Cts debt management

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Financial Wellness

Cognizant Technology Solutions22nd November 2010


Topics for discussionGetting out of debt

Investing for life goals

Common mistakes in tax planning


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.


Financial wellness components

Out

of d

ebt

Plan for life goals

Protection

against possible

wealth erosion

FINANCIAL WELLNESS


Getting out of debt

Is like a

penance….


Why should you get out of debt?

Debt is expensive

Debt drains your wealth

Debt can delay your goals

Debt can cause stress


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!


200 months (or) 16 years and 8 months

with still about Rs.1200.00 outstanding


You would have paid an interest of Rs.136700.00 on this loan of

Rs.100000.00


Home loans…

Home loan amount 2000000

Interest 9%

Tenure (months) 240

EMI Rs. 17,994.52

Total repayments Rs. 43,18,684.59


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


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


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 ???????


Rs. 68,09,229.84


The value of getting out of

debt early is a whopping

Rs. 1,33,64,820.29


How to get out of debt?

Hari’s case


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


Hari’s income and expenditure, looking harder…

Monthly regular income Rs. 75,000

Monthly regular expenses Rs. 77,853


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


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


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”


Steps to “Zero Debt”

• Budget expenses

• Generate a surplus and commit it to the “Zero

Debt” project

• Snowball the debt repayment


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


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


Building wealth


Financial life cycle


Steps in goal based investing…

Name your goal

My Goal


Estimate when this goal is due


Estimate the cost of the goal at today’s value



Estimate the rate of inflation relevant to the goal

Estimate the rate of returns on investments expected



Assess current value of any investments already made towards

that goal


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


The “r”

A = P(1+r)^n


Common mistakes in tax planning


• 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


Thank god its over!!!!

I am ready for

Questions


Facilitators

• Bhuvana Shreeram• +91-98840-70750• [email protected]

• Finerva Financial Solutions Private Limited• www.finerva.com

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