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Fee Only Financial Planner in India (Updated 2020)

Did you land on this page searching for Fee Only Financial Planners in India?

Then one thing is very clear – you already know Fee Only Financial Planner or Fee Only SEBI-registered Investment Advisor is the best option when it comes to taking financial advice in India

Now let me tell something upfront. I, Dev Ashish is a Fee-Only SEBI-registered Investment Advisor (SEBI RIA) and Finance Planner.

But irrespective of whether you make me or somebody else as your financial advisor, please do understand that it is in your best interest to take financial advice only from Fee-Only SEBI-registered Investment Advisors.

And I don’t want to get into the debate of who is the best Fee Only Financial Planner or the Best Fee Only Investment Advisor in India. Because what is best for someone may not be best suited for someone else. I have written about it here at Best SEBI Registered Investment Advisor – How to Find?

But first and if you have doubts, then understand the who exactly is a fee only financial planner and what is the difference between Fee-Only Financial Planners and Fee-Based Financial Planners?

As the name suggests, a Fee-Only Financial Planner charges a fee from clients for making financial plan and providing investment advisory to them. He does not receive any kind of commissions/incentives from mutual fund houses, insurance companies or any other financial company. Fee-only financial advisors only earn money through the fees  their clients pay.

And since he is in no way associated (or dependent for income) on Mutual Fund Companies, Insurance Companies, etc. you can be sure that the advice is conflict-free and unbiased.

On the other hand are those self-proclaimed financial advisors who in reality, are just sales-driven bank relationship managers, mutual fund distributors and insurance agents. They may seem to offer free financial advice. But fact is that they receive commissions from mutual fund houses and insurance companies to sell their products. And when you work with such fee-based planners, you can be sure that their fee advice is tailored to push their products mindlessly without trying to understand the client’s real financial requirements. The commissions these MF distributors and Agents get leads to an obvious conflict of interest. These people will always push products that earn them the best commissions.

And to give you a taste of how comprehensive a proper Fee-Only Financial Planning engagement can be and how much better it is from the free advice you get often, I suggest you do check Stable Investor’s Financial Planning Service.

You will be surprised to see how creating a proper Financial Plan can really sort out your financial life and help achieve some real financial goals that matter to you.

Not everybody needs a Financial Planner. But if you do need one, then I suggest you work only with SEBI Registered Investment Adviser (SEBI RIA). And be reminded that a Fee Only Financial Planner or a Fee Only Investment Advisor is better for you. Don’t get tempted by so-called free (wrong and biased) advice given by the Bank Managers, Mutual Fund Agents or Insurance Agents.

Are you looking for a List of Fee-only Financial Planners in India? Or are you looking for:

  • Fee Only Financial Planner Mumbai, or
  • Fee Only Financial Planner Bangalore, or
  • Fee Only Financial Planner Hyderabad, or
  • Fee Only Financial Planner Pune, or
  • Fee Only Financial Planner Chennai, or
  • Fee Only Financial Planner Delhi, or
  • Fee Only Financial Planner Gurgaon, or
  • Fee Only Financial Planner Noida, or
  • Fee Only Financial Planner Kolkata, or
  • Fee Only Financial Planner Near Me

Then you can contact Dev Ashish, who is a SEBI Registered Fee Only Investment Advisor and Financial Planner who works with clients from across India. Due to the use of Technology (online and telephonic), distances are no longer a barrier. Investment Advisory and Financial Planning can easily be delivered online. So if you want to really take control of your finances, maybe its time to contact me.

And let me remind you. Or rather ask you.

Do you really understand why you should not take free advice from Banks, Mutual Fund or Insurance agents?

Because they are just product sellers who want to earn the highest possible commissions. So they will sell you the product which gives them achieve their sales targets and help them earn the highest possible commission irrespective of whether the product suits you or not. For example – If they have two products A (gives 1.5% commission) and B (gives only 0.5% commission), then you can be sure that they will convince you to buy A – as it gives more commission. And that is even if they know (and chose not to tell) that B is better suited for you. It is for this reason that there are so many cases of misselling.

Another important aspect is that if you take random so-called advice from bank RMs, MF agents and Insurance agents, your portfolio will be scattered and directionless. And that does not help you. At the end of the day, you want your money to help you achieve your financial goals. Plain and simple. Right? And that is what Goal-based Investing is all about.

The MF Agents, Banks RMs and Insurance Agents all give biased advice in their fields (and concerning only the products they are selling). But once you take proper advice from Fee Only Financial Planner, he will help you see the big picture of your overall financial life and help fit all the pieces of the financial jigsaw puzzle.

Finding an investment advisor or financial who acts in your best interests is really important for you.

Dev Ashish is a ‘Fee-Only’ SEBI Registered Investment Advisor and Financial Planner. Dev or StableInvestor.com only gets paid by the client and there are no hidden commissions or sales incentives to influence investment recommendations and financial plan. So if you decide to engage for:

then you can be sure that you will get the proper advice which is best and customized for your unique financial situation and more importantly, unbiased and conflict-free (as there are no commissions or sales incentives) and most importantly, tailored to help you achieve your real financial goals.

How can you contact me?

 

Use this simple form to begin the conversation with Fee Only Financial Planner India 2020.

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Do you want a Free Financial Plan?

Free – a word that attracts everyone. And when it comes to financial advice, the word ‘FREE’ has done more damage than even big stock market crashes.

I know this sounds odd but I am not lying.

The free financial plan, free financial advice or free investment advice isn’t actually free.

It always has to be paid.

Either in the form of the hidden commissions MF agents get & which reduces investor returns. Or it may be in the form of poor returns from wrong products sold by the insurance agents and insurance-selling uncles. And then, there are those friendly (or rather irritating) bank Relationship Managers, who call or show up every few months and try to sell you something or the other. Read this to know why you shouldn’t listen to bank RMs.

So my first small piece of advice is to stop looking for the free financial plan. Because if you do, you will end up in the hands of above-mentioned people who will mis-sell you something immediately!

To be honest, handling your personal finances isn’t very tough. Have a look at this 209 Word Financial Plan. You will realize it’s not that difficult.

But the problem is that many know what is the right thing to do. But still, very few do what’s right for them. And for one reason or the other, they keep making financial mistakes which stops them from growing wealthy in real sense.

This is where a good financial planner can help.

He will charge you a fee no doubt.

And in your interest, its best to find a planner who does charge fee as that way, you can be sure that he is not giving you biased advice to sell commission-earning financial products. So find yourself a Fee Only SEBI Registered Financial Planner.

How does this work?

It works on the simple yet powerful principle of Goal-based investing. Here is Super-detailed Guide on Goal-based Investing.

Instead of simply selling random financial products, a good financial planner will put your financial goals at the centre of the planning process. And once your goals are identified and prioritized (use this Free Excel-based Goal Planner if you want to try it on your own), the advisor will create a solid + actionable financial plan that tells you:

  • How much will each of your goals cost in future?
  • How much to invest periodically?
  • When exactly to invest (and for how long)?
  • Where to invest?

Aren’t these the questions you really wanted answers to?

A good financial planner can really help you take control of your financial life. Here is one example of how a financial plan sorts someone’s life.

And you know what? One of the biggest disadvantages of consuming free, mass-produced financial advice is that often it is too broad in scope and fails to account for each individual’s unique situation. And this is what most people fail to recognize.

So please stop looking for free financial planning and retirement planning advice. And forget about the free financial plan. It will only delay what you will realize much later – that free financial advice does not work.

And managing your personal finances is a life-long process full of challenges, opportunities and pitfalls. Though not everyone may require financial advice, there are still thousands who would actually benefit from getting some proper and effective financial advice.

I am a SEBI Registered Financial Planner. So if you want to have an idea about what happens in financial planning, then do check the detailed:

Stable Investor’s Goal-based Financial Planning Service

 

I won’t take more of your time now. I hope you do see why planning your finances as early as possible can help you.

People will still continue to search for free financial planning plan India or free financial advisor India and whatnot. We cannot stop them. But believe me, it’s not worth it. If you are still not sure whether you really need a financial planner, then I suggest you read the following:

Running out of money before running out of Years

Longevity risk retirement plan

Running out of Money before running out of Years.

Read that again.

It’s a big risk that many young people face today. But unfortunately, they are unaware of it.

Suppose you have done some bit of retirement planning and have been saving money for your retirement at 60. You expect the retirement savings to last until the age of 75 (just assuming). Now the money which you have saved up is enough to help you live from 60 to 75.

But what if you outlive that figure of 75?

It’s possible.

And this is exactly the risk I am talking about.

Outliving your savings. Or technically speaking, the Longevity Risk.

No doubt you would be lucky to live longer than your own estimates. But these estimates are exactly what all your retirement planning calculations are based on.

So in case you plan (or God thinks you deserve) to live longer than your expectations, you are in for some big trouble very late in life. 🙂

Think about it… having no or very little money when you are about to touch 80. Scary!

Of course many will die much sooner than their expected lifespans. But many others won’t. That’s how averages work.

But with medical advancements and better healthcare, living up to the 80s is increasingly becoming common. In fact, it’s possible that our generation (or the next one) will easily live up to the late 90s if not 100s. That’s not all. If you are from a fairly decent financial background and have good health, your life expectancy might be at least a decade or two more than the average Indian life expectancy.

So…what does it mean?

It means that…

You Need to Save More for Retirement

To avoid running out of money before you die, you need to save more. And here are some more points to help you realize this fact:

  • Unlike previous generations, our retirements are expected to last longer. Maybe 20 or even 30-40 years.
  • Previous generations also had the comfort of pensions. Most of us are on our own with almost no social security.
  • Many believe that when they retire, their expenses will go down. Easy in theory but very difficult in practice. And not correct unless the plan is to drastically downgrade the living standards. Changing yourself (and your lifestyle) once you have crossed 60 is not easy.
  • Spending doesn’t remain same throughout retirement. Initially, you might want to spend more money on travelling. But later on, as your health starts getting in way of your life adventures, you would be spending more on healthcare. So expenses are pretty dynamic and generally don’t go down much.
  • And please don’t forget inflation. Unlike us, Inflation never retires. 🙂 It will continue to increase the cost of goods and services that you would need in retirement.

Why do You need to be in Equities?

It’s clear that your retirement corpus has to last for 20 or 30 years. And with expenses not expected to reduce much, your savings and investments now necessarily need to earn better returns.

And when it comes to earning inflation-beating returns, there is just one option – Equity. You just have to take exposure to equity for your retirement savings. Even if you are conservative, you ‘need to do it’ as that’s your only viable option. Provident fund options like EPF / PPF / VPF alone would not be sufficient for your retirement.

Planning for Retirement Properly

Most people (till very late) keep saving whatever they can. Or if their employer is deducting something from their salaries (like EPF/EPS/etc.), they consider it to be sufficient for retirement savings.

But that doesn’t work in reality. And by the time such people realize it, it’s already very late.

If you want to do your retirement planning properly, you need to identify current expenses (that will be relevant in retirement) and those which might start later on – and then project them to the future. This will tell you how much you need to save for retirement.

See, the aim of retirement planning is to help you accumulate enough money so that you can maintain your chosen standard of living even in your retired life. If done properly, retirement planning takes care of various risks like the one discussed earlier this post too (longevity risk).

So “How much do I need to save for retirement?”

There is no one correct answer here.

Infact, the answer is different for different people. That’s because it depends on a number of factors like:

  • When do you wish to (or will) retire?
  • What are your current expenses that will remain applicable even in retirement?
  • What are expenses that will start in your retirement (ex – senior healthcare, etc.)
  • What is your current age?
  • Till what age do you expect to live on your retirement savings? What about your spouse? What if she outlives you?
  • Can you start saving for retirement from today itself or later?
  • How much can you invest periodically?
  • Do you already have some savings for retirement?
  • Do you expect some extra income in retirement from your side-projects or part-time work?

Since the answer to all these questions will be different for different people, the answer to “How much do I need to save for retirement?” will also be unique for everyone.

Proper retirement planning can really help in getting such answers.

And never make the mistake of taking random numbers (like Rs 1 Crore or Rs 3 crore) for your target retirement corpus. If the number is underestimated, you will only realize your mistake when it’s too late. If it’s overestimated, you will be saving extra money uselessly.

And you don’t want to be in either situation. 🙂

Suggested Reading – Your Children are not your Retirement Fund

Source – https://goo.gl/Y77fST

Final Thoughts

If you are young (I mean up to the mid-30s), you might feel that it’s too early to start retirement planning.

But I can tell you it is not.

Had you started earlier, it would have been much better. Here is an interesting proof. But if you still haven’t, then please start as soon as possible. You really don’t understand what risk you are taking by delaying.

Having said that, there are just too many variables that can impact a retirement plan. Read this article on retirement uncertainties and why retirement planning is called the nastiest problem in finance to get an idea. But even though it’s impossible to plan perfectly everything in advance, it still helps as it moves you slowly towards a reasonably acceptable scenario.

And please remember that retirement planning is important because unlike other financial goals, you will not get a loan for retirement. So you are on your own.

Best SEBI Registered Investment Advisor in India – How to Find?

So you are looking for the Best SEBI Registered Investment Advisor in India? Or you are looking for Sebi Registered Investment Advisers list 2020. Or maybe you are just looking for fee-only Investment Advisors or Fee-only Financial Planners near you?

But to be fair, there are several good investment advisers and it may be difficult to say who is the best among them.

Why? Because it’s quite possible that one SEBI Registered Investment Advisor may be good for someone but another adviser may be better for someone else. So it also depends on the investor or the client’s requirements which decides who is the best SEBI registered Investment Advisor for them.

I, Dev Ashish am a SEBI registered Investment Advisor. I provide fee-only investment advisory and financial planning services to small investors and HNIs.

But why should you only consider SEBI registered Investment Advisor to take investment advice? After all, there are many others who are ready to give advice – like bank relationship managers, mutual fund distributors, IFAs and insurance agents.

Why is it that its best for you to go only to a SEBI registered Investment Adviser?

A good or the best SEBI Registered Investment Advisor will always give you proper, conflict-free investment advice which is customized as per your unique requirements and financial goals.

Why conflict-free and unbiased advice?

Because the best SEBI Registered Investment Advisor does not receive hidden commissions/charges (like distributors, IFAs and agents get) which can bias their investment advice.

Instead, these Investment Advisors get fees directly from the clients.

This means that the unbiased advice which SEBI registered Investment Advisor give is the only source of income for them and they are not dependent on any other company (AMC, Insurance Company, etc.).

A good Investment Advisor will work with the clients to prepare a well-thought-out, clear, actionable goal-based investment plan. And it would not be an exaggeration to say that a well-thought-out financial plan can really sort out your financial life [Must Read].

And who doesn’t want to have a sorted and relaxed financial life?

I think everyone does want that – as it is rightly said: You must gain control over your money or the lack of it will forever control you.

Now you may ask that How is a SEBI Registered Investment Advisor different from Agents and Distributors who (wrongly) seem to be giving free financial advice?

In India, when it comes to getting financial advice, people feel that free advice is good enough. But that is a mistake and which costs a lot in the long run. Why? Because when agents and distributors give you their so-called free financial advice, then they are only pushing products which give them big commissions. They are not concerned whether the product is suitable for you or not. They are just product sellers and not real financial advisors.

I repeat as this is important – the insurance agents, mutual fund distributors, IFAs don’t charge you any fees. But they do get fat commissions by selling various financial products like mutual funds, insurance, structured products.

And they will use random terms like personal finance advisor, financial advisor, etc. to seem legitimate. But the fact is, that SEBI only allows RIAs to give comprehensive advice to investors. Others (like distributors, IFAs, agents) are just product sellers who should only be giving incidental advice, i.e. they just sell their products.

I suggest that you also read a note where I wrote in detail about Is Your Financial advisor really on your Side?

If you are looking to choose the Best SEBI Registered Investment Advisor, you first need to know that for all RIAs, i.e. Registered Investment Advisors, it is mandatory to get SEBI registration. So you should always check if the investment advisor is registered with SEBI or not on the list of SEBI Registered Investment Advisors on SEBI’s website.

But since you need to pay the fee, you might ask whether these SEBI Registered Investment Advisors really worth the fee they charge?

Since SEBI Registered Investment Advisors charge fees directly from investors, it can be said that the probability of them giving unbiased, conflict-free and proper advice is very high. And that is important. You may want to save a few thousand by trying to take free advice of agents and other such people. But this is the case of being penny wise pound foolish.

Remember, a good investment advisor can be the difference between meeting or missing your financial goals. And it won’t be wrong to say that a few important pieces of financial advice from a good investment advisor can offset many years of the fee charged by them.

As a SEBI Registered Investment Advisor, I can help you build a proper Financial Plan for your financial goals. In addition, I also work with affluent and HNI clients to create a proper investment strategy for their large portfolios.

I am sure that as an investor, it doesn’t matter whether you are a big investor or a small investor. You would naturally want to and would look for the best SEBI registered investment advisor in India to help you with your financial goals and portfolio. Isn’t it?

There are several good investment advisor working in India and to be fair, you need to do the due diligence to find out which one is best suited for you. You can check the list of SEBI Registered Investment Advisors. If you are searching for investment advisor near me, then understand that the nature of investment advice is such that it can be given via online or telephonic mode as well. I myself being a SEBI registered Investment Advisor (SEBI registration number INA100005241) handle clients from across India.

If you are interested in discussing with me to take look at your portfolio or help you with your financial goals, you can use this form to contact me.

Wrong financial advice can put you in a seriously bad situation. And you don’t want it. Right? What you want is to get proper investment advice which is unbiased and not influenced by commissions. In the interest of the investor community, SEBI insists that all investors only deal with registered investment advisors. Stable Investor by Dev Ashish is a popular SEBI Registered Investment Advisor.

In your search for the best SEBI registered investment advisor in India 2020, you must find out the one which is trustworthy, competent and who shows you the real picture instead of telling you only what you want to hear. How to check SEBI registered investment advisor or advisory company? Just check this alphabetical list of registered investment advisors on SEBI’s website.

What is Goal-based Financial Planning Anyway?

goal based financial planning

When it comes to investing, most people are concerned whether their investments doing good – with respect to a benchmark or not (this benchmark can be an index, a friend or even a well-to-do family member).

But ask them about whether their investments are on track to achieve their real financial goals and they would be clueless.

They might have some idea but its mostly vague.

The sad reality is that most people don’t invest for goals. The general idea of investing is related to the need to make more money, without any specific target.

Though aiming for ‘more money or returns’ cannot exactly be called as wrong when it comes to investing, fact is that it is equivalent to shooting in the dark.

Ideally, we should know what we are aiming for.

Goals.

Do you have goals in life?

I bet you do.

Unfortunately, most life goals require money.

Now combine these two things – i) goals and ii) your investments.

And answer this question now:

Your life goals are important. Since many of them need a lot of money, is your investing helping you achieve those life goals?

You might say that since your investments are beating the markets, you will achieve your life (financial) goals.

But that is not true.

You will only achieve your goals if you are investing the right amount and it is earning the right returns.

Wildly beating markets when your investment amount is not sufficient won’t help you achieve your financial goals.

And that is where Goal Based Investing comes into the picture.

I will talk about this brilliant approach in a bit.

But before that, let me be frank with you. If your investments are doing well today, you might feel that all this talk about financial goals and investing according to a goal-based plan is nonsense. But believe me, it works. And more importantly, it helps you achieve things you really want.

And I am sure you are human enough to not just want to beat stock markets. You cannot eat relative (over)performance. Isn’t it?

You would definitely have normal goals like owning a house, travelling, saving for children, retirement planning for retiring at age of 60 (or even better – planning for early retirement), etc.

Lets move on..

Are You Making this Big Financial Mistake Too?

You have money (lumpsum or regular surplus) that you want to invest. You now want to know which are the good mutual funds or stocks that you can invest in. Or maybe, you want the names of some safe debt funds to park your money.

Haven’t you thought on those lines?

I bet you have.

Most people think that picking the right mutual funds (or stocks) is the most important thing when it comes to investing.

And it is indeed important.

But its not the most important thing.

Since I started my investment advisory practice, many people have reached out to me to ask for stock tips and ‘best mutual fund’ kind of recommendations. I explain them that without having any information about what their future needs are, I cannot morally tell them anything useful. And this surprises them.

But I don’t blame them completely.

Indian financial industry (which is full of agents and distributors having incentives that are not totally aligned with those of clients) is to be blamed too. Instead of first understanding what the client actually wants to do with the investment in future, “the industry operates the other way around – products or strategies are promoted first, and “financial goals” are just words on a brochure.” [The Reformed Broker].

These people “prescribe before they diagnose. They first create a product or portfolio and then try to convince people to invest in it. They try to make a sale without first gaining an understanding of their potential client’s circumstances. It’s completely backwards.” [Ben Carlson – Wealth of Common Sense]

Coming back to the point here…

Before even trying to find the best mutual funds or stocks, its more important to know why you are investing first?

And by ‘why’, I mean… ‘Really WHY?

I am sure it is not to just beat the market or others.

Think about what will you do with all the money later on? What do you want to spend the money on? What are your main goals for saving and investing?

Think…think…

Buying a house or making a downpayment for it. Funding children’s education. Retiring well and wealthy. Buying car(s). Going on foreign trips every couple of years. Whatever it is.

That’s it!

Those are some good examples of real financial goals.

Knowing the goal is most important.

But why are we even talking about Goals?

Money is simply an enabler.

Having tons of money and being the richest man in graveyard is useless. Money should help you achieve your life goals.

What can be your goals?

Any or all of the following:

  • Buying a house
  • Buying a car
  • Children’s education
  • Children’s marriage
  • Retirement planning
  • Aiming for early retirement (and tell your boss to F*** off)
  • International holiday (one time or recurring)
  • Purchasing other high-value items like a diamond ring for your wife
  • Putting an Emergency Fund in place
  • Modifying your house
  • Starting a business

Note – Tax Saving is not a goal. It is a side-effect of good financial planning. (Never invest in random and unsuitable financial products just to save taxes. You will end up losing much more than what you save in taxes.)

Having a goal helps you know exactly why you are doing something.

In investing, having well-defined financial goals help tell you the following:

  • How much you need to achieve this goal today?
  • How much more will the goal cost in future?
  • How much time is left to save and invest for the goal?
  • How much you need to invest (regularly or one time) to achieve the goal?

And these are important questions.

Now do a small mental exercise with me.

Pick a goal you have (let say you need to buy a house). Now try answering the above mentioned four question in context of the goal you picked.

If you don’t have answer to all these questions, then goal based financial planning can help you figure out everything you need to. And mind you, finding the answers to these questions is the first step towards increasing the chances of your achieving the goal.

So why goals?

Because they help keep the ‘real need’ of money on top of your mind. And that is important. To ensure that you stay motivated to keep investing sensibly for long time.

Talking of goals, it is important to understand that your (life) goals can be different from others. They can be smaller or larger. They may need more or less money. Here it is important to understand that your goals are yours.

personal financial planning goals

There is no point comparing it with others. And as Carl Richard says, “We run into problems, when we start comparing our goals to everyone else’s goals, or worse, start adopting them as our own.”

It is like trying to enter another rat race. You are a rat even if you win.

Further, “Competing over something as personal as personal finance switches our focus from what actually matters to us in our real lives to the goal of simply beating someone else. It increases the odds that we’ll make a decision in pursuit of winning, but as a result, it may end up costing us what matters most to us. That seems like a high price to pay.” (When Competition Obscures Financial Goals)

That was about goals.

So finally…

What is Goal Based Investing Anyway?

The philosophical idea behind the strategy of goal based investment planning is that – it should help people achieve their life goals as and when they want.

Success of a goal based investment strategy is measured by a person’s progress towards achieving each stated financial goal.

Risk too is not viewed as outperforming or under performing a benchmark. It is instead viewed as the probable failure to fully achieve each goal.

And this actually makes a lot of sense.

The objective here is not to be the best investor in the world. But to fulfill most of your financial goals without taking undue risks.

So in bigger scheme of things, the biggest risk for you as an investor is being in a situation where you cannot achieve your life goals. And then, beating the benchmarks might seem useless. Remember that you are more than your investments or assets. You are you.

Goal based investing differs from traditional investing methodologies, where financial performance is defined as a return against an investment benchmark.

Also, instead of pooling all assets into a single portfolio, separate goal-specific investment portfolios can be created for each goal. If that sounds a little cumbersome at first, then let me tell you that its not that difficult. Its fairly intuitive and can be easily handled. But I will get back to it in sometime.

Suggested Readings (detailed):

By now it must be broadly clear to you as to what goal based investing is and why it makes sense. If not, don’t worry. I will be getting into more details in later part of this post. And its not difficult to understand.

But for now, lets try and understand two simple core ideas that are used to create the real action plan (how to invest, where to invest, till when to invest, etc.) based on the philosophy of goal based investing.

Two Core Ideas

Core Idea #1

When you are investing for different goals, the biggest factor that helps form a reasonably reliable investment strategy is – the Time horizon for the goal (time available before goal day).

The amount of time available will define the type of risk you can take and the assets (products) you should be investing in.

So even though equity has the potential to give highest returns, it is not suitable for short term. Its the best way to invest for long term goals. As for the short-term goals, debt is a better option.

With respect to time available, there are broadly three types of goals:

Short Term Goals (less than 5 years)

Return of capital is more important than return on capital for these goals. Debt products are more suitable as a loss in such a small time frame might not be easy to recover from, in time to meet the financial goals.

Long Term Goals (> 10 years)

Equity is the best asset class for long term. It has historically given highest average returns for this time horizon and there is no doubt that it won’t be repeated in future too. So ideally, for goals that are more than 10 years away, major portion of the investments should be in equity.

Medium Term Goals (5 to 10 years)

For these goals, one can balance the need for safety of capital with that of need for higher returns. So one can invest in both equity (high risk) and debt (low risk) assets in a balanced way.

To sum it up, short term goals demand less risk to be taken. Long term goals allow higher risks to be taken. For medium term, its better to balance the risky and safe assets.

Please note that even though ‘time available for the goal’ is the most important factor, it is not the only factor. Several other factors like risk appetite, overall financial situation of the individual, income stability, etc. also play a role in creating the investment strategy.

Lets move on to the second core idea now.

Core Idea #2

A person can have many life goals. And honestly, some can be quite unreasonable and beyond the reach given person’s means and perceived financial ability.

So the second core idea is to identify goals that are important. And for that, you need to separate your goals depending on whether they are Needs or Wants.

Or rather call them:

  • Must-Achieve Goals (no option but to achieve)
  • Good-to-Achieve Goals (can delay, reduce or not achieve too)

Lets take a few examples:

Must-Achieve Goals: Retirement Savings, Children’s Education (assuming you want to fund it), Buying first house, etc.

For these goals, failure is not an option. Or it might hurt to fail or underachieve these goals. So you might not be willing to take a lot of risk with these goals.

Good-to-Achieve Goals: International Holiday, Big car or SUV, 2nd house, etc.

These are discretionary goals and so you have some leeway. You can delay them or reduce the budget if you don’t have enough money. In worst case, you can drop these goals too. But if you are investing and these goals are sufficiently distant in future, you can take higher risks.

financial goals types

It is worth noting that this exercise (of differentiating between need and want) will take time. It can even take few days if you really think through it alongwith your family (most importantly spouse). You might even have to drop some goals (i.e. discretionary ones / wants) as they may be beyond your financial ability and since you already have other more important ‘Must-Achieve Goals’ to take care of.

Most times, you as an investor will have multiple goals to invest for. And many times, quite a few of your goals would be conflicting with each other. Like whether to save for that international vacation you want to go to or to make prepayments for your home loan. You only have a limited money to invest (sadly). So you need to prioritize your goals accordingly.

Another very important point to understand about financial goals is that all goals will not have the same risk capacities. (Yes – goals too have risk capacities just like you as investor have risk tolerance.)

A goal that has a low risk capacity is one where the consequences of not achieving the goal can be horrific. An example of a goal with low risk capacity is emergency fund. You don’t park your emergency fund with a view to earn high returns. More important is to have access to the money when you want (even at a very short notice). By not taking risk with it, you are ensuring that your emergency fund will not shrink due to market ups and downs, just at the time you need it the most.

On the other hand, a goal can have a high risk capacity if its investment horizon is long enough to allow for achievement of the goal through ups and downs of the markets, and/or if the goal isn’t completely compromised should markets do poorly. An example of high risk capacity goal can be purchasing a holiday home on a hill station. In most cases, it’s fairly long term and so your portfolio has the time to weather the market’s ups and downs. In addition, this goal is discretionary in nature and hence, you can take higher risk with it.

As you can see, an investment approach that is driven by goals adds clarity to your financial life.

So to sum up the core ideas (1 and 2), goal based investing encourages you to identify your important goals, know how much time is available and what are the suitable asset classes to invest for them, whether you can take risk with those goals or not.

Essentially, you will be creating buckets of individual goals depending on available time horizon and risk tolerance for each.

short medium long term financial goals

When you start investing for each of these goals, you will be tracking the progress for each one of them separately instead of portfolio’s overall performance.

This might sound a little odd at first but this is what will help you stay on track to achieve your financial goals in real sense. “By tracking each goal separately so that they can be monitored more accurately, investors will have a much clearer picture of how well they are succeeding.” [Source]

But beware, this does not mean that goal-based investing guarantees goal achievement or profits or anything. There are no guarantees in financial landscape. Remember that.

So moving on, to achieve all this, you need to go for goal based financial planning. You can do it yourself or take help of any trustworthy investment advisor.

How to do Goal-based investing? Here is a simple 7-Step Process to develop a Financial Plan

If all this is making sense to you now, then it means you are concerned about something more than just beating stock market returns.

You want to take an investment approach that considers and prioritizes all your major life goals.

So here is a simple 7-step process that tells you how to create a financial plan that uses your financial goals as the key driver:

Step 1 – List down all financial goals (refer to core idea #2 to decide which ones are real goals and which aren’t)

Step 2 – Against each goal, put the time (years) left before the goal is to be achieved.

Step 3 – Note down the cost of the goal today (money needed if the goal was to be paid for today).

Step 4 – Using reasonable inflation %, calculate the future cost of the goal.

Step 5 – Depending on how distant in future the goal is (core idea #1), chose the mix of asset class you should be investing in (and its expected returns).

Step 6 – Calculate how much you need to save each month for this goal. This requires some tricky financial maths (you might need online calculators or find some good financial advisor whom you can trust). 

Step 7 – Start investing (obviously).

Some important things to note:

  • Don’t guess the cost of goal today. Reach out to people who are paying for those goals today to know the real numbers.
  • Don’t underestimate inflation (and it can be different for different goals and much more than what RBI publishes periodically).
  • Like you income increases every year (hopefully), the amount you can invest too should increase every year. This should be considered in step 6.
  • For chosing the right asset class mix and products for investing, use core idea 1 (consider no or very low equity for short term goals; higher equity component for long term goals; balanced mix for medium term goals)
  • Don’t consider returns more than 12% for equity and 8% for debt. Many people consider 15% or even more. That is very risky. (read why below)

Very important:

Calculations in step #4 and #6 depend on two very important assumptions:

  • Expected rate of inflation
  • Expected rate of return from investments

And people make the mistake of underestimating inflation and overestimating return from investments.

Even a small change in these numbers can have a big impact on the amount needed to be invested every month, especially for long term goals.

So if you use lower-than-actual inflation % and higher than reasonable return expectations from your investments, it will drastically reduce the investments amount needed (in step 6). And this will paint a false picture that you can invest very less and still achieve your financial goals. This is a sure shot recipe for financial disaster.

So its better to lower your expectations, even if it means that you need to invest more. Its always better to be surprised positively in future than negatively when it comes to financial goals.

Will it really work? Any Guarantees?

That is a very important question to ask.

After all, whether the goal-based investment plan works or not will only become evident after few years. And it might be very late for you at that time. Isn’t it?

So you are right in asking this question.

Take a simple example from your childhood here.

Suppose you were to give an exam and had to study for it. Inspite of having studied the entire syllabus, you can still get questions in your exam that you cant answer. Isn’t it? But if you don’t prepare well (i.e. leave out a major portion of your syllabus while preparation), you can be reasonably sure that you will not pass.

Same is the case with goal based investing.

An investment plan that is prepared using reasonable assumptions (actual cost today, inflation, returns from investments), is expected to work in most cases.

There is no precise figure that I can quote. But its not 100% (remember no guarantees). My guess is that it will work about 80% of the time.

But it’s not all-or-nothing here and doesn’t mean that you will completely fail in remaining 20% of the time. In the remaining 20% scenarios, you might just fall short of your target, but not miss it completely. So if lets say your goal for child’s education was to have Rs 50 lac after 15 years, maybe you will have Rs 40-45 lacs. You can easily bridge that gap with education loan. Or if it’s a discretionary goal (like international holiday), you can reduce the budget or postpone it a little.

Having said that, there is an inherent advantage when it comes to goal based financial planning.

When you set up different investment plans for different financial goals, each portfolio will differ from one another.

A typical set of different goals (with investment plan) might look something like this:

sample financial plan

Knowing how much to invest for different goals ensures that you don’t over or under invest for any particular goal. This ensure that you are not compromising one goal with respect to other (unless you mid-way decide that goal is not worth achieving itself).

This goal-based structure ensures that you are always keeping a track of where you are with respect to your goals. And at regular period reviews, you can assess whether there is a need to take corrective action or not.

A goals-based financial planning process can pay off better in the long run compared to more traditional strategies.

But most people are unable to give weightage to superiority of investing with a long term goal based plan as they are in a short-term performance mentality. They want to see quick results and want to become rich overnight. But that doesn’t happen. And honestly, its tough to change that mindset.

But then, onus of achieving their life goals is on people themselves. Nobody can help them unless they allow themselves to be helped.

Such people need to be objective enough to see what works and what doesn’t. And if they have been investing using traditional methods for years and aren’t satisfied with results, then maybe they need to explore other options (like goal based investing).

A whitepaper titled Does Goals-Based Investing Help Achieve Better Investor Outcomes? by IMCA (Investment Management Consultants Association) brings this point clearly:

Having spent time identifying goals, time horizons, and degrees of urgency of each goal, investors have taken a huge step toward a better understanding of their relationship with their wealth. Too often, even for very affluent families, there is a profound disconnect between “my wealth” and “what it does for me.”

Going through the process of identifying what proportion of current assets is required to meet each and every goal helps change that very rough perception to a real sense of what the wealth is doing to and for the investor.

But not everyone is comfortable keeping a separate portfolio for different goals. The argument is that it is cumbersome. This is true to an extent if you have a large number of goals with different investment requirements. To circumvent this problem, you can club goals that are similar in risk profile and time horizons (like children’s higher education + children’s marriage).

Then there are experts like Michael Kitces who feel that goal based investing focuses a lot on goals – something that many people are not very sure about. He says that that “in practice the goals-based approach doesn’t always go as smoothly as hoped. Some clients haven’t crafted their goals yet in the first place, while others have goals that are wildly unrealistic.”

I agree on this to an extent.

Being a registered investment advisor myself, I have seen people face problems identifying and rationalizing their own financial goals.

Many have never really thought about it before. If you ask them, they might give you some basic goals like saving for retirement. (Many times, they will counter-question immediately with questions like how much money do I need to retire at 60? Or how much is needed to retire at 50 or even 40?)

But retirement planning is not the only financial goal for most people. There are several other important goals on way to retirement.

And sadly, many people have no real plan to achieve them. They need sufficient hand-holding to help them identify and prioritize all their goals.

At times, many of the goals are wildly inappropriate given their income, assets and ongoing savings.

unrealistic financial goals.jpg

But having said that, I also feel that it is actually the responsibility of investment and financial advisors to help clients articulate their future goals and then provide recommendations for how the clients can best achieve them.

So practically speaking, goal planning and rationalization is a two-way relation between client and financial advisor. And this is the reason I am a little skeptical about the extent to which Robo-Advisors can help clients beyond an extent.

To get a more advanced and complete perspective of goal based financial planning, you can also read this and this (though these are slightly advanced).

So…

What should you do NOW? And especially if you are Young?

I have already written enough about importance and practicality of goal based investing for common people like us. So I won’t go into details again. The exact process too has been covered in one of the above sections (titled 7-Step Process).

One suggestion that I will make now is that since goal setting is extremely important part of the process, do not rush into identifying goals. I mean – don’t get this step wrong.

Hastily constructed, ill-conceived financial planning goals or goals-copied-from-others will do more harm than good as they can take you in wrong direction.

Most important thing for you is to START NOW.

No matter where you are and what your life stage, you need to start.

start investing now

If you are young, then you have an advantage.

You can plan for really long term and achieve more by saving less. Yes. That correct. You can achieve more by saving less (Proof – Investing for 10 years pays more than investing for 30 years). And it happens because you give your investments more time to grow and allow compounding to show its magic.

So..

  • Think about your life goals.
  • Chose few important ones among them as financial goals
  • Create separate investment plan for each financial goal
  • Track them periodically and individually

What if goals or your life situation changes?

That is certainly possible.

Goals are dynamic and can change depending on your life stage. Also because we don’t know how life will turn out in the long term. Therefore it is very important to re-visit all your financial planning goals periodically (atleast annually) and make course corrections and tweak your strategy as the situation demands.

I will conclude now.

I am a stock investor myself. So I cannot deny that beating benchmarks doesn’t give me a high. Its an awesome feeling indeed. But I am also a regular guy with common financial goals. For which, I don’t want to take big risks.

So beating benchmarks is fine. But goal achievement is important too.

And so, if my goal-based investment portfolio helps me achieve my goals, it has done its job.

For most people, saying (at the end of life) that you beat Sensex by 2% or 3% doesn’t mean much. But as Ashvin Chhabra (author of The Aspirational Investor) said, “’I invested well, I had a nice house, my kids went to a good school,’ – that’s something.”

I personally believe that goal based investing gives people a better chance of reaching their financial goals. And this approach to create a financial plan can provide more utility-adjusted wealth in the long run.

I myself implement it for one of my main goals – F.I.R.E.

And unless you are a great investor yourself (and that’s easier said than done), approaching investing without a goal based perspective will make it difficult to achieve long-term success in your personal financial life.

Just remember that properly investing according to a financial plan based on goals, can really help you pursue personally meaningful goals. And since the objective is to minimize the risk of not reaching your goal and not just to outperform a benchmark, it makes a whole lot of sense.

Think about it.

If you have any questions related to goal based investing or financial planning, do contact me using this form or drop a mail at dev@stableinvestor.com

Done Your Tax Planning? But what about Financial (Investment) Planning?

Tax Planning Vs Financial Planning

For most people, tax planning and investment planning are one and the same things.

“I have already utilized the full limit of Section 80C. What else is left to invest for now?” – was the response of a friend, when I asked about his investments.

This mindset is not uncommon. Most people approach tax planning in a way that is exact opposite of what it ideally should be.

Tax planning is important no doubt. But it should be a part of the overall financial planning exercise and not just an end in itself. To put it simply:

Tax-savings should be the desired side effect of implementing a well thought out financial plan.

But unfortunately, most people scramble to buy whatever tax-saving products they can buy at the last moment (in March). All they want is to get the maximum possible income tax benefits. Whether the product being purchased (or rather sold to them) is right for them or not is immaterial.

Its like the government has promised to give discounts on certain medicines. So you go and buy the medicine, which gets you the biggest discount. You are not concerned about whether the medicine you are purchasing is suitable for you or not. And that is plain stupid. This mindset will definitely have a detrimental impact on your health.

Same is the case with hastily bought tax-saving products. Your financial health will suffer eventually.

Traditional life insurance plans like endowment plans, money-back plans etc. are some of the financial products that are best avoided. As mentioned earlier this year too, even I have wasted money on these products some years back. But I don’t put money in them now – It’s a no brainer. These plans only benefit the insurance agents selling them.

So importance of cleaning up our personal finances cannot be ignored. We need to buy/invest only those financial products that put our families and ourselves on a solid financial base and also help bring peace of mind. And tax-planning alone cannot achieve these things.

Before you decide to plan your tax-saving investments, think and finalize your financial goals. It can be different for different people – retirement savings, children’s education and marriage, buying a house, saving money for starting a business in future, etc.

Don’t worry if you are unable to think through your goals on your own. Don’t hesitate in taking help of some good investment advisors (and not agents). They charge you for their advise but its worth it (ofcourse only if you have carefully selected your advisor).

Once your goals have been finalized, it is easy to chose products that suit your goal requirements and also, are in line with your risk appetite.

In the long run, product suitability for your financial goals is more important than just saving taxes. Your kids won’t be concerned about how much tax you saved in previous years, if you are unable to fund their education with your savings (that is if you have made it clear to them that they won’t be needing education loan to do that).

And you don’t want to face your kids like that. Isn’t it?

So either don’t promise them anything or prepare well for coming good on your promises.

Right product depends on your financial goals and there is no one fixed answer to questions about ‘best tax saving products’.

If you ask other people about the best Tax-Saving products, the answer you get would depend on the person you are asking.

A life insurance agent will tell you its endowment or moneyback plans (not term plan).

A health insurance agent will tell you to buy health insurance plan.

A mutual fund distributor will tell you to go for ELSS mutual fund.

And I won’t blame them fully for selling unsuitable products at times. They also need to earn to survive and its their job to sell their employer’s products to customers like you and me.

Interestingly in India, it’s the government that does our financial planning 🙂  by changing tax rules, tax limits, etc.

And that is the reason why everybody is so excited on budget days. Everybody wants to know whether tax rates have been reduced or are there any increase in tax deductions. If people gave the same importance to their financial goal planning, then it would help them much more.

Now without taking anything away from chartered accountants and their contributions towards helping us save taxes, I must say that most of them are focused on maximizing tax savings. Nothing wrong with that as its their primary motive.

But you need to understand that tax saving is not the most important part of your financial life.

Primary aim of tax planning might (and I repeat ‘might’) not be to grow your money. Rather it is to reduce you taxes.

So it is possible that suggestions made in a good tax plan might collide with those made in a good financial plan.

It is upto you to understand the difference between both the plans. After all, its your life goals which you need to achieve and not your advisors’ or CAs’. Isn’t it?

If you are among those who are late with their tax planning, then think about it. Having the right financial plan (which addresses all your financial goals) is more important. Take out some time to create a solid financial plan (or get it created) and then go about saving taxes. And if that means that you are unable to fully utilize the available tax deductions for an year or so, then so be it.

You can still be happy if you save slightly less tax. 🙂

Now don’t think for a moment that I am against saving taxes. (Why will I even think of such a thing?) 🙂

All I am saying is that…

Merely planning to save taxes is not enough. Tax planning should be an integral part of financial planning.

Once you have figured out a financial plan suitable for you, putting aside money to take advantage of tax breaks will become easier. You will no longer be confused about what tax-saving products to buy or what to do in the month of March every year.

So still 255 days are left before this financial year ends. Don’t wait for the last moment for tax planning (or rather investment planning). Get going now.

Financial Principles by Jason Zweig. Guaranteed to Make You Smart.

Jason Zweig Investing Principles

When it comes to investing or personal finance, there’s a world of difference between a good advice and an advice that sounds good. It might not seem obvious at first, but there is.

And Jason Zweig is one of the best financial writers, who regularly doles out good advice. He prefers to say that he is not smarter than everybody else and that he only knows a lot about what he doesn’t know.

But like million others, I personally think that he is one of the best out there. In 2003, he edited Benjamin Graham’s The Intelligent Investor– a book which Warren Buffett has called ‘by far the best book about investing ever written’.

This speaks volumes about who Mr. Zweig is.

While reading through the archives of his site, I came across his set of principles (link), which I had somehow missed till now.

And this speaks volumes about my ignorance. 🙂

The principles are so accurate, clear, flawless and spot-on, that I couldn’t stop myself from sharing them with you.

The principles focus on using common sense in investing and personal finance, to achieve our financial goals. And that is something, which should be everyone’s concern.

Rest of the post is about those principles. I strongly recommend you read it now, bookmark it, print it and read it again… and again in future. Atleast I will be doing it.

So here it is…

Jason Zweig’s Statement of Principles

 Successful investing is about controlling the controllable. You can’t control what the market does, but you can control what you do in response. In the long run, your returns depend less on whether you pick good investments than on whether you are a good investor.

The first step to reaching your financial goals is to make sure you set goals that are reachable. Your expectations must be realistic. The stock market is not going to provide a high return just because you need it to.

The second step is to recognize what you are up against. Despite what all the daily market reports make it sound like, investing is not a game, a sport, a battle, or a war; it is not an endurance contest in a hostile wilderness. Investing is simply the struggle for self-control – the unrelenting effort to keep yourself from becoming your own worst enemy.

The market is not perfectly efficient, but it is mostly efficient most of the time. Attempting to beat the market may often be entertaining, but it is seldom rewarding.

There’s nothing wrong with gambling on poor odds, as long as you admit honestly that what you’re doing is gambling and as long as you put only a tiny proportion of your wealth at risk.

The brokers on the floor of the Exchange clap and cheer when the closing bell clangs every afternoon because they know that no matter what the market did that day, they will make money – because you tried to. Whenever you buy a stock, someone is selling it; whenever you sell a stock, someone is buying it. Most of the time, the person on the other side of the trade knows more about the stock than you do.

However, you don’t have to lose just because other people win, and you don’t have to win just because somebody else loses. You win when you stick to your own long-term plan, and you lose only when you let greed or fear goad you into changing that plan.

The right time to buy is whenever you have cash to spare. The right time to sell is when you have an urgent and legitimate need for cash. If you buy because the market has gone up, or sell because it has gone down, you are letting 90 million* strangers rule your life with their greed and fear.

* In American context

Once you lose money by taking too much risk, the only way you can earn it back is by taking still more risk.

If you lose 50%, you have to earn 100% just to get back to where you started. And if you lose 95%, you need to earn 1,900% before you break even. You may be able to do that once or twice through sheer luck alone, but the more often you have to try it, the more likely you are to end up broke.

All too many people live their investing lives like hamsters on a wheel, running faster and faster and getting absolutely nowhere.

If you want to have more money, save more money.

Investments that outperform in a bull market are certain to underperform in a bear market. There is no such thing as an investment for all seasons.

That’s what diversification is for: to protect you against the risk of putting too many eggs in the wrong basket. And buying something that has just doubled, in the belief that it will keep on doubling, is an extremely stupid idea.

Your goals are a function of all your life circumstances: your age, marital status, income, current and future career, housing situation, and how long your children (or parents) will be dependent on you. Risk is a function of probabilities and consequences – not just how likely you are to be right but how badly you will suffer if you turn out to be wrong. Investors tend to be overconfident about the accuracy of their own analysis – and to underestimate how keenly they will kick themselves if that analysis is mistaken.

Understanding your own shortcomings as an investor is far more important to your long-term success than analyzing the pros and cons of individual investments.

In the short run, hares have more fun; but in the long run, it’s always the tortoises who win the race.

When to Choose a Not-So-Great Investment Strategy?

Not So Great Investment Strategy


Few years back when I was working in oil sector, I was posted in a very remote location in Rajasthan. Since there was not much to do there, I used to regularly undertake biking trips to explore the state with my adventure-seeking colleagues. (Good Old Days) 🙂

A frequently debated topic for us then was about the best strategy to reach our destinations. Some advocated driving at ‘really’ fast (average) speeds and saving on time. While others were more inclined towards driving at less-than-insane speeds and focus more on ‘reaching the destination’ first. 😉
Eventually, the speed of our biking-gang was set by the slowest biker. That is what worked for us (and is indeed, the basis of Theory of Constraints).
Now lets come to the point that I wanted to make here – a great strategy in our case was to drive fast and save time.
 
But that ‘great’ strategy would not have worked for slow drivers. Driving at very fast speeds is not easy (and not recommended). So pushing ‘comparatively slow’ drivers to drive fast would have increased the chances of accident. Isn’t it?
Same is the case with investments. There are some great money-making strategies in stock markets. Yes. Even in the short term.
But will that strategy be suitable for you or not, is the most important question for you.
A person trading in F&O may have a strategy to make serious money in the short term. But just blindly copying his strategy will not work for you. Why? Because that person might have some buffer (which you are unaware of) that can bail him out in case of financial accidents. You unfortunately, might not have that buffer.
 
So for you, the best words of advise would be as given by Cliff Asness:
A great strategy you can’t stick with is obviously vastly inferior to the very good strategy you can stick with.
This is a very important concept that most investors fail to realize. Something that worked for others might not necessarily work for you. Plain and simple.
And as Ben Carlson of A Wealth of Common Sense says –
 
“People are taught their whole lives that if you just work harder you can achieve all of your goals. Unfortunately, trying harder in the financial markets doesn’t usually yield better results and most of the time it actually hurts performance. This is what happens when investors shoot for perfect instead of accepting good enough.”
Grass will always look greener on the other side. There will always be someone getting better results than you.
But don’t let that push you off your course.
 
Ofcourse as long as what you are achieving is working for you. If your financial goals can be achieved by earning 11% average annual returns in 15 years, then why would you risk going after a trading strategy that has the potential to give 20%+ return, but also high chances of going wrong and giving (-)40%?
 
(Read thisto know the real meaning of investing)
In times of low returns, most people will start questioning perfectly legitimate long-term strategies – as for them, the pain becomes unbearable in the short term. When equities do badly, people start looking at other asset classes and forget that the best time to load up equities is when everything looks bleak.
So I suggest you do one thing – evaluate your financial decisions of the past, especially the mistakes where you lost money. Be honest with yourself. Did you try to go for a ‘Great’ strategy and abandoned a ‘good’ one that worked for you? This exercise will help you clear your thoughts and being clarity in the way you think about your finances.
 
By the way, the speed of our biking-gang was set by me. 😉