunky, chunky investment that has lots of costs, which people forget to add to the profit maths.
      • It’s also illiquid, you can’t sell in a hurry.
      • You can’t sell one room to raise some funds, you have to sell whole damm property
      • It requires periodic maintenance
      • lot of bad things can happen to it like land can be disputed, land can get grabbed, tenant may refuse to get out
    • Only time it makes sense when you have lot of black money
    • we often heard stories like flat that sold for 1 crore was bought for just ten lakhs. Lost in this conversation is fact that distance between the buying and selling price is twenty-seven years, costs of maintenance, property taxes, brokerage and insurance. The effective return rate, before any of these cost is 12 percent a year

8 : Equity

when you see value of 1 lakh invested in 1980 today in four different product. FD, gold,PPF adn sensex. if money invested in these 4 products compound then it’s 19.35 in fd, 16.10 in gold, 32.78 in ppf and 2.3 crore in sensex

You’ve heard this phrase so often- it is not market timing but time in the market matters. Time in the market matters because it smoothens out the volatility of the market.

9 : Mutual Funds

  • Debt Funds
    • A company needs money for short and long term needs. it issues bonds. A bond will pay regular interest to the lender, and then at maturity, it will repay the principal.
    • Debt fund manager buy this from multiple companies for diversifications and get return on our investment
  • Liquid funds
    • purpose of liquid fund is to keep money liquid, ready to sue
    • here amc company buy short term bonds from companies likely 3 month
  • Gold funds
    • Funds that invest in gold
    • they normally buy gold etf
  • Equity funds
    • buy stocks companies listed in stock market