There’s growing discourse around data privacy and security across the world — and for good reason. Knowing who has access to your information and what they do with it is fundamental to building trust. This is where transparency and clear communication are non-negotiable. At 1 Finance, we recognise and understand the hesitations and apprehensions around sharing sensitive financial information. We’re also deeply aware of the fact that for you to feel comfortable doing this, we need to hold up our end of the deal — by creating systems and processes that ensure confidentiality and prioritise safety. Here’s how we go about this.

To start with, we don’t collect any data without our users’ consent. While some of this information — like your email address and phone number — is fairly standard, other aspects of our services require that we get to know you better. For instance, we ask your PAN and date of birth, which helps us verify your PAN and demographic details from government databases, and to check if you are an existing client of our parent company, the Marwadi Chandarana Group — all details that allow us to serve you better. Then, we ask you to go through and sign off on a Registered Investment Advisor agreement, which outlines the information we will collect, how we will use it and who it may be shared with. 

In order to advise on your finances, we collect information like your Consolidated Account Statement, credit report, investment details and insurance manually — and are working to automate this process by integrating third parties into our data-collection process. For example, we plan to involve government-authorised Account Aggregators to access financial data like account balances, transaction histories, credit scores, and investment portfolios from various financial institutions. Rest assured, this is a safe and secure process — users can hand-pick the information that they are okay with sharing, and withhold the information they want to keep to themselves. This data helps us with tasks like calculating the user’s net worth, creating an income–expense report, and so on.

What members share with us is stored in a permanent, identifiable format on a cloud server. This information would include details like names, email addresses, membership IDs and other information that’s part of user profiles or account databases. Access to this data is, of course, exclusive, and subject to stringent security measures — from encryption, firewalls, and privacy protections to access controls, multi-factor authentication, clear and transparent privacy policies, and regular security assessments. We only store data that is indispensable for providing our services to you.

Besides collecting and storing data, what’s equally important for you to know is how we use this information. Well, we use it for operational purposes and legal compliance, to deliver our offerings efficiently, and to enhance your experience. We use it to create and manage your account, verify your identity, process payments and communicate with you. It is also vital for facilitating our advisory services, personalising your experience and our recommendations, and providing customer support. From time to time, we also use it to study user behaviour and enhance or develop products and features that will help you.

It makes sense, then, that the people who have access to this data include our engineering and development team, data analytics team, customer support team, marketing and sales teams. People will only be able to access the data that they need in order to perform their duties. While conversations between a member and their qualified financial advisor may be recorded for quality control or training purposes — and saved securely on our servers, with encryption and restricted access — these sessions are confidential and only shared with those who need to know about them.

We regularly review these safety and privacy measures to assess and update company policies, and stay prepared for new threats or vulnerabilities. If a user chooses to delete their profile — and we sincerely hope we don’t give anyone a reason to do so — their data will be permanently deleted after a 30-day period during which we may be required to retain some of it.

At the end of the day, we’d like you to know that we have your back — your data is absolutely essential for us to be of service to you and to put you on track for a more secure financial future. It helps us understand you, see where you might need some help, and together work out solutions that are easy for you to implement. The way we collect, use, and store your data is secure — it’s well-intentioned, and as with everything else we do at 1 Finance, it’s free of vested interests.

We’ve put in place a slew of security measures to guard your privacy

How We’re Keeping Your Data Safe

Do you hesitate to let go of your possessions? Take a look around — maybe it is the guitar you bought, now catching dust because you never learned to play more than a few chords, or the gold earrings your grandmother left behind. We all have objects we hold on to for a multitude of reasons — regardless of whether or not we are emotionally attached to them, or how long we have owned them. 

The tendency to ascribe more value to items we own than to something we don’t is called the endowment effect. Coined by Nobel Prize–winning economist Richard Thaler, this cognitive bias establishes that we tend to overvalue objects because we own them, regardless of their objective market value. It also says that we would demand more money to sell something we own than to buy a new, similar object. 

Businesses have used this bias to their advantage for a while now, by stimulating a sense of partial ownership among customers even before they’ve made the purchase. For instance, automobile companies offer prospective buyers the opportunity to take cars for test drives, brick-and-mortar clothing shops let customers try on clothes before purchasing, and furniture stores allow you to physically experience the furniture — which makes you imagine all the ways in which the object could make your life better, and in turn, increases the company’s sales.

<a href="https://www.aeaweb.org/articles?id=10.1257/jep.5.1.193">Studies</a> have attributed psychological factors related to loss aversion — which states that the sting of loss is greater than the pleasure of a reward — as a major cause of the endowment effect. As Anand Doctor, a member of the 1 Finance Advisory Committee for Qualified Financial Advisors — Mumbai Chapter, explains, “There is no definitive reason for this bias — it could be a combination of things.” He also speculates that we might ascribe more value to objects we own because we view them as an extension of ourselves. 

When it comes to selling a property, for instance, Doctor says, an individual may be less biased and more logical if they were selling a property they purchased purely as an investment as opposed to a home that they have lived in. They may want to sell the latter at a high price because they are asking for a premium to let go of something that they hold close to themselves. 

Similarly, self-associations to things like heirloom jewellery, which are often thought of as an investment, might turn them into mere possessions because they have been passed down through generations and an emotional attachment has developed. According to Doctor, such jewellery ceases to be a financial asset, because it will not be sold except in dire circumstances.

Endowment effect also manifests when it comes to stocks you may have inherited or invested in early on. If you’ve had success with the stock, you might find it difficult to sell it, even if that is the logical choice. This could lead to an investor’s net worth being concentrated in a single such stock. 

“The impact of this is significant for portfolio management. Investors tend to think more highly of the holdings that are sitting in their accounts than the rest of the investable universe,” elaborates economist Barry Ritholtz in <a href="https://www.washingtonpost.com/business/get-there/richard-thaler-and-econs-vs-humans-doers-vs-planners/2015/06/25/ac09d6fa-1923-11e5-93b7-5eddc056ad8a_story.html">The Washington Post</a>. “They believe their own holdings are more valuable than what the market is telling them.”

According to Doctor, in most cases, the endowment effect has a negative impact — like generating insufficient returns, increasing the risk profile of your portfolio, and locking your wealth in an asset you’re unwilling to sell. While holding the objects we value close to us may help us establish a sense of self, perhaps there is merit in introspecting and getting an unbiased opinion from a professional — especially if we want to make smarter decisions, improve our standard of living, and use our financial resources optimally.

The value we place in our possessions could keep us from making good use of them

Could Letting Go Actually Be Profitable?

Money is incredibly interesting — it comes, it goes, it grows and it talks. I spent a lot of my life not letting it dictate what I do, the decisions I make, and overall taking calculated gambles with my earnings. As an entrepreneur and a fifth-generation plantation owner, I’ve focused on bootstrapping the growth of our business and brand, rather than bringing in external investment and funding. This sense of self-sufficiency and resourcefulness has been core to our business model.

I was brought up between Bangalore and our coffee plantation in Chikmagalur, with a value system centred around fending for yourself — my parents encouraged my brother and I to get part-time jobs as soon as we moved to Sydney for university and turned 18. In the five years I spent Down Under, I worked fourteen jobs. I won’t bore you with the whole list, but I worked as a football referee, a bartender, a removalist (a lovely Aussie word for a packer-and-mover), a manager of a student accommodation and even a handyman, to name a few.

A lot of them, admittedly, were roles I grew into — by paying attention to my bosses and colleagues, managing expectations and then eventually exceeding them. 

Many memorable experiences, short circuits, mojitos, yellow cards and packed boxes later, I decided to move back to India and give something new a shot. I got back in May 2017 and had the daunting and rather typical thought any 23-year-old would: “So what now?” 

I converted all my Australian dollars and went on a couple of soul-searching solo trips, and returned home to Kerehaklu in Chikmagalur, Karnataka, with renewed clarity. All I saw around me was opportunity, not untapped by any means, but perhaps with greater potential. Our sixty-something-year-old family plantation had a plethora of produce growing in harmony with the local biodiversity, but with broken supply chains. The focus needed to come back to the produce’s origin, with us making the lion’s share of the profits after all the work that we put in.

There’s an old saying in golf: “Pressure is when you play for five dollars a hole with only two in your pocket.” I knew that I had to take calculated financial gambles, seeing that these were agricultural and economic niches that Kerehaklu could carve out and grow. 

This was a chance to not just build something, but the chance to build on something. Like a house built on stilts, it already accommodated for the rise in sea levels. 

At first, it required more specificity rather than huge amounts of investment, and a practical understanding of the tasks at hand. I dipped into my own savings — those converted dollars came handy for packaging, daily workers’ wages and transport. We DIY’ed many things — picking poles for careful harvesting, hand-delivering avocados (or ‘butter fruit’ as we call them here in the south) — and made several mistakes along the way. 

I’ll never forget the loss I made on my first round of home deliveries. I miscalculated the cost of petrol that I had to fill in my mum’s car, and in hindsight, undercharged for the avocados themselves. But I do think everyone who I delivered to took notice that I was doing this on my own and out of passion — lacking not just sleep but also change for their ₹500s.

It made me ever so quickly realise that keeping tabs on your finances is the most important yet easily overlooked step. I also learnt the importance of making the right connections — there will always be a market, but trust trumps all, especially when you’re dealing with something edible.

Fast forward five and a half years, I have to pinch myself at the thought that the amazing team I now oversee, and I, have harvested over six tonnes of avocados, exported peppercorns to Ghana, worked with coffee roasters that once were a distant daydream, and continue to put Kerehaklu on the global map. 

It just goes to show that what we were told as kids was wrong. Money does, in fact, grow on trees.

Pranoy Thipaiah is a 28-year-old producer in Chikmagalur, Karnataka who is focusing on shortening supply chains so that the farm is always at the forefront.

A specialty coffee and avocado producer reckons with failure, fruit and his finances

How Do You Grow an Inheritance into a Business?

Dear Qualified Financial Advisor,
Last year, I started looking for investment options that help with having passive income but don’t involve too much risk. I’m new to this, so I decided to invest in a couple of long-term mutual fund schemes that my friends and family suggested. Now that it’s been some time, I’d like to review the performance of the funds, but I’m not sure about how to tell the difference between good and bad investments. How do I monitor, evaluate and reassess my mutual fund investments in order to make sure I’m on track to grow my wealth and beat inflation? How often should I do this?

My best, 
A Wealth Seeker
Dear Wealth Seeker,
Now that you have bought the tickets, even if it’s based on suggestions by your friends and family, it is advisable to complete your roller-coaster ride. I say this because long-term funds are — as the name puts it — a long, winding journey. The best way to judge your existing investments would be to check the benchmark of the said schemes, and to look for comparisons with their peers’ performance for the same time frame.

If your investment fund has underperformed compared to its peers, but is still beating its benchmark in the long term, you can stay put. On the other hand, if your fund has underperformed both its benchmark and peers, it may be time for a rain check.

All said and done, you should be undertaking this evaluation on a yearly basis and not frequently, as volatility is the nature of markets and the same stands true for a long-term equity fund too. Make sure you don’t do this assessment before a year is up (so that it’s not too soon), or later than 30 months — finding a sweet in-between spot to assess the performance of your investments would be a good strategy.

Last but not the least, just like a very good medicine doesn’t cure all ailments, a well-performing scheme may or may not suit your needs or risk appetite. Therefore, it’s always wise to get your portfolio vetted by someone who is qualified so you get an expert opinion and a clear path for your future investments.

As I like to say, mutual funds sahi hai, per QFA zaruri hai!

Yours, 
<a href="mailto:priyesh.sampat@qfa.1finance.co.in">Priyesh Sampat</a> 
1 Finance Advisory Committee for Qualified Financial Advisors — Mumbai Chapter

Yearly assessments can go a long way, says this financial advisor 

How Do I Identify an Unhealthy Mutual Fund Investment?

The desire to grow wealth and earn passively is one we can all relate to. While we certainly stand to benefit from having a healthy investment portfolio, investing is not a panacea for all our financial worries — and it can be tricky to navigate, especially with the cognitive biases that are often at play. One such is the overconfidence bias. Put simply, this is when a person overestimates their level of skill and knowledge, consequently making more risky decisions and attributing their past failures to external factors. This can affect their financial behaviour in a few different ways — it could leave them with a portfolio crowded with identical investments, or take them to the other extreme, where there’s too much going on. 

Overconfident people tend to underestimate potential risks and overestimate the expected rewards. Such a person might turn away from stable investments that may not yield high returns, be inclined towards more volatile asset classes, take on a large loan, or not purchase insurance — because they neglect to consider negative outcomes.

To illustrate, they may gravitate towards high-risk, high-return instruments like penny stocks, small-cap stocks and crypto, while overlooking less risky instruments like index funds. They are also likely to be inclined to stick to certain asset classes, especially ones that have worked well for them in the past. Even within an asset class, an overconfident investor may arbitrarily gravitate towards certain stocks, funds, or tokens that they see as profitable. This narrow-mindedness can lead to a concentrated portfolio.

The lack of diversity also translates to slower growth. When you park your investments in similar assets, the odds of the portfolio underperforming increase. Over-allocating funds in a few holdings can negatively impact your future cash flows, and possibly defeat the purpose of investing to keep up with inflation. Risk and potential returns are subjective. It’s important to strategically plan for different outcomes, even if you’re making a sure bet. 

Interestingly, an overconfidence bias could also lead to an over-diversified portfolio. It would manifest differently in this case, with investors wanting to invest in many different asset classes. They may think that they can earn good returns on whatever they invest in, and cast a wide net. This too is unfavourable. Fragmented investments often lead to lower returns overall, since even well-performing assets can be overshadowed by losses and stagnant growth in other areas. 

This is also why a large and diversified portfolio may not always guarantee financial well-being. Diversification needs to be carried out intentionally, and across a handful of carefully selected asset classes that are likely to perform well, suit your behaviour, are easy for you to manage and don’t seem out of place in your larger financial plan. 

It’s important to be self-aware when building your portfolio — it’s best to employ an outsider’s perspective to catch these biases, be clear about the true risks and rewards of your investments, and make sure your overconfidence doesn’t get the better of you.

With investing, you could be treading a thin line between being sure of yourself and overestimating your abilities

How Overconfidence Can Knock Your Portfolio Off Balance

All of us have financial goals that we’re working towards — and they’re usually incredibly personal. Our interests, behaviour, and various other factors of our lives impact the way we plan for the future and set these goals. To make these goals a reality, it’s often best to bring in the expertise of a qualified financial advisor. Out of curiosity, we asked five qualified financial advisors — all a part of the 1 Finance Advisory Committee for Qualified Financial Advisors, Mumbai Chapter — what they are planning for in their own lives. Read on. 

Financial Independence 

While our major goals do not change based on our profession, as a financial advisor, the possibility of being diverted from a financial plan is lower, compared to other people. Right now, my main goal is to achieve financial independence by the age of 55. To me, this means having enough money to not have the stress of earning my daily bread and butter for the rest of my life, and to be able to choose how I want to spend my time. Considering the increase in life expectancy, inflation, and other such factors, I want to accumulate enough money so I can maintain my standard of living well into my 80s. I am in the process of achieving this by sticking to my financial plan, and reviewing and rebalancing it periodically — a crucial part of this is investing my surplus income, after understanding the investment product and keeping in mind proper diversification. 

—Mayur Shah, SEBI-Registered Investment Advisor and Certified Financial Planner

Renting a Home

A conundrum I recently encountered is that my mind tells me to rent a home, even though my heart wants me to live in my own home. I currently reside in a 3BHK in South Mumbai but I want to relocate to a society with more amenities and networking opportunities. With my 11-year-old daughter growing up, this is becoming even more important. It took some time to convince my in-laws that renting is a better option from a financial perspective. Rental yields are only 3–4% p.a. in Mumbai and we can also save on huge maintenance costs if we shift to renting. I'm excited to make this move soon and to upgrade my lifestyle, while making sure my savings do well for me.

—Binoli Dodhiwala Jain, Co-Founder and CEO at The Money Mart

Fitness, Travel and Retirement

I am currently working on three main goals — fitness, travel and retirement. My fitness goal involves dedicating time for workouts, preparing meals, etc. — and allocating a good amount of my budget for this. The second goal is to travel to at least two new cities every quarter and to eventually travel internationally. Each time I go to a new city, I like trying out the local cuisine, interacting with locals, and getting to know the language, culture and art of the city. Finally, I want to achieve financial freedom by the age of 55 and then focus entirely on giving back to society, which I already give some portion of my time and money to. I hope to achieve this by investing regularly and listening to my financial planner’s advice. Yes, you read it right — I have a financial planner too; I believe we all need a mentor to guide us and help us stay away from any biases.

—Nisha Sanghavi, Certified Financial Planner and Director and Co-Founder at ProMore Fintech 

A Loan-Free Family Home 

When my son got admission into a top school near Colaba, in Mumbai, we were staying at Mahalaxmi. We knew we had to move closer so that he could save time commuting, and participate in extracurriculars. The question was whether to rent or buy. As a financial planner, renting was a favourable option. But my wife was born and bought up in Colaba and to move back to the neighbourhood was a huge thing for her — she wanted to buy a home. It was a tussle between my brain and heart. Having our own house in which we’d spend the next 20 to 30 years and retire in peace, and to not have to keep shifting houses every couple of years, were also worthy considerations. After going back and forth, I realised that, as financial planners, we are often so fixated on numbers that sometimes we forget and discard the emotions or the happiness associated with it. I decided to buy. For at least 5 years, we worked to arrange a substantial down payment without liquidating any other asset that was earmarked for other family goals. We took a substantial amount of loan to fund the purchase, but I have charted a path to be loan-free by the time I turn 50 (i.e. 7 years from now), without hampering any of my other goals. That’s what I’m currently working towards.

—Neeraj Bahal, Founder and Chief Financial Planner, Fasttrack Financial Planners

Passive Income for Travelling 

My medium-term goal, which will take about 5–7 years, is to create an asset that generates regular income to pay for the lifestyle I want to have. I have always strongly believed that the balance between saving, investing, and spending is the basis of financial planning. Your 30s are when you want to spend your time and money on experiences you’ve wanted since your 20s, and the ones that might be difficult to have in your 40s. For me, these are things like trekking, travelling, engaging in sports, yoga camps, road trips, and more. I definitely do not want to compromise on these lifestyle goals. Investing regularly might seem like a herculean task, but I started with whatever I could. I began putting aside 10% of my salary and gradually increased it by 5% every year. These steps towards my medium-term goal make my inner child happy — it is as if the kid now has an uncle who pays for their toys. For me, having assets that pay for my lifestyle means that my money is working harder for me and it also gives me purpose to work harder for the dreams I want to chase in life.

—Gaurav Karnik, Co-Founder, Fortunexus Pvt Ltd

Five qualified financial advisors share their future plans and goals

What Are Financial Advisors Planning For?

What constitutes credit can be a vague, elusive and somewhat intimidating concept, despite how ubiquitous it is. One of the key metrics in this realm is the credit score. It can mean the difference between financial well-being, and the lack thereof. So, what exactly is a credit score — and how do you discern if you have a good one? Simply put, a credit score is a three-digit numeric representation of a person’s credit-worthiness, usually ranging between 300 to 900. Banks and financial institutions use your credit score as a metric to judge your reliability and the likelihood of repaying your borrowings on time.

In India, and the world over, there are many credit bureaus — such as CIBIL, Experian, Equifax and CRIF High Mark — whose job it is to maintain credit history, compile credit reports and calculate credit scores. The Reserve Bank of India requires commercial banks to provide credit data to these credit bureaus. The bureaus maintain detailed financial records of an individual, including their loan accounts, outstanding payments, loan enquiries, EMIs and how many credit cards they have. These factors are what determine a person’s credit-worthiness and by extension, their credit score. 

Different banks and bureaus have different standards for what to consider a good, bad or average credit score; though a score of above 700 is considered to be good. People with high credit scores tend to find it much easier to avail credit from commercial banks.

Your credit score can also have adverse effects on your personal finances. People with lower credit scores are generally given higher interest rates, if they are able to avail credit at all. In turn, higher interest rates will mean an extended timeline on paying off a loan, which in turn may negatively affect the long-term cash flow. On the other hand, people with higher credit scores may be able to pay off their loans sooner and have more disposable income. 

How then do you build a good credit score? Consistency and punctuality are the key words here. The best way to maintain a good credit score is to make all your credit payments — this includes credit card bills, EMIs, loans and interest payments — in a timely manner. Defaulting on or delaying your payments will lower your credit score. It also helps to keep an eye on your credit limit. Additionally, making too many loan enquiries at different banks can also have a detrimental effect, as this information too is sent to the credit bureaus. Having too many unclosed loans and credit instruments in your portfolio might also increase the chance of landing you in a tricky credit situation, even if you’re making all your payments on time. 

If, by chance, your credit score does fall, the good news is that you can take measures to improve it. Avoid taking on more liabilities. The best step would be to reduce the amount of credit you have through the “avalanche” method, which involves paying off the liability with the highest interest rate first before targeting other liabilities. After your outstanding liabilities are paid off, the way forward is very simple: pay your bills on time and avoid taking on more liabilities.

A good credit score can be incredibly valuable — and it’s not too hard to get there

How to Build a Good Credit Score

Dear Qualified Financial Advisor, 

Over the past few years, I’ve been taking small steps to get my finances in order — like committing to a monthly budget, investing part of my savings, purchasing insurance. I’ve always been very disciplined with sticking to the plan, but more recently, I’ve been wanting to splurge on some luxuries. I hadn’t taken this into account earlier because my needs have always been pretty basic. This is changing now, and I wonder if I need to rework my financial plan to account for the lifestyle I want — or restrict my lifestyle based on my finances. How do I strike this balance?

Yours,
A Dreamer on a Budget

Dear Dreamer on a Budget,

Thank you for sharing your query with us. It’s good to hear that you have taken a keen interest in managing your finances by taking steps to prepare your monthly budget, investing your savings and also purchasing insurance. I am also happy to hear that you have been disciplined in following the steps you had planned with regard to your personal finances.

With regard to your recent desire for splurging — spending on unplanned expenses — please know that you are just being normal. It is completely fine to splurge on ourselves. However, the frequency and quantum of splurging is what we should be aware of, as it is quite possible to go out of budget very easily.

You can start by having a short-term plan in place. To manage your finances well and without any guilt, you may want to prepare a budget for monthly, quarterly, semi-annual and annual timelines — our expenses can usually be broadly categorised as regular and irregular across these timeframes. This will help you prepare for irregular expenses like an annual or semi-annual vacation, vehicle maintenance, festival celebrations, children’s school or college fees, watching movies, dining out, etc. This exercise will help you understand the deviations in your monthly cashflows and identify months of higher spending, thereby allowing you to make appropriate provisions for the same.

For the long term, you will have to consider inflation on your total annual expenses and the average income hike you will receive, in order to calculate your annual surplus and invest it accordingly. You may find it helpful to include big financial milestones that may not be fulfilled through your surplus alone, like international vacations, purchasing a house, changing your vehicle, children’s education and marriage, your retirement expenses, and so on, based on how you want to upgrade your lifestyle.

If you find that all your future financial milestones can be achieved by utilising the surplus and the assets acquired over the period — including your post-retirement life — comfortably, then you can go ahead with your current aspirations. However, if you find that the financial corpus is getting exhausted earlier, then you may consider any of the following steps, to retain enough corpus during your retirement phase:

Reduce the purchase value of your financial milestones. If you planned to purchase a property of, say, ₹3 crore after seven years, you could check if purchasing property of a reduced value, like ₹1.5 crore instead, leaves enough corpus for the post-retirement phase.

Reduce the frequency of incurring expenses towards these milestones. If you plan to change your car or go on an international vacation that costs ₹10 lakh every three years, but you discover that your retirement corpus is insufficient, then you may want to re-evaluate that frequency — perhaps every five years instead.

Eliminate the milestone completely. If, even after taking these steps, the corpus is inadequate, then you may have to eliminate the milestone completely.

Explore alternatives. If eliminating the milestone is not possible, consider tightening your budget or look for additional sources of income generation.

I hope these ideas will help you manage your finances better. Do make sure to review your expenses and short-term milestones on an annual basis, at the very least.

Yours,
<a href="mailto:tivesh.shah@qfa.1finance.co.in">Tivesh Shah</a>
1 Finance Advisory Committee for Qualified Financial Advisors — Mumbai Chapter

A good financial plan can let you make room for new milestones 

Can I Plan My Finances to Align with My Ideal Lifestyle?

Among the issues that plague India’s personal finance advisory space, the mis-selling of financial products that may not be compatible with your needs is of great concern — and life and health insurance policies are no exception to this. As per the Insurance Regulatory and Development Authority of India (IRDAI) Annual Report (2021–22), 25,716 complaints of unfair business practices were registered against life insurers during that year. The previous year’s IRDAI Annual Report cited incorrect explanations of product features and benefits by salespersons, pressure to meet sales targets, and lack of adequate knowledge or training of salespersons — among other reasons — as potential causes for complaints of mis-selling. Often, these mis-sold policies are the ones that have high commissions attached to them, which is why it helps to understand what part of your insurance premium is comprised of commission.

Our Commission Analyser calculates the approximate commission component of your insurance premium. If you have an existing insurance policy, the Analyser helps you consider how the policy aligns with your interests. If you are seeking to purchase insurance, you can use the Analyser as a tool for exploration. Of the many categories of insurance policies out there, we decided to focus on two of the most popular products that are often present in a basic financial plan. First, the tool applies to life insurance policies — including term insurance and endowment insurance. Second, within general insurance policies, you can use the tool for health insurance policies. 

We ask for basic information about the type of insurance, your premium amount and frequency, and the number of years for which you’ve paid the premium so far. Based on these inputs, we arrive at an estimate of the commission you’ve paid on your insurance premium over the course of time you’ve held the policy for. 

Our calculations are based on an average that considers the commission percentage thresholds set by the IRDAI for each type of policy. We also take into account our careful study of industry standards for commissions and a set of informed assumptions — these differ based on the type of product category and the insurer. Since insurance is inherently a distribution-based financial product, our estimations are also cognisant of the different distribution channels involving insurers, agents and brokers — and the different commission thresholds defined for each of them by IRDAI. 

For life insurance policies, which are a long-term product, the commission component of the premium is greater in the initial years, and subsequently reduces. Health insurance policies, on the other hand, have a one-year renewal contract and a flat commission percentage (around 15%) across all insurers. In both cases, the Commission Analyser gives you an idea of how this commission accrues over time. Knowing this figure only serves as a starting point for you to look into the terms and conditions of your policy more closely and check with your advisor to understand if it meets your needs. 

Ultimately, our idea behind the Commission Analyser is to increase transparency. It gives you a point of reference to understand if your insurance policy is offering value to you. This is a tool meant for exploration and empowerment — to help you take control of your financial future and choices.

This tool safeguards your interests by allowing you to explore and understand your insurance policies better 

Why We Created a Commission Analyser for Insurance Policies

It all began with a dressing gown. 

Denis Diderot was a French philosopher who lived in the 1700s. Though the co-founder of the Encyclopédie, he was a poor man. As the story goes, he was unable to afford getting his daughter married. Luckily, he was bailed out by Catherine the Great, who bought his library. Diderot now had money to spare. His purchase of a new scarlet dressing gown led him on a journey of consumption that he soon regretted — he accumulated a host of possessions to match his new gown, which upended his life. Today, we call this concept the Diderot Effect. 

Simply put, the Diderot Effect describes the phenomenon of how gaining a new possession can trigger a spiral of consumption. 

At some point in our lives, we have all been Diderot and fallen victim to this tendency. If you’ve bought a new car, you would’ve also bought seat covers, speakers, a stereo or other high-end accessories. If you’ve bought a dress for an occasion, you may have also bought matching shoes, jewellery, a bag, and make up. One purchase can set in motion a chain reaction that pushes us to acquire more things, whether necessary or unnecessary for sustaining our new lifestyle. 

It’s human nature to want to consume more. In today’s times, for instance, e-commerce algorithms constantly leave us susceptible to the Diderot Effect — we end up wanting and buying things we do not need. 

This rush to upgrade our lifestyles and become newer versions of ourselves, facilitated through our purchases, affects us in many ways. It can lead to unnecessary spending, and in extreme cases, a snowball effect could compel people to use up their savings or take loans to satisfy their need for a new life or identity. 

But a more lethal effect of such patterns of consumption is on the environment. Overconsumption (and unsustainable consumption) is a major driver of the climate crisis. Our consumption overshot the annual reserve of global natural resources even back in 1971; all we are doing now is stealing resources from future generations. A 2022 <a href="https://www.unicef.org/press-releases/over-consumption-worlds-richest-countries-destroying-childrens-environments-globally">report</a> by UNICEF Office of Research — Innocenti has found that over-consumption in the world’s richest countries is contributing to the destruction of the global environment. “The use-and-throw culture or consumerism is probably at its all-time high, given increasing disposable incomes, affordable prices and the plethora of options available to buy from,” says Sushant Figueiredo, a waste management consultant based in Goa. 

Consumerism has a significant carbon footprint — consumption leads to demand, which in turn leads to increased production, which has its own problems. “A steady decline in the expected ‘useful life’ of products has led to an increased rate of production as well as increasing generation of waste products. So, while on one hand, our natural resources are strained through raw material extraction, manufacturing processes and logistics for new products; on the other, they face a serious threat due to improper waste disposal practices and insufficient civic infrastructure to deal with the issue,” Figueiredo explains. 

To avoid the Diderot Effect and reduce our carbon footprint, change is necessary. 

To start, we need to become mindful and ethical consumers, making informed purchases. “As consumers, we must also understand that we are contributors, and therefore being able to distinguish between a necessity, whim and a luxury is important,” says Figueiredo. “If the decision was indeed made to purchase a good, priority must be given to those with longer life spans, made sustainably or having lesser environmental consequences.”

We need to learn how to eliminate the excess, set some limitations and focus on the things that matter. It is good to remember that possessions do not define us.

We need to slow down, both for the sake of our environment and our wallets. 

Joanna Lobo is a freelance writer from Goa who specialises in writing about travel, food, culture, lifestyle and all things Goan.

Rabbit holes of over-consumption affect our finances, but they also leave the environment fractured

How Reactive Purchases Impact Our Carbon Footprint

Dear Qualified Financial Advisor,

I’m planning to get married later this year, and while preparations for the big day have already started, I find myself thinking about how my spouse and I will manage our finances once we’re married. As a woman, I’ve always valued and worked towards my financial independence. But I’m not sure how things will change once I get married — like if we need to share a bank account, and align our budgets. Or do things largely stay the same? I’m a bit confused about how to approach this. Any advice would help!

Yours,
A Soon-to-Be Newlywed


Dear Soon-to-Be Newlywed,

To begin, please accept my heartiest congratulations on your momentous life decision. Once you’re back to routine life after your wedding, you’ll want to get started on your paperwork. Do ensure that you apply for your marriage certificate within six months. Meanwhile, decide whether you want to change your name or keep your maiden name. In case you wish to change it, make sure that once you receive the marriage certificate, you submit the relevant documents and change your name on all government IDs.

Usually, a newly married couple has a lot of people to meet together. So for the first year post-marriage, there might be lot of expenses on gatherings and gifting. As a couple, you should set aside a budget for this.

In a broader sense, to maintain better financial control, it is important to not lose sight of your own financial future but tweak your financial plan with clear goals in sight. The next step, thus, is to assess the current state of your finances and set a new budget with future expenses in mind.

Once you have a budget in place, chalk out a financial plan that takes into consideration financial ambitions at various life stages — such as vacations, medical expenses, purchasing a house and vehicle, and your own long-term goals, like retirement. While it’s crucial to keep long-term goals in sight, life can take unexpected turns. So, another priority is to build an emergency fund simultaneously.

As a couple, you should have at least three bank accounts — two salary accounts (one each for yourself and your spouse) and one joint account. All personal expenses like shopping, travel conveyance, bill payments, etc. are to be incurred from your salary account. All shared expenses, like EMI payments (if any), home maintenance, groceries, vacations, parties, etc. are to be made from your joint account. Through this exercise, you will have clarity on your personal and joint expenses, which will help with budgeting.

Finally, start investing small amounts on a regular basis. This can contribute towards your financial goals — like having a corpus for your vacation, gadgets, medical expenses for yourself, your dependents and parents, a new house, a new car, retirement, and so on. Top up your investments with any bonus income and incentives, whenever possible.

Make a plan for where your money will go. For example, if your monthly in-hand salary is ₹1 lakh, and your mandatory and miscellaneous expenses are ₹60,000 and ₹2,000 respectively, and you pay an insurance premium of ₹3,000 per month, you need to prioritise long-term goals. These may include retirement (say, ₹5,000 a month) as well as medium-term goals like buying a house or car (say, ₹10,000 to this goal), and short-term goals like an emergency fund, a vacation or buying a new gadget (say, ₹20,000). These are estimates that will vary depending on context.

If you are planning your finances for the first time, you could consider starting with the “50:30:20 rule” — wherein you set aside 50% of your income for essential expenses, 30% is allocated towards lifestyle expenses (this includes your insurance premium), and 20% is put into investments. As you get more familiar with the process, you can tweak your income allocation based on your financial goals and lifestyle. Your partner can plan for their finances in a similar fashion. This will help you be prepared for a secure future together.

Yours,
<a href="mailto:charmi.shah@qfa.1finance.co.in">Charmi Shah</a>
1 Finance Advisory Committee for Qualified Financial Advisors — Mumbai Chapter

A financial advisor offers guidance on what to expect after marriage 

How Does Getting Married Affect My Finances?

It’s easy to fall into a financial rut in any profession – but especially so in the arts. 

And it often starts with that first job. Mine was at an independent publishing house in London. My modest salary was enough to cover my rent, with a little extra for everything else. A distinct upgrade from student life, I took the bus to my beautiful office near Notting Hill, where I learned about the intricacies of book publishing, from what it took to design a brilliant cover to how to write a punchy blurb. 

In time, I made the jump from Production Editor to Commissioning Editor at one of the house’s imprints. I sipped champagne at literary award ceremonies, worked on translating critically acclaimed books into English, and fell in love with art and theatre. 

I grew tremendously in those years — except financially. But that was OK I reasoned, I was starting out in an expensive city, and could manage easily enough with a little scrimping and saving. All in all, I had a grand time. 
*
When I moved to Mumbai five years later, I accepted a mid-level copy editing role and the basic remuneration that accompanied it at the Indian edition of a global fashion magazine without negotiating. I’d moved countries and needed to establish myself in a new market, and was living rent-free with my parents, with only a few personal expenses to take care of. I was 26 — I would catch up. 

I did well over the next decade, graduating to Deputy Editor at the magazine. But except for one substantial hike fairly early on, every other raise I got ranged from 5–15%. My baseline salary being low, this meant incremental growth during a key phase of my career.

By the time I hit 30, the idea of advocating for yourself was au courant, and that’s what I did, highlighting my achievements, the additional responsibilities I’d taken on, and my changing needs and expectations. But appraisals followed a familiar routine. My work was valued and praised; the revised scope of work acknowledged; I was a top performer and was given the top raise possible for that year. 

It grated, but on the other hand, I genuinely loved the creative nature of the work I did. Plus, the perks were great (hello, Biz Class to Australia, Bali, London, the Czech Republic, Italy, tickets to the hottest tables in town). My job gave me stability at a time when the rest of my life felt tumultuous. 

Until I got married, that is — after which I had to confront some blunt economic realities. Many of my arguments with my husband were about money, and it was clear that the long-term health of our union depended upon us building a secure financial future. But how to do this during a pandemic? 
*
It was only after I had my baby that a natural break from work made sense. I embarked on a consultancy project after a gap, excited about the potential of the role and the flexibility it offered me to WFH. I accepted a salary that matched my previous salary on paper. 

This turned out to be a short professional stint. As a breastfeeding mum of a nine-month-old at the time, I was physically and mentally exhausted, and doing much of my work late at night after my baby slept. I fretted constantly about the time it took to commute to meetings at the other end of the city; I felt anxiety at the thought of rescheduling meetings if my son was unwell. I also continued to take on more responsibility at work to ensure the overall system functioned smoothly. Suddenly the same salary, plus an infant, and minus the benefits of being a full-time employee, meant that the maths wasn’t adding up. 

Once more, I advocated for myself — this time more vociferously. I’d proven my worth, and was better prepared, having benchmarked my salary against the industry standard. But no dice, the conversation didn’t go as I hoped. 

My confidence rattled, I had to ask myself: How had I built a career over 16 years that was so rich and diverse in experience, that had brought me such joy, with an excellent network of contacts, only to be paid relatively little? Did my salary reflect my worth? This time around, would I make a bold move and walk away, or would I stay?

I walked away fairly recently, without a roadmap for what would come next. But I did know that my time and experience came at a premium, and that the criteria for any new project I took on was that it had to excite me and pay me well. 

It was a subtle but important internal shift that’s triggered something in my external reality – like the universe got the memo, too. The opportunities coming my way are more lucrative now; I’m pivoting in new directions that have the potential to creatively satisfy me and empower me financially. It's a feeling I’d like to get used to. Like Beyoncé rapped on 'Apeshit': “Gimme my check/Put some respect on my check.”

Shikha Sethi Chowdhary is a Mumbai-based writer, editor and consultant.

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