Scott Adams, of Dilbert fame, has a 9 point financial plan for you:
Do these steps in the order shown…
1. Make a will2. Pay off your credit cards
3. Get term life insurance if you have a family to support
4. Fund your 401k to the maximum
5. Fund your IRA to the maximum
6. Buy a house if you want to live in a house and can afford it
7. Put six months worth of expenses in a money-market account
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio
I would modify to put in the Indian context as follows (more words, sadly):
Do these steps in the order shown…
1. Make a will, but also, buy things in joint names.2. Pay off your credit cards, and your personal loans. But keep a credit card.
3. Get term life insurance if you have a family to support. And don't expect "money back".
4. Fund your retirement EPF or NPS account to the maximum
5. Fund your IRA to the maximum (India has no IRAs) An investment that sounds too good to be true, is. Say no.
6. Buy a house if you want to live in a house and can afford it. ("can afford it"=loan EMI less than 30% of post-tax income)
7. Put six months worth of expenses in a liquid mutual fund.
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through the DIRECT mode and never touch it until retirement.
9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio, or one that gets commission from your investments.
Five excellent comic strips related to finance:
On Ponzification:
On Cooking the Books:
On Financial Advice - you'll find this familiar:
And then, not true, but rings home:
To steer away from Dilbert, ending with the financial crisis as accidentally described by Calvin:
Just some healthy Monday reading :)
I like your skipping of point 6.
Which funds have you adopted for your stock and bonds? Any relative pointers? Since we do not have low cost broad based index funds. I also hope you would have stopped the HDFC ISA account, from what I remember from one of your past posts.
Thanks.
Keep on this good work of yours. And good luck.
02.18.13 at 1:28 PM
That was by accident :) I put it back.
02.18.13 at 1:40 PM
Haha. Ok.
That is also good.
What about the rest ? Which funds would you recommend (although, it is a futile exercise). ;-)
02.18.13 at 1:52 PM
I think you just put a bunch of advisors out of business!
As far as #4 and #5 are concerned. 401k is company sponsored and IRA is something an individual can enroll in outside of any company sponsored plan. For India, I would say EPF is #4 and NPS is #5.
02.18.13 at 2:02 PM
Point no4 Avoid NPS.PPF is better.
Point no8 Index ETF are better than Index Mutual Funds. Diversified Equity funds still are best choice over index in Indian context.
Point no6. EMI less than 30% of post tax income. Not possible for common man. Only possible for double income no kids family
Point no7 Put 3 months worth of exp in liquid or money market funds and 10 gram gold as reserve for emmergencies. (Loan against gold is easy than redemption of liquid fund in emergency+gold returns)
02.18.13 at 7:51 PM
PPF isn’t where your employer contributes equally, and NPS for govt and elective private cos will match employee contributions so it’s better than PPF.
Index ETF – agreed, they are better in terms of cost today. I meant “fund” but didn’t specify which. Diversified funds have been a good choice but in the longer run I think the S&P 500 will do better.
30% of post tax income definitely possible. Have seen a lot of people do it and manage it easily. In many cases people have just saved and got a house with their savings without any (or only marginal) loans. If prices are too high, you should not buy.
Gold prices fluctuate. Six months savings should be safe. Redemption of liquid fund will give you money in 24 hours, and you can have a card for emergencies.
02.18.13 at 9:32 PM
what about medical insurance for Indians???
02.18.13 at 8:40 PM
Deepak ji,
I too second the idea of squirrelling away into PPF for point 5. I would also like to add a few “Indianised” points (in no particular order):
a. Avoid un-necessary and expensive “must do” gifts to relatives just for formality sake – like in marriages etc – better to give a cash voucher – at least the cash and materials will not be wasted
b. Avoid buying things for status (VERY Indian thing – esp amongst the urban folks – IMHO)
About the cartoons – Calvin is the best! And yeah, it does explain things very well indeed – *especially* the last one “need to be subsidized” !!! HAHAHAHA…
02.18.13 at 10:21 PM
http://www.equitymaster.com/ht/detail.asp?date=12/03/2011&story=3&title=Use-Index-funds-for-speculation-not-for-investment&lang=hi
02.19.13 at 2:07 AM
I have been directly investing in few mutual funds for last 4 years. Will there be any exit load changed for a switch from regular to direct plan?
02.19.13 at 12:45 PM
yes, if there is such a load on the plan. It’s treated as an exit and reentry
02.19.13 at 2:17 PM
Not really. The equation is as below:
If you are an earlier direct investor, then if you now shift to the direct plan – No exit load
If you are an earlier distributor led investor, then if you now shift to direct plan – Exit load to be paid if you are still in the load period.
Hope this is useful
02.19.13 at 3:07 PM
Good one!!!
medical insurance is left out !! i guess!!
Rest all very good post!!
Reards
Vignesh
02.20.13 at 1:19 AM
Thanks Deepak and Manoj.
@Manoj, can you point to any document from MF? Till now, I have only seen document from HDFC suggesting that a switch from regular to direct plan for direct investor will not incur exit load.
Source: http://www.hdfcfund.com/CMT/Upload/ArticleAttachments/432%20Addendum%20-Introduction%20of%20Direct%20Plan%20dated%20December%2029,%202012-.pdf
02.20.13 at 3:24 AM
Yes, that’s only for an investor who’s invested with “DIRECT” in the regular plan. Hope that helps!
02.20.13 at 11:52 AM
Hi Shree:
You can download the FAQs for DIRECT here http://bit.ly/DIRECT1
Just as a quick pointer, there are costs associated with shifting to DIRECT in addition to the exit load. I will quickly give you a summary of this.
If your investment date is less than a year, then the total costs of switching to DIRECT will be:
1. If you were invested earlier DIRECT: ~ 3.5% cost of switch to DIRECT (i.e. almost 6 years of stay in DIRECT will help you even this cost of txn)
2. If you were invested thru a distributor: ~ 4.5% cost of switch (i.e. almost 7 years of stay in DIRECT will be required)
If your investment is already more than a year, then the cost of switch to DIRECT will be 0.25% (i.e. around 5-6 months of stay to even out costs, but you still should remain invested for over a year post the switch so that you dont pay short term capital gains)
So take home is that only do the switch to DIRECT for those investments which have completed a year and you intend to stay further for atleast one year.
Regards,
02.20.13 at 4:40 PM