MK Personal Finance Professional

MK Personal Finance Professional Dear friends, This page on facebook is meant for updates on Personal Finance. I intend to use this as Investor Awareness Program. See You

PF(Personal Finance) is an important aspect of each and every one of our lives, be it a middle class man or HNI.

23/01/2021

Hi, friends Very good morning to you all.

Finance is an important aspect in all our lives.

Neither Life without money nor money without life make good sense.

So all of us need to focus on our cash flow a little bit.
Take stock of your income and spending and make sure the spending is within your income limits.

That alone is not enough. One cannot afford to spend all that he earns the same month. So you need to have a look at your future financial needs as well and think for a while what you are doing now about those needs.

You will automatically do something to generate surplus every month which can do good to your financial needs.

Generating surplus month on month should be the ultimate goal of every breadwinner of the family.

How much you save is more important than how much you earn.

If you feel or you are in a position that you always fall short of your cash flow needs, then increasing your income is the only way. How to do it?

There is a strong relationship between learning and earning said Mr. Shiv Khera.

So to increase your income, you need to continue your learning on what you are doing now. What ever be your nature of job or business, there is enough scope for learning and of course earning.

Thank you.
Have good day.

Happy Pongal
14/01/2021

Happy Pongal

14/09/2020

Dear Friends,

Warm Greetings.

I am sure you are doing well and hope all is fine with you and your family.

I hope the communication on personal finance I had been posting in this page during the Covid 19 lock down period would have been useful and I am anxious to know whether you could implement any of the suggestions for your better financial future.

To recollect the ideas given, I would like to post some information to stimulate you to take some action.

What is Freedom Fund?
How important is it for a person’s financial life?

As the name implies, this fund is meant to provide you freedom from your financial needs.

Every one of us will have some unavoidable financial commitments at some point in time in future. At that point in time, we should not be depending on anyone else to meet those commitments. We should be free to meet it out on our own. This is called Financial Freedom.

What are the essential and unavoidable commitments each and every one of us will have in future?

1. Children’s College Education
2. Daughter’s Marriage
3. Comfortable Retirement Life

Just analyse yourself, what among the above is your need and how far it is from today. How prepared are you for those needs?

Freedom Fund can help you meet those needs. Freedom Fund is nothing but the surplus you are able to generate month on month after your essential spending.

The practice of budgeting will help you to arrive at the surplus.
Take a note book and write down the expenses you incur every month on the following heads.

Household Mandatory Expenses
1. Home rent or maintenance expenses
2. Groceries and Toiletries
3. Vehicle – Fuel and Maintenance
4. Doctor / Medicines / Health Care
5. Electricity / Water / AMC
6. Mobile / Telephone / Internet / Cable or TV Network
7. Others, if any

Life Style Flexible Expenses
1. Clothes / Accessories / Shopping / Gifts
2. Dinner out / Movies / Vocations / Sports
3. Personal Care – Saloon / Spa / Gym
4. Travel Annual Vocations

Dependent’s Expenses - Very Important
1. Children – School or College Fees and other essentials
2. Parents – Monthly contribution and Regular Medication

Equated Monthly Instalments - Cannot miss the due date
1. Housing Loan
2. Vehicle Loan
3. Any other personal loans

Insurance Premium - Equally important as above
1. Life Insurance Premium
2. Health Insurance Premium
3. Vehicle Insurance Premium

After recording all applicable expenses out of the above, left out or surplus amount you are able to generate month on month is called the freedom fund which can be used to fund for your future needs.

If you take any financial decision without practicing the above budgeting process, then the chances of default or financial hardship in future is more. Keep this aspect in your mind and don't forget to practice budgeting.

At this pandemic situation, all of you need to stay home, don’t venture out unnecessarily, wear mask and use every opportunity to sanitize and wash your hands.

Thank you very much. Stay Safe.

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

Dear friends, good afternoon.I hope all is well with you and your family. So far I discussed about Personal Finance and ...
27/06/2020

Dear friends, good afternoon.

I hope all is well with you and your family.

So far I discussed about Personal Finance and Financial Planning to be practiced by all to enjoy financial freedom in their life time.

The last one was about setting aside a part of your income called Freedom Fund for you, your family and your future.

Just think for a while, if YOU do not part with a portion of YOUR income for YOUR future, then WHO ELSE CAN / WILL.

I am sure all of you would have made up your mind at least to park a part of your income and now the question would be where to park or keep this money?

I am posting a simple guide for you all which will tell you what you need to do with that Freedom fund.

Where and all and how much to keep your freedom fund for your financial future.

For any feedback on my write up and any clarification, shall be sent or sought on my mail id [email protected]

Thank you,

Have an efficient financial journey.

With regards,

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

26/06/2020

Dear friend, Good morning.

We have discussed various aspects of personal finance and financial planning.

All preparations are very essential for you to enjoy financial freedom.

How to make it happen?

The first and the most important financial decision of your life needs to be made right now. Just decide what percentage of your income you set aside for you, your family and your future.

It is time for you to decide to become an investor, not just a consumer. Remember only the investors have become millionaires, rich and wealthy, not the consumers, not the ones who received huge pay cheques, not the one who made big profits in business.

To become rich, wealthy, you need to decide now, what percentage of income you set aside for you, your family, your future.

Remember again, this money is for you, your family and your future and no one else. So you need not hesitate to take this first step. This is the foundation for your financial freedom, for your creating wealth.

This will bring a difference in you from being just an employee to an investor.

Yes. You need to take this first step right now. If not now, may be never.

If you have not done it so far, still WANT TO DO IT, think of it tomorrow morning immediately after waking up, think of it during your breakfast, think of it when take your lunch, think of it when you go to bed to night.

Still could not do it, think of it every hour from the day after tomorrow onwards till you get it done. That is the only way to make it happen.

First let us all try to make it happen, then we shall discuss what to do with this number, with this percentage.

After having learned about the importance of this number, you still are not able to do it, please remember, there is a huge difference between “I Know It and I Do It”

The next big question now in front of you may be that how to decide on this number. What percentage of my income to set aside?

That is what I explained in my previous communication about budgeting. This number or the percentage is the same as the surplus you generate in your budgeting process.

As I said the expected outcome of budgeting is to generate surplus, the number, the percentage of your income.

“If you don’t want to work, you need to earn enough money so that you don’t have to work”

Congratulations, If you have initiated this first step. You have just made the most important financial decision of your life, the first of the 7 simple steps to financial freedom.

Now you are ready to make your dreams in to reality.

See you in the next communication.

Have a nice day and Stay Safe

Thanks and regards,

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

25/06/2020

Dear friend, Good morning.
I am sure all is well with you and your family.

I believe you are following the latest Covid 19 situation prevailing in Tamilnadu and rest of India.

Kindly take care of yourself and your family.

Please avoid visiting any crowded place, avoid doing any non-essential work and follow strictly all government advisories.

Yesterday we discussed about the need for having a retirement account to take care of our retired life without any dependency.

How to plan for your retirement cash flow need?

You have to first find out your current living expenses based on your life style. Living expenses means the expenses you incur on household expenses only (I would like you to recall the discussion we had on budgeting and our expenses on various heads like household expenses, life style expenses, dependence expenses and EMI commitments)

Out of these commitments, most of us will have only the household expenses on retirement. We would have fulfilled (should have fulfilled) all our other commitments towards our children, liability like home loan by the time we take retirement. That is why we ignore the expenses on other heads.

After ascertaining the household commitment, adjust it for inflation based on the number years you have for your retirement. Say, your (aged 45 years) living expenses for present life style is about Rs. 25,000/- per month and you still have 15 years for your retirement, then the expected household commitment after 15 years to maintain the same life style considering 5% inflation would be Rs. 51,973/-

It means you would require Rs. 51,973/- month to meet your living expenses from your 60th age onwards.

Now you can plan for your retirement need as above by either buying a pension scheme in any of the life insurance companies which will give you about Rs. 51,973/- per month or you have to accumulate a corpus when you turn 60 years, which can pay you the above cash flow for the next 20 years.

The options you have at present in front of you are investments in Mutual Fund Schemes by choosing SIP way or investing a lump sum now either in MF or in pension scheme which will pay you the required cash flow.

Since the bank interest or rate of return on investment after 15 years from now cannot be predicted exactly, it is very difficult to calculate the corpus required for the expected cash flow.

Anyhow assuming that you will get 5% return per annum for investments after 15 years, you would require Rs. 79,08,039/- in your retirement kitty which will take care of your 20 years of retired life with the above cash flow.

I have ignored taxes and inflation post retirement and also that the retiree cannot over live 20 years and no estate will be left behind for dependents.

Now to accumulate this corpus, you need to invest a sum of Rs. 19,080/- month through SIP in a financial product which is capable of earning you 10% per annum return.

Please remember, the return assumed at 10% is subject to market conditions and the investment risk is to be borne by you.

Otherwise you can make an one-time payment of Rs. 45,00,000/- (plus GST @ 1.8%) under “Jeevan Shanthi” Annuity plan of LIC of India which will pay Rs. 51,892/- per month starting from your 60th age and continue throughout your life time even up to 100 years of age. After your life time this investment of Rs. 45, 00,000/- will be paid to your nominee.

This scheme is a fixed, guaranteed annuity plan. This annuity of Rs. 51,892/- month will be paid to you for the rest of your life irrespective of bank interest rate in future.

There are other financial products also (like NPS, PPF, Bank FD and so on) through which one can plan for his retirement, but the above 2 products are the most popular among Indians.

The above calculation is just an example. Depending up on the retirement need based on your life style, you can fix your retirement cash flow and plan accordingly.

We shall discuss, how to take initiative for all our financial needs in the days to come.

Thanks and regards,

Have a nice day and Stay safe.

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

24/06/2020

Dear friend, Good morning.

I hope all is well with you and your family.

Today we shall discuss about Retirement Planning.

I would like to give little more emphasis on the need for Retirement Planning. I would say, this is the most important aspect of one’s personal life.

Then you may ask me a question. Why you put Retirement planning as the last but one in the priority list given a few days back. You are right.

Retirement Planning is the most important of all other commitments. But before Retirement each and every one of us will have the responsibility of fulfilling our duty of settling our children in their life.

Even if a person plan for his retirement, without enough preparation for other commitments life childrens’ college education and daughter’s marriage, the funds meant for retirement will be utilized for this commitment.

So fulfilling our responsibility prior to our retirement is considered first and at the same time planning for comfortable retired life should also be on the agenda because you may or may not have time to plan for your retirement after fulfilling all your responsibility.

“You can be young without money, but you cannot become old without it”.

The most important feature of the retirement planning product should be “having no exit option” before Retirement.

If you have the exit option in the scheme before your retirement, then there will be no assurance that this fund is meant for your retirement.

Why should people think of their retirement and plan for their retirement?

* It is obvious that the employees will be given golden hand shake when they turn 58 years or 60 years of age. Some organized sector employees will get their PF accumulation and Gratuity when they retire

These lump sum payment may not replace their last drawn salary as the rate of interest in India is coming down and is expected to be at part with the developed nations @ 1 to 2% per annum in another 10 to 15 years from now.

When there is a fall in your income, maintaining the life style will be difficult. So the employee needs to plan for this additional passive income up on his retirement to make good the short fall.

The situation will be not so good for those who are coming out from unorganized sectors. They may not have PF accumulations they may get or may not get their Gratuity due on retirement.

* People are expected to live longer as the Indians’ longevity increases year on year. Longer retired life without sufficient resources may not bring pleasure in life.

* Living cost also increases year on year due to inflation

* As we grow older, health issues are inevitable and we need to be prepared for health care expenses as well

* We see in most of the places people live as nuclear families. Support system as our ancestors had with relatives around does not exist now.

* At present, we in India do not have any social security systems like some developed countries have for their senior citizens. It is coming one by one now with the initiative taken by this government like Ayushman Bharath, a health insurance scheme for some sections of the society.

Due to above reasons, the senior citizens will have to be prepared with sufficient resources to avoid dependency.

Nobody else can ensure your comfortable retired life other than “YOUNG YOU

We shall continue our discussion on Retirement tomorrow as well.

Thank you and Stay Safe.

(M. Karunanidhi, FChFP, QPFP)

23/06/2020

Dear friend, Good morning.

I hope all is fine with you and your family.

Yesterday we discussed about planning for the children education commitment as it is very important for each and every parent.

There is yet another commitment for parents particularly those who are blessed with girl child. Usually we plan to get our daughters married when they turn 22 years or 23 years, may be sometimes 1 or 2 years before or later.

This commitment for the parents of the girl children can neither be avoided nor ignored. It has to be done.
How parents shall easily prepare for this important commitment.

Let us take our friend Mr. Ram, who has a baby girl born recently and he planned for that girl’s college education. Suppose assume, Mr. Ram would require Rs. 10,00,000/- to perform his daughter’s marriage if it were to happen today based on his social status and life style. He would definitely require more when his daughter turns 23 years of age for marriage due to inflation.

Assuming inflation at 5% per annum, his requirement after 23 years will be Rs. 30, 71,524/- to perform his daughter’s marriage the same way he would have otherwise done it today.

Mr. Ram has an option to invest in Equity oriented schemes of Mutual Funds by investing Rs. 2,883/- per month.
Assuming a return of 10% per annum, his this investment will fulfill his requirement of Rs. 30, 00,000/- after 23 years from now.

Suppose Mr. Ram (28 years of age) is averse to Equity Investments, then he can choose savings oriented life insurance plan where he will have to save Rs. 5,100/- per month. This scheme will give him about Rs. 30, 00,000/- after 23 years.

This scheme comes with some unique features. This scheme carries no investment risk. This risk is borne by LIC of India.

In case of any unfortunate death happens to Mr. Ram prior to the maturity of the policy, immediately the family is given Rs. 1,30,000/- per annum till the child attains the age of 23 years.

When the child attains the marriage age of 23 years, the parent will be given a sum of Rs. 30,00,000/- for marriage purpose.

Through this scheme the parents can make sure the funds for the marriage or for any other purpose for that matter is available taking care of uncertainties of life.

This whole Rs. 30,00,000/- is absolutely non-taxable at the hand of either Mr. Ram or his nominees. Moreover the contribution made for this scheme of Rs. 5,100/- per month is eligible for deduction under section 80 C of Income tax act up to Rs. 1,50,000/- per annum.

The choice of schemes lies with the people. But whichever scheme is chosen, no matter, taking action immediately is very important.

If Mr. Ram postpones planning for his daughter’s education or marriage commitments, then he will end paying more as his commitment period is fixed and cost of education and marriage is also fixed.

We shall discuss yet another need of all common people i.e. Retirement Planning.

Thank you and have a good day.

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

22/06/2020

Dear friends, I am very thankful to you all for your likes for my postings on Personal Finance and Financial Planning.
Nobody can deny that Money is an essential player in all our lives. So all of us earn and lead our lives within our means.
I would say that smart spending of part of our income and preserving the rest with efficiency based on needs is more important and so I am writing these personal finance updates.
Please continue reading and also try to implement as much as possible for you and your family's financial wellbeing.
Because there is a huge difference between "I KNOW IT and I DO IT"
Thank you very much for your encouragement.

(M. Karunanidhi)

22/06/2020

Dear friend, Good morning.

I hope all is well with you and your family.

Education is an important aspect of each and every one of our life. All parents irrespective of their financial back ground would like to give good education to their children.

If we give good education to our children, then the chances of them getting a good, remunerative job is more or they can even become an entrepreneur where their education will help them in a big way.

All parents don’t like to take chances and compromise on their children’s education. At the same time, education cost (Particularly College Education) is very expensive and spending on college education just like that is not easy unless the parents plan through proper financial product and prepare for the college education cost.

Let us discuss how the parents can plan for their children’s college education expenses.

Say Mr. Ram has a child just born in his family. Nobody can measure the happiness of the family with the new arrival of prince or princess.

If Mr. Ram is concerned about the education (I know it is very strange to ask the parent to think about the college education immediately after the birth of the child), but a prudent father will do that and getting prepared for the education cost becomes very easy.

Mr. Ram feels that the present cost of first year college education Rs. 2,00,000/- (may be more for some courses), the actual requirement for Mr. Ram when his child becomes 18 years of age will be more because of inflation.

Education inflation is believed to be in double digit, but assuming 5% inflation on education, Mr. Ram would require Rs. 4,81,324/- for the first year and Rs. 5,05,390/-, Rs. 5,30,660/- and Rs. 5,57,193/- respectively for the 2nd, 3rd and 4th year of college education.

An investment of Rs. 2,902/- per month invested in a financial product which is capable of giving 10% per annum return can make good his requirements for the college education.

Of course I mean investments in Equity schemes of mutual funds are capable of producing this result.

If Mr. Ram is averse in equity investments, he can choose some life insurance products which can ensure the education cost at different time periods with life cover for Mr. Ram.

If Mr. Ram aged 28 years pays Rs. 5,476/- per month payable for 16 years, he will get the above cash flow after 18,19,20 and 21 years.

One advantage in this plan is that the maturity value received from this scheme for education purpose is non-taxable. This schemes also provides life insurance protection to Mr. Ram.

Even if something happens to Mr. Ram in between, the family will get Rs. 1, 08,000/- per annum immediately till the child comes to college and also will get the above cash flow for college education. The contribution made by Mr. Ram is eligible for deduction under section 80 C of Incomes Tax Act. There is no investment risk in this savings oriented life insurance scheme.

The choice of preference (whether MF investment with little bit of market risk or life insurance scheme with no investment risk) lies with the parent.

Whichever product is chosen, taking action to prepare for the college education of the children is very essential.

We shall discuss tomorrow for yet another essential commitment of the parents i.e preparing for lovely daughter’s marriage.

Thank you very much.

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

19/06/2020

Dear friends, Good morning.

I hope all is fine with you and your family.

Today we shall discuss about how people shall prepare to own their dream home. (For those who do not own a house)

Now a days, obtaining home loan is very easy as many home loan companies and banks liberally offer home loans.

The eligibility to get a home loan for salaried persons is that they should be on confirmed job where PF should be deducted from their salary. If there is no mandatory deduction like PF, then the employee should have filed his income tax returns for the last 3 years at least.

For business persons, they should have been filing their income tax returns regularly or the last 3 assessment years return is must.

Based on the average income for the last 3 years, the home loan companies will arrive at the loan eligibility based on the debt ratio of 35% to 40% based on the nature of job or nature of business.

For professionals like doctors and Chartered Accountants, higher ratio up to 50% shall be considered by some home loan companies.

Home loan companies and banks will offer up to 80% to 85% of the total value of the property as loan. People have to be prepared with the down payment of 20% to 25% as any home construction total cost will go past the budget by certain percentage say 10 to 15%.

Let us see an example now. Consider a person by name Mr. Ram whose income is Rs. 80,000/- per month and looking for a home @ Rs. 40,00,000/- budget. He has to be ready with the down payment of about 15 to 20 lakhs and the rest of Rs. 25 to 30,00,000/- loan shall be availed.

For Rs. 30,00,000/- loan, the EMI will be about Rs. 26,035/- for 20 year tenure considering interest @ 8.5% per annum (EMI will be Rs. 29,542/- for 15 year loan tenure) The debt ratio for 20 years tenure loan is 32.54% and that for 15 years loan tenure is 36.93% both of which are well within the suggested limit.

Now our friend Mr. Ram should first plan for the down payment. If he invests Rs. 25,000/- per month in a liquid fund or an RD, he can accumulate Rs. 15,00,000/- in about 51 months (Assuming 7% per annum return). A monthly commitment of Rs. 30,000/- will give him Rs. 15,00,000/- in 44 months which can be used for the down payment and avail the home loan for the balance.

Mr. Ram will have an advantage in this process. Since he has been used to set aside a sum of Rs. 25,000/- or Rs. 30,000/- per month for the past 45 to 50 months to create the down payment, he can continue the same contribution towards his home loan commitment. So he will not find the home loan EMI as a burden as he is used for this commitment quite for some time.

But many do not have the practice of setting aside a huge sum from their salary (nearly 35% of their salary) and suddenly opt for home loan and start paying EMI which may sometimes cause financial stress in the family to meet the regular commitments.

They also need to arrange for the down payment through some private finance which may be at a higher rate of interest and can add to the difficulty in managing the cash flow.

So home loan buyers are suggested to plan well in advance say 3 to 4 years in advance and start planning their contributions to practice the home loan EMI and also prepare for the down payment.

We also offer home loan services to our clients through some of our home loan consultant friends which our customers and friends can make use of.

Thank you for your patient reading the messages.

Have a good day and stay safe.

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

16/06/2020

Dear friend, Good morning.

We learned about financial planning, discussed about the future financial needs, prioritized them in order of importance and have been trying to understand how to make a provision for those prioritized needs one by one.

The first 2 important aspects of financial planning Creating Emergency Fund and owning sufficient health insurance cover were discussed during the last 2 postings.

The 3rd important aspect of financial planning is having adequate life insurance cover for the breadwinner to protect the financial interests of the dependents, mainly beloved wife, lovely children and affectionate parents.

Just like health insurance, people face 2 problems with their life insurance as well.
1. Under Insurance
2. Persistency

Under Insurance:

In most of the families having life insurance, the value of risk cover on the breadwinner’s life does not match with the family’s life style.

In the event of untimely death of the breadwinner, the life insurance death benefit is insufficient to maintain the living standard of the family.

That too when the breadwinner was having any debts, then problem still worsens as the family will be under pressure to set right the liabilities first.

So it is very important to analyse the life insurance need, by arriving at the right sum assured based on family’s life style need and debts, if any and buy the right product within the affordable premium commitment.

Persistency:

Persistency is nothing but the status of life insurance policies being in force. A policy is considered to be in force if the premium for all subsequent dues is paid before the due date or at least within the days of grace.

A life insurance policy whose premium has not been paid within the days of grace is considered to have lapsed. A lapsed policy loses all the policy benefits including the death benefit.

The 13th month persistency of life insurance policies in India now is about 60 to 65% and that of the 61st month is around 50%.

The above statement means that 30% to 35% of the policies sold are not renewed in the second policy year itself and only 50% of the policies are being continued with timely premium payment after 5 years of being sold. The rest 50% of the policies are lapsed and have lost all life insurance benefits.

So proper selection of life insurance products based on the need with adequate sum assured at affordable premium is the right way of buying life insurance. After buying life insurance there should be no looking back and the premium payment should continue till maturity of the policy.

There are various types of life insurance products from Term life insurance plans to savings oriented life insurance plans which can be used to protect the family’s financial interest first, then to take care of the liabilities and plan for children’s college education, daughter’s marriage and his own retirement purpose.

Whichever insurance plan one has bought, continuing the premium payment without break till maturity is the most important of all.

Thank you,

Have a nice day , Stay Safe

(M. Karunanidhi, FChFP, QPFP)
Chartered Financial Practitioner

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