The Financial Book

Keys to Financial Freedom

Financial Freedom in early 40’s, sounds like dream come true. Let’s accept the fact all of us want financial freedom in our life as soon as possible. But do we know the exact definition of Financial Freedom? It’s basically living life without doing any job, maintaining healthy & same standard of living. For an earning person financial freedom is not a huge issue if he or she starts investing early and tactfully. Firstly, we have to figure out the proper way to reach the financial freedom. One can start this with allocating his or her income into three heads:

Necessities
Contingencies
Investments

When we think of necessities, the amount to be spent varies with level of income and articles to be purchased depend upon the standard of living. From food, shelter & clothing to luxuries each item has different parameters in budgets. So, the calculation of estimated expenditure on necessities should be done on separate basis.

Life is full of uncertainties and each uncertainty can become Pandora’s Box if we do not take proper measures. These contingent requirements may be theft, fire, accident, health issues, and even death. To ensure the safety against such unprecedented incidents we insure ourselves and even our possessions. Most of the times life insurance is mistaken to be investment and people buy endowment plans for getting returns but end up paying higher premiums. So, it’s better to take a term plan paying lower premium and getting high sum assured so that the deceased person’s family can get better monetary help.

Only the people who aim to be financially independent are aware of the fact that without investing a good chunk of income one can never sustain in this inflationary economy. We have too many options for confusing our brain if it comes to investment. Equities, Bonds, Debentures etc. Having different denominations and different credit ratings are present the list of choices. But if we want a short cut without risking the whole sum into small group of financial instruments we can go for the mutual funds to get decent return of 10-15% annually. To fasten the process of earning we have to enter direct investment in stocks with proper advice from a financial adviser. Still common people in India invest in Fixed Deposits which are very low risk & low return financial instruments. Remember if you are not willing to take risk at an early stage in life you will have to work hard till the end of your life.

One should never forget these thumb rule if they want to retire early with financial independence:

Mistaking insurance for investments
Waiting too long to start investing
Keeping money in fixed deposits

To gain we need to suffer some pain as well, which is limiting our cost of necessities. If succeed in that we will be left with a higher proportion of income for investments. There is another easier process for this, stop following the Equation No.1 and start working with equation No.2:

EQUATION 1: INCOME – EXPENDITURE = SAVING FOR INVESTMENT

EQUATION 2: INCOME – SAVING FOR INVESTMENT = EXPENDITURE

“If you want to be financially free, you need to become a different person than you are today and let go of whatever has held you back in the past”- Robert Kiyosaki

Wonder Women of India: Stories of Pride & Glory

A woman has always been glorified by feminists and enslaved by rest of the society but she has not been asked her wish ever. She neither wants to be worshiped like Goddess nor to be pitiful like the weakest creature who has to live on other’s mercy. Her only need is her “Fundamental Rights”; Equality to Men, Freedom to take decisions, to Speak against exploitation and Education.

When a woman comes out of her veil and faces the world, her courage is tested by thousands of hurdles but the moment she reaches the aim her journey becomes the road map for hundreds of girls in society. Our country has seen many scholars, entertainers and fighters of the gender which has been emphasized as weak; feminine. Rani Lakshmi proved that girls can fight in battlefield with same bravery; Kalpana Chawla showed us that girls are not just fairy tale lovers, they eligible for Space research as well, P.T. Usha opened the closed doors of sports classes at girls’ school.

One’s choice of life becomes inspiration for millions. Appointment of Gita Gopinath as the Chief Economist of International Monetary Fund has formed the new milestone in Indian Women’s victory march. She is the first Indian women to be appointed as IMF’s Chief Economist and the second Indian after former RBI governor Raghuram Rajan to hold the position.

Gita did her BA from the University of Delhi’s Lady Shri Ram College and MA degrees from both the Delhi School of Economics and the University of Washington. She received her Ph.D. in Economics from Princeton University in 2001 and joined the University of Chicago in 2001 as an Assistant Professor before moving to Harvard in 2005. She was currently serving as a professor of International Studies and Economics at Harvard University. She also serves as the co-director of the International Finance and Macroeconomics Program at the National Bureau of Economic Research and an economic adviser for the Federal Reserve Bank of New York. She also served on an advisory panel for G-20 issues for India’s Ministry of Finance.

Her impeccable academic credentials and extraordinary experience is an amazing example of the strength women posses. A woman shouldn’t be evaluated on the basis of her caste, creed, complexion, possessions; her worth lies in her confidence, intelligence and caliber. We salute such great women who have broken the social bondage for erection of a better future of women.

IL&FS: A tale of Bankruptcy & Reincarnation

Another detrimental incident took place in Indian Financial market on Aug 28th when IL&FS, an infrastructure project finance company, defaults on repaying a few hundred crores on their commercial paper but manages to pay the same after 2 days, but later again on month of Sep IL&FS which has borrowed ₹91,000 crores earlier had defaulted in repaying debt on maturity. Speculation of illiquidity created tremendous panic resulting in continuous fall of Indian Indices. Surprisingly, a major loop hole of credit ratings came under scanner of Government as debt instruments of IL&FS were rated as AAA, AA+ etc. in the past couple of months. IL&FS filed an application with the NCLT (National Company Law Tribunal) seeking insolvency cover for itself and 40 other group of companies which was later approved as per Sec 230, Companies Act which will help IL&FS to raise capital from the market & to sell some of its assets for debt repayment. On 30^th Sep 2018, a board meeting took place in IL&FS where Mr Hari Sankaran, VC & MD, IL&FS mentioned few points mentioned below:

Outlines of group restructuring plan in a comprehensive manner.
Appointment of a specialist agency to take the plan forward
To implement asset monetisation plan.

On 1^st Oct 2018, the government took over the control of IL&FS after getting approval from Insolvency & Bankruptcy court in Mumbai. NCLT allowed government to form a new board & asked for a plan to be submitted by 15^th Oct 2018 to get out of the debt trap.

Today, On 4^th Oct 2018, the new board was formed which will be headed by Uday Kotak (CEO & MD of Kotak Mahindra Bank) as Non-executive Chairman, along with five others Girish Chandra Chaturvedi (ICICI Bank Chairman), GN Bajpai (former head of SEBI), Vineet Nayyar (Chief of Tech Mahindra) & Malini Shankar & Nanda Kishore (former IAS Officers). The new board members positions are given below,

Source: Bloomberg

The new board has shown concern over the complexity of 348 IL&FS entities. The quantum of debt obligations by the company is enormous; the board is looking into to all the secured, unsecured and even off-balance sheet financing raised by the company. This will be the first private company to be rescued by the Government since Satyam Computers in 2009. Meanwhile Mr. Kotak has addressed the press:

“We will be talking to shareholders at an appropriate time. The current focus today was much more about operating under NCLT process. At the same time taking more immediate steps which needed urgent attention of a board with an open mind”. – Uday Kotak, Non- Executive Chairman, IL&FS

Revival plan for IL&FS, India’s giant project finance company are on its way by the new board members & we have positive expectations for that.

Source:Bloomberg, Moneycontrol

Editor: Sweta Sharma, writer & Editor in Chief of The Financial Book.

Musk’s Tweet cost $40 million to Tesla

Tesla, an automotive brand, manufacturing electric vehicles (EVs) enlisted itself in the list of top most automakers within few years of its debut. Surprisingly, this Silicon-Valley based company became competitor to big fat companies like GM, Toyota, Honda, Ferrari and Lamborghini. Though its last year’s sale of 101,312 cars was almost equal to the single car model sales of Toyota, it created much hype with just few car models in the market through a completely different perception of Electric Vehicles by manufacturing high prices & smart models of E.Vs.

Recently, GM, Ford, Cadillac have come up with good number of EV models with timely delivery to customers unlike Tesla which is having issues in such competitive condition. In such problematic scenario CEO of Tesla Elon Musk landed himself and company in trouble with his tweet, “Am considering Tesla private at $420. Funding secured.” Tesla shares jumped by 7% on the day after the tweet.

The genius who is revolutionizing human transportation was sued by SEC (U.S. Securities and Exchange) for manipulating the stock market. His unprofessional and unethical behavior instigated SEC to bar him from serving as an officer or director of a public company. Replacing Musk would have been nightmare to the company since it does not have the next generations of managers and operators to carry on the business which means the new CEO had to be completely outsider. The Board could not take such a huge risk since market cap fell by 14%, or $7.8 billion, following news that the SEC had launched a civil fraud case against Musk and any change in the Board would have been addition to this bad news.

So, Musk had reached a settlement with the SEC that will require him and Tesla to pay a $20 million fine each, step down as chairman for three years and appoint two new independent directors, but allow him to remain CEO. The stock price surged on Monday after the news and the investors are hopeful that settlement will bring about significant improvements in the company’s corporate governance practices. It has met targets for quarterly car production a huge relief at Chief Executive Elon Musk’s settling of a lawsuit with regulators.

We are still bullish on Elon Musk & his Tesla to continue doing great progress in future.

The 3 Secrets of Getting Rich

From an eighteen years old youngster to a retired person all of us are seeking answer for the most mysterious question in the world “How to get rich?” Remember not everyone is born with a silver spoon. Studies show that 1% of world’s population holds more than 40% of the world’s wealth. Have you ever wondered what the reason behind it is? Scientists have proved that these people follow certain practices & methods which always keep them ahead in the game. Many philosophers and learned men have worked on this issue and tried to find out the best strategy for it. This great secret lies in the Law of Attraction which is as impartial as the Law of Gravity. Like Aladdin’s Genie, the law of attraction follows our every command. So what we have to do is just follow three simple steps: Think Visualize and Act.

Thinking

The Law of Attraction says that like attracts like and our thoughts have magnetic power. So to attract money we need to focus on it and avoid the thoughts of its lack because our mind cannot have two contradicting thoughts at the same time. Rather than thinking about the probable loss we should figure out the ways of earning profits. Thoughts of losses will emit negative signal to the Universe attracting more losses towards the source. Hence the solution is to replace the thought of scarcity of money with consistent thoughts of its abundance.

Visualization

Vision is the only way where we can see our expectations in physical form. So visualize your present in abundance and feel that you are achieving goals. It is a creative process of generating powerful thoughts and feelings of fulfillment of desires and as per law of attraction the Universe turns it into reality just as you see it in your mind. But if you imagine money in future, you postpone your own thought from turning into reality and that wealth will be seen always in future which will never become present. Thus, we must visualize ourselves becoming wealthier in present to make it reality.

Action

Think about what you have desired for, and make sure that your actions are reflecting what you expect to receive, and that they are not contradicting what you have wished for. Act as if you are receiving money, do exactly what you would do if you were receiving it today, and take actions in your life to reflect that powerful expectation. As you do it, you are sending out that powerful signal of expectation. If you want money but you are not working for it then it is completely futile to just imagine. Start investing or innovating ideas which will pave the way of your richness.

Now, when we have learned the knowledge of earning money we have the power to create our own destiny. Sir Joseph Campbell, an American Professor of Literature, said it beautifully, “Follow your bliss and the universe will open doors for you where there were only walls.”

Source: authors, philosophers, scientists from The Secret, The Science of getting rich.

US Vs China, “Trade war between Super Economies”

From the past few months we are getting daily updates that US is dumping taxes & duties on Chinese goods, on the other hand China is doing the same with US goods. Why there is trade war going in between two largest economies in the world. So, to explain let’s start with US. In last year 2017 US imported goods form China worth 505 billion USD & exported only 130 billion USD worth of goods to China. This creates a gap of 375 billion USD of trade deficit with China. As Trump’s administration oath was to “Buy American Hire American”. But in reality, most of the items which Americans buy are made in China, from expensive television, cell phone, laptops to umbrella & packaged food most of the products are imported from China. Trump’s policy of imposing high tax & import duties on imported Chinese products will stop people from buying those & that will eventually hurt China & increase spending on American goods. But this will create pain for Americans as they will be paying much more than before.

Trump administration accused China on unfair trade practices, including Government subsidies to unprofitable companies which allow business to sell goods in US at artificially low prices. It all started with Trump’s presidential campaign promises to reduce the trade gap between China by providing better deals, imposing tariffs on Chinese imports. He also declared China as currency manipulator. This ignited a trade war between the two largest economies in the world.
For the past decade, US has been the largest exporter of goods & services in the world, but in 2013 China surpassed US and from then these two superpowers been neck & neck ever since. Recent times in first half of 2018, China reported a CAD of 28.3 billion USD for the 1st time in 20 years (stated by State Administration of Foreign Exchange, SAFE). Analyst forecast narrowing surplus or more frequent deficit on backdrop of US-China trade tensions.

Today Trump announced to deal with China to end trade war. US President Donald Trump said he was happy to hold talks with China after imposing 10% tariffs on about 200 billon USD worth of Chinese imports & threatening to increase the rate to 25% in 2019.

Have we learnt from Lehman Brothers collapse or are we ignoring the past?

Buying your dream Home? Just Wait….

In this world, every working individual would like a have their dream home one day. They work hard in their life to buy a house in their life & they say “this is my biggest asset”, Well somewhat they are true. But ever wonder if it’s really worth it or not. So, let me start with the definition of an asset- “Something valuable that an entity owns, benefits from, or has use of generating income.” Ask yourself, does it fulfill the definition of your home?

Is your home a valuable entity or the land? because the value of land will appreciate overtime not your home!

What benefits do you get form your house other than shelter, which you can easily rent out at much lower cost than your monthly EMIs. Still you don’t have to lose out from your life savings for the down payment of your home?

Is your own home generating any income? Unless you are renting it out! Which most people don’t. But apart from paying your big buck EMIs, you pay taxes for your property, repair & maintenance every now & then.

So, your biggest asset now seems to be your liability?

Study suggested that almost 70% of millennial regret after buying their house. Here is what expert says: “Millennial are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face,” says Ryan Bailey, head of Bank of the West’s retail banking.

Reason behind the regrets:

Reason 1: Overspending on down payments of the house. The survey found one in three millennials dipped into their retirement accounts to pay for their homes.

Reason 2: Underestimating going cost. When you buy a home, the expenses don’t stop once you move in, Millennials understand basic costs, such heating and electric bills, insurance etc. Also, when you’re a homeowner, you can’t call your landlord to fix things, so you want to make sure you have a little extra cash in the bank.

Reason 3: Settling for something that you don’t like. Most common is when a home buyer buys a house far from the city reach just have an own house because buying house in posh locality will cost more so they settle far away. This regrets a lot because daily commuting would not be easy.

Hence, buying a house always seems pleasant but be aware of the facts & consequences. Happy buying houses!!

Source: CNBC, Bank of the West,

Global Oil Prices are skyrocketing! Why so?

Last time, when the oil prices are such high was on 2013-2014. But why again the oil prices are high? Let’s break it down from the beginning. For the past few years we are seeing something rare in the oil industry, a boom in oil productions. This is due to large part of that The United States of America has find out a new way to extract oil from the earth. Due to this analyst started predicting that U.S will leave behind Saudi Arabia as the largest oil exporter by 2020. This also lead to several other major oil exporter increases their productions, The Organization of Petroleum Exporting Countries (OPEC) increase their production by 3 million barrels per day, mostly coming from Iran, Iraq & Saudi Arabia. This was all in the period (Nov 2104-2016). Suddenly Petrol & Diesel have became cheap in 2016. Things started to change when OPEC teamed up with Russia & agreed to reduce global supply of oil. Today hike in oil prices are due to political instability in the global markets. Like Venezuela slow economic collapse hit the oil productions in that country eventually effecting the global supply of oil. In 2104 Venezuela produce 2.5 billion barrels per day, since then it falls to less than 1.3 million barrels per day. Also, military clashes in Libya disrupted the oil productions drastically. The major reason behind this would be Donald J. Trump who withdraw the nuclear deal with Iran, also some of his policy changes to various countries lead to trade war. The Trump administration seems to very aggressive in these situations from the beginning which indirectly leads to such high oil prices. This means the oil producer will charge more from us. From the economic point of view, we have just entered the 10^th year after the last recession happened in 2008. In general, these recessions happen when the oil prices have gone high. It also happened in 1981. What does it mean will there be another recession in the market? Well it’s very soon to comment.

Xiaomi: India’s No 1 selling smartphone fail to get investor confidence. Why So?

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On May 3^rd 2018: Xiaomi, the Chinese smartphone giant filed an IPO at Hong kong Stock Exchange. It was expected to be the largest listing by a Chinese tech company in almost 4 years. The listing value of the company was $100 billion. But in the initial bidding Xiaomi was getting muted response for retail investors. The grey market price was at 11% discount before the listing. On July 9^th 2018 Xiaomi shares open 2.9% down in Hong Kong.

Xiaomi has become the world’s third largest smartphone maker. Xiaomi’s goal 100$ billion valuations cut down to size of 50$ billion valuations on listing. There was regulatory concern as well which led down to this valuation. Xiaomi, the maker of phones to “Qicycles” has been growing rapidly outside China as well. India is one of the fastest growing markets. It has open 6 factories in the country as well for “Make in India” project which gave them the opportunity to get tax benefits which lead to cheaper prices for smartphone. Xiaomi has taken on competition with Samsung, Apple, Huawei by offering additional features at relatively low prices. Earlier they were selling online to cut down the cost of distribution & dealers commission etc, but now they are penetrating the offline market by opening official store & exclusive partner store to counter the strong presence of Oppo & Vivo in this sector. Sources claimed that Ratan Tata was the biggest investor in the Indian arm business which Xiaomi has tripled his investment in few years.

Despite the strong business model & its presence Xiaomi has been facing issues to penetrate the global market in US & Europe. Recent tussle between U.S- China making it more difficult to capture the global markets. What will be the next move of Xiaomi…?