How should you grow your hard-earned money?
This question has been written, talked about and debated extensively and in depth. And continues.
However, most people still find it difficult to manage, save, and invest their earnings. If anything, the pandemic has once again highlighted why one should plan for their financial future from the start. And, the experience was no different for monika halan, best-selling author and consulting editor and part of the leadership team of the Indian newspaper Mint. She says that, like many, the pandemic forced her to review her portfolio allocation. This is despite the fact that she is 50 years old and confident of earning even after retirement. She reveals that it’s not the 30 percent market crack that prompted the rethink, but the fact that there are fewer years ahead than a younger person, both in terms of health and income.
Money Management: Lessons from the Pandemic
Monika could greatly increase her savings goal the day she decides to go into pandemic lockdown mode. While she previously considered herself a frugal spender, the lockdown had prevented her from spending beyond the basics. Aside from EMI, rent, helper salaries and the basics, expenses had plummeted. This experience of living with so little was a powerful experience, she shares.
In the updated version of his best-selling book let’s talk about money – first published in 2018 by HarperCollins – Monika shares interesting insights on what the pandemic has taught us all about our money. Pointing out another financial lesson was the need to have an emergency fund. With a high-risk contract in the private sector, she kept up a six-month emergency fund despite knowing that her jobs are quite secure. But she decided to increase the fund to expenses for two years in a fixed deposit (FD). In the book she says, “The need for zero risk money needed to survive in a safe bank (PSU or one of the largest private sector banks) suddenly becomes manifest. My emergency fund recommendation has now changed. For those forty years or less in a secure job, six months of living expenses on an FD are fine. But as the age increases, as the risk of the job increases, the fund to get to the two years increases for older cohorts in jobs that are not as secure.”
The third lesson was to rethink risk. From the freezing of deposits by a private bank to the closure of fund houses and the market crash, nothing seemed certain, which highlighted that no financial product was without risk, only different types of risks. She writes, “The fact is that there is no safe haven for your money. Every investment carries some risk and you have to decide which one you are capable of taking on.” And, here she makes an interesting observation. She points out that risk capacity and risk appetite are two entirely different things. While risk appetite refers to the willingness to take risks, risk capacity depends on factors such as age, number of dependents and stage of dependents, confidence in generating income for a long time. That is why risk appetite and risk capacity must be aligned when planning finances and allocating assets. In the book, she also explains why a fixed obligation-to-income ratio must be 30 percent or less. In other words, all of the EMI together must not be more than 30 percent or less.
She writes, “Uncertainty got a new name with COVID-19 for our health, life, income and wealth. While the basic principles remain the same, there are some lessons learned from this crisis for our health and wealth.”
Finance is for everyone
In addition to how the pandemic brought about a change in perspective on certain aspects of money and investment management, which Monika explains in detail and cites her own investments as examples, the book is more relevant to people seeking practical advice and easy to understand. -Understand explanations on how to manage your money. And, here, Monika’s past experience as a certified financial planner and leader who has worked in India’s top media organizations, writing and directing successful columns and TV shows on personal financial advice, comes to the fore. For her, the advice is not only insightful and comprehensive, but also practical. The many real life anecdotes play an equal role in making it easy to understand. The book cuts through the breaks because the explanations address every question on her mind and clearly outline steps she could take to better manage her finances amid Indian realities.
For example, the book reiterated the need to look at your spending patterns and how you can analyze the pattern to save money that you can then invest. She explains how once you question your spending, you’ll realize how much money you really need to manage regular expenses. and by parking money to invest you will be able to measure your saving capacity. She advises that one should be able to move at least 10 percent of one’s available salary for investments, regardless of what one’s financial commitments are, be it EMI, rent, etc. She writes: “Eating out, going to the movies, traveling, and buying gadgets are the big budget-breakers. Opt for a balanced diet instead of a hard-to-spend diet. Hard diets fail.
The book also demystifies many aspects of money management and investments. For example, it not only explains what health insurance coverage is, but also whether it should be invested
in health coverage even if they are covered by their employers and how much one would cover. It explains the different policies that are available in the market, the prices, the benefits and the questions that one should ask before making a decision. Another financial product that the book explains very well is life insurance and its opinion about it. She writes: “We buy life insurance for all the wrong reasons: fear, greed, pity, frustration, taxes. The real reason for life coverage, to protect your family if you die, is never explained.” She adds, “The day you realize it’s in your best interest to separate investments and insurance products is the day you make solid strides toward building your financial security. Otherwise, you are creating wealth for the seller and the insurance companies.”
Don’t miss the chapters on ‘Let’s Get Out of the Investing Jargon’: the nature of the different types of investments and the purpose they serve. and what kills a piggy bank that speaks of the only factor responsible for investment decisions.
TITLE: let’s talk about money
AUTHOR: monika halan
EDITOR: HarperCollins India
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