Transcript

Economic Security | Akshay Gupta | TEDxXIMUniversity

[Music] hello friends uh first of all let me introduce myself to you i am akshay and i am currently a senior associate with the boston consulting group prior to this i've worked for around two years with accident strategy i have done my mba from xlri and prior to that i have done my week of honors from sriram college of commerce i also two years of pre-mba work experience which included one year of running my own startup which got funded and got acclaimed at national and international level both so uh in just i would say that i have experimented quite a lot in my short professional career and that basically uh helped me live with no regrets so today i have no regrets that i did not try anything so i've tried everything i gave my best and uh here today i am speaking in front of all all of you on the topic of economic security economic security is a very general term but let me contextualize it a bit further so this session would uh focus on various aspects of per handling personal finance right i would urge you all to learn how to handle that personal finance because when you start your careers when you start your jobs you will get very busy so you should definitely work hard and work smart during the initial years of your career that's a given what does it mean you will not have mind space while working so better to give your mind space to productive things right so you would want this particular aspect of managing personal finance to be sorted before you get into the game right so for that please utilize those two to three months to plan out well and then execution should happen in parallel right so starting with the rules of the game first it should be as i said should be well planned it should be well planned and reviewed regularly it may be reviewed three months every quarter or every six months so you should have a clear plan on what amount of money you will be getting every month and what amount of money you will be spending every month you will be saving every month and what are your obligations in the short term as well as the long term so first rule is to plan well and the key objective of this session is also to help you plan right so second rule of the game it should be documented the biggest lie that we tell ourselves is that i need not document i will remember this is the biggest lie no one remembers you have to document it in order to implement it third rule of the game it should be very simple to execute any complex model will not work so very soon you will all start earning right now the big question is that how to manage that amount that will come into your bank account every month right so you will either save it or repay your loan i'm assuming that majority of you would be having educational loans and then there is no other loan apart from educational loan and then third would be you will you like to spend right now that you have started earning you you you want to spend on various things so before going into the usage of the amount earned i'll first talk about how to maximize the amount earned so for that there are two key things that you can do either optimize for the ctc to in-hand ratio because there is a big difference right that between the ctc and the actual money that you will be getting in your bank account so we we need to demystify the difference between the two and optimize for taxes which is the key differential between the two to the extent possible so that you get more out of what you want and second is additional sources we'll talk about later so first let me talk about tax planning now you'll you might be thinking that hey i'm not from a financial background or i do not understand taxes so why should i do it uh i give it to my father to plan or my mother to plan or i'll hire a chartered accountant who would do this for me but uh it doesn't work so well that was my personal recommendation would be to do it yourself even if you don't do it yourself in entirety you take help from your friend or whatever case might be you should definitely have an understanding of the tax structure right so that in the long term and for the short term also you can plan for various investment vehicles you can take several decisions yourself which no one else can do it on your behalf how to do it you already have two to three months uh february march is the time when most of you would be free from your colleges and most of you would be starting your jobs by may or june so you will have two to three months so i would recommend you all to read salary taxation this is a chapter contained in all the leading taxation books so this is a small chapter you will not take too much time just go through it and then optimize for your own taxes and also with tax planning comes tax filing and compliances so this essentially involves uh understanding uh the form 16 that you'll be getting from your employer and filing the itrs at the end of the financial year so there are various deductions under section 80 and atc is one of the most famous deduction section that is available and there are around 10 to 12 investment options that are available under this so the maximum limit is 1.5 lakh although uh different people would want to invest in different investment vehicles under section 80c but my recommendation would be to go for provident fund which is a statutory requirement and then using the rest of the component through elss why provident fund simply because it provides you long-term security it gives you rate of interest which is around 8.5 which is much better than other safe investments like fds etc and there are various uh tax uh benefits on the in income earned on the province funds why elss elss is basically uh investment in mutual funds that provide you tax benefit this uh investment vehicle is most liquid as compared to others these can be liquidated within a period of three years and also the rate of in the rate of return that you usually earn in on the long term is higher than other investment cycles so prefer these two investment vehicles under atc and fill 1.85 lakhs uh if you have any other components also like repayment of uh principal amount of household etc then that can be also utilized but i am assuming that there is no other loan apart from the educational loan uh for you section 80d primarily provides your deduction for various medical insurances that you may have many of you would be covered by the corporate insurance schemes already so you can skip it for yourself but you should make sure that your parents have a medical insurance in place this section will also provide you a deduction of around 25 000 for yourself and your family or 50 000 in case of elderly parents so there are several age criterion under this which you can study i link section 80e with paying off the loan which is the component in our main equation so the key question is that in how much time should one pay off the educational loan if we keep the psychological impact of the loans aside uh talk talking from uh financial aspect purely the answer is eight years why 8 years because income tax act provides you tax deduction benefit up till 8 years on the interest of educational loan i'll tell you how it works currently educational loan rate of interest is around seven percent and assuming that all of you are under 30 tax slab so you will save 30 percent of seven percent so net rate of interest is 4.9 believe me this is the cheapest source of finance you will ever get in your life so the most prudent choice would be to elongate the period so basically take education loan for the longest possible time that you can get 20 years or 30 years with whatever your bank allows but at the end of eighth year just do a bullet payment and get rid of the loan because after eight years you'll not get any benefit so now that we are done talking about maximization of earnings and uh the time duration of paying off loan now let me talk about savings under savings uh before answering the question of where to save as in what to invest in first of all one needs to follow this four step waterfall structure the first and foremost step is to understand yourself right so if i talk about myself uh love for gain i would say for me is lesser than hatred for loss so in short i'm a risk averse investor so an investment in crypto market for example may not be suitable for me because i do not have that kind of a risk appetite so first of all you should understand yourself and eliminate all the investment vehicles that do not match with your investors profile so the first recommendation is don't rush into crypto market or equity market first understand yourself once you have full understanding of your risk appetite only then think about these two markets and even if let's say you have the risk appetite first learn the nitty gritties of equity market and crypto market learning these markets and demystifying and then taking it up on a regular basis is again quite cumbersome so that is not recommended initially and hence uh the best way out for you during initial phases of your career would be to invest in sips so sips are structured investment plans so these are regular amounts of money that will be directed from your bank account and invest invested in mutual fund uh schemes uh and then there will be an expert who will be handling your money so you need not worry about handling your money well so that expert that mutual fund manager will take care of your money part with uh him or her right so second is time horizon so second you need to understand the time for which you can park your money aside right so if let's say you invest at a particular level it may happen that in the short term your the value of your investments go down and if you require money at that point in time that then you will have to exit at a loss but in order to avoid such situation be very clear on the time horizon if you are planning to get married or if there is any upcoming event in your life that involves huge cash outlay then you should invest only for that amount of time the golden rule is lesser the time horizon more liquid the investment should be right and if you don't have that kind of time horizon just avoid equity market so third rule is return on investment simple rule higher the roi of an investment better it is right and fourth is ease of handling again time is money you have to channelize your energies into productive things so uh the earlier recommendation of saps that i just gave you fits into this criteria as well because sips are deducted automatically from your bank account according to your salary rate and you need not worry about the return coming from it and uh the various aspects of handling and investing and doing the transactions on a regular basis so you need not worry about anything so let me just uh cover the remaining recommendations uh i believe second recommendation is avoiding illiquid investments at this point in time because uh this relates to the time horizon aspect avoid investing in real estate because the yield that you'll get from real estate is pretty low uh if real estate investment is something which you are looking for beyond financial perspective then you can consider that but otherwise don't invest in illiquid investments and avoid low yielding investments like i've already talked about fts etc so avoid those kind of investments so warren buffet said that you should first save and then spend the rest and not the other way around believe me you have to decide the amount that you need to save on a monthly basis and only then decide how much to spend this mix may differ from person to person but in general you should try to save around 30 to 40 percent of your monthly earnings the loan repayment the educational loan repayment according to my recommendation uh would come to around 10 so spending should be around 50 to 60 now coming to the question of what to spend on right so these are the key do's and don'ts under this first of all let me talk about don'ts so don't spend a lot on material items which are depreciable in nature it is better to invest in stories invest in making memories rather than having more and more things which are not required invest in traveling at this point in time because of the transformational changes that we have seen in the corporate world now more and more companies are open to the concept of working from anywhere invest in whatever hobby that you always wanted to pursue right because it's never too late to start something and uh pursuing hobbies in parallel to working in a corporate setup increases your productivity as well as uh helps in reducing the stress that is associated with the corporate life and third is learning a person should continue learning throughout life i cannot imagine any person being financially secure who is not learning and apart from these do's and don'ts that i've talked about the basic thing about food shelter and clothing is uh an assumed spending within the this 50 to 60 ratio so you just have to sit down and write what amount is sufficient for you and then maintain that amount month over month and track the spending on these items on a regular basis now let me just come to the question of how to spend nowadays there are multiple payment options multiple mobile applications now what to do in such a scenario different mobile applications are offering different types of cashbacks so what to do so the golden rule is to have two bank accounts two credit cards and two audits one primary and one secondary and do not increase the number of bank accounts credit card wallets more than two right because more more you have of these more clutter you will have in your life more bank account statements more credit card statements that you'll have to deal with so just cut the clutter save your time and channelize your time into constructive things second is credit card usage the key recommendation is to maximize the credit card usage what do i mean by maximizing i'm not saying that you start spending more through credit card what i'm saying whatever you are spending spend through credit cards so there are two aspects to why i'm saying that credit card usage is good first is the upfront reward rate so nowadays there are many cards that gives a reward rate of two percent so you spend 100 rupees you get back two rupees right so that's a huge amount and the next thing is interest free period so on an average maximum period is 52 days but let's say on an average there is an interest free period of 30 to 40 days so you end up saving around 0.5 to 1 so in totality you save around two point five to three percent on your spendings and that's a good amount and that's something which is coming to you for free right so why would you not uh avail avail that so now that we have uh talked about the earnings and various components of it in conclusion i would just say that plan will execute well and then monitor well so these three things are very important i hope that i was able to provide you some bit of direction as to where you should head towards while it comes to managing your personal finance thank you so much