Tuesday, September 6, 2016

Financial Planning Mantra for “Soldiers” in Uniform (Not Applicable to “Businessmen” in Uniform)

NB: The generic term “Soldier” refers to all Defence Service Personnel (Officers, Soldiers, Sailors and Airmen of the Army, Navy and Air Force) who have a Military Mindset

For “Soldiers” in Uniform 
(Not Applicable to “Businessmen” in Uniform)
Musings of an Antiquated Navy Veteran

“Put all your eggs in one sturdy basket – and keep an eye on the basket”.

If you are a defence officer, serving or retired, from the army, navy or air force, or a soldier, sailor or airman, you know that the money you earn is truly hard-earned money.

Also, by their very nature, attitude and temperament, most defence personnel are not money-minded. 

Military persons are not money-smart. 

In view of their way of life  soldiers are not financially astute.

A money-minded individual will never join the military – he will prefer to open his own business, become an entrepreneur and make money rather than earn a salary by working for someone else.

Even if a money-smart person decides to work, he will take up a job in the financial world or in an industry where his career prospects are much better and where he can earn much more money than in the defence forces.

A quintessential soldier has another curious quality – he will be ready to risk his life but he is averse to taking financial risk.

Thus, he looks for safe risk-free investments.

Owing the nature of his job  a defence person is posted to remote desolate areas or on a ship on the high seas where he may not even have immediate access to information on stock markets – in many cases he may not even have internet access or reliable swift communication facilities. 

This makes it difficult for a defence person to keep track of equity related investments.

In view of remote postings and frequent transfers  investing in real estate entails too many hassles.

You have to keep regular track of various property taxes, society charges, water and electricity charges, rentals and lease paperwork (in case you have rented or leased out your flat).

Owning to your physical absence for the entire time, renting or leasing your house has an element of risk too. 

Also remember that real estate property investment is:

1. indivisible (you cannot sell 10% of your flat) 
2. illiquid (selling property is very cumbersome process).

And if you have invested in land it is very difficult to protect and look after your land since you are posted so far away.

What a defence person wants is hassle-free investments.

And for a soldier, investing in equity and real estate involve a lot of hassle because of the nature and requirements of his job.

In a nutshell the two essential attributes of financial planning for defence personnel are:

1. Risk-free Investments

2. Hassle-free Investments

While you are in service it is best to invest your savings in your Provident Fund (DSOP Fund or Defence Services Officers Provident Fund).

The DSOP Fund is probably the safest place to put your money and is a totally risk-free investment.

It is a totally hassle-free investment too since your subscription instalment gets automatically cut from your monthly pay and is immediately credited every month to your Provident Fund Account.

Also, wherever you are located, tracking your investment is easy since details of your DSOP Fund investments are given to you every month on your payslip.

Investing in DSOP Fund has tax benefits too – you get tax rebate on your investment in your Provident Fund and even the interest you earn is tax-free. Thus, you are saved income tax hassles too. Also, in view of cumulative interest, the returns are quite good too.

Let us reiterate the financial planning “mantra”:

“Put all your eggs in one sturdy basket – and keep an eye on the basket”.

Provident Fund fits the bill because the DSOP (Provident) Fund is indeed a very “sturdy” basket and it is very easy for you to “keep an eye” on this “basket”.

RETIREMENT – Financial Planning for Veteran Ex-Serviceman

And what do you do after retirement?

When you retire you may get a substantial sum of money including the accumulated savings in your DSOP Provident Fund and other retirement benefits like gratuity etc.

So what do you do with all that money?

Simple – just put your money in a Fixed Deposit in a Nationalised Bank (preferably the State Bank of India) [Risk-free] and give standing instructions for crediting Quarterly or Monthly Interest to your Savings Account [Hassle-free].

In case you have a pension and do not require monthly interest income, you can open a Multi Option Deposit (MOD) Account (a savings accounts with benefits of Fixed deposit higher rate of interest) where your money is automatically swept in or swept out on Last-In-First-Out (LIFO) basis as per your requirement. 

This too is hassle-free since all operations and renewals are done automatically.

When you retire  you want peace of mind.

Investment in Equity and Mutual Funds  Trading in Stocks and Shares  all this is not only a risky proposition – but involves a lot of hassle – as you have to constantly keep track of your investments – and  monitor your investments.

If you put your life savings into investments which are risky and involve hassles  your peace of mind will be disturbed because of the anxiety caused by the financial risk and the bother caused by the hassle in money management.

This will result in stress and disturb the tranquillity of retirement bliss.

Yes  you may make more money in the stock market.

But then  is it worth making money at the cost of disturbing your peace of mind  especially in the evening years of your life....?

Tell me  after a certain age  what is the point of making more money...? 

Can you carry all that money with you to heaven – when you take leave of this world and depart for your heavenly abode...? 

Copyright © Vikram Karve 
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1. This article is based on my personal experience. It may or may not work for you. So please do due diligence before trying out this technique.
2. All stories in this blog are a work of fiction. Events, Places, Settings and Incidents narrated in the stories are a figment of my imagination. The characters do not exist and are purely imaginary. Any resemblance to persons, living or dead, is purely coincidental.

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Repost of my article FINANCIAL PLANNING MANTRA FOR DEFENCE PERSONNEL posted online by me earlier on March 23, 2013 in my Academic and Creative Writing Journal Blog at url: http://karvediat.blogspot.in/2013/03/financial-planning-mantra-for-defence.html

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