Financial Cocktail Samosas: Bitesized Money Morsels For You, 13/12/2023

Pizza Budgeting: A tasty representation of financial planning

Pizza is that universal symbol of comfort and joy that brings smiles to faces and unites people around a common goal: deliciousness. But did you know that this beloved food can also serve as a powerful tool for understanding and managing your finances? Let’s explore.

Picture this: You’re at your local pizza shop, looking at your mouth-watering pizza. Now, imagine that each pizzatopping represents a different financial category:

  • Crust: This represents your income, the steady stream of money that comes in each month. The foundation on which your financial stability rests.
  • Sauce: It gives pizza a unique flavor and personality, just like your discretionary spending on entertainment and hobbies.
  • Cheese: a key component of pizza, adds richness. It represents your savings, the money you set aside for the future. Just like how cheese can melt and disappear if not handled carefully, your savings can also shrink away if not managed properly.
  • Toppings: These are your financial investments, each with a risk and reward profile.

So, how do you build your perfect financial pizza?

  1. Start with a solid crust. A strong crust ensures you have the resources to meet basic needs like housing, food, and utilities. Before you indulge in fancy toppings, ensure your basic needs are covered.
  2. Don’t be afraid of the sauce. Life is about more than just bills and savings. Allocate some funds for activities you enjoy, whether it’s going on a trip with friends or pursuing your passions. Just like the right amount of sauce enhances the pizza, a correct allocation for discretionary spending adds charm to your life.
  3. Cheese it up! Prioritize saving for your future. Cheese is your financial security blanket, providing comfort and peace of mind.
  4. Choose your toppings wisely. Carefully consider your risk tolerance before investing. Each topping adds its unique element, reflecting the diversity and richness of your financial aspirations. Choose investments that align with your financial goals and risk appetite.
  5. Balance is the key. Don’t overload your pizza with toppings, or you’ll end up in a financial mess. Maintain a healthy balance between saving, spending, and investing.
  6. Enjoy the process! Financial planning shouldn’t be stressful. Make it fun and engaging, just like having a delicious pizza with your loved ones.

Bonus tip: Don’t forget the dessert! Just like you might have your favorite ice cream after a pizza, it’s okay to occasionally reward yourself for achieving your financial milestones.

Let’s make financial planning fun and start building your delicious financial future.

(Contributed by Pratibha Pal, Financial Planner, Team Sukhoi, Hum Fauji Initiatives)

Striking a Balance: When and How Much Financial Information to Share with Your Kids?

Money matters often remain wrapped in secrecy within families, with parents either hesitant to involve their children in financial discussions or consider it unnecessary. However, it is well-documented that open communication about finances is crucial for raising financially responsible and well-informed individuals. 

Benefits of Open Financial Discussions

  • Understanding the Value of Money: Children exposed to financial conversations develop a stronger sense of the value of money, appreciating the effort required to earn it and the need to spend wisely.
  • Developing Financial Literacy: Early exposure to financial concepts lays the foundation for financial literacy, enabling children to make informed financial decisions later in life.
  • Fostering Trust and Transparency: Open financial communication builds trust and transparency within the family, creating a supportive environment for children to seek guidance on financial matters.

Age-Appropriate Financial Conversations While sharing every detail may not be necessary, engaging children in age-appropriate financial conversations can be immensely beneficial.

Young Children (Under 10)
  • Make money learning interesting, play money games with your child to help them learn about money management.
  • Keep discussions simple and focus on everyday concepts like saving and spending.
Teenage Years
  • Encourage children to ask questions, seek guidance, and make informed decisions as they enter the world of finances.
  • Teach your child how to budget by helping them create a budget for their pocket money.
  • Children entering college should be made well aware of financial well-being, methods on how money can be saved and invested, loans, and liabilities.
  • Discuss the difference between wants and needs with your child to help them make better spending decisions.

Remember, financial literacy is an ongoing process. By having open and consistent financial conversations with their children throughout their childhood, parents can help them make sound financial decisions and achieve long-term financial success.

(Contributed by Yogesh Gola, Relationship Manager, Advisory Desk, Hum Fauji Initiatives)

You May Not Be Earning As Much Your Fund Is…

If I say, a fund in which you have invested, delivered higher returns, but you have earned less. It might sound awkward or humorous to you but it is fact.

You have earned less returns than what your fund has delivered and it is because of behavioural gap.

The gap could be caused by various reasons, or a confluence of them: Trying to time the market, buying (or selling) on the basis of recent performance, chasing after a fad, or just deciding to leave the market when it’s temporarily down. All these decisions can be destructive to your portfolio.

Funds returns have beaten the investor’s returns irrespective of investment horizon. Especially when investors chase short-term market movements, it can lead to their returns underperforming the equity funds. The disparity can be as high as 6.5%.

The other reason is, the investment horizon of the people has reduced. As per AMFI data (June,2023), only 51.4% of investors stay invested in the markets for more than 2 years. Others take exit within 2 years and it created a difference in investor returns and investment returns.

The chart below summarizes the findings over the long term (2003 to 2015 for Equity and Hybrid funds, 2009 to 2015 for debt funds.

Moral of the Story:
 Timing the market is futile and frequent redemptions hurt an investor’s returns.

(Contributed by Ujjwal Dubey, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

order here