Need Suggestions for a Series of Posts for Beginners

by Manshu on December 6, 2012

in Announcements

One of the things I’ve really struggled with over the years is creating a series for beginners. A lot of people have asked for it and I know there is a lot of value in it for both the readers and the blog.

This topic came up again when Manu J who was new to the site asked where you should start reading and Tweeted the following to me last week:

He pretty much stated something that has been repeated over and over again, which is essentially how do you go about financial planning if you don’t have any plans right now?

I tried to go about finding an answer for him but this isn’t something I’m able to do on my own.

So, I seek your help to give me ideas on this topic. What are the things that you would look for when you are just looking at starting your investments and financial planning?

What are the topics and posts here that have helped you and should feature in such a series for beginners?

Anything that comes to your mind.

Unlike other series I have done here, I will only start writing such a series if I can narrow down twelve topics before hand and then cover one every week over a period of 3 months. If I think I can’t do that then I won’t start the series because if there isn’t even content for 12 posts then it’s not worthy of a real series.

All your help is greatly appreciated, please leave a comment here, on Facebook or reply to me on Twitter.  

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{ 35 comments… read them below or add one }

Vishal Ramaswamy December 6, 2012 at 9:13 am

Hi,

Points to get started with for beginners:

1. Insurance is important and cheap when you are young. So buy max, for longest duration at cheapest cost. Get it out of the way. No ULIPS. Only term plans. Go with either LIC or private. With IRDA being as strong as it is today, claims will get settled.

2. Cover Health Insurance. Again the same principles. Obtain a cover of 3L minimum, to avoid any unforseen events of sudden cash outflow. also remember being loyal to a single insurer such as Apollo Munich (recommended) benefits over the longer term with increasing cover, decreasing costs.

3. Loans- If not immediately, eventually one definitely will see the need to borrow. Either for Education, House, Personal (marriage, home renovation etc). Avoid borrowing towards increasing risk or investing. It never ends well. Prepare a war-chest towards this end.

4. I am assuming 3k towards Life Insurance, Rs. 250 towards Health on a monthly basis with about 5k-10k towards loans( based on income)

5. Balance amount should be invested in direct equity. Aim at building a portfolio size of 1L in only Index Stocks with the safest 5 yr time horizon. For Eg: Bharti Airtel, Reliance Industries, Larsen. This should get you started into investments

6. Once the portfolio size has reached 1L, split your monthly investments into 2 parts and start investing into MF Equity & Direct Equity. Invest in MF Schemes that invest into Small Cap and Mid Cap companies. The risk in these less liquid and high beta stocks are reduced by allowing the professionals to make these choices.

7 . Once you have reached an equity Size of 1.5L & MF Small & Mid Cap Equity of 50k, now is the time to start taking risk cover, by hiding in debt instruments

8. If on salary and the company does not provide for PF, then start investing in PPF and max it out for the year (70-75k), remember this becomes a fixed investment and gets added to your existing cash outflows from insurance and health insurance. So plan accordingly.

10. Invest in a disciplined manner over a period of 8 years, during the course of which time your equity portfolio, should have given you profits and also grown in market terms. Any bonuses additional savings, commissions can be invested based on personal needs. the PPF investments can then be cycled from the 9th year onwards and remain self-sustaining.

10. Consider any additional surplus left over to be invested in E-Gold, E-Silver… basically in the E-series. You get both the benefits of booking the appreciation or taking the delivery if the need so arise.

11. Other investment options are sub-sets of those specified above. Think clearly, unemotionally and decide accordingly.

12. All these investments should take care of the tax deductions and benefits that you would accrue as you move forward in your career. Plan towards an early retirement by investing in a disciplined manner.

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Manshu December 6, 2012 at 9:24 am

Wow I’m really amazed! You yourself have given 12 post ideas! Thanks a lot! I’m sure others will have a lot to add and I myself think that somewhere there, there should be some concepts about savings and thrift also perhaps right at the beginning.

Really awesome ideas – thanks a lot!

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Siddharth December 6, 2012 at 5:14 pm

Something that I’d like is a post on taxes that are applicable for different investment instruments. The differences between short term and long term taxes etc.

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Raja December 6, 2012 at 6:09 pm

I think, it will be good to guide the beginners by telling them that eventually the ppl like them will end up being in 2 diff kind of buckets (broadly) :

1. Ppl who after few days of learning about PF, will realise that, they don’t intend to put many hours on regular basis to learn more and more intricate stuff on PF. Their primary vocation is more important to them and they are not passionate to learn too much of finance. Such kind should be guided in the path that Vishal mentioned. Basics about inflation, saving, investing (equity-MF, debt), short-long term in investing world, risks, insurance, retirement, asset allocation etc etc…

2. Then there will be people who will go from learning about personal finance(first kind) to then understanding about direct equity investing, businesses, behavioral finance, portfolio management, aspects getting to know about greats in the field of investing (Buffet, Charlie, Peter Lynch et al..)

I think if we show these 2 scopes to ppl at early stage of their interest in PF, then the few who are meant to be 2nd type will realise their path sooner :)

I took a while to make the switch from type 1 to 2, so the comments come from my experience.

Regards

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Manshu December 6, 2012 at 8:20 pm

Thank you Sid, Raja for your suggestions.

With 10,000 subscribers and only 3 comments, I don’t think there is any value in doing a series on this topic. Actually I wonder if there is any value in blogging at all.

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Hemant Beniwal December 8, 2012 at 10:53 am

Hi Manshu,
Don’t be disappointed – reason may be that you are already giving much more than what readers’ expect. Plus you also run suggest a topic & even create articles out of comment.
You are doing an exceptional job – keep rocking. :)

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Shiv Kukreja December 8, 2012 at 12:16 pm

I totally agree with you Hemant. I shared similar views with Manshu. Sometimes when you already have so much in your food, you refuse to have even a hot tasty Gulab Jamun. :-)

OneMint has a great value addition to people’s lives Manshu and they are going to miss your articles if you decide some day that you are not going to do it anymore. You are like Udayan Mukherjee of OneMint.

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Manshu December 8, 2012 at 10:46 pm

Thanks Shiv, Hemant.

I really am grateful for your kind words, but there’s just a lot of my time that goes into OneMint, and at some point I have to evaluate if I really am making the best use of my time.

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Raja December 9, 2012 at 12:35 pm

Fair Point Manshu. It’s all in our mind and we have to sort it out :)

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bemoneyaware December 11, 2012 at 10:45 am

I personally can empathize with you but there’s just a lot of my time that goes into OneMint, and at some point I have to evaluate if I really am making the best use of my time.
But i hope you don’t give up blogging. It is a great site with lot of value add to all of us(including those who write about similar issues)

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Ams December 10, 2012 at 1:24 pm

Manshu,
I think the first point to start with will be insurance and Taxes. As in how to get benefits from the options available for taxes. Next would be equity, equity and equity with a little topping of debt instruments due to the age factor.

Also rightly pointed out by others you are already providing so much to the entire community with your blogs.

Thanks a lot and hope to understand much more from you.

Amit

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Manshu December 10, 2012 at 10:43 pm

Thanks for the encouragement Amit.

What exactly do you mean by insurance? Like term insurance, health plan or other options as well?

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Ams December 11, 2012 at 9:37 am

When I say insurance I mean term, health and another one which many people should opt for is home protection insurance, which will protect against theft, bulgary, household contents and fire and all . This is vital if you have invested a lot in your residance property and it is important to protect it. This is one insurance which many people do not think of usually.

Thanks,
Amit

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Manshu December 18, 2012 at 6:14 pm

Yes Amit, home insurance is something that’s not very popular in India. Do you have this yourself? Which company and policy is it?

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Piyush Birla December 10, 2012 at 3:47 pm

Well, I have been actively engaged in planning money for myself, family and some close friends. In most of my interactions, I realise that the basic understanding of terms and concepts is poor. And the presumption of ‘finance’ being a complex world, keeps most of these people further away.

So while I do agree with the above suggestions on investments and taxes and insurance, I think the start point should be to deeply examine ones own finances.
1. Read basic tax rules at your organisation, read manuals, read your own salary slips, read your own compensation sructure, read fine prin in insurance policies you / family own – however boring it may sound, its the best place to start.
2. Ask /discuss these with people to understand the real world of PF. Read up articles
3. Take stock of your finances. Jot down what you have, what you owe, make a portfolio or network statment on paper.
4. Here on, any article, tip , trick, idea, proposal that you read will suddenly make a whole lot more sense than before just because now you know how & what to absorb.

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Manshu December 10, 2012 at 10:38 pm

The one big question I have about this approach is that for someone who is intimidated by finance, how practical is it to deep dive into tax rules and salary structures as a starting point?

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Piyush December 11, 2012 at 11:06 am

Well, I dont think a deep dive is necessary. All I am suggesting is that charity begins at home. We have to softly push people to read what they own, what they already have and start there. I do like the 12 points that Vishal mentioned. But, considering that we are targeting beginers, I am not sure readers will understand ‘small-cap’ and ‘term plan’.

Learning personal finance has to start with terms an words and examples ( just like the English language ). Only then can readers develop capability to understand the subject.

So, lets take an insurance policy receipt and explain what those terms like SA, Premium etc mean. Lets take a mock salary slip and explain what HRA, PF, Deductions mean. Because these are things we all encounter in the real world. And I know for a fact that most people will remain ignorant of these, unless told.

And never ever doubt your blog / site. You are doing a super job and am sure lots of people read. If they dont comment, its just them being lazy.

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Hari December 10, 2012 at 10:08 pm

Firstly, before beginning with a new series, I personally think it would be helpful if you categorize all your articles into a particular section say Market, Tax, Insurance etc… and then, a sub-categorize it into basics / advanced under the relevant section. Such categorization would help in identifying / covering other aspects which have not been touched upon till date. As i have been following onemint, i can say that atleast some (if not most) of the basic stuff is covered at various points in time. This would help in saving time and energy and also avoid duplication.

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Manshu December 10, 2012 at 10:35 pm

Hari this is a great suggestion – thanks!

I just want to say that there are categories currently in existence also, and they can be found on the second half of this page. http://www.onemint.com/archives/

I used to have these categories quite prominently earlier with the old design but no one used to click it so perhaps it shows that they couldn’t figure out the best way to navigate the posts within these categories.

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bemoneyaware December 11, 2012 at 11:01 am

I am reminded of song “When you read you begin with ABC”, “when you sing you begin with Do Re Me..” but when you start learning about Personal Finance where do you begin –
Salary, Tax, Stocks, Insurance, Mutual Funds.
We would not allow one to drive a car without getting a driving license yet we allow people to enter the financial complex world without any financial education.
First shock which I got on starting a job is looking at my first take home salary. I had happily divided the CTC/12 to be my take home and what I got was much less.

A beginner is so confused. Quoting from my article Educated but have No Financial Education
His father was telling him to save money. His cousin was advising him to invest in stocks. His uncle was asking him to buy an insurance policy through which he could save tax. The finance department in his office was asking for his tax savings. He was confused. He just didn’t understand what to do?
He tried asking his father but father was not of much help. He told Swayam “Throughout my life I have had only one job a government job and I would get pension.” His father told him that he never had a credit card, he saved little -all was spent on their education of kids and building the house and whatever was left was put in Fixed Deposits or Post office. He bought some policies, some NSC and invested in PPF but there was no concrete plan.

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Manshu December 18, 2012 at 6:17 pm

The big difference I t hink between what you are saying and what I’ve experienced here is that people who are starting up their jobs are not the ones who are interested in finance, they pretty much know that you can’t divide CTC by 12. It’s only after a few years that you get really interested in money and start learning about personal finance.

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Aashish December 12, 2012 at 9:29 am

I think one of the initial posts has to be on PPF and its importance. To a young investor in a new job and a lot of long term goals ahead, I think there is no vehicle like the PPF today. What I find great apart from the safety, tax free returns etc is that it instills discipline into a young investor, because you have this 1 lakh target each year.

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Bourne December 12, 2012 at 11:00 pm

There’s a 1 hour video by Bill Ackman that’s doing the rounds of the blogosphere which is quite good. It starts with defining a balance sheet, but then also covers what equity and debt are and some general investing concepts.

How about some videos? :) I know its a lot more work though…

Things like tax, insurance, etc don’t need much depth, but just an understanding of basic rules and advice. But, IMHO, investing requires a bit more depth and is helped by some basic reading. And, I feel that books that talk about history over a couple of centuries are quite useful in educating one about economic cycles. Some of the books I found useful initially:
Intelligent Investor,
Irrational Exuberance,
Fooled by Randomness,
Fortune’s Formula,
Market Wizards
Maybe, book reviews and/or taking some of the ideas of these books and writing about them may be good ideas for posts. This would go beyond narrow areas of focus and provide broader perspectives on investing?

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Manshu December 18, 2012 at 6:20 pm

There is a whole section on book reviews here Bourne but frankly, if you are looking to learn basics about personal finance, is that where you want to get started? Read book reviews? I don’t think that’s a very good way to do a series.

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bemoneyaware December 19, 2012 at 4:07 am

I disagree Manshu. Googling gives so much information that one gets scared. I prefer reading good books to get overview and then using internet to gain clarity on issues. And as there are many personal finance books again choices scare you. Such as
The Total Money Makeover: A Proven Plan for Financial Fitness:Dave Ramsey,
Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence,
Rich Dad, Poor Dad by Robert Kiyosaki

These books are written by US based authors. Though the general philosophy is same We also have books by Indian authors. Some of the books are as follows:
Millionaires don’t eat cakes…they make them:by Sanjay Matai’s
Plan Your Money : Your Goals, Taxes And Retirement
A Family’s Guide To Seven Steps To Financial Freedom by Monica Halan
JagoInvestor:Change your relationship with money

We have talked about them in Personal Finance Books For Adults And Young Adults

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Bourne December 24, 2012 at 6:32 pm

Manshu, I generally agree. I don’t think book reviews are by themselves enough or even a good idea for a beginner series. But, my point was that if a book review makes someone interested in an approach or investing philosophy and gets them to read a book or two, then its a terrific outcome for a beginner. I can’t think of a better approach for a beginner. What I was trying to say is that one could get a deeper grounding by reading books and further, if you then reference books in your blog posts, that’s a great way to engage readers at a deeper level.

Lets take the Irrational Exuberance book as an example, blog posts can touch on the idea but some reading is still needed to get a comprehensive understanding. How would you take up this topic in a blog post or a series of blog posts? Isn’t behavioral investing an important idea that some beginners should be interested in learning about? I came up with the insufficient idea of book reviews as a way to prod people into reading the book, but I hope you see my deeper argument of the importance of learning some of the deeper concepts which play a role in making investment decisions. Also, many blog series end up as a book and vice versa (many books are taken up chapter by chapter in blog series). I don’t know if that would work, but its an idea that I thought I’d put out there.

Its all based on my personal experience of the benefits of reading a lot as a beginner. In today’s times with short attention spans, everyone wants quick ideas and does not want to spend time reading and learning at a deeper level. I want to fight that attitude. :) Reading a book will take 5-6 hours. One should be willing to read at least 3-4 books on investing/finance in a year. Its not a huge commitment in terms of time (total 24 hours only). Its the best thing a beginner can do.

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Manshu December 25, 2012 at 10:10 pm

Thanks for your detailed response. Your earlier comment makes more sense to me now in this context.

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Parminder Chahal December 16, 2012 at 11:39 am

Hi,
I have read a few posts on your blog and I am glad I took the time out to read them through. Was a good read through out and your posts are well researched and extremely useful for new investors like myself.

I would appreciate if you could create a post telling new investors not to watch business channels as most of the tips on these channels are for day traders and newbies get stuck in those just because the anchor fails to add that its not for newbies or long term investors.

I would also like to see a post explaining step by step how to put a stop loss and how it is extremely important even for long term investors. If possible screen shots from portals like icicidirect or hdfc and others that most retail investors use.

Keep up the good work.

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Manshu December 16, 2012 at 9:00 pm

Thanks Parminder. It is for people to decide what they should or shouldn’t watch. It’s not for me to tell people what they should not be doing. Over the years I have seen a lot of comments here from people and everyone does find value from something, so it is totally up to them. I don’t watch any news channels for trading tips and you won’t find that type of content here on the blog as well so clearly I agree with you but then there’s no way for me to say that it won’t work for everyone.

I have never used stop loss myself and I don’t pay them as much attention as some other people do so this is not something I’m going to write about right now.

Thanks for your feedback, and I hope you do subscribe to the free email updates.

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Sheetal December 17, 2012 at 12:18 am

Hi, my 2 paisa …

1. How to work out one’s net-worth?
2. Everyone talks about doing SIP and “re-evaluating” a quarter/hal-year/annual basis. What does “re-evaluating” mean? If it means to sell of existing funds and move onto new ones, doesn’t compounding suffer every time there is a “re-evaluation”?
3. There is a lot of chatter that to not go by fund ratings but go by what”suits” you! So how to go about choosing funds that “suit you”? Are fund ratings useless, if so how does one assess them?
4. What are inflation proof investments?
5. Is thinking of a “clear”, “specific” financial goal overrated? Is it really required to have a “financial-goal”, can one not invest just for the heck of it for better than bank returns and think of goals on the way?

Few people provide direct answers to direct questions like above, hope I am proved wrong here ….

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Manshu December 18, 2012 at 6:19 pm

I’m just curious how long have you been reading OneMint Sheetal, and have you questioned the people who have given you this advice?

I’ve never said that fund ratings are useless or that you should always have specific financial goals so I’m not quite sure why I should be writing about defending them?

Also, these are general queries and not really related to beginner investments, do you agree?

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Sheetal December 22, 2012 at 11:46 pm

Hi Manshu,

I cannot call myself a regular reader of OneMint but visit once in a while. And, am not questioning OneMint about any of its advice, my questions are towards general ideas that come out from most financial websites/tv shows. If you say they are not beginner queries, maybe they aren’t but for sure makes me feel like a pro which I am sure am not …

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Manshu December 26, 2012 at 5:44 am

Hi Sheetal,

I didn’t mean that these are questions for pros but in my mind they are irrelevant for beginners.

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Vishal Ramaswamy December 17, 2012 at 8:12 am

Hi Sheetal,

These are my views:

1. Add all insurance/ULIP based investments based on current market value. Add all Equity based investments at current prices. Add all MF (debt & equity) based on today’s NAV. Add Real estate, owned, based on current market price or the last sold price in the locality. Add any fixed income investments based on capital, as well as projected accumulated interest payment as on date. Add metal or other commodity investments based on last closing rate. Add any money lent for short term investments with projected interest income till date. Further to get a more precise figure you could add smaller depreciating assets such as car, electronics. However this computation should not be necessary. Finally add any cash saved in bank accounts. Subtract liabilities based on borrowings. This should give you your networth.
Make life simpler by using a portfolio manager such as those provided by moneycontrol which would carry out the necessary steps.
2. Re-evaluating: Any investment requires monitoring. Some more frequent than others. Its like keeping an eye on ones child, you dont want to ignore the bad till it gets out of hand. It does not necessarily mean selling.
For eg: In the year 2005-08, Power sector was the big story and many power related schemes had been launched keeping this in mind. They yet have to deliver. If you had done an SIP in this scheme for the period mentioned, you would have accumulated plenty of units, however your returns would not be higher as compared to the market. At the same time banks were doing much better and many infrastructure and banking specific MF’s had also been launched. Since then, such MF’s have either given market comparable or outperformed the benchmark type returns. Hence the re-evaluation, would have naturally guided you towards switching/starting a fresh investment.
SIP’s are by principle long term in nature. Hence selling the same should only be considered when in need of the capital. Over the period from 1990-2012, the market would have not disappointed SIP investors in cycles which were (if I remember correctly) 1990-1995, 1995-1999, 1999-2003, 2003-2008,2008-2013 (est.). So in 1995,2003, 2008 and in 2013 (Dec), MF’s over the period of the cycle based on averaging would have provided capital appreciation.
3. Any investment has to be personal in nature. It has to have a Start-Life-End to it. This is normally known only to the investor. Also his ability to withstand risks (resulting from, market volatility, economic downturns, scams, scandals, bubbles etc) which are part of any investment is known only to the investor. Hence the advise to chose what “suits” you.
Fund Ratings provide the basic guidelines towards making the choice after you have determined what “suits” you. They are not useless, however having chosen today’s top rated fund does not necessarily mean that you will beat the market in all the coming years. It only improves your chances of doing so. Hence re-evaluating and looking at the bigger picture, keeping your investment growth in mind helps improve the returns.
4. Inflation proof; is any investment that can deliver returns higher than inflation, irrespective of the trend for current inflation. The principle behind any investment is to beat inflation ie. to grow capital to meet increasing cost. In my opinion no investment is 100% inflation proof. Market forces tend to play pull-push with any investment. Timing ones exit before the trend becomes negative for the investment is the only inflation proofing one can do.
5. Clear Financial Goal is definitely over-rated, but it surely helps to know where the finish line is for the investment. If the objective is to only amass wealth with no definite plan for expenses, then be rest assured, life will take the opportunity to spring a few surprises that were ignored. I am not being emotional. Let me explain.
For Eg: Today salaries are very high which has resulted in an increased tendency to have greater disposable income and hence the lethargy for financial planning. This is known, however any financial plan is to safe-guard against the unknown. One can only plan keeping in mind of the fears, society throws upon it. What I am trying to say is:
a. At the age of 22-27, you need to get a job.
b. then by 30 you need to get married, the expense of which you might need to bear.
c. 30-35, plan for a house, a child, start family
d. consider risks to your life buy insurance
e. consider inflation invest balance amounts
f. plan for retirement
g. plan for another child, existing child’s education, upbringing, future education, marriage (maybe-maybe not)
h. plan for expenditures related to health
These are known and the basic skeletal plan for any individuals life. However one cannot incorporate Acts of God, Terrorist Attacks, Phishing, Political Scandals, Sudden change in economic climate, loss of job, Sudden critical illness, Child having severe health issues, Parents having critical illnesses etc….
Life can be cruel. So prepare yourself better than to think later, “pehle socha hota tho aisa tho na hota”

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Sheetal December 22, 2012 at 11:54 pm

Hi Vishal, thanks for your detailed answers. Especially, liked your closing quote!!! If there is one thing that is certain, it is the uncertainty of the future. Financial needs are so subjective, no wonder the guidance cannot but remain limited to general guidelines at best …

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