December 23, 2016

Six Financial Lessons from Narendra Modi’s Surgical Strike on Black Money

I did not have enough cash to pay the laundry boy. I was frantically looking through every drawer in my house when my little girl said, “Don’t worry mom, I have money which you can use.”

My face lit up suddenly, and I asked, “Where”?

She said, “In my Barbie piggy house.”

I asked, “How much do you have?”

“Lots,”was her quick reply.

“Tell me the exact count, I said impatiently

“Five rupees.”

Though I was worried about my worthless Rs 500 and Rs 1000 currency notes, I couldn’t help but chuckle at the innocence of my four-year-old daughter. On any other day, that amount may look meager, but now the scenario has completely changed.

Thanks to our Prime Minister Mr. Narendra Modi, the notes of Rs 100, Rs 50, Rs 20 and Rs 10 have become more important now. Those coins which we earlier used to drop in our kids’ money bank have suddenly started playing an important role in the household budget. This whole episode of demonetization has taught me some important financial lessons that I almost forgot in the hustle and bustle of life.

Build a contingency plan

Having a contingency plan is the first step that you should take towards building a strong financial future. You may have often seen that people don’t plan for their liquidity requirements. Mainly, it happens because most of the investments are made without considering needs and in most of the cases, it is done in a sporadic manner.

It is pertinent that people build a contingency fund with an amount equivalent to your minimum six months’ expenses in investments that can easily be converted into cash in a day’s notice, and generate better returns as compared to a saving bank account. You can invest in liquid funds of mutual funds which offer dual benefits of liquidity and returns.

Learn to live within means

We all have curbed our expenses after demonetization to ensure that we are left with enough funds to meet daily needs. If this could be practiced in life on a daily basis and the savings could be channeled into good investment options, then achieving financial freedom would no longer be a dream anymore. Be happy with what you have and don’t indulge in extravagance, as you never know, another demonetization might occur in future!

Ready to face the life’s unpredictability

Nobody saw it coming or had any idea. The 8 pm announcement meant no way to make last minute transaction at jeweller’s shop. The punters who were betting thousands of crores on the USA election were caught unaware. Now when you go to the bank to deposit cash more than Rs 2.5 lakhs, the IT department will keep a record of your transactions.

While we know that life is unpredictable, what we don’t realize is that it may catch you unaware. Therefore, it is inevitable to have two insurance policies— term insurance and health insurance— to curtail the impact.

While a term insurance policy pays benefits to your family so that they don’t have to face any financial hardship after your death, a health insurance policy ensures that you have sufficient money to fight against hefty medical expenses. It is imperative to have a comprehensive health insurance for the entire family, which could help with services like uninterrupted medical facilities, cashless payments, etc.

In case you already have a  health insurance and want to expand your coverage, you can go for a super top-up policy that offers extra coverage at nominal rates. In the past few years, there has been a rise in the medical cost. As a result, the current health cover may not prove sufficient. Super top-up policies cover medical expenses when they cross the threshold limit. Also, there is no compulsion to get the policy only from the one you have purchased the health insurance policy. You can buy a super top-up policy, even if you don’t have any mediclaim.

Emphasis on tax planning, never on tax evasion

As said by Sojourner Truth, an African-American abolitionist and women’s rights activist, “Truth is powerful, and it prevails”, so no matter how much you try to evade, the truth finally comes up. A bold move by Modi to curb the shadow economy sets off a knee-jerk reaction among people who have black money in abundance.

It is imperative to understand that as the citizen of India, it is our duty to pay taxes on time. Once we pay our taxes, we are free to invest the remaining amount in instruments which would give us the high-risk adjusted returns. It is necessary to plan your taxes well and invest the post-tax income into instruments which help achieve your financial goals over the period of time. In any circumstances, never try to evade taxes. After all, it pays well if you follow the rules.

Small is big

In the current situation, a person with a Rs 100 note is much richer than a person with Rs 500 or Rs 1000 notes. When it comes to investing, we always procrastinate things, citing reasons like ‘I don’t have sufficient income, or I will start savings from the next month, etc.’. However, what we often tend to neglect is that the time is an essence and by delaying our investment plans, we are ultimately affecting the corpus. You should start investing as soon as you are employed, even with a small amount, without straining your finances and putting the burden on your responsibilities. More importantly, you will be able to gain from the power of compounding.

Surgical Strike on Black Money

*Retirement age is computed as 50 years and rate of returns like 8%

Diversify your investment portfolio

Every portfolio should have a good mix of physical and financial assets to tide over unforeseen circumstances and yield good returns. However, most of the people invest heavily in physical assets like real estate which do not offer immediate liquidity. Thus, it could turn out to be a costly decision, especially in the situation of financial scarcity.

No investment is risk-free; only a proper diversification can mitigate the risks of market cycles. Even Warren Buffett, an American business investor, warned against putting all eggs in one basket. If one part of your portfolio is doing better than the other, the natural tendency is to load up on the part giving best results and forsake other investments. But it means an under-diversified and volatile portfolio.

Also, proper diversification doesn’t only mean mutual funds or stocks, but a proper allocation among equity, fixed assets, debts, and other investments. It also includes making diversification within the investment sections. For instance, your stocks should have a proper mix of equities and debts to safeguard your investment from the market downturns.


Narendra Modi’s surgical attack on black money caught everyone by surprise. It is a strategy that will go down the annals of history. The government believes that pulling out Rs 500 and Rs 1000 currency notes from the market will weed out a lot of black money from the market; while those aligned with the opposition, including Congress and AAP, believe that it is a gimmick and is adversely affecting the poor section of the society. Those who tread the middle path want to wait to see the effects.

Unforeseen financial events could either be personal or regulatory in nature. It is necessary that one should be ready for all situations through effective finance planning. Whether the demonetization has achieved its goals or not, only time will tell. But one thing that you need to do for sure, ‘Dig out those coins from your handbags,’ as every penny is counted!

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