Personal Finance Management [Notes]

Below is the short summary of the PFM course I brought here.

 SECTION 1  – Basics

  • It takes money to make more money.
  • Savings is short term, value remains stable and lower returns in long term
  • Investments is long term, value moves up and down in short term,  potentially higher  returns over long term
  • Simple Interest :  Interest not re-invested, only Principal invested
  • Compound Interest :  Interest re-invested, along with Principal.
  • Future value of an investment  is calculated in Excel using FV Formula.

SECTION 2 – Budgeting

  • Budget : Basic is to track a month’s expenses.
  • And then, use this data to cut down expense by 5% for next month.
  • 50-30-20 :  50%  Needs,  30% Wants and 20%  Savings.

SECTION 3 – Goal Setting

  • SMART  Goals –  Specific, Measurable, Achievable, Realistic and Time bound
  • Arrange goals into – Short term(0-2 years),  medium term( 3 to 6 yrs) and long term ( > 6 years).  Plan investments for each goal.
  • :  Macro Indicators across 20 Countries
  • Absolute Return –  Return on the Investment
  • Real Rate of Return –  Return on the Investment, after Inflation is counted out

SECTION 4 –  Investment Options

  • Three main parameters for an Investment :  Liquidity, Safety and Returns
  • High Risk, High Potential Returns. Direct Co-relation.
  • Bank Deposits
    • Fixed Deposits : Lumpsum once
    • Recurring Deposit :  Every month investment
    • FD fetches higher return than RD ( Future Value Formula Calculation)
  • Post Office Schemes
    • Mainly  for Rural Areas, where Banks aren’t available
    • FD and Monthly Investment Scheme
    • Post Office gives 5% bonus on the Investment after maturity
  • Bonds/ Debentures
    • Nothing but debt instruments.
    • Companies raising  money via debt from public
    • Promises Fixed Rate of Return for the debenture
    • Secure Debenture is when the Rate of Return is guaranteed, even when the company goes bankrupt
    • Unsecure Debenture is when Rate of Return is unguaranteed,  full investment is lost in case company goes bankrupt
    • NCD – Non Convertible Debenture. Cannot be converted to Equity.
    • Good Investment Option, compared to Bank’s Fixed Deposits.
    • Generally,  Debentures are listed on Stock Market. High Liquidity.
  • Corporate Fixed Deposits
    • Gives 3 to 4 percent more
    • Unsecured in nature
    • High Risk, High Potential Return Scenario
    • Possibility of company going bankrupt to be checked  before  Investing
  • Bullion ( Gold/ Silver  Investments)
    • Making Charges make Ornament purchase not a very wise decision
    • Gold and Silver move  in upward  and downward direction
    • Best Liquid Asset
    • Gold can be brought in e-format as well
    • For  physical purchase, include  locker rent as  expense.
  • Real Estate
    • Divisibility is a problem
    • Encroachment is an issue with land real estate
  • Equity Shares
    • Give share in the company for return in raising funds
    • Give dividends, at the mercy of the company
    • Must have Trading account, DeMAT account and Savings Account with money.
  • Mutual Funds
    • Mutual Fund Manager to manage the investing decisions
    • Units of  Mutual Fund
    • NAV :  Net Asset Value ( Price of a mutual fund)
    • Goes Up and Down
  • Financial Pyramid
    • As per the savings, investments to be planned accordingly

SECTION 5 –  Insurance

  • Insurance is NOT an Investment Vehicle
  • Life Insurance
    • Nominee gets the money once the insured passes away
    • Types
      • Term Life Insurance :  Pure Life Insurance,  money gets lost in case no death occurs within the term for which the Insurance is  purchased.
      • Endowment Policies : Nominee gets  Maturity Benefit, in case the insured is alive, at the end of the policy completion. No benefit after policy expiry.
      • Whole Life Policies :  Policy where the nominee gets the money even after the policy expiry.
      • ULIP ( Unit Linked Insurance Plan ) : The premium is invested in Stock Market.  ULIP is not safe option, because it gets invested in stocks
  • Medical Insurance
    • Works only when the Insured is admitted into the Hospital for atleast 24 hours
  • Personal Accident Insurance
    • Works when a person meets with Accidents
    • No mandatory in-patient rule
  • How much Insurance?
    • 5 Times of your earnings is the bare minimum requirement

SECTION 6 – Tax Saving Options

  • Section 80C gives deduction from Taxable Income  upto Rs. 1,50,000 for select Investments like
    • Life Insurance Premiums
    • Housing Loan Principal repayment
    • PPF ( max cap of 1.5 lakh per year)
    • ELSS ( Equity Linked Savings Scheme)
    • Bank Fixed Deposits ( Tax Saver FD)
  • 80 CCD :  National Pension Scheme
    • Additional Cover of 50K over and above the 1.5 lakh limit
    • Can be opened with any bank, lowers taxable income
  • 80 D :  Medical Insurance
    • Cap of 25k for self and family
    • Cap of 50k for self, family and parents
    • Cap of self, family and senior citizen parents 55k
    • Cap of self(senior citizen), family and senior citizen parents 60k
    • This is deducted from the taxable income, to arrive at net figure
  • 80 G : Tax Savings via Donation
  • 80 E :  Tax Savings via Education Loan
    • Interest amount paid on Education Loan is deduct
    • No upper limit
  • Incomes exempt from Tax
    • Long Term Capital Gains ( LTCG) on sale of listed equity stocks
      • > 1 lakh is taxed at 10%
    • Dividend received from domestic companies listed on stock exchange
      • > 10 lakhs is taxed at 10%
  • Section 24
    • Principal Amount Exempt from Taxable Income
    • Max amount of 2 lakhs for self occupied houses with loans
    • 100% saving on the loan, if the property is given for rent

SECTION 7 – Loans

  • Personal Loans –  Interest rates so high,  Personal Loans are not recommended at all.
  • Loan against FD – Also called OD against FD.  Interest charged at 1%  extra more than the FD promised.
  • Home Loan – Processing Fee,  Structure of EMI,  Home  Insurance against natural calamity and unforeseen situations, Additional Life Cover
  • Reverse Mortgage – For Senior Citizens.  A person can reverse mortgage their property upto 60% of the original amount.  Bank will now pay the  installments of the property and can only seize it when the senior citizens die.
  • Credit Cards  offer good  credit for a  given period of time, and are painful when the person cannot pay the bill on time.  Auto – Debit facility is really helpful.
  • Given a choice,  always  go for Credit Card. Debit card is spending what you already have vs Credit Card is spending what you might not currently have in your account.
  • Cibil Score – Credit Information Bureau of India Limited ( CIBIL) gives  you a credit score.  This score depends on Payment History,  High Credit Utilization,  Credit mix and Multiple Requests.


  • SECTION 8 – Retirement Planning
  •  Use Present Value excel function to calculate the amount that you need today, in order to spend a certain amount of money every month after retirement.
  • This need to be planned accordingly.

SECTION 9 –  Ponzi Schemes and MLM

  • Named after Charles Ponzi, a  fraudster from USA in early 1900s.
  • Typically, how this scheme works is –  Make Investment claims that are too good to be true, and honor them for first few times. Once the traction becomes really good, then flee.
  • Stay away from any claim that is too good to be true.  It most likely isn’t.

Review of the Course – 

In the end, Rachana tells us that she hopes she has given the jerk we all need to kickstart our financial planning.  I agree,  this course made me realize how many areas of my life need immediate review, followed by some serious corrections.  Tax Savings Scheme and Insurance top my list of things to review right now.  Everyone, who gets the financial planning done by better half, and earn but do nothing else for financial planning must see this course and plan things earlier and better.  I like how the course  is structured, and neatly done with short and impactful lectures.  We get all the vocabulary, and one can dig deep into the topic they need, based on what they learn here.

Rating – 10/10

Have a good day and keep rocking!

Author: Saraswathi Pulluru

Aham Bhrahmasmi.

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