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Retirement Planning - Article 5 by Amit Sangwan
Article 5
Retirement planning :
SOME CLARIFICATIONS, MINDSET ABOUT MONEY AND MANAGING FEARS
7 min read
12 May 19
By Amit Sangwan
1. Just back to my study after casting my vote. Have been recieving tremendous positive reaction, support and respect after writing my first 4 articles.
2. After having written about NFU and OROP yesterday I was expecting some backlash. But what came from one officer in a message form shocked a mystic like me also.
3. He was extremely annoyed about why I was not supporting NFU(I am not against it.I am against doing RR for it).And he casted doubt that this was a ISI handle. This got me thinking.
4. NFU is an issue which has caused lot of angst and bitter feelings among serving people. Some body like me trying to put cold water is being lamented as dushman and those wanting to increase this fire are perceiving themselves to be deshbhakt. Just fail to understand this skewed logic.
5. This is not an ISI handle. My name and number out there. 800 msgs come to me daily. Just for privacy reasons I want to keep it that way. Accusing this way is bit rude.Labelling as a friendly neighbourhood whatsapp Spiderman would be much better.
6. My aim with all these articles is to offer refreshing take on matters we faujis have been sweating on for yesterday at end. I think its high time we got out of that self eroding and self depricating victim mindset. Also I want to give confidence to people to enter the unchartered territory after retirement.
I will bring in fresh perspectives and clear such vitiated air that has been created of late around this wonderful profession of arms by few starved and perceptually deprived souls.
7. Writing the above complicated english para has taken a toll on my mental faculties. Wont be able to make this article so great now. At end of the day I am an ex Nda Jaat Ram from Rohtak ( settled at Gurgaon).Not from somewhere else as one odd chap may suggest or want to believe.
8. Some random clarification for previous ones
(a) Lumpsum retirement benefits for 20 yr Lt Col retiring Aug 2020 are leave encashment about 20 lakh. Gratuity 20 lakh.
Commutation 45 lakh. Agis survival benefit 10 lakh. So a total 95 lakh. Retirement posting claim 2 lakh. So 97 lakh. Every one year increase in service it will increase by 3 lakhs.So for 24 year service officer it will be 1.1 cr. Rank as brig or full col will increase it by 5 lakhs.
(b) Officers with disability should not commute pension as their pension will be tax free.In
coming times getting 8 percent net of tax returns will be a challenge.
(c) So if you dont have a big outstanding loan to repay, not commuting is an option.
9. Fears
(a) Children education and future
(i) Its a unnecessary worry. Your child is carrying your and wife genes. If both your genes average then at max with great efforts he or she can become above average but certainly not exceptional. This has to be understood.
(ii) Most conventional good jobs like Ias Ips and admission intoIIT etc will be taken by lower middle class. Because of Internet accessibility the class advantage has gone.Please see on youtube , videos of all subjects on civil services exam available. So crores of poor children at almost same level. See the profile of kids joining civil services. Even fauj for that matter. Our children cannot get that fire in the belly.
(iii) Go for unconventional ones. In media, advertising, fashion .will do an article on this later on. Basic idea any work which is dependent on personality and confidence of a person and not academic brilliance.
(iv) Please dont make kids engineer. If not from IIT or NIT or AIT, salary wont be more than 20 thousand.
(b) Question What will i do outside ?
Answer You can afford to do nothing.
As per the equation your living style will be maintained.
Question How can I sit idle?
Answer Then do something.
First question gets repeated again.
This is where people get stuck.Officers with tech skill or some confidence will not ask these questions. Others will have to find answer themselves .
(c) Question - What do i do with money i get on retirement ?
Answer Put in FD
Question But Fd returns are 7 percent only. Post tax 5 percent ?
Answer Ok then put in mutual funds.
Question But they are risky. I have seen nav fall by 30 percent . recently especially mid cap n small cap fund .
Answer Ok bhai invest in real estate.
Question What if builder runs away.So many people stuck in greater noida?
Answer Ok do a small start up of your own or wife .Some artifacts kind.
Queation What if it fails. My life long earnings sunk.
Answer ok i will do portfolio management service for you and hand hold you . We will invest in various asset classes depending on economy cycle, political environment ,crude oil price and trumps state of mind.I will charge 3 percent as fund management fees.
Reaction : It sounds nice.
But 3 percent is too high. You are a friend. Why charge so much for just telling where to put money. How much time it takes to tell a plan ?
I think i will continue because i have 1 cr in PF and will get 8 percent intrest. In fact i will take re employment also.As second posting in that will be choice.
Its ok if i get first one in field.
10. I have witnessed above conversation so many times.
Remember two kind of people will help you and give advise.
One who will charge you money. He will have a vested interest in making you invest in a particular thing. It may be beneficial to you also. Seek good ones.You can ask them any number of questions. Argue with them. After all money is going to them. Develop conviction after the process and go ahead with them.
Second one will give you for free.They are rare good souls to be cherished. They may be friend, may be doing as hobby or it may be there niyati (dont know english word for it).
Dont argue with them. Cross check their advise. Ask how the conviction can be developed. Don't hassle them with endless questions. No one can ever invest on borrowed conviction. You have to develop your own.
Example general perception is that in real estate in India rental yield is 2 to 2.5 percent .
But if i tell you it can be 10 percent .even 12 percent. What will most likely reaction? One of disbelief and followed by unnecessary argument .
11. The problem with faujis is for so long we are used to operating under SOP s and set pattern approbed by higher ups that we become clueless without them. In fauj the commander and system seeks certainity for the mission to be successful whether its surgical strike or corp cdr or army cdr visit.
Nothing is left to chance.There is always a a plan B or plan C. Being in fauj for so long this approach to life has seeped in our subconscious. Also there is a penchant to see orderliness every where.Nearing retirement you need to get rid of this.
12. Above approach to life is very counterproductive in civil world which thrives on uncertainity and cuous. Whole insurance industry is based on it.
Seeking certainity in this uncertain world causes misery.
13. Actionable points for the week
(a) Dont fret about kids education .What they study and end up doing is totally different ? Expose them to various possibilities.
(b) Read book
Art of thinking clearly.
(c) Money cannot give happiness. But its a tool to navigate the troubles of life. Having it certainly helps. Money is important but the way you earn it is even more important. So introspect at what cost are you earning it.
Next one most likely on Mutual funds vs real estate and how to go about it. Also concept of passive income and active income will be introduced. Something if one understands it can change the way you live.
Note
1. In our childhood all of us would have played various games like pittu kho kho kabaddi or r more organised ones like football and cricket.
2. If there was a pool of say 20 kids. 2 kids were nominated as captains. And they used to select teams.There was a toss who will start the selection process.
3. The star and stronger players were selected first. Then the team players or personal favourites. The kids in 8 9 10 number were the ones not fitting the above qualities.
4. As children if we were in 8 9 10 number, understanding the above process was difficult and we continued playing irrespective. Even if some of us had the maturity to understand what was happening, we had a little choice as pool of kids was limited. It was ok to play in cricket when nobody gave you batting or bowling. You did only fielding. And were normally the ones to get ball out of kaante wali jhadi.
5. If the above 8 9 10 is happening to you in adulthood or midlife then Sir its time to change the game.
There is no limit of type of games to be played. Choose a new one of your liking.
6. Know when time is up. For superannuating officers
Sir Bahut din ho gaye democracy ko defend karte huey.
Time to enjoy the democracy now.
7. Hope some value added. Please post queries by whatsapp.also please mention where u belong to because advise to bangalore guy will be different from chandigarh one. Also a brief back ground. Also please dont ask how you should make career choices. Mtech or staff college. I am not that honhaar to guide on these.
Abstract things, intuition and emotions is what i excel.
9911702005
Financial Planning
Another great article by veteran Amit Sangwan! 🙏🏼 🙏🏼
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Personal financial tips...
What are some of the mistakes of Indians that are destroying their financial lives?
*Buying insurance policies for investment purpose*: Have you invested your money in insurance plan to get a return in future? Big mistake! Out of 100 people I have spoken, 95 have made this mistake.. Very few people understand the difference between term plan, endowment plan, etc.
*Not able to crack the credit card mystery:* Are you paying the minimum amout due on your credit card payment? If yes, you are trapped in credit card mystery. On the other side, very few people really enjoy the benefits like free lounge access, buy one get one movie ticket, etc.
*No idea about the power of compounding:* Everyone has come across the formula of compounding but very few people really understand its power. This is the reason people do not start saving early and hence lose out on the power of compounding. Albert Einstein said that power of compounding is the eighth wonder of the world.
*Buying stocks based on tips without any knowledge:* You will find every Tom, Dick and Harry giving stock tips over Facebook, Whatsapp and TV. Unfortunately, a lot of people fall in a trap of these people and invest money without any knowledge. What is the end result? They lose everything!
*Becoming a victim of lifestyle inflation*: Moving from 2bhk to 3bhk just because you have got a good hike, upgrading your car because you have got some bonus are some of the examples of lifestyle inflation destroying financial lives.
*Buying things just because they are on discount*: From Amazon’s “Great Indian Sale” to Flipkart’s “The Big Billion Days”, everyone is encashing on the weakness of Indians buying things just because it is on discount. Funny thing is now you will find such sales every other month.
*Getting tempted to go for an exotic vacation* just because someone put a post on Facebook and Instagram: Instagram and Facebook are introduced as Social Media Platform but they are actually destroying the entire social fabric. Friends are jealous of each other. Most of them are just social media friends. Facebook and Instagram are more of a marketing platform where people post stuff just to get some likes and companies promote their product and services.
*Spending a bomb on weekend parties:* 5 days work and 2 days party: This is the new culture in India. Pubs are jam-packed on weekends where people would spend a bomb on drinks. By the end of the month, they are left with no money.
*No track of cash flow:* Very few people keep a track of their expenses. Most of them just don’t know where the money is gone.
*No emergency budget:* Not having any extra money in the case of an emergency results in embarrassing situations of borrowing money from friends and relative. Some people even break their investments and make a big mistake.
*No medical insurance*: I have seen people losing out the lifetime savings just because they did not take medical insurance. One accident can shatter all financial dreams. Better be insured. Healthcare cost is rising and it is impossible to manage it without insurance.
*No financial plan:* People do not know why they need to save money because they don’t know their financial goals.
*No diversification*: Some people would invest all their money in real estate, some would invest all the money in gold, some would just keep it in the locker, some would invest all the money in the stock market. Very few people understand the right way of diversifying the investments.
*Spending all the hard earned money on children marriage:* Thanks to our hypocritic society! People save their entire life just to spend all the money on random relatives who only bother about the food and arrangements. What is the topic of discussion at weddings? “Sharma ji ne to unki beti ko car gift kari. (Mr Sharma has gifted a car to his daughter)”. “Mehta ji ne unki beti ko 50 tola sona diya” (Mr Mehta has gifted 500-gram gold to his daughter.)
*Buying excessive gold only to keep it in the locker:* Gold worth lakhs is kept in lockers only to be used once or twice a year. This is resulting in the money getting blocked and hence not getting any returns on it.
*An extremely conservative approach with investment:* Traditionally, people have been risk-averse. They would just have an FD and live on 6–7% annual interest. Some would just keep the cash at home.
*Lack of clarity between asset and liability:* Having a car is not an asset because it consumes fuel and has a maintenance cost. Its price will only depreciate in the future. Car is a necessity but people spend a lot of money and even take the loan to buy a luxury car over and above their budget.
*Considering frugal as cheap:* A lot of people confuse economic spending with being cheap. An economic spender does not compromise with quality but does his research well enough to buy the product or service at the lowest rate.
*Procrastinating investment decisions:* “I will invest from tomorrow”. But the problem is that tomorrow never comes.
*Spending a lot of money on fancy stuff:* A fancy car, a fancy house, a fancy watch, a fancy vacation. People want fancy stuff and willing to pay a premium irrespective of the value it generates.
*Lack of patience:* “I can’t wait for my wealth to grow. I want to double my investments in 6 months. I need to invest in the stock market.” A lot of people lose their lifetime of savings because they don’t have the patience to understand the investment option and would blindly trust anyone with their investment.
*Depending upon others for investment decisions:* “I don’t know anything about investment. Please manage my money.” Unfortunately, a lot of people are dependent upon others with their hard earned money. This is the reason we have a lot of self-proclaimed experts giving stock market tips.
*Not discussing the money matters in the family:* Discussions related to money are considered as a taboo in Indian families. Nobody really discusses money matters.
*Getting too greedy with investment:* People blindly invest their money in penny stocks, day trading, futures and options. They eventually lose all their hard earned money. What is the root cause? GREED.
*Buying stocks at the peak and selling on fall:* Most of the retail investors get over excited with a rising market and invest when the market is at its peak. Eventually, the market corrects and they sell the stocks at a loss.
*Wasting time on unproductive things:* Rather than learning new stuff and growing the skillset, people end up wasting time on social media and YouTube.
*Lack of disciplined investment:* Instead of spending what is left after investing, people invest what is left after spending. This results in indisciplined investment.
*Root Cause:* Lack of knowledge about personal financial management!