Monthly Financial Tracker

I wrote a guest post for Avadhut Nigudkar’s website, aimed at financial career aspirants. The monthly financial tracker I have been using for the past 6 years was modified to include the goal analysis sheet from the automated mutual fund tracker

The sheet allows you to keep track of investments for financial goals as well as their progress.

Link to the article: How to Use Excel to Manage Expenses and Investments (Even If You’re a Newbie!)

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Visual Goal Planner

Here is a simple goal planner that serves as a visual aid to highlight the importance of beating inflation for long-term financial goals.  It compares the evolution of the current cost of an expense with an assumed inflation rate and the growth of monthly and lump sum investments.

The monthly or lump sum investment along with the corresponding interest rates have to be modified until the ‘cost’ curve intersects with either the ‘lump sum investment value’ or the ‘monthly investment value’ curves (red dot).

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Visual SIP Tracker

Here is a simple Excel sheet to keep track of monthly SIPs.  Unlike the automated mutual fund tracker, where the focus is on returns, this sheet helps to visually track the growth of a SIP relative to an expected growth.

The user will have to enter the value of SIP each month to track its evolution.  The inputs required can be seen in the screenshot (click for a better view).

The growth of a SIP (green line) is shown against the expected value (red line) for a 10% return and the total investment (blue line).

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Understanding How Retirement Calculators Work

The first brush with a retirement calculator is typically memorable, if not unforgettable(!) for pretty much all investors – including ones who do not take them seriously.

The typical responses would be,

  • ‘Why do I need such a huge corpus for retirement?’
  • ‘How do you expect me to invest this high an amount each month?’

Here is how retirement calculators go about calculating the corpus and monthly investment required.

For ease of understanding, I will consider the case of a 55 year old man, 5 years away from retirement. You can input desired values in the attached Excel sheet.

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Pension Plans: Look Before You Leap

LIC agents  are busy advertising  the Varishtha Pension Bima Yojana. An annuity product which would hand out a ‘pension’ against a lump sum payment at an annual return of a little more than 9%.

Here is why you should not consider any pension product at face value.

  • The pension received is typically constant for life. If it increases by 3 or 4%, the pension amount would be significantly lower.
  • The pension is taxable as per slab.  There are more tax efficient options available: Debt mutual funds and tax-free bonds. With a debt mutual fund, only the capital gain is taxed upon redemption. The taxation is with indexation benefit if the units are above 3 years old. The tax outgo would depend on inflation. There could be no capital gain and therefore no tax, if the inflation is high enough. Even for someone in 10% slab, a debt mutual fund is a better option that a pension plan.
  • Your money is locked up in a pension plan. There are several options available upon death of the policy holder (pension to the spouse, return of purchase price etc.) but none of these options can match one in which the retiree has, not only access to the  entire corpus, but also can allow it to grow in different buckets of varying risk.  See this for details:  Generating an inflation-protected income with a lump sum
  • As for  Varishtha Pension Bima Yojana, the maximum pension is Rs. 5000 per month.  So it not meant for people who use computers!

Photo Credit: StockPhoto

Most retirees do not have a corpus big enough to generate an income that grows each year by about 7-8%.  Should such people settle for such pension plans?

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