Browse Month: November 2016

Habits of Financially Successful People

 

financial independence

7 Habits you can observe in financially successful people

I am sure you must have come across loads of successful people around you. It may be through media, social media, print media, or electronic media. I am also sure you must have wondered what makes them so successful. No doubt, there is hell lot of hard work that goes behind anyone being successful, but a successful person inculcates certain habits in their daily routine which makes their chances of succeeding much more.

Just like merely saving money cannot make you wealthy, it is same with success. It’s not only hard work, but smart working and making use of resources around you optimally make you successful.

One needs a proper plan and a proper execution both in order to get successful in any task. If you are preparing for any examination, you should plan in such a way that you cover your entire syllabus systematically and make sure that you do it well in advance of examination date. Also, getting fit and healthy just before during exam time is important which will ensure proper success in the examination.

Same holds true for financial success too. By financial success we mean a stage where you feel financial independence in your life – that is you no longer need to work for money. This is what is called as early retirement, where you “work what you like” – not “Like what you work”. As per some of the major financial planning books and personal finance websites, there are 7 common habits/traits exhibited by financially successful people

 

  1. They live their life “goal oriented”. This means they create elaborate plans for finances and keep changing them as per the external conditions to keep themselves on track. Measuring goals give them a perspective of what they are doing is on right track as per planning or not.

 

  1. They are organized in every aspect of their lives. They plan properly for every task, allocate proper resources and keep measuring the progress. This is true with the work they do at their workplaces as well as their personal lives.

 

  1. They are open to suggestionsplan adjustments. They are capable to adjust their plans with changing dynamics around them. This is must as a good plan has always scope of adjustment in order to achieve the desired outcome.

 

  1. They are action oriented. They take actions, quick in decision making based on facts and accept accountability of their decisions. Same is the quality of a good leader.

 

  1. They are frugal. This is the most common behavior among all millionaires. They stay away from lifestyle inflation. Lifestyle inflation is one of the biggest hurdles in financial independence and wealth creation.

 

  1. They are good team worker. They team up with spouses and near friends to work collectively towards the financial goals and plans. When you are a good team worker, you get inputs from all members and this ensures success of overall plan.

 

  1. They are persistent. They have plans, they work towards achieving the goals and they try out hard to work towards it. They do not give up easily. When a plan is laid out, persistence and perseverance can only guarantee its success. Wealth creation is all about persistence as it cannot be created overnight – except when you win a Jackpot.

 

Financial success is not an overnight affair. It requires a planned approach where you are persistent and it may take few years to take shape or see initial results. You may face many hurdles in due course, but staying put, fighting odds bravely can lead you to financial independence. You have to believe in yourself, stay focused and stick to the basics. There is no rocket science involved.

 

 

 

Recipe – How to be wealthy ?

If you blow up all the money you earn every month, you will always struggle financially

We all need money to survive in this world. The reason why you and I wake up every morning and doesn’t matter how dreadful is our job, we go to work religiously to work every morning. We go to work to pay our monthly bills, have a roof on head, have food on table for you and your immediate family, pay for the commute etc. These are all known as basic needs. Almost all of us earn enough to take care of our basic needs.

How to be rich

We all want bigger home, nicer car, to dine out in better restaurant, more and more nice and trendy apparels for our wardrobe, latest smart phones, latest gadgets and the list never ends. The reality is that a majority of working class spend their entire salary what they earn every month. By month end they have to wait for the next salary to come in to take care of their basic needs & never ending list of wants. This cycle repeats every month and the same way every year.

If the above description portrays what you are, indeed you are in deep trouble. Unless you hit a lottery, you can never be rich in your life. You will always be struggling with your finances. If you wish to avoid this financial struggle, you have to take control of the situation. You have to save money. Not just one month, every month and keep investing money such that it gives you returns.

 The key ingredients in the recipe here is

  • You have to spend less than what you earn.
  • Keep working towards increasing the gap between your income and your expenses.
  • This gap, you need to invest such that your money works harder for you to generate more money.
  • Repeat above steps month on month – year on year for as many years you can
  • One of the most important tip – Do not fall in DEBT trap

This is what is required to be wealthy. There is no magic to become wealthy. You have to change your mindset; the money you earn is not for spending in entirety. Once you master this, you are on right track. If you have control on your spending, you have control on your money and on your future finances.

There is only one magical formula “You have to spend less than you earn”

One you achieve this, you need to focus on investing the amount you save each month. It’s not just about investing – its about investing wisely to maximize your returns. Keep on repeating this for donkey years; – you will end up as a rich guy/girl.

Only thing you should focus is consistency in investing money. Yes, I repeat consistency in your approach of investing. Just like you earn a monthly salary – pay your investment kitty also a monthly salary. This amount you invest every month will keep on increasing your net worth.

“Money is not everything in this world, BUT money gives you a cushion which is a mean to survive in this world. ”

Money instill a kind of confidence in your life to take on life’s challenges.

When you should start investing in real estate?

People when they purchase a place to live in, they consider it as an investment. It is indeed a big investment as the ticket price is very high. With easy credit availability, aggressive advertising and last 10 years of upward trend in real estate market, people start thinking that why not to buy another home/flat as an investment and keep it. The general belief is that the price will increase in proportion with how it has increased in the past decade.

This is a kind of greed which is churning out a category which is house RICH and cash POOR.

real estate investment

Investment in real estate is not a bad idea, but one must have done basic investments rightly and must have enough cash buffer to take on emergencies. Also, the person should factor in the potential extreme property market swings. Since house purchase is a big ticket investment, one must weigh all necessary parameters carefully before taking the plunge.

Purchasing first property for self occupation cannot be considered as a pure investment. Everyone needs a roof over the head. First property provides this roof over the head and even in worst scenario, you will have your house intact – a shelter for you during your bad times.

When you are out to buy your investment property, then a lot of parameters kicks in to be considered before you buy your investment property. You have to safeguard yourself from emergencies, invest certain amount at other avenues which can be cashed in bits and pieces when required. An investment property is a big chunk of money parked and you cannot sell it piece by piece.

Some thoughts on when you should start investing in real estate

  • You are adequately insured (life cover)
    There are plenty of thumb rules and formulas floating around which will give you an idea of how much insurance you should buy. Do a little bit of research and purchase a good term plan to cover your life.

  • You have sufficient funds for taking care of emergencies
    Again as told earlier, property is a big ticket purchase. You cannot sell it at will and money gets locked when you make purchase. So to safeguard yourself, you must create one emergency fund which will take care in case of any emergency.

  • You have adequate medical insurance
    Whether buying property or not, you must be covered adequately for your health. Cost of medical treatment is increasing hence you must take adequate cover for you and immediate family.

  • You have a good Debt folio
    Again in investment pyramid, a good debt investment comes at the bottom stage – that is initial stage. You should invest some amount in instruments like FD/RD/Debt funds/PF/Bonds etc.

  • You have a good asset allocation and a mix of equity into your investments folio
    Based on your age and investment appetite have proper mix of equity and debt. You must have relevant equity exposure to gain from the rising markets.

  • You have at least 40% cash for making down payment for the investment property
    Having 40% as down payment, you save yourself from huge EMI going out monthly against home loan / mortgage. You must aim for maximum down payment so that the EMI doesn’t pinch you and you can have a peaceful life.

  • You have adequate funds to cover schooling of your kids
    Again the investment in property should not leave you with insufficient amount for your kids education. Amount for kid education should be kept and invested into a separate account.

  • After paying off your EMIs you still have 70% of your in hand salary at your disposal
    You should aim to restrict your monthly EMI for home loan to not more than 30% of your monthly take home – post taxes. This will give you a good 70% amount for running house and incurring other expenses. This is a healthy ratio.

  • In case of job loss, you should be able to support your EMIs for a good 6-9 months
    You should have enough in your emergency fund to tackle job loss scenario and you should be able to sustain 6-9 months with your EMI in case of job loss scenario.

If all the above basics are in place, then only one must look forward to buy an investment property. One should not become House RICH and cash POOR, as you have many other costs associated with your life & family.

If you play it too tight, the EMIs will hurt you, you will be broke if you lose your job, you will not be able to pay property taxes /maintenance. The cash flow will hurt you and you will be rich only on paper.

Consumer Debt & personal finance

Malls are filled with loads of white goods showrooms. Not only they have latest models of TV (LED, 3d, HD ), refrigerators,  kitchenware, washers, dryers, food processors, microwave ovens, cutlery, music systems but also they buyers lined up to buy them. Hardly anyone buys all cash. Most of them lined up to buy stuff are through consumer credit.

 

consumer debt & wealth

 

One of the greatest hurdles in creating a positive net worth is consumer debt. With easy credit availability, everything in the market is available at easy EMI (equated monthly installments – monthly payments). This is luring consumers to buy anything and everything they want.

  • Our neighbor has bought a new 85 inches LED, so we must also get something similar, if not bigger.
  • I must have a new car to show off my status; after all I am working so hard.
  • I must go to Malaysia / Singapore trip this winter holidays as my neighbor had done this last season and they boast it a lot.
  • That Tissot watch is so tempting; I must have it alongside my Seiko to go well with my casual dressing.

The list is ENDLESS

Above are the lame excuses we make to ourselves to get into consumer debt. Since today’s generation is earning well, and coupled with easy credit availability, everything seems to be within reach. EMIs make us think that we can afford anything, but in reality, by increasing EMI burden, we are harming our savings and investments in the long run. What if a bad economy patch hits us, times are not always going to be on your side. Suppose you are out of job for few months due to a sudden slowdown in economy, how you are going to manage so called EMIs?

Consumer debt is like a black hole. Once we get sucked in it, it is impossible to get out of it. We get more and more tempted by LOW EMIs or low monthly payments. We are then not bothered about the percentage of our take home that is going out in terms of monthly payments towards these loans. Once we add up the processing fees, interest charged on the loan, the final costs escalates and this makes our purchase financially not feasible by the time the loan term ends.

We see TV’s , print media, online media all tempting us to buy something or other. We tend to flow with the marketing pitches and buy the items which are in WANT category. Sometime we ignore our basic NEED category and give preference to WANTS. These WANTS will not serve any good to you in the long run as they are negating your savings and investment potential. Remember in later years, these things are not going to support you. You need funds in terms of retirement savings to take care of you.

Avoid consumer debt like plague; invest money smartly for your retirement years. Ultimately you are the decision maker of your life and you have to make sure that these little EMIs do not end up denting your retirement savings.

There are some good credits and some bad credits. You need to wisely distinguish between them. Good credits increases your net worth in terms of appreciation of the item purchased and also they give you tax breaks. Home loan or mortgage is an example of good credit.

Consumer loans come under bad credit. You buy the stuff which loses its value considerably the moment it comes out of the showroom. Also, you pay interest, processing fees and you do not get any tax break on this purchase. It’s your choice now, what kind of loan you should pick for your financial independence.

Have you bought anything recently on easy credit?

Do not wait to invest

It is often said that “the best time to start investing is NOW!”

Do not be surprised with the fact that most of the new investors are always confused about what is the right time to invest. Quite obvious, the educated ones want to save their principal amount and with whatever knowledge they have gathered, they know if they enter at extreme market highs, they could stare at huge losses few years down the line.

 

right time to invest

 

Everyone knows that one cannot time market. Instead of fretting about when to enter the market, tie your investments to how long you wish to stay invested. Always associate a goal with your every piece of investment. Along with the goal, also try associating a timeline too to your investment. For example, if you start a PPF account – you have a time period of 15 years (lock in period) to invest. In addition to 15 years, you can add blocks of 5 years to this term. So now you can associate the goal of buying retirement home with the proceeds of maturity amount after 20 years. INR1,50,000 systematic investment for 20 years can yield approximately INR4,50,000 on maturity.

Once you start working, you have enough financial goals staring at you

  • Buying an automobile
  • Buying house
  • Finances for wedding
  • Starting a family
  • Kids education
  • Retirement planning
  • Medical expenses
  • Taking care of dependents

And the list can go on…..

Take control of your life. Be at the driver seat. Identify goals in your life, assign a timeline and start investments for specific goals. Do not wait for the next salary increment, next promotion, your marriage, markets to go high or markets to come down and any other lame excuse that you can come up with to start putting money aside for your retirement years.

There are enough indicators for you to start investing the moment you start earning.

  • If you are in private sector, you will not get pension
  • Due to betterment in medical facilities and healthcare, average age of a person is increasing. You may have to live around 20 years in retirement before you die or may be longer. How you will fund your expenses?
  • Inflation is eroding the investment portfolios at a greater rate than ever as medical costs, housing costs, energy and every other service cost is increasing at a greater rates.
  • Cost of education for kids skyrocketing
  • Day to day living expenses are increasing

Whatever your dreams about retirement are (playing golf, traveling etc); you have to make sure that you outlive your money. If it’s the other way round, you will have to struggle a lot to place food on your table.

As I had mentioned earlier, your money is your money and only you can manage it better. You will have to invest and make your money grow so that you have enough funds for the retirement years. This will make you not to rely on your children to feed you during your old age and you can maintain your self esteem.

Investment is not a rocket science. If you are reading this, you must be having access to internet and internet is the biggest source of information in today’s world. It does not take special skills to get information about various avenues for investments based on your investment appetite. There are plenty of online tools which can compute returns over a period of time, based on historical data. Use them to tune your investment planning and you are good to go. Most important is the first step. Unless you take first step, you cannot climb the stairs. Same is with investments. Study, identify your goal, associate a time period to it and take plunge. You will learn many new things and there is always room to correct your mistakes in this journey, but the most important thing is the first step.

Do not think that your real estate property will take care of your retirement years; this thinking has created many house rich, cash poor individuals. You have to spread out your investments, must have proper asset allocation so that you can earn a regular income from your investments in your golden years. If you do not know how to invest, where to invest, start reading and do not hesitate to take help of experts. Investing has to be continuous process, month on month, year on year till you retire.

Remember you have to outlive your money without being burden on your children.

Happy investing !!!