Post on 24-Dec-2014
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Financial Wellness
Cognizant Technology Solutions22nd November 2010
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Topics for discussionGetting out of debt
Investing for life goals
Common mistakes in tax planning
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Financial Wellness
Being financially well is to be in such
a financial situation that your
hopes, dreams, future endeavours
for you and your family are
realistically possible and attainable.
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Financial wellness components
Out
of d
ebt
Plan for life goals
Protection
against possible
wealth erosion
FINANCIAL WELLNESS
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Getting out of debt
Is like a
penance….
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Why should you get out of debt?
Debt is expensive
Debt drains your wealth
Debt can delay your goals
Debt can cause stress
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Credit cards…
If you borrowed Rs. 1 lac on your credit card
that charges 2.99% per month and you pay the
minimum balance every month, how long do
you thing it will take to pay off your credit card
in full….
Guess!
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200 months (or) 16 years and 8 months
with still about Rs.1200.00 outstanding
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You would have paid an interest of Rs.136700.00 on this loan of
Rs.100000.00
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Home loans…
Home loan amount 2000000
Interest 9%
Tenure (months) 240
EMI Rs. 17,994.52
Total repayments Rs. 43,18,684.59
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If invested….
Regular savings Rs. 17,994.52
Returns 9%
Tenure (months) 240
Total payment made Rs. 43,18,684.59
Value of investment Rs. 1,20,18,303.05
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If ten years time saved….
Assume age at which loan taken 25
Investment starts age 35Retirement age 60Investment amount Rs. 17,994.52No. of months 300Rate 9%Retirement corpus Rs.2,01,74,050.13
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If invested after full loan term..
Assume age at which loan taken 25
Investment starts age 45Retirement age 60Investment amount Rs. 17,994.52No. of months 180Rate 9%Retirement corpus ???????
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Rs. 68,09,229.84
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The value of getting out of
debt early is a whopping
Rs. 1,33,64,820.29
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How to get out of debt?
Hari’s case
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Hari’s income and expenditureIncome Amount Occurrence
Salary - net take home 75000 per monthAnnual - bonus / incentives 300000 per yearTotal (Nett) Rs. 12,00,000 Per year Expenses Monthly provisions 8000 per monthEB, telephone, mobile bill 4000 per monthEMI 45853 per monthMovies and eat outs 8000 per monthHome - parents 5000 per monthFuel 5000 per monthFlat maintenance charges 2000 per monthGym 20000 per yearCar maintenance & insurance 35000 per yearTotal per year Rs. 9,89,236 per year
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Hari’s income and expenditure, looking harder…
Monthly regular income Rs. 75,000
Monthly regular expenses Rs. 77,853
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Hari’s Loan statement
Loans Amount of loan Period Interest Regular repayment
Home 2500000 240 9% Rs. 22,493.15Car 500000 48 11% Rs. 12,922.76
Personal loan 100000 48 18% Rs. 2,937.50
Credit card 1 75000 21 36% Rs. 5,000.00Credit card 2 50000 31 36% Rs. 2,500.00
TOTAL Rs. 45,853.41
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Hari’s Loan – looking harder..Loans Amount
of loanMonthly
repaymentTotal
repaymentTotal
interest paid
Credit card 1 Rs. 75,000.00 Rs. 5,000.00 Rs. 1,05,000.00 Rs. 30,000.00
Credit card 2 Rs. 50,000.00 Rs. 2,500.00 Rs. 77,500.00 Rs. 27,500.00
Personal loan Rs. 1,00,000.00 Rs. 2,937.50 Rs. 1,41,000.00 Rs. 41,000.00
Car Rs. 5,00,000.00 Rs. 12,922.76 Rs. 6,20,292.54 Rs. 1,20,292.54
Home Rs. 25,00,000.00 Rs. 22,493.15 Rs. 53,98,355.74 Rs. 28,98,355.74
TOTAL Rs. 32,25,000.00 Rs. 45,853.41 Rs. 63,42,148.28 Rs. 31,17,148.28
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NO TAKING ANY MORE LOANS
• When you realise you have dug yourself into a hole, the first and best thing to do is STOP DIGGING
Steps to “Zero Debt”
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Steps to “Zero Debt”
• Budget expenses
• Generate a surplus and commit it to the “Zero
Debt” project
• Snowball the debt repayment
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Hari’s loans – New look
Loans Amount of loan New - total repayment New - interest
Credit card 1 Rs. 75,000.00 Rs. 89,400.00 Rs. 14,345.00
Credit card 2 Rs. 50,000.00 Rs. 68,400.00 Rs. 18,375.00
Personal loan Rs. 1,00,000.00 Rs. 1,24,155.00 Rs. 24,111.07
Car Rs. 5,00,000.00 Rs. 5,99,562.00 Rs. 99,539.94
Home Rs. 25,00,000.00 Rs. 37,27,816.00 Rs. 12,27,683.40
TOTAL Rs. 32,25,000.00 Rs. 46,09,333.00 Rs. 13,84,054.41
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The effects…
Parameter Existing Revised Savings
Total repayments Rs. 63,42,148.28 Rs. 46,09,333.00 Rs. 17,32,815.28
Total interest paid Rs. 31,17,148.28 Rs. 13,84,054.41 Rs. 17,33,093.86
Total tenure to "zero debt" 240 months 98 months 142 months
Richer by about Rs.1.33 crores on retirement
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Building wealth
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Financial life cycle
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Steps in goal based investing…
Name your goal
My Goal
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Estimate when this goal is due
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Estimate the cost of the goal at today’s value
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Steps in goal based investing…
Estimate the rate of inflation relevant to the goal
Estimate the rate of returns on investments expected
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Steps in goal based investing…
Assess current value of any investments already made towards
that goal
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Investment needed for the goal
You will require a regular annual investment of
Rs. _________ to reach your goal assuming a
certain rate of return on investments and rate
of inflation
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The “r”
A = P(1+r)^n
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Common mistakes in tax planning
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• Overdoing the tax planning under Sec 80C
• Buying insurance to save tax
• Borrowing and buying a house to save tax
• Waiting till the last minute to invest in tax
saving options
• Not filing returns on time
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Thank god its over!!!!
I am ready for
Questions
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Facilitators
• Bhuvana Shreeram• +91-98840-70750• bhuvana@finerva.com
• Finerva Financial Solutions Private Limited• www.finerva.com