A Vital Music Lesson

Listening to music and singing is fun but high notes are really hard to negotiate. While singing, as the notes start moving up on the scale, the tension in the throat builds up and you need more force to get the higher notes right. This results in an increasing strain on the voice, and it gets gradually more and more difficult to move further on the scale. You cannot continue beyond a certain point; either the voice starts cracking, or you get out of tune, or start coughing. Have you experienced similar issues while singing?

Listen to a song by a professional singer and you will notice that they do much better with high notes. When I tried to study how these singers manage to do it, I came across following observations and information:

• They sing easily and let the voice flow smoothly as they move up the scale during singing.
• They seem to be relaxed throughout the song. We do not feel that they are using stress to render high notes. In fact they look carefully for any sign of stress and make efforts to get rid of it. They know that stress is not a performance booster but a performance killer.
• The high pitch notes can not be produced in the same way as low pitch ones, hence they sing the high notes in a different manner. During high notes, they use a thinner voice and they feel the resonance of the sounds in their head. This is known as “Head Voice”. 

I tried these ideas with my singing and I was amazed with the results. I was able to sing high notes with lesser effort. Once the stress was reduced, the voice strain went down and I did not experience  voice cracking down or going out of tune. Focus on using the Head Voice and learning to transition between Throat Voice and Head Voice smoothly made it possible to render the highs. It helped me restore the fun in singing.

No doubt this is a vital lesson in music useful for every singer; but same ideas can be applied to challenging situations in life as well. Difficult times or situations in daily life are very much like high notes in music that take the fun away from the life. We find it tough to go through these times and want to avoid them at all costs. Our mind and body is overwhelmed by excessive stress caused by these situations and it starts to take its toll on us. Beyond a point, we find it hard to continue and start breaking down.

Once we know the similarity between the two, let us see how we can apply the lessons we learned in music to handle difficult times in life:
  

• Approach the difficult times in an easy manner with a mindset that this will eventually pass. Continue the smooth flow of your actions and effort when faced with adversity.
• Convince yourselves that stress does not help deal with problems but comes in your way. Observe your stress levels and learn ways to reduce them. Use yoga, relaxation exercises, or meditation for example. Approach the challenging situation with a positive mindset and keep yourself relaxed in the midst of the toughest times. 
• Know that tough times need a different handling compared to normal situations. Find out what you need to do differently to handle it better. You may need to put in more work, or may need careful planning and management during such times. Every situation may need a different strategy, so ask yourself the question – What do I have to do differently to handle this challenge?

Looks like the music lessons can really work here. Why not try it when faced with a challenge next time? Use the easy approach and you may find that tough periods no longer pose an insurmountable challenge for you.

Tips & Tricks for Managing your Money

So, you are enjoying your first dream job and the financial independence that comes with it. You have the regular inflow of money, but are not sure how to manage it. At times you fall short of cash by mid-month and at other times you have surplus cash left and wonder what to do with it. You are aware that you need to do some financial planning but you find the idea too drab and boring. Don’t worry, you are not alone. Most people at your age do not want to spend their energy on money management as they believe it is too complex to handle. I know it because I was like that myself and it took me many years to discover that it can be fun to manage money . In this post I am sharing some interesting tips and tricks that worked for me. I wish someone would have given me this material when I was young.

Why should you go through the trouble of managing your money? The answer is simple. Right now you work hard for money, but if you manage your money well, in due course of time you can make your money work hard for you and you can afford to relax a bit.

Managing your money is simple. You need to remember just two basic mantras:

• Handle expense fluctuations and generate some savings
• Multiply your savings by investing it

Once you are familiar with basic rules, you can do financial planning for your future needs but let us leave it out for this discussion.

Handle expense fluctuations and generate some savings

The expenses fluctuate from month to month. Ideally, you want to have the money to spend when needed, and ensure that some savings are generated in the longer term. Here are some ideas to do it.

1. Get a Credit Card
A credit card is the easiest way to handle fluctuating expenses . It gives you the convenience of spending when needed without worrying about your available cash balance. So you should get a credit card and it is easy to get one. However avoid the pitfall of debt trap by clearing your total credit card bill every month. Though you can get by paying as little as 5% of the total outstanding, it is better not to use this credit facility for the following reasons:

• If you keep using the credit facility, you will end up spending more than your earnings.
• When you make a partial payment, you pay interest on your fresh purchases of next month as well. Over time, most of your payment goes towards paying interest, and you find yourself in a never ending debt trap.

2. Keep an account
Keep an account of your expenses and income. As you do it for a few months, use this information to find out how much money you need for your expenses on the average. It will also tell you what are essential expenses that have to be incurred such as rent, food, commute etc, and non-essential expenses that can be cut down if required.

3. Create Contingency Fund
Set aside some amount in a bank account to handle the peak expenses. This is your contingency fund. Decide the amount you need for this purpose and do not touch it in normal course. You may ask, “Why do I need such a fund if I have a credit card?” There are multiple reasons – it may be needed if you have to pay at a place where credit card is not accepted, or you may need it to pay a high credit card bill.

4. Spend Less than Your Income
Once you have worked out your average monthly expenses, ensure that they are less than your monthly income so that you can generate some savings over time. If you find that your expenses are so high that you cannot save anything, try to increase your earnings. How?  Ask for a raise from your boss or change the job. If you cannot increase your earnings, work on cutting down expenditure by eliminating or postponing unnecessary expenses. Your target should be to save at least 20% of your earnings.
This is important as even the smallest savings done regularly can help you create sizeable wealth to meet your future requirements. For example even if you save just 100 Rs a day, you can become a millionaire (Rs) in 13 years and a crorepati in 30 years. (With 13% ROI). So, the earlier you start saving the better.

Multiply your savings by investing it

You may have two obvious questions – Why should I invest and how should I invest? Here are some answers.

Why Should I Invest?

You have saved money, but why should you take the pains of investing it? You may be tempted to let it idle and keep it safe. There are two reasons why you need to invest – idle money is not safe, and investment gives us the benefit of compounding.

1. Idle Money is not safe
Unfortunately, rising prices due to inflation keeps eroding the buying power of your money every year. With a 9% rate of inflation, your one lakh rupees today can buy only goods worth Rs 91000 next year. So, it’s real value goes down every year and after twenty years, it will be worth just Rs 17000! And you thought your idle money was safe? So, you should invest your money and grow it at a rate higher than the rate of inflation – this is the only way to protect your savings.

2. Magical Power of Compounding

Albert Einstein said, "Compound interest is the eighth wonder of the world. He who understands it, earns it.. he who doesn't.. pays it.”
When you invest your money, it generates some returns and the money grows. Further returns are earned on this increased amount. Very often we ignore the fact that this compounding is the most powerful factor that can multiply our money dramatically. Here is an interesting story told by investment guru A N Shanbagh to illustrate the power of compounding.

A king was defeated in chess by his minister. When the king asked the minister to name a reward, the minister said, “Please give me one rupee for the first square of the chess board, two for the second, four for the third, and so on for all the 64 squares on the chess board”. The king was amused by the modest demand from the minister and readily agreed to meet it. Can you guess the total amount the minister got as the reward? By the time the king finished the first row, he had paid Rs 511, after 4 rows the amount went up to 8 billion rupees. The total reward amount added up to a massive 36 billion billion rupees!! Unbelievable? Such is the power of compounding.

How Should I Invest?

There are so many options of investing your money that it may get confusing. How to evaluate these options and how to choose where to invest your money? Here are some ideas.

1. Learn the Ropes Yourself
The most important aspect of managing your money is to learn the basics of investing yourself. Make sure you understand the investment before making it. Take time to learn about different possible options for investments, their return and risk, liquidity and tax implications.

While it will need time to build up this knowledge, let me share a simple trick that you can use quickly to evaluate any investment option. It is called ROI (return on investment) calculation and involves following steps:

• Compute the total returns from the scheme and compare it with the maturity value of a simple fixed deposit of same duration.
• Determine the interest rate at which the maturity amount of FD matches the total returns from this scheme.
• This interest rate is the ROI for this scheme.

ROI is an interesting method you can use to evaluate a scheme before you invest into it. You will see some examples of how to compute ROI in the next section.

2. Discover Public Provident Fund
Public Provident Fund (PPF) is a 15 year scheme that offers 8.5% tax-free interest and tax exemption under 80C. At first you may be tempted to discard it due to long lock-in period and low rate of interest. Let us compute the ROI of PPF taking into account the fact that its interest is free from tax. Take a look at the table below – on the left side it shows a PPF account in which Rs 50000 are deposited every year, and on the right side a fixed deposit with 12% interest in which the same amount is invested. After first year, the PPF earns Rs 4250 interest. The fixed deposit earns Rs 6071 interest. Since this interest is taxable (assume 30% tax), Rs 1821 is paid out of it as tax. Hence the net interest after tax is Rs 4250. It is clear from this table that a taxable fixed deposit needs to have an interest rate of 12% to match the total returns of PPF. Hence ROI of PPF with tax free interest is 12%.

If you look carefully at the interest column on the right side, you will notice that from 8th year, you start earning more from interest than your deposit and the interest income keeps rising every year. This is what I meant by making your money work hard for you.

The picture may change further if we consider another tax benefit of PPF - the amount deposited in it is exempted from income tax under section 80C. How can we factor this exemption in our calculation? Take a look at the table below. Let us say you have Rs 50000 available from your income every year to invest. If you put this money in PPF, you get tax exemption under 80C, which allows you to put the entire amount in PPF. In case of fixed deposit, this rebate is not available, so you need to pay tax on this income (15000 at 30%), after which you have Rs 35000 left for investing. So, the fixed deposit will need an interest rate of 19% now to match PPF, hence the ROI of PPF is 19% if we take both 80C tax rebate and tax free interest into account. Very few investment options can match this ROI.

It is obvious from this analysis that PPF is a good starting point for your investments. If you have not opened a PPF account so far, do it now. It offers you the highest returns with safety till you have taken advantage of section 80C fully, and you have the flexibility to vary your contribution every year.

As you discover the benefits of PPF, realize that you do not have to resent the monthly deductions made from your salary by your employer for Employee Provident Fund (EPF). EPF offers the same benefits with an extra advantage that your employer puts in a matching contribution from his side. EPF is meant to create a fund for your old age, and you should treat it as such. Avoid the temptation to withdraw from this fund as far as possible, and you will be amazed to see it build up over the years. 

3. Do not be afraid of Stock Markets
It is an accepted fact that equity (stocks) offers best returns in the long term that can effectively help you beat inflation. However, the higher gains come with the risk of market fluctuations. Here are some ways by which you can take benefit of the higher returns provided by stocks without losing your money.    

• Avoid taking unnecessary risks. If there are funds that you need for some expenses in the next one year, do not put them in the market. Use only the money that you can save for a three to five year horizon. You can apply the same rule to decide when to take out an investment from the market. 
• Expect the unexpected ups and downs in the market and do not panic with market fluctuations. Remember what is important is the long term returns.
• Do not try to time the stock market. You have no way of predicting if the market will go up or down. Most experts advise using systematic investment plans (SIP) in which you put in some money into the market every month. This saves you from timing the market and gives you  benefit of cost averaging. As you build a portfolio over time, you will find it is less sensitive to market fluctuations.
• Use Mutual Fund route and let experts manage the stock portfolio and trading for you.
• If the 15 year maturity period of PPF puts you off, you can go for Equity Linked Saving Scheme (ELSS) mutual funds, that offer you the same advantages - tax saving and tax free returns with just 3 years lock-in period and potentially higher returns. However, to mitigate the associated risk factor, make sure to use SIP instead of a lumpsum investment, and stay invested for at least 5 years.
• If you are too scared of mutual funds as well, explore Unit Linked Insurance Plans (ULIP). Though they have lower returns than MFs due to various charges, these are good vehicle to start investing. They have decent returns and help you form the habit of systematic investment.

4. Diversify your Investments

There is no single ideal investment. In the long run, you should aim to have a diverse portfolio that does not depend on one type of instrument only. Put some amount in bank account and Fixed Deposits where it is easily available. Have a PPF account to grow your savings for the middle age. Include equity mutual funds and debt mutual funds in the portfolio and ULIPs if you feel like. Invest in property when you are ready.

This was an extra-long post and I managed to touch just the tips of the topic so far. My intent was not to give all the details that you can find yourself on internet, but to give you an overview to get started. I would consider this effort worthwhile If reading this post made you see the fun part of money management and got you interested in trying it out.

---

More About the Topic

• If you like the idea of taking advantage of tax saving ability of PPF, you may also want to check out Superannuation account which has similar features to PPF. If your company offers this benefit, do opt for it, since it allows you to increase your tax free income by another one lakh rupees every year.
• Stock markets and Mutual funds could get just a brief coverage in this post. I wrote a separate post to this topic later. Read follow up post about Stock Markets - A Lesson from the River.
• Read this beautiful story by Uma Shashikant that illustrates how a driver used his modest savings to create a fund for retirement needs. - Each one of us can save