1. Have a 5D view of your
loan portfolio
Volume 2, Issue 4
Prudent Planning
Financial Focus
A B C
F I N A N C I A L
P L A N N E R S — N E W S L E T T E R
PRUDENT FINANCIAL PLANNERS—NEWSLETTER
October 2013
Debt management is an integral part
of financial planning. Your Loan
portfolio has a big impact on your
investible surplus. While doing cash
flow analysis it is inevitable to analyse the loan portfolio so that it
should be paid off or managed in
such a way that interest outgo can be
reduced and thus surplus can be increased. Higher the loan EMIs,
Lower will be
investible surplus. Where the
loan portfolio is
interest
rate
sensitive as in
case of Floating
rate home loan
than
macro
economy will
also play a key
role in your personal finance.
To do a proper Debt management you
should be having a 5D view of your
portfolio, so you can weed out the
unnecessary loan and thus improve
your cash flow position. Following
points will help you to find out the
bad stuff.
1. Interest Rate
This is the first step while analysing
the loan portfolio. You should be
having clear cut idea of the interest
rate you have taken your loan on.
Inside this issue:
Many people use their Credit Cards
very frequently and are in a habit
of rolling over the outstanding balance every month. One needs to
understand that more unsecured
and easily available loan is, higher
will be its interest rate. Credit card
comes with rate of 24%-36% p.a.
Personal loan which is again unsecured comes with rate of 16%-18%
p.a. If the interest rate is high
the cash outflow would be
more.
Thus
when
there’s
nothing
you
could be able to
do for the closure of loans,
sometimes
it
make sense to
take one more for closure of other.
Like if the credit card outstanding
is high so rather than rolling over
each month you should take a personal loan and clear your credit
card dues.
2. EMI Outgo
Your total EMI outgo excluding
home loan should not be more than
20%-25% of your total in hand income and if there is home loan
Cont… Page 6
Prudent Gyan
Look at value or price of product?
2
Financial Freedom comes with discipline
3
Financial Freedom - continued….
4
Do bad habits impact your finances?
5
About Us..
6
First step not making investments but planning for everything and then executing it
Suresh K Narula, CFPCM

2. Look at value or price of product?
In today’s financial world, a lot of products are made to appear
as if they are amazing. The advertisement and promos make
you feel that if you don’t buy or invest in them, you will miss
an opportunity of a life time. The reason why this happens is
because buyers or investors concentrate a lot on the price of a
product, rather than on understanding its value.
The Paradox of Value: The law of value simply says your
true worth is determined by how much more you get in value
than you give in payment. What we really need to understand is
simply the difference between price and value. See, price is a
rupee amount, it's a rupees figure. Value, on the other hand, is
the relative worth or desirability of a thing, to the end user. In
other words, what is it about this thing, this product, this service, this concept, this idea that brings with it so much value,
so much worth that someone will exchange their hard-earned
money for it and be glad…be ecstatic that they did while you
still make a very healthy profit?
Value is not the same thing as price or compensation. Your value is not necessarily
equal to your salary. An accepted definition
of value is, “The property or aggregate
properties of a thing that renders it useful or
desirable.” Your salary is simply the payment you take. Your value is the relative
worth you add to the organization—both in
the mind of the person who signs the checks
and also in the experience of the people (both in the organization and outside it) with whom you interact.
We understand these in our daily Life, but we forget this simple rule when it comes to money and investing.
Let us now see some of the products which are of really High
Value, Low price.
Term Insurance: Millions of investors have discarded the
possibility of buying term insurance as they don’t get any
money back at maturity. You now realize what they all concerned on: The Price. They feel that they “lose” their money.
They have concentrated only on what they don’t get and not on
what they are getting. These investors do not think, for moment, about: The Value which term insurance provides to their
family and dependents at the price they pay for it.
Paying Fees to Advisor: Almost everyone runs away from
paid services. It’s because the focus is on fees and not the
value. Why? We are simply programmed to try to acquire anything we pay for at a lower or may be even free of cost. Fees
V O L U M E 2, I S S U E 4
are not seen as an investment. They are considered as an
“expense”. People look at fees as money that must be spent
on something which is for immediate consumption rather an
investment which can provide them with growth in the value
of their wealth in the very near future.
Let me give you an example of the difference between price
and value would be a financial advisor who charges you
Rs500 to do your file tax returns but saves you Rs2,000 as
compared to what you would have paid in taxes had you
completed the return yourself. He also saves you twenty-five
to thirty hours of time of doing it yourself. So we see in this
case value in both concrete, with the two thousand rupees
savings as four times that fee in cash terms and even may be
the time because we can put time to money, and also conceptual with the good feeling that you have, the feeling of peace
of mind of knowing it was done correctly. You can hardly
put a price on that. At the same time, although his fee (price) was Rs500 for the
work, it didn’t cost his nearly that much
to do the work, so he made a significant
profit, too—which he should, given the
value he provided.
Similarly, financial planners ask for a fee
of 15-20k and they can make a major
change in your financial life by just sitting
with you and counselling you on your
financial life and the mistakes you should avoid. It might
look expensive (if you look at price), but if you look at the
value you get out of it, it would be a worthwhile product. In
fact, if it delivers good results, it could even cover its cost
and come to you free, because they can improve your life
and enable you to reap benefits over the long term. Remember that free advice can turn out to be extremely expensive in
the big picture.
The Value of Value: Every time you invest your money it’s
important to understand the price of it and value of it. If you
find that its cost is less than what you are ready to pay, consider it cheap and go for it and not in the other case. Price
and Value depends on Situation, time, age and other factor,
don’t forget it. The way this happens is through focus, focus
on providing the value. You see, money is an echo of value.
It's the thunder to value's lightening. Focus on the value and
the money will come.
Page 2

3. Financial Freedom always comes with discipline!!!
Mohit a technical guy, always used to think about the
way he earns huge and not being able to save as per his
goals. He use to invest into what others choose to, always
uses his credit card for big purchases. This is the typical
story of every individual who is either financially illiterate about saving/investing or who does not take his/her
finances seriously. They will never take an advise from a
professional and end up doing what their friends are.
They don’t understand that every individual has a different kind of lifestyle and goals to achieve.
People need to understand that to achieve financial freedom every individual has to sit and decide his/her own
path. Cut-Copy-Paste will never help achieve the financial freedom in the life.
In real scenario, just because you have money does not
mean you have financial freedom. You have to plan
out on how to manage your existing life and future life.
And that what you can do when you choose to be disciplined with your finances.
Here are 8 points which can help you in achieving Financial freedom.
1. Track your every expense: Everybody loves to do
shopping, although it depends if it is monthly or
weekly. But the important point is to track all the expenses. A recent study reveals that when you track all
the expenses, month on month people have experienced
that their expenses reduced. Reason because when you
start writing every small expenditure you come to know
So what actually is Financial Freedom??
where you are spending more or where you
are spending without any reason. Always remember If
you buy things you don’t need, you will soon end up
selling things you need [Quote by Warren Buffett]
2. Start making your monthly or yearly budget:
Making monthly budget should be your regular exercise. If you are making budget and following it then
there is less chance of over spending and high chance
of reaching your goal. The key to building a strong financial plan for the future is to understand how much
you spend and save right now. This is called tracking
your cash flow, and it can give you a sense of control
and confidence that makes it easier to make financial
changes in your life.
3. Spend Less than you earn: Are you spending more
and earning less because it is only possible if you are
Richie Rich or you have a big inherited wealth. It is
very easy to spend less, yet many people never learn to
A financial position
whereby
your
The key to building
wealth is optimized
a strong financial plan to match your optifor the future is to under- mum financial needs
and wants. Financial
stand how much you
freedom is much
more than having
spend and save
money. It’s the freeright now.
dom to be who you
really are and do
what you really want to in life.[By Kim Kiyosaki] Nobody can define your Financial Freedom. However once
you have decided, you can take professional’s help to
achieve it. For some people its about achieving goals in
future without sacrificing current life, for some its about
having lots of money so that they can do whatever they
want and whenever they want.
V O L U M E 2, I S S U E 4
do it.
Cont…. Page 4...
Page 3

4. Cont. Page 3 — Financial Freedom…. discipline!!!
Only by spending less you can hope to build a wealth,
which is very easy if you follow the above 2 points.
4. Start an emergency fund: Now this is interesting.
People use to think that if they have health insurance,
credit card, and balance in bank account then their emergency funding is done. They spend whatever they earn
and live on edge. This works well till some emergency
comes. It is always better to build up rainy day fund.
Logic says to have 4-6 months of expenses as your emergency fund. It may take some time to build but the sooner
the better.
5. Set Financial Goals: Imagine you are going on a trip
without knowing the way to reach there. Is it possible?
The same goes into personal finance. People have a tendency to save/invest, but they forget to link it up with the
tized them, then it’s the time to act upon. Look out for
alternative investment products which can help you in
achieving the result.
7. Clear your Credit card loan/debt: Today people
are frequent user of Credit card. At almost every place
you can use your CC. However, all those people who
don’t know the right way to use it always end up with a
huge debt. So remember before start investing for your
goals or for emergency fund, try to get out of your debt
burden. One should always remember that the best alternative to their CC is bank’s debit card. It always ensure that you cannot exceed your balance and hence do
not get under debt burden.
8. Fund your retirement: I am still young and I don’t
want to save for retirement currently. Will start saving
once my primary goals are taken care off. If these are
Imagine you are going on future goals. Finana trip without knowing cial goals don’t just
your words then you are forcing yourself in trouble.
The early you start saving for your retirement the bigger the amount will be. That’s because the sooner you
begin saving, the more time your money has to grow.
Start taking the advantage of compounding.
happen. You have to
the way to reach there. Is sit and think about it
and then prioritize
it possible? The same
it. Most people tend
to have realistic
nance.
goals, such as children’s education,
marriage, another house, retirement. If you have not set,
do it on a priority basis.
6. Start investing to support your goals: Remember
only planning your future goals will not help you in
achieving them until you act on. A financial plan gets
completed only when the things are implemented according to it. So if you have set your goals and have priori-
goes into personal fi-
V O L U M E 2, I S S U E 4
Its a well known saying that "No Pain, No
Gain". The above points prove a pain lot many
times, but the pleasure and satisfaction you
earn after religiously following them and seeing
your money grow it a different feeling altogether, something which is hard to describe in
words. So if you are out of debt, saving for
goals, having emergency fund and
most importantly saving for retirement then
you are on your way to achieve Financial Freedom.
Page 4

5. Do bad habits impact your financial health?
Humans are made for doing something great about the life.
There is a need to add value in self and others life throughout
which makes your life memorable.
There are many things and choices which are constructive and
destructive. The destructive ones are called bad habits. It is
since from your childhood you are hearing that there are few
things you should not do because they are not good and as you
grow older, by different sources you gather enough information
on why specific habits are called as bad habits? As you know
these habits waste your energy as well as
have very bad effects on your health and on
relationships. But I would like to bring one
thing to your notice that it does have a bigger
impact on your financial health as well.
I would like to narrate few of the bad habits.
#1 : Tobacco: This is a substance which is
available in different forms like
snuff,Cigarettes,Cigar,Hookah,
Bidi,Gutkha,ZardaPan,Chewing tobacco,
Tooth paste etc. The different products of tobacco in India and
how it affects pl visit to http://www.aftcindia.org/
tob_pro_india.htm as per the global adult tobacco survey
(GATS) 2009-10, 36.8% adults use tobacco in India.
So this is a habit which covers the entire population and available and accessible for each class of the society. The cost of the
products Vary from few rupees to thousands depending on the
product and the other facilities available with it. The danger of
this habit is addiction and once you are addict to tobacco you
may have to consume it daily or hourly also.
This habit also increase your chance to fall prey to Lungs cancer, asthma,TB and many such critical illness.
Considering your age @30 and life expectancy of 80 with expenses growing at the rate of 7% per year. Rs.10 spend per day
make you to lose opportunity cost approx. Rs. 2.04 cr. @12%
in lifetime.
#2 Alcohol: This also comes in many forms like beer,Wine,
Spirit etc., almost 6.25 crores individuals consumes alcohol in
India. The consumption of alcohol also leads in to disturbed
family life. Alcoholism is also a major contributor in life
threatening accidents.
Alcohol addiction increases chances of Liver cirrhosis, BP,
Heart attacks etc.
Considering your age @30 and life expectancy of 80 with ex-
V O L U M E 2, I S S U E 4
penses growing at the rate of 7% per year. A Rs. 500 spend
per week will cost a lost opportunity of approx. Rs. 13.64
cr in lifetime.
#3 Junk foods: Now a days eating at junk food outlets are
very popular for time pass activities and are easily available
everywhere with bombarding adv. on electronic media with
lot of attraction of toys and special discounts.
Indian Junk food like PaniPuri, Bhel,Patice,Kacchidhabheli
etc... With Pizzas and Burgers in western style. You will get
either at every corner of your city.
The attraction towards junk food is
from toddlers to adults, with lot of
spices.
This leads to improper digestion,
acidity problems and obesity which
make you prone to critical illness
like Heart attacks, Diabetes etc.
With consideration of your age @30
and life expectancy of age 80 and
expenses growing at the rate of 7% per year.
A Rs. 500 spend per week will make you lose
approx.Rs.13.64 cr in lifetime.
And A Rs.100 spend per day will make you lose approx. Rs.
20.40 cr. in lifetime.
#4 Ordering more than requirement in hotels: This will
not only waste your money but also waste the resources for
others. At the time of ordering items at hotels always plan
first how much you can consume. There are some countries
as well as few restaurants in India which charge you for
wasting food.
Save your money and the resources for other always keep in
mind that there are few people in our country who do not get
the food.
These all bad habits will make you poor every time you
spend money on them, apart from this you will have a highest chance of critical illness which will cost Rs. 1,49,00,000/
- @ age 60 if you are 30 today considering 12% growth in
medical expenses of Rs. 5,00,000/- today.
One more alarming thing for you - With increasing life expectancy and medical advancement in India you may have to
survive longer with lot of problem and illness if you do not
quit the bad habits. Think!!
Page 5

6. Cont…. Page 1…. 5D View on Loans
than EMIs should not be more than 40%-45%.
Though Banks take care of this ratio while approving
the loan application but the person who’s in need of
loan always tend to find out his unique ways of dodging the bank. One should understand that higher EMI
outflows distresses your personal life along with personal finance.
3. Type of Loan
Credit card and personal loan comes under unsecured
loan category as you don’t have to pay any collateral
or guarantee along with these. Whereas car loan,
house loan, gold loan, loan against property/shares
etc. are secured loans. There are some semi-secured
loans too like education loans. As pointed out above,
if the loan is unsecured than the interest rates will be
high and so will be your EMI outflow. This will also
impact your credit score negatively. Yes, even though
you are servicing your loans well, high unsecured
loans in your portfolio will reduce your credit score
and you will face difficulty when you ask for other
important loans. So if you are on closing loan spree
than better to close the unsecured ones first.
4. Tenure of Loan
This is a very important point to consider. Say you
have 2 loans with the same rate, same outstanding but
the tenure is different than which one to close first.
Keeping other things constant close the one with longer
tenure. You have to do some maths here and may need
to take help of some loan adviser or planner. Else you
may call for the Loan schedule and calculate yourself
the interest yet to be paid. In fact you should do this
exercise on all your loans.
5. Tax benefit
There are few loans which provide you with some tax
benefit too. Like Home loan provides tax benefit u/s
80C and section 24, Education loan provides tax benefit
u/s 80E. If you are a business person you may also
claim the interest payment on your car loan as expenses
and can also claim the depreciation of that car. So while
taking a view on your loan portfolio do keep in mind
the taxation part. If there’s some tax benefit available,
then the net interest outgo will definitely be less.
Cash flow management is very much required for a
proper financial planning. As the whole exercise of
financial planning is directed towards your goal so
many times clients have to take some hard steps which
may not be emotionally satisfying but are very much
needed for a better personal finance. Debt management
is one of those. Service your loan EMIs timely, don’t
take loans for consumption or your desires, take good
loans if at all required.
In the end, your Loan portfolio should not be a burden on your investment portfolio.
Why Prudent Planners ?
Prudent Financial Planners provide to Individuals Comprehensive
Financial Plans tailored to meet their specific needs. We seek to build
relationships to last a lifetime. Our abilities go far beyond investment.
We provide our clients with expert guidance in Retirement, Insurance
and college planning. Our advice is always comprehensive and the
planning process is quite easy. You tell us about your lifestyle, experience, objectives and risk tolerance and we'll do the rest. We have excellent network of Corporate Agents and other Professional .
Suresh K Narula, CFP
Phone: 0172-2550396/ 9816002197
Website: www.prudentfp.in
CM
CERTIFIED FINANCIAL PLANNER
and
CM
CFP are certification marks owned outside the U.S. by
Financial Planning Standards Board Ltd. (FPSB). Financial
Planning Standards Board India is the marks licensing auCM
thority for the CFP
marks in India, through agreement
with FPSB.
This newsletter is published by The Financial Planners’ Guild, India
& distributed by its members. Newsletter is designed to provide
general useful information on Financial Planning & Personal Finance.
It is not intended as specific investment, financial, legal, or tax advice
for any individual. While the information contained herein was
obtained from reliable sources, it cannot be guaranteed as to
completeness or accuracy. Before acting on any of the information
provided, consult the planner. © FPGI
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