Category: Finance

Effects of Demonetization on People and Indian Economy

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Effects of Demonetization on people and Indian economy is a topic which will explain demonetization, its need and effects.

What is Demonetization and its need?

Demonetization is a process, in which government of country can ban the current currency in the market and replace it with new currency. There could be several reasons for that,

  1. Increase of Black Money
  2. Increase in fraud currency
  3. Increase in Terror Funding
  4. Do not have knowledge of cash flow in market etc.

On 8th November 2016, government of India took decision to demonetize. In this 500/1000 INR became illegal in the market but with caution to give time of 53 days. That is 31st December 2016. After the decision took effect, people of India had been given 53 days’ time to deposit all of their currency to bank and exchange it with new currency. As per the stats, there were 85% of the total currency available was in the form of 500/1000. So new currency of 2000 INR released to control the economy. This decision was taken with surprise so that no person could convert his/her black money to materialistic things like real state or luxury.

Effects on the People

Many people were thinking that it is unplanned decision by government, but it was properly planned. We have seen that in 2014, government asked everyone to open account and there is Jan-Dhan account for poor people with zero balance. Then, they asked to link Aadhar card with account. On 1st November 2016, “Benami Sampati Law”(Any person cannot have property in the city where he/she never lived in lifetime). Therefore, it is clearly visible that it was planned decision. Demonetization was due since 1980, but because of political benefits, government of that time did not take decision.

Options for People

Following are the options given to people during demonetization:

  1. Limit of 2 lacs: People who were depositing 2 lac or less, were not asked any question and they could easily deposit in their account. If the people were depositing more than 2 lac then they had to give proper justification.
  2. Exchange of Currency: People could exchange their currency with the new currency up to 4000 INR daily. That was for the people who did not have bank account and were working on daily wages.
  3. Marriage Expense: People who were getting married during that time and need cash for them there was provision that they could get up to 5 lac INR from bank after showing valid proof of marriage. This option could be availed by the people who were main organizers like Parents of Bride and Groom or Bride/Groom.
  4. Unlimited Online Transaction: There was no limit on the online transaction. This was to encourage electronic transaction and discourage cash transaction. Because of demonetization, so many people learnt online transaction and PayTM got the major benefit as it was only recognized Mobile transfer option available during that time.
  5. Limit in cash with-drawl: There was limit of cash with-drawl up to 2500 INR because of lack of currency available. As we knew that 85% currency was demonetized so to balance the economy would take time.
  6. Valid in various places: Although, government made 500/1000 currency invalid post 8th November 2018, but then too there were various places where these currencies were valid like petrol pumps, post offices, water bills, electricity bills etc.

Effects in Indian Economy

Before demonetization, the share of tax payers was 2-3% but after demonetization, this share increased to 7%. As per RBI (Reserve Bank of India), 99% cash came back to banks. People were saying that there was only 1% black money. But, it was not the case. Banks put hefty fines like 40% on the amount, which did not have proper explanation. Government of India gave time to people till 30th September 2016 to pay their due taxes but if people did not follow that, they had to pay hefty fines and got 60% or less of their amount. After that, there were a lot of raids and recovered almost 7000 crore INR as per the news. This helped the economy of the country, during that time economy went down because of unavailability of cash flow but that was only for time being. People learnt online transaction and small vendors like Pan Shop, vegetable hawkers etc started taking electronic money. I, myself taught hundreds of people about online transaction.

“If anybody asked about demonetization, I personally feel that it was very much required and benefit the entire country. Thanks to the Government to take this tough decision. Big transformation needs small sacrifices and kudos to the people of country who took it positively. Biggest example is my father who is working in bank and 10th Nov was his birthday and he told that he was blessed to have this opportunity before his retirement.”

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Investments is Good or Bad: Parameters to decide

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Whenever we are looking for investments, we expect returns. Many people are worried for good investments or bad investments. Here I am trying to explain what good or bad investment in my perspective is. So first I start with Bad Investments

Bad Investments: 

In initial phase of our job, we give some amount to family to save or invest. Our family members like our parents are one generation behind, so usually they put money in account or make FD which only they know about it. ROI (Rate Of Interest) of FD is only 7% and locking period is also there. Or they take any policy like LIC or other.

Many times, we give money to our friends and relatives, which they promised to return in one year or more without interest or very less. Also, we give hand loans to others at huge interest rates. All are bad investments in my perspective. There is a slight difference between investment and charity. When we give money to our family, friends or relatives, we should consider as charity. Because return is not certain or very less.

Many people invest a huge amount in real state but as per me that is also bad investment in certain way. I have seen that when we need funds, at that time we don’t get buyer, so we enforced to sell to brokers at their rates. They sell at higher rates to needy.  Also putting funds in liability more than asset is always bad investment. Putting money into shares without knowledge is always a bad move. Gambling or betting would never make us rich for sure, it is a trap.

Good Investments: 

In initial phase of our career, we should start investing in mutual funds. SIP is always good investments, because SIP is much safer and high returning move. We want to buy property, first, buy house for ourselves. Let’s say, we get a job in some metro city, where rent is 30k INR per month, but if we buy house then our EMI is 32K per month then we should go for purchase, but if rent is 10k per month and EMI is 30K per month then we should continue with rent.

Also, if we have good knowledge of Share market then stock market is always high returning investments. We want to go for long-term investments then we should consider what kind of policy is required. Like, we are bachelor or married, but do not have kids or dependents then should not go for Term Insurance.

Personal medical insurance is always good option. I see many people invest to save their tax, but if you invest 100,000 INR to save 20k or 30k INR is never a wise decision. Investment should be done only for return and not to save tax, If we are able to save tax, that can be extra benefit but that should not be the main criteria. If we are investing to build our parallel system then it is always a  good investment. To know more about parallel system, go through my article “Building Parallel System is Essential if you are in J.O.B.”  and if you want to know about division of your salary for investments then go through “Plan your future, future will plan for you”

“Bad Investment can make you bankrupt but Good Investments will make you financially free. Keep Investing Good.”

Building Parallel System is essential if you are in J.O.B.

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When we get selected in Multi National Company, we are very excited. Our family also thinks that now our future is secure. We are going to earn for next 30-40 years and become financially stable. They start thinking about their next responsibility like getting perfect match, house planning etc. Then we get into the organization and amazed with infrastructure. Free lunches excite us. We enjoy Team Lunch and Outing. There is different meaning of enjoyment. In initial days we do not have much work, so getting hefty salary is too much for us. We start spending without thinking, we start buying which we always wanted to buy in our life, riding Royal En-field, iPhone getting spa in top class parlor, getting haircut in lavish saloons. We also buy expensive gifts for our family and friends. Life is perfect now.

Once we are 1-year-old into the organization, we start getting little pressure, we feel annoyed but our managers start making us realize that we are hired for work not for enjoyment. We get serious for work and also calculate hours we spend in work. We are paid only for 8 hours so will work only that much. Suddenly salary seems less. We are not able to enjoy the expensive gadgets, Xbox, Ducati etc we bought. This continues for next 5 years.

Once we complete 5 years, we need to pause and start thinking to earn something in parallel. Few are investing in stocks, few are looking for the scope of freelancing, restaurants etc. But there is major chunk of people who think that they are going to earn from their Job forever. Those folks are in fantasy world. They may continue for next 5 years with more focus or with routine work. This is the time, our honeymoon period in the industry is over. Now we start listening cost cuttings, ramp downs of our peers etc. We start worrying now, that we may also lose job. Then we think about job switch or start evaluating ourselves in the market. We prepare for interviews. In the first interview itself, we will come to know that market is very much demanding for 10 years experienced folk. We may think that might be getting job in other organizations is not easy. Few people went into depression because now we have so many loans to clear, take care of family, pressure to maintain lavish life.

The people who started something after 5 years, they are in much better position now. Stock market people may have very good portfolio and earning good from stock market. Freelancing people are on the verge of starting their own organization. Restaurant people are already earning more than their monthly salary. But what about us, now we thought to follow these people. Suddenly our number also come and we fired. We lost the job. We think that we are late in building parallel system initiative. 

In job, honeymoon period is for 10 years. People who spend all 10 years as honeymoon period, they are the ones who kicked out first. The people who spent only 1 or 2 years as honeymoon and other 8 years with dedication, they may survive for next 10 years. But they can also not guarantee for their job. 

Many times we have been targeted by folks to get into Multi Level Marketing by giving above reasons. Many people involved into that as well. But in my opinion it only makes worse our situation rather than improving. If you get your first earning today, Congratulations!! But start investing as well and work towards your parallel system.

“It is better to start as soon as possible to work towards building parallel system. Go through my another article ‘Plan Your future, future will plan for you‘”

 

Plan your future, Future will plan for you

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Whenever we are talking about finance, we become very attentive. We always give preference to our source of finance. The definition of happy person is : A person, who manages his finance well, having love and respect in personal life and has respect, growth in his professional life. Here, I will focus on first happiness, managing finance well. So if you think that you are very young to manage finance, then you are wrong because you can get maximum benefits if you start financial management as soon as possible. 

Divide your Monthly Income

If you are thinking that what is the correct age to start manage finance and how do you divide your income into sections. So here are my few points to divide your income.

Basic Expenditure: Everyone need to spend on their basic expenditure like food, stay, travel, basic amenities, enjoyments etc. Ideally it should be 40% of your income. You should not spend more than this. You can stretch it to max 50% not more than that.

Long Term Investment: If you are doing investment for saving tax only then you are not financially wise person. Let’s say you are in 30% bracket of tax in India, to save 30,000 INR, you have to invest 1,00,000 INR, which is never be a wise decision. Whenever you are going for long-term investment, it should give you huge return that is 5 to 6 times of your invested amount. You should spend 20% of your monthly income in long-term investments for more than 5 years. 

Short Term Investment: Before doing any short-term investment, you should understand what is short term investment. It is an investment where you can withdraw funds anytime or in short notice. Let’s say you need to shift your house and your expenditure of shifting is 50,000 INR, in that case you should get funds in a day or two. Short-term investment is constant process, it should not be stop till the time you are getting your income.

Emergency Expenditure: You can not plan your emergency but you can plan your funds for emergency, like medical emergency or any kind of situation where you need funds immediately. You can not wait for few hours or days, so for that sake you should either put funds in your account or you should have Medical insurance or Term Plan. if you have medical insurance from your organization one, then too you should have your personal one. You can put 10% max to this planning. This is variable share where you can decrease and increase in your basic expenditure. That is why I mentioned that you should spend maximum 50% in your Basic expenditure of your total income. Emergency fund is also used for Term Plan as well.

So total = Basic Expenditure(40%) + Long-term Investment(20%) + Short-Term Investment(30%) + Emergency Investment(10%)

Relationship between Family Planning and Financial Planning

Now you understand your division of your income. Now coming to the point that when should be your family planning closes. Strange!  right? I am talking about financial planning, what is relation with your family planning? Yes it is. Kids are your responsibility and it is duty of every parents to help their kids to settle down financially with their income. So your family planning should be done by the age, you are 35. Because it is normal understanding that 25 years is the maximum age to settle down for any individual. It is better advice to settle your kids while you are earning.

Manage Emergency

I already mentioned the share of Emergency fund in your monthly income. There are majorly two plans you need to take to manage emergency.

Medical Insurance: The moment you are out of coverage from your parents insurance cover, you need to take medical insurance. Despite of the fact that your organization is already giving you medical cover. but you should have your personal one. The benefit is that you are not dependent on your organization and it will be valid till the time you are with organization. The beauty of emergency is that it is Emergency, it comes without notice. Always take Medical insurance as Floater. I took cover, in which my wife and kid is covered with floater. So if all three get sick in the same year, they can use it with floater plan.

Term Plan: If you are having confusion that when to take term plan. First you analyze the value of you financially, like how many people are dependent on you, So what is the best time to take term plan and what should be the mode of payment. Term plan should be taken immediately you have your first kid for sure.  My son was born on 13th January and I took term plan a very next day. There are cases where you need to take term insurance, if you have dependents and apart from you, nobody is there to look after. Few people may have doubt that their spouse is their responsibility if she/he is not working. Yes it is, but she does not qualify for term insurance. Your kid is your financial responsibility as well as your duty. Nominee should always be your kid  till he/she turns 18 years or settle down instead of any adult one because you took it for your kid. Once your kid is settled then your spouse is qualified for term insurance and nominee should be your spouse.  If you have two kids then you should have two term plan.

I hope you like this article and it is somewhat helpful for you. Please do comment in the comment section below. 

There are many more articles will come on financial planning, next I will explain long term and short-term investments along with Tax Planning. Till then

“Plan Your Future, Future will plan for you”

If you have any questions, you can reach out to my Services page.

 

 

Network or Chain Marketing: Financial Freedom or Trap

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Companies follow many ways to sell their products, Advertisements, Branding, Promotion, Campaigning etc. Direct Selling or Network marketing is also one of them. In this, company use their customers as sales representative and if they help them for their product sell, they will get commission. To earn big money, people sell the products to their friends and relatives, which in future create a problem. Although, this kind of marketing is very much successful in other countries but why this model get failed in India. Let me explain with some factors

Friend is Customer: We are making friends on our own and when we start any business or anything new, we share with our friends first. Sometimes it is for financial benefits or sometimes for appreciation only. Friends, with whom we cherish foods, studies, games and many more. Now after getting into Direct Marketing, we start seeing them as prospects. To gain financial benefits, we used to try every trick to get him into business. Many times we do Emotional Blackmail. In India, people are ready to kill their time with friends but do not like to give any financial benefits.

Lacking of Self Believe in Product: It has been observed that product sold through Direct marketing are not common products or many times it is not very useful for common man. If they are consumer products also, they are highly priced compared to their competitors. In India, people never get into it for products, they are very much interested in commission by selling products. This is the main disadvantage that they are not able to sell the product with confidence.

Wrong Approach: If we observe the company instruction or procedure to selling is quite very good, but many people never go through it completely. People think that it is quick rich scheme. The more you sell, the more you get. So they are trying unconventional approaches to sell products. Like, emotional blackmail, forcing people, mentally torture, keep calling people. New salesperson, who get into this, used to have some experience person to provide info. The only job of salesperson is to call his prospects. As there is lack of self belief, they call their friends by hook or crook. They call them for lunch, dinner or drink and surprise them with business plan. This make prospect as cheated or fooled. 

Greedy for Financial Freedom: There is another reason for which people get into this type of marketing, i.e. Financial Freedom. What is financial freedom, that is if you do not work also, you will get money. People will work for you by adding hours. Simple concept, if you have 10 people, who work 8 hours daily along with you then cumulatively, it is 88 hours per day. It is in theory but in direct marketing, it is not the case. There are many people who do not work as they get into it because of force or fear to lose friendship. Also nobody likes that if he is working and his friend is getting benefit without doing anything.

If I take example of any organization, we might feel that we are doing all the work but our boss is getting benefit, but in actual he is doing some other task as his role is changed. Same with CEO of the company, his job is to get work for his people. So in my terms there is no term called “Financial Freedom” in that perspective. According to me “Financial Freedom” is that if you are sick for one week or you are on vacation for few days, then too, your earnings are not going to stop. In that case every person who is doing job is financially free for few days. We all have casual, sick leaves. If we are on vacation or sick, our salary does not get deducted. Today, Ratan Tata, Ambani, Aditya Birla, they are financially free, but not sitting idle. We need to understand this.

Bad Investment Procedure: You have heard many people that they lost a lot of money in Direct Marketing may be 10 times of the cost of product which they purchased to get in. How? The answer is that they approached their friends and show them that if you work for 1 year, you will (instead of can be) get X amount of income. Many friends say that you invest for my behalf and I will return once I get my money back through commission. We invest for them and he will never come back or stop picking up your call. Many people think that it is Pump and Show business. We buy car, house or any expensive things and tell our friends, relatives, colleagues that you got it from direct selling. If you get into this, you can also get all these things in very short span of time.

If you ask me that whether direct marketing is good or bad, I can say that it is good but not in India because people are not understanding it correctly. It is successful in other countries because relations are not that much strong over there or they do not do hook and crook method to sell products. They walk slow, took it as business and know that return will come after investing good amount of time. When we open a shop, we can not expect that in few days we will have multiple franchisee in all cities. It may take years or sometimes never happened, depending on the efforts we put.

“Direct Marketing can be Financial Freedom, if it does in correct way else it is Financial Trap”