And here comes the second article of my regular Sunday where I consume lots and lots of knowledge from the world-famous personas.
This Sunday, I thought of touching the financial pillar and for a long time, I admire this individual for sharing very clean and subtle knowledge about investment, insurance, and many other things which are super-essential for all of us down the lane.
Neeraj Arora, an Indian Chartered Accountant and a financial teacher who teaches on Investment, Income tax, auditing, and many other financial paradigms.
This article will be a compilation of Neeraj Arora's thoughts on Investment and Insurance. I have watched few interviews with him and would love to share the knowledge I learned from him. I will be giving a very short understanding of his interviews and will request you all, that in case you found this article helpful even in the slightest way, please go on and check his channel where he talked very beautifully about the MONEY.
Here we go:(No exaggeration and no new added words)
On Life Insurance:
- First, start with insurance.
- Everyone should definitely have a life insurance
- People should know more about term insurance
- Insurance is to cover the risk of your life
- Know the difference between medical and life insurance
- Medical insurance is for a year and more and life insurance is for life(means which covers your death)
On Term Insurance:
- Don't use insurance as an investment product
- Insurance should be used for life cover
- You should have valid income proof to avail of term insurance
- Take term insurance, if you are in the initial phase of earning
- If having a salary of around 6LPA, then term insurance can go up to 20 times your salary.
- The younger you are, the less premium charge you have to pay.
“I started by giving 8k/year and took 1cr of insurance (age27)”
- Term insurance is important, especially if you are in the job because, after a certain age, you will not get the term insurance
- Ask yourself, “what will your family have, after you have gone?” It's very essential
Scenario1: Imagine taking term insurance in which we are paying 8000 per year for the upcoming 40 years. And we are getting term insurance for 1 crore rupees. And your agent or your finance uncle will warn you by saying that,“ you will get nothing in maturity”. And this is the fact, that we will not get anything in the maturity. We are just giving 8000 per month for 40 consecutive years and if you are alive in your 65 or 70s, then you will get nothing. Will you take this?
95% will say NO because we are seeing the end result as NULL but we are not giving the importance that by giving only 8000 in a year we cover term insurance up to 1crore, 40 years down the lane we just spend 3–3.5 lakh rupees only which is literally nothing.
But the irony is, the agent will use this end result as against term insurance.
Yes, in the end, we will get nothing at the time of maturity but there is no impact by enrolling the term insurance.
In the worse case, if you passed away, then your family will get all the benefits. Think practical!
There are several term insurance plans where you will get something by the time of maturity but their premium will be high.
What happens to our money when we invest in something:
When you give money to any insurance plan, then money breaks into two parts:
1. The investment and
2. Risk cover
But in term insurance, the whole money gets into RISK COVER only and nowhere else. In case of any mishappening, your family will get the amount.
Q.Why we all don’t know about this Term Insurance and also the agent never talks about it?
A. The very main thing is, the commission is very less in it as the margin is very less. With only 8000 yearly plan, we are having 1cr of term insurance. Why on earth, the agent will share this insight to you.
” Awareness precedes the changes”
Q. What is the role of insurance in your life?
A. Your dependents(parents, kids) will get support monitory after you passed away.
But there is a catch in Term insurance. Once your net worth is crossing that amount which is more than sufficient for your family to run after you passed away, then there is no need for insurance.
We should study Term insurance.
Q. What amount of term insurance we should take?
Q. Till how long, we should take this?
Q. And when it is not required in life?
“Passive income is over-rated and active-income are under-rated”
Importance of Active Income over Passive Income:
- We always run for stock marketing and trading and blah blah, but we always ignore the initial capital, which comes from active-income only.
- Accumulation of initial capital is very important. And for that, we should have active income.
- There should be always a source for active income
“I am working because I want to, not because I have to.”
Finance and Our Family:
In our belongings, we never talk about the financial dimensions.
Common lines from our parents-
“You need school fees, we will give you.”
“You need college fees, we will manage somehow.”
Dad, what is insurance? — Do your business
Dad, should I invest in the stock market? — Who are you to even think of it?
In our family, there is a traditional mode of investment/saving, which is nothing but a traditional mode of killing money. That is a Fixed deposit.
Fixed deposit is like killing the value of money.
On Emergency Fund:
An emergency fund is very important in personal finance.
Q. What is an emergency fund?
A. You can able to run your next 6–7 months in an emergency from your liquid savings. In simple words, you have 6 months of a financial buffer.
Read and understand about the Emergency funds.
“Compounding is the 8th wonder”
and without patience, compounding can never be done
“We are in chain of immediate-gratification and with this, we are not making money”
Scenario2: Now with your earnings and all, suppose you spend 25000 in a month for everything and this is 2021 (including food, shelter, transportation, etc)
And from 40yrs ahead, this 25000 expense will change to 2,50,000 (with a 6% inflation rate and your living standard will rise accordingly) plus, at that time your job will not be there, which means no stable income. Accepting the fact that, you will live till your 80, then for these 20 years you need 2,50,000 per month to survive with no source of income. Here comes the important question:
In your 60, what amount of money you should be having so that you can spend 2 lakh every month?
And the answer is, minimum of 3 crores excluding the investment you have done in your 60s.
Now you must be thinking, that how an average Indian person will have this much amount in his or her 60? [Think more onto this…]
“Come out from this mentality, that: Our kids will take care of us in our 60s or 70s”
”start as early as possible”
“An investment of 21,000 with a return rate of 15%. For the first 25 years, it turns into 6lakh but the next 25 years, it changes to 2 crores.”
Read Anna Scheiber investment story:
” Why saving, why not investing?”
“The more the late you are in investing, your plan of honeymoon from Mauritius will shift to Mahabaleshwar”
On Index Fund:
Study about “Index fund”, if you want to start from somewhere in terms of investment.
Q. Why Index fund?
The return rate of the index fund will always be Inflation plus 4–5%, always.
Those who know nothing, even they can invest in an Index fund and study the growth.
And:
In the end, never say bad about your country…
Thank you for taking out your time and do encourage me to write more by clapping. Comment down your thoughts, your disagreement, your appreciation, anything.
Keep up the great work and more power and love to you.
Thank you!
- Gareeb CODER 👩💻
