Category: Tax Planning

Financial literacy among children

Education of a child begins at home and in India, I have not seen many parents talking about “money” and “finances” to children from a very tender age. The conversation is limited to what we can buy for them and vice versa. Conversations around savings, rising cost of living, goals is largely missing. As children, we did save a portion of our pocket money in our “Gullak” (a box where children lock away their savings). But we were not really taught about growing that money.

In my view, financial literacy is incomplete without connecting the dots. Asking the child to save his pocket money is just one part of the whole game. It probably only inculcates a habit of putting away a part of what he owns for future consumption. That is indeed a good start. However, explaining the concept of inflation and the fact that inflation will continue to be a reality is not there. Basic understanding of investment products is something children don’t understand even till they start working. And this lack of awareness throughout our early years – at home, school and college is the reason why financial savings penetration in India is miniscule.

We have started discussing a lot about making children aware of a lot of things. However, implementation is very low. Specially, till we do not see this being implemented as a subject in schools. Anything which is incorporated in schools is automatically taught at home too. A simple subject on “money” will prepare the next generation for financial planning in the right way.

Sonia Gandhi Limaye is the founder of Kalamwali and Rightwords Publications Pvt. Ltd. in Pune. Born and raised in a business family, she knew that she always wanted to be a business owner. But that said, she was also clear about establishing and running an organisation that would let her have a good work-life balance, for herself and for people working with her. Being very clear in her mind about not having to choose work over family, children, hobbies and social responsibilities, Sonia took the right steps towards founding her start-up.

Kalamwali was conceived as an idea in 2014 and relaunched in 2016. It is a platform for writers and an online publishing website that allows all kinds of writers to publish their work in the form of stories, experiences, poems, recipes, tips and much more. It’s a constantly growing community of readers and writers. Apart from an online existence, Kalamwali also conducts an array of literature related activities like storytelling and creative writing sessions for both kids and adults.

In 2016, Sonia released a self-published anthology called “The Best of Kalamwali” with the 50 best write ups on the company’s website. The book was a huge success and both the readers and the writers coveted its copies. This year she and her team are working towards publishing the second edition of the anthology.

Since writing is her passion, she started Rightwords Publications Pvt. Ltd. in 2017. A small and intimate set-up, they are a humble enterprise with a strength of four. With a focus on content related work such as content strategy for websites, brochures, Social Media pages, they are currently working with four very well-known clients based out of Pune.

Sonia’s passion to translate ideas into possibilities was her main inspiration to become an entrepreneur. Besides, she did not see herself in a 9 to 5 job especially feeling averse to the monotony that she thought would be attached to it. However, she like many other entrepreneurs had her set of fears while starting out on her own. “Failure of not being able to explain my idea through my work. Fear of realising that work is boring for my employees and they hate their job. To face an unhappy client at the end of a job work.”, she states were some of them.

Sonia’s entrepreneurial journey has been slow and steady. She funded her business from her savings when she started off and now it’s almost self-sufficient. She explains that had her capital investment been high, she would have considered options to raise money. But that would have come with a lot of pressure to pay off. She shares from her experience what all should one be cautious of while starting off on their own, “Have a clear idea of what you want to do and what you want to achieve with that. Don’t get carried away into something that may look very lucrative or easy. There is no such thing as an ‘easy business’ or fast money or quick success. Let your dream take its own course of time. Don’t trust anyone blindly with your finances. Do as much research as you can on your own about the various options to manage your finances. Consult a financial planning advisor once you’ve done enough research on your own. Take things in your hands. As soon as you accumulate an amount, however small, reinvest it in your business or invest it in something that will grow. Do not depend fully on someone you have hired to do something for you. Make sure you know how to do it even if it’s a basic version.”

Sonia maintains a straightforward approach to manage her personal finances and those of her business. She pays herself a salary to keep that distinction. In case of accumulation of funds or receiving monetary gifts, she invests them immediately. She does not give or take loans, which she shares is a very recent improvement in her and that she has learnt to save before splurging.

With years of experience of setting up an enterprise and running it successfully, Sonia generously shares her tips for budding women entrepreneurs. She says, “Have a clear idea about your scope of work. And a tentative goal. Neither short term, nor too long term. Like a three-year goal which is not difficult to speculate or set. Write and rewrite the business plan at least 3 times for better clarity in scope of work. FAILURE in the initial stage is important so as to never become complaisant. Face it bravely. Have sleepless nights, anxiety, endless brainstorming sessions with different people who will ask you the questions you fear. Have immense belief in your idea and love your business like your child. Don’t let anyone tell you it’s not your cup of tea. Start taking your finances in your own hands and learn from scratch. Until 2015, I had never personally stepped into the bank for any bank work. I didn’t know how to write cheques or file returns. But I learnt from scratch and now even though I am not a master of it, I can do it by myself. Last but not the least, enjoy your work, and the wealth you’ll generate from it.”

As much as this may seem like another millenial term invented in the world of finance, Financial Independence, Retire Early; more commonly known as FIRE has existed for more than a decade. Although the term for it wasn’t coined back then, the concept has been around for longer than you would imagine. FIRE is a movement wherein one takes a path towards extreme savings (almost 70% of the income) to quit their job and retire much earlier than the standard way of retiring at 60. The objective is to save enough to be able to live off the savings by withdrawing small amounts (typically 3-4% yearly) from the portfolio. And the motivation for it generally stems from the idea of having the freedom to do what you want to do. For example, traveling, blogging, authoring a book or anything as such which is more to do with pleasure, not necessarily generating income out of it. This frugality movement has been gaining awareness and spreading into the mainstream since the last decade.

People opting for FIRE are usually regular employees in corporate jobs with a definite timeline in mind. Their aim is to build a massive corpus for early retirement through extreme savings and once achieved, to quit their jobs/any form of employment. However, it’s important to note that with this decision there has to be extreme levels of discipline to be followed with regards to expenses and overall lifestyle choices. Almost 70% of your income contributed towards savings is a huge amount and hence, comes into picture the frugality aspect of the movement. Expenses have to be monitored diligently and the focus on continued maintenance and reallocation of the money is also just as crucial.

There are various approaches that people opt for while adopting the FIRE movement. The main goal is the same – extreme saving but there can be differences in the way they abide by this. Let us understand each of the types with the help of examples.

Fat FIRE – Rahul is a single, 33 year old software engineer who aims to retire at 45. He was introduced to the FIRE movement a few years ago when he gave it a serious thought and planned his life towards an early retirement. Three years ago, he dedicatedly started investing 70% of his income on a yearly basis towards his new financial goal. He has been very conscious about his expenses and has chosen to lead a simple life where there’s enough for his basic needs and some for an emergency. His brother who is 35 years old has opted for the traditional route of retiring at 60. Therefore, his saving towards his goal is 10% of his yearly income, and there’s no compromising on the lifestyle choices as there’s a budget allocated for that too. In short, saving more than the average retirement investor by adopting a very traditional and simple lifestyle is considered Fat FIRE.

Lean FIRE – Meenakshi is a college professor aged 35 years and her husband, Jay an insurance agent, is 38. Nearly five years ago, after gaining enough knowledge about FIRE through various sources and consultation with their financial planning experts, they decided to adopt a very stringent method of minimalist living to achieve their goal of extreme savings and mandating a far more restricted lifestyle. With the aim of retiring by the time they reach 50 years respectively, they have taken certain measures to meet their goal. They ensure that they eat only home cooked meals, they don’t subscribe to cable or Netflix/Amazon Prime but view only content that is aired free, they always opt for second hand goods when it comes to buying something for their house or their 7 year old son, they shop for necessities only when absolutely needed and they take buses and trains instead of cabs and have decided not to own a car. A lean lifestyle is how they look at it that brings them closer to their goal.

Barista FIRE – Rohan and Jharna are a millenial couple both aged 36 years. Rohan was in advertising for over a decade and Jharna, a journalist for the same amount of time. They aimed to retire at 50 years when they were both 25 and hence, hatched a plan for it. 10 years from then, they quit their corporate jobs and took over Rohan’s beach house. They renovated it and put it up on AirBnB, making an arrangement to cover their current expenses without eroding their retirement fund. Their aim to do so was not only to be financially independent and retire early but also to do some kind of part time work on their own terms. Their motivation for this financial goal was to bring an end to the stress of the corporate jobs or any form of employment where one doesn’t necessarily have the luxury or flexibility to do things as they please. With enough saved up over a decade for their early retirement, they still have work that keeps them busy and let’s them have the privilege of doing it on their terms while easily covering their current expenses through their new venture.

Coast FIRE – Mayuri is a 37 year old banker turned social media influencer. She is a single mother to her 5 year old daughter. With a finance background, Mayuri always had the tools to her disposal to understand the do’s and don’t’s with money management. Planning way ahead in her 20s, she knew she wanted to retire at the age of 35 and travel the world while she was still in her 30s. Her motivation to do so was to never work again for money and have enough to cover for her current expenses too. She worked seriously towards her goal through extreme savings and managed to achieve it just as planned. However, after being in a corporate job for close to 15 years it was actually not as simple as she thought – to not do anything at all. Besides, with a daughter in tow, needless to say that there are several expenses to keep up with. While money wasn’t an issue at all, Mayuri was drawn to social media marketing and became an influencer. While this helps her to still make money on her own terms, whether she does it part time or full time, her nature of work still involves all the privileges she dreamed of post the early retirement. And all of this while actually having enough in her retirement fund to cover for the current expenses too.

The FIRE movement has started spreading gradually as we see more people opting for it. Achieving financial independence to fund an early retirement is most definitely an act of severe discipline and stringent means that one ought to stick to. However, one should also be cautious while practicing extreme diligence that when stock markets fall and/or interest rate environments are low, the FIRE plan may fall short. The discipline too needs to continue post the early retirement to ensure that the corpus is not used up recklessly or too soon. They are after all fruits of all the hard work and compromises made for years to have a cushion much earlier in life. FIRE is certainly a redefined way of retirement and to make informed and sound decisions, it’s highly advisable to connect with financial planning advisors or companies who can guide you towards your goal in the right manner.