Browse Category: Money

Financial success : It’s not about the Stuff you gather

Remember: Financial success is not about the Stuff you gather

Financial Success

If I ask you “What are the the changes you would make in your life if more money starts reaching you – that is you have a better job paying higher salary than existing one?”

Most probably the answer would be

 

  • Buying a better smartphone
  • Upgrading the laptop
  • Buying a bigger house
  • Taking a nice vacation abroad
  • Upgrading your car

 

 

The list would be infinite. Isn’t it?


Yes, that’s true. But I need to buy these things as these things will add comfort to my life. Since I am earning more, don’t you think I deserve these? Others should also know that I am doing well in life.

 

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” — Will Rogers

 

It’s easy to spend money to buy stuff, to buy things that make us look cool and gives impression that we are well off financially. But the truth is most financially well off people do not need to show that they are well off. They know very well that their financial success is not indicated by the money they earn and spend it in buying the stuff every year. It is indicated by how much they earn and keep for growing it year on year.

 

Yes, true but I need to buy a decent SUV as I had a dream of buying it when I was in college. True that I can not afford it outright but I am eligible to buy it on monthly payments.

You are looking to buy a SUV which is not meant for city driving conditions and costs you a bomb. Any sports utility vehicle is expensive & comes with a huge list of expenses with it. Expensive car means more monthly payment, more maintenance cost, more insurance premium and expensive spare parts. Moreover, you will not be able to use majority of its features when you use it as a daily commuter vehicle. Instead of buying you can always rent it for a spin or two when you feel so. Read here why your car is not you ASSET

 

Hmm sounds good. But if I am not having a big house, an expensive car and latest gadgets, how will others know that I am doing well. Also I need to justify to myself too

Right but this is your life and why you have to buy stuff to show others that you are doing well in your life? You can not spend your hard earned money simply to please others. Remember, money is merely a tool to attain happiness, money itself is not happiness.

 

True, I agree but how to measure financial success? How anyone can come to know that he is heading towards financial success?

A simple and quite accurate measure of financial success is NET-WORTH. If you have a reasonably high positive net worth and it’s growing at a decent pace then it means you are doing well financially.

 

“net worth is really everything you own of significance (your assets) minus what you owe in debts (your liabilities)”.

 

  • Do you have a house which is mortgage/ loan free
  • Do you have a sizable emergency fund
  • Do you have a vehicle which is paid cash
  • Do you have no consumer finance
  • Do you are covered adequately on insurance front
  • Do you have an investment account and you are regularly investing
  • Do you have a positive net worth and a retirement fund which will give you regular income post retirement

If you have “YES” as answer for most of the above points, yes you are doing well financially. Do remember, age also plays important factor in the points listed above. But even if you are young, a positive net worth indicates that you are on the right rack and doing well financially.

 

Remember – you are accountable to yourself. Do a tight scrutiny periodically on your finances, on your investments, on your budget. If you honestly (you can not lie to yourself , right?) find that your net worth is growing, you are heading in the right direction.

 

You have some valid points. But all seems too much complicated. How can a beginner like me can proceed and implement this to my finances?

It is not complicated. You need to move step by step.

 

Always remember

  • Money alone doesn’t bring happiness but it sure can help
  • You only have to take care of your money and ensure that it grows – none else will do it unless they have their own personal interest attached to it
  • Money can not solve all your problems. Yes but it can help you sail through most of your problems

Happy investing !!!

Appreciate what you have – In pursuit of Happiness

Wealthsamurai – In Pursuit of Happiness in the Journey called LIFE

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”

 

appreciate what you have


Appreciate What You Have – I have chosen this topic to re-iterate the philosophy of WealthSamurai that is to achieve happiness through wealth creation and proper financial planning. Today’s post is a guest post by a dear friend SG.

When railway was invented, and routes were getting laid down in Britain, an officer working on field saw a native man carrying faggots on his head. Officer stopped him and asked where are you going. “To sell faggots in the far away village market”, replied the man. Officer asked, tell me your weekly routine. “Monday and Tuesday I chop the trees, carry the faggots to market on Wednesday, sell them on Thursday, return back on Friday, sharpen the tools on Saturday and rest on Sunday. Officer proudly told the man, once the railway starts running on this route, it will take you to market in an hour and back in an hour, so it will save you 2 days. Officer thought the man would be rejoiced instead he looked worried. What’s the matter asked the officer. Man replied in worried tone, “You disturbed my whole routine, now what do I do on those 2 days?”

The world has been changing rapidly since last century. Science and technology has contributed significantly in every field of our life. Just try and compare the daily routine you would have if born 50 years back. Along with loads of convenience and comfort it has brought to us, it also increased the speed of living drastically. Science has penetrated into your daily routine so much so that the routine tasks which would have taken whole day 50 years back are now possible only in 1/10 of its time.

For example:

  • Washing\Cleaning – Washing machine, dishwasher, vacuum cleaner
  • Cooking – Food processor, pressure cooker, microwave oven
  • Travelling – Automobiles, railway, airplanes, rockets

So the same predicament has happened to us.

What do we do with the time that we are saving?

There could have been lot of apt answers but unfortunately the answer we chose was,

  • Work more
  • Earn more
  • Enjoy life more and more

We worked more, we earned more but somehow the latter part was not to happen. We are not happier than our previous generations even though we earn more and have much more comfort and convenience. What went wrong? Only few people come across this question in their LIFE, rest of them do not even have the liberty to think in this mad mad race. People who spend some time with themselves and introspect are soon struck with reality. They know they are not happy at the moment although this might be exactly what they had planned for.

People don’t really know what they want from or in LIFE. They don’t have clear goals. They try to squeeze LIFE as much as they can and then adjust their goals accordingly. A man, who had a goal of buying a car one day, soon readjusts it to buy big sedan as soon as he owns his first car. A man, who dreamed of having his own apartment in city someday, suddenly starts dreaming of a luxurious 4 bedroom suite as soon as he moves into his cozy 1 Bedroom apartment. This is a vicious cycle.

If your goals and priorities keep changing frequently it tells three things about you:

  • You did not know your goals
  • You did not know your priorities
  • You can never be happy in LIFE

Some people may say not necessarily, goals and priorities can change and I would agree with that. But there is always a cost to pay. So what do you put at stake? You put at stake that very thing for which you have been working hard till date – A happy and satisfied LIFE.

Your wants keep turning into needs and you keep running like a race horse to meet them. This cycle is hard to break unless you are ready to swallow some bitter pills.

What is the smallest thing that you appreciated recently? Mind you, the smallest
Do you own that thing?

Answers to first question will differ a lot, however, answer to latter is same – NO.

We never appreciate what we have. We only appreciate the things which we do not have. Ask yourself, how much time you spend in appreciation and gratitude towards what you have – Very less.

Most of our time is spent in appreciating what others have and disparaging our achievements. Stop comparing things. Comparison is what is hurting you all along and it can really kill you. You can never have everything in the world. And even if you do one day, you will soon start craving for moon and stars.

However let’s not confuse contentment as complacency? One should definitely not be complacent. But you have to learn to be happy in the present moment, learn to appreciate the moment as it is. So start appreciating what you have now…

  • Appreciate your favorite ball-pen which you have purchased few years back
  • Appreciate your house you owned just now
  • Appreciate your friends, husband\wife, son, daughter
  • Appreciate your neighbors, colleagues, boss, office boy, lift-man, milkman
  • Appreciate the weather soothing or scorching
  • Appreciate the piece of sky visible from your window
  • Appreciate the flower in the vase blooming or withered
  • Appreciate chirping birds, barking dogs, yelling kids
  • Appreciate the rising and setting sun
  • Appreciate the beautiful wallpaper on your laptop

 

And finally, stand in front of mirror; appreciate yourself for the gratitude you are expressing towards everything in this world which is part of your LIFE. Take pride in things and keep feeling it. If you can do this, you will notice that something around you is changing. Every day when you wake up, you will be a happier, content and a better person than yesterday.

 

 

What are money leaks? How to find out your money leaks and plug them?

“A money leak in a simple language is the money you have spent but you don’t know where you spent. “

Money leaks are just like water leaks from a container. End of the day you don’t know that water is leaking and container becomes empty.

“For example you draw INR 2000 from ATM on the way back to home from workplace. You buy grocery for INR 1000 , vegetables for INR 750, stationery items for INR 150  and have a coffee for INR 100. Somehow next day you forgot that you had coffee previous night and you still think you have INR100 with you from previous withdrawal. This FORGOTTEN INR100 is the “Money Leak” for you. So when you sit down to write expenses over the weekend, you are able to account for INR 1900 out of INR 2000 withdrawn from ATM and unable to account for INR 100 you spent on your coffee.”

 

Money leak - how to fix it

 

Ok Great. But I am good at accounts and I can remember what expenses I incur. So Money leak for me is out of question.
Good. but still as the phrase indicates “money leak” is small expense here and there which is tough to account for at a later date. You may not remember or you may not be knowing the money going out for some expense. But these small expenses can add up later and over a period of time can be a big financial disaster for you. If you compute total spend over a large period say 5 years, these leaks can set you back by a huge amount when you consider the principal amount as well as loss of investment potential of the leaked money. It can directly affect your net worth and can play a spoilsport while planning your financial independence.

 

Hmm Sounds scary. Can you list down few other money leaks so that I get more clarity on where else i am losing money to Money Leaks?

 

  1. Paying upfront for a subscription:
    You make a resolution to stay fit on the new year eve. First day of the new year you go to the best Gym in the neighborhood and register yourself. The gym has an offer that you pay for 12 months upfront and you get 13th month free. You succumb to the offer and pay for the 12 months at on go. You are pumped up and start visiting the gym. After about a week or two, you come to know that Gym is about 10 minutes away and by the time you return from work it’s already late evening. You don’t have energy left to change and again drive for 10 minutes to the gym , work out for 30-45 mins and come back late night. Hence you gradually stop going to the gym. This is a big money leak. You have paid for 12 months to the gym upfront and you are not using it

  2.  Not switching off power appliances:
    The electrical appliances at home are always switched on like AC/Heating/Fans/Lights /modem etc and often you forget to switch them off when you leave home. This is the reason why you bang your head every month when electricity bill comes.
  3. Having low rated power appliances:
    Electrical appliances at home are not rated good for energy savings hence they drain more electricity and you end up paying more charges for electricity consumption.

  4. Having multiple bank accounts:
    You have to maintain a certain minimum balance in each of the account which makes your money sit in a low interest savings account. You are losing on investment potential with the idle money.

  5. Buying too big vehicle :
    You do not need a truck type gas guzzling SUV for a nuclear family living in city. You will not be able to use vehicle to its full potential. For a city you need a good mileage vehicle which is small so that you can squeeze it in tight parking spaces. A big car means higher monthly payments, high insurance premium, high maintenance cost and lot of inconveniences when taking it around the city which has usually tight parking spaces.

  6. Buying too big house :  
    For a nuclear or small family you do not need too big house. Bank will always try to convince you to buy the biggest lot available based on your monthly income. Their logic is monthly payments will not pinch you after few years. But what about now? A big house always has higher monthly payments, higher maintenance cost per square feet, higher property tax and not to mention, higher cost of upkeep. It also consumes higher electricity in terms of cooling, heating etc.

  7. Paying your fund manager for frequent switching of funds/stocks through Portfolio management service (PMS) :
    Fund managers will switch frequently but the cost of switching would be recovered from you as an investor. At the end of the day, the absolute returns will tell you that how much the switching has costed you.

  8. Not shopping around while taking any insurance : This can cost you dear as there is a considerable swing in the premium paid from different service providers. If you lock in higher premium, entire life you would be paying higher premium which over the years will result in huge money drain.

  9. Not doing price comparison and proper research before purchasing any expensive item :
    Here again the price can vary from store to store. Best is to compare the prices online and then hit the shop for bargaining.

  10. Having multiple internet data connection at home:
    If everyone in the family has his/her own plan for data connection, there will be money going into drain. Almost all service providers give family plan for voice and data or some group connection which can save tons of money over a period.

  11. A big sum of money sitting idle in savings account:
    This also a big money leak. You lose a good 3%-4% on earnings plus the investment potential of the money.

I can quote a 100 more examples from day to day life where there is money leak. I am sure most of the readers too would not be knowing points mentioned above to a certain extent.

Yes, even I was not knowing few things like letting money sit idle in savings account, choosing insurance premium etc. It’s scary. Now, tell me how to identify and avoid money leaks in real life?

 

Again avoiding money leaks is not a rocket science. It’s more of a common sense. You need to be vigilant about what expenses you incur, make a note of them and review the expense sheet periodically. You are home if you follow this diligently.
Below are few simple steps which you can take to find money leaks and fix them so that they don’t trouble your finances.

 

  • Save all receipts of every payment you make for the entire month and tally them at the end of the month so that you don’t miss out on any ghost expense.
  • Use a budget and STICK TO IT. Click here to know how to make a simple budget.
  • Avoid money leak places. For example when you go to multiplex to watch a movie, avoid food court during the break. The price of food items and beverages there are exorbitant. Nothing can justify the prices they have. A family can be down by a couple of thousand rupees if they snack and drink at the multiplex food court.
  • While visiting malls , do not buy anything expensive just because there is discount on the price. Always compare prices across different places, research the product well and then only buy.
  • Beginning of every year, do review all the memberships and subscriptions. Cancel anything which is not required.
  • Study a little bit on how to invest money in mutual funds, stocks, bonds etc. Trust me it is not difficult and if you know what you are doing, you can save tons of money. Plenty of FREE study material available online and plenty of tools to invest makes it easy for you if you know the basics of investing. Why to pay someone else to manage your money? Do you think they will do a fair job?

 

Again it depends on an individual to what extent he / she is able to identify and plug the money leaks. Ideally one should start with every service provider, day to day shopping, monthly grocery shopping and identify where they are leaking money.

After reading this article I am sure you should be able to identify money leaks and then take measures to plug the leaks. First cycle of identifying and fixing money leaks may take little time but once you are set, it won’t be difficult for you to identify leaks immediately and fix them. Money leak should be tackled on priority as it’s a big hindrance in wealth creation and can cause a considerable delay to your financial independence.

 

Happy Investing !!!

Why I need diversification of investment?

Why do I need to diversify my investments?

Very often we come across the phrase “you must diversify your investments in order to save yourself from swinging markets” while going through personal finance articles or during a meeting with financial adviser.

I am new to personal finance. The term “Diversification of investment” sounds quite confusing to me. Why to make my life complicated, if I have a bagful of money, I should go and purchase high performing stock of XYZ LTD and be done with my investments, sit back, relax and enjoy my retirement years? Right?

diversification-of investment

 

I do not know what is diversification of investment?
Diversification of investment is a common practice where your investments are spread across different asset class such that your exposure to any one asset class is limited. In other words you are not dependent on only one asset class to give you returns. This saves you from extreme swings in your net-worth in case of any financial turmoil in the economy

 

Ok, understood. Now why do I need diversification in my portfolio? How it is going to help me?
If you are inclined to stocks for the kind of returns they generate and If you keep investing all your money in stocks then you run a risk of exposing yourself to the volatility of stock market. What if when you need a chunk of money and stock markets crash just when you are about to withdraw? Similarly if you like to play safe and invest all your money in fixed deposits then you are reducing the value of your investments as inflation will eat up your money gradually. Hence you need a balanced approach based on your investment horizon and your risk appetite. You need to arrive at an optimized combination where you are not dependent on one asset class and also you are beating inflation so that your overall wealth increases. Diversification of investment if exploited can help you in wealth creation which in turn will help you in racing towards financial independence.

 

Ok, now tell me what are my options for diversification?
Broadly speaking there are asset class like share market, Government bonds, bank deposit schemes, commodities, real estate.

  • Stocks give high returns but there is a high risk factor associated with stocks.
  • Bonds are safe, they have guaranteed returns but the returns are very low. It is difficult to beat inflation when you are invested in bonds. Also bonds come with lock in and not easy to liquidate.
  • Bank deposit schemes give different returns based on the tenure of investment and the product you invest in. They are easy to liquidate and can be used to park cash effectively.
  • Commodities like gold and silver do not appreciate much but they neither do depreciate. They are usually stable even during market crash and also very safe during economic meltdown and in warlike situation.
  • Real estate is a big ticket investment. It gives you good returns over a period of time. Also the biggest drawback is that you can not part liquidate the investment from this. Though through REIT it’s possible now but if you own a property you can not part sell it.

Based on your risk appetite, you should gradually diversify your investment across all classes mentioned above. There are mutual funds that comes in all sizes and covering all asset classes which you can choose to invest your money. But you need to study a little in order to get yourself acquainted with the asset classes and mutual funds. This is not a rocket science but a study will help you to make an informed decision.

 

I am a conservative investor. How can I take benefit of diversification?
If you are a conservative investor, still you have to plan your investments such that you beat inflation which is the biggest killer of your money. As a conservative investor you need to pick the mix of Bank deposits, bond funds, debt funds based on the tenure of the individual investment. Also you will need a certain exposure to stock market so that you can beat inflation. This can be achieved through investing in balanced mutual funds or a small exposure to diversified equity funds. You can have a folio where you invest 80% in bond funds/ bank deposits / debt funds and remaining 20% in diversified mutual funds. Diversified mutual funds will reduce your risk by investing in a range of stocks across sectors and will give you returns which will make your overall folio beat inflation (hopefully)

 

I am an aggressive investor. How do I diversify?
Being an aggressive investor you should focus on generating maximum returns. Also at the same time you should be careful enough that you do not lose money during economic meltdown or stock market crash. You can have a good 60% – 80% investment in stock market and 20% – 40% investments in bond / debt funds / commodities. Here again mutual funds can help you as within stock investment you can further diversify by investing in diversified equity funds, sectoral funds like banking funds, pharma funds, infrastructure funds etc. You can also use mutual funds as vehicle to invest in bonds and debt funds. This will reduce your risk from exposure to uncertainty of stock markets.

 

Ok, all this is fine but what are major concerns with diversification?
The biggest concern with diversification is “over diversification”. It’s human tendency to worry a lot. If as an investor you worry a lot and over diversify yourself by investing across all asset classes with investments in too many sub-classes like all sectors covered by buying top 10 stocks from them. This will create a huge portfolio which will be difficult to manage over time. And also it is difficult to study each sector and re-balance portfolio if you have too many stocks with you. Also there is a cost associated with buying and selling calls each time you execute. Hence it is always advisable to keep the diversification to a level where you can manage it profitably.

 

To Sum up the diversification of investment
There is no generic diversification formula which you can apply to your investments and run your investments on autopilot mode. There are dependencies on time horizon of investment, risk appetite, investment goals, your knowledge about investment and your experience in the investments. All put together, it’s always better you yourself arrive at the diversification distribution of the asset class for your portfolio.

But one thing is sure, if you diversify well based on your risk appetite you can be sure to create wealth over a period of time and you can cut down the risks of wealth erosion due to economic meltdown or share market swings. This balanced approach will also help you in achieving financial independence quickly.

Happy Investing !!!

Making a simple budget to improve your personal finances

 

Making a simple budget to improve your finances. This is an important step in reaching your financial goals and financial independence

I am sure there will be many among us who have never actually attempted to make a budget or even noted down their expenses on a daily basis. Many of us would have never experienced the need to see all their income and expenses in one single sheet – which is more due to negligence than lack of knowledge.

How to make a household budget

 

 

Why budgeting is important?
All large companies and organizations do their budgeting, write their expenses, do regular audits in order to see if their actual spend is as per the budget or not. They hire specialists to do this job as they want to prevent any money leak and also they want to be on top of their expenses so that they don’t lose money in a big way.

 

How about budgeting at my personal level?
At personal level, we do not need the kind of skill level that corporations employ to do budgeting, but a basic work on spreadsheet which is not too much time consuming is enough. This is just to have a quick access to your financial status at any given day and to plan any expense which is not a regular one like purchase of a new car, or a foreign holiday.

 

I don’t have knowledge of accounting software / tools required to do budgeting
No worries. For keeping track of personal expenses and basic month on month budgeting, you need to be an expert in using accounting software or tools. As this is Information Technology era and all of us are well versed with MS office (MS excel to be more precise), which is more than enough to do the designated task of budgeting.

 

What do I need to do with MS excel?
First make a list of all your spend in a month. For starters, make four columns in the excel sheet.

  • First one should have the date of expense
  • Second should have the place where you spent the money
  • Third should have the amount you spent
  • Fourth one should be the category of expense (classification as food, grocery, housing etc)

 

how to make budget in excel

 

Every single expense, I repeat every single expense you incur should go in this excel sheet. Why? You need data. This data will make foundation of your budget. And the data accumulated over few months will give you enough food to analyze your spending pattern and believe me; it will help you save tons of money.

At the end of the month, sum up all. You will be amazed to see how much you spend, when there is no budget for expenses.

Now – sort these expenses by category. Sum up the money you spent in each category. This category wise spend will be the backbone of your budget for the next month.

Easy so far? Isn’t it?

Now make a new spreadsheet which will be the budget for your next month. Keep four columns in this sheet.

  • First is category name (housing, food & groceries, fuel etc)
  • Second is what I spent on category last month
  • Third is what I intend to spend in this month on the category
  • Fourth is how much I actually spent on the category (this will be filled once the month gets over)

budget summary - household

 

So many things to do? This looks little tough for me. Do I need to carry this exercise every month?
This might look little tough as you are not used to of doing this. Only the first cycle would take time, then it’s a kind of a cake walk. Once you have completed one cycle, format is ready. You only need to enter the data from month 2 onward.

Ok got it. Now how is it going to help me save money?
If you are making your budget for the first time, there are good chances that your spending is more than your income otherwise you would not be taking pains to make the budget. Once you have data for a few months – say three months you can see and analyze the expenses you have incurred in each category. If you are spending way too much on eating out or buying cloths, it would be clearly visible in the category expenses figures. You can dig a little deeper to check and see if you can trim these high spend category expenses which are not required for survival or which are mostly want related expenses.

Armed with the data of few months, you can repeat the exercise of trimming the unwanted expenses. The money which gets generated from cutting down unwanted expenses will improve your cash flow and will give you an opportunity to invest this money in order to generate higher net worth. This higher net worth in turn will lead you to financial independence at a quicker pace. Wealth creation is all about the art of increasing the gap between your income and expenses and keep investing the difference across the investment spectrum to generate higher and stable returns.

Budget is one of the major steps in road to financial independence. If you master the art then you can be assured of sealing the money leaks in your month on month expenses.

Supermarkets are a big TRAP

Why Supermarkets are a big TRAP and also big money DRAIN !!!

All the supermarkets are intelligently designed. What item will come where and in which row is meticulously planned. No wonder why the retail chains hire MBA grads for such a higher salary. The planners sit in a plush meeting rooms, peeping at the historical data and planning how to fit certain useless high margin items in front row of the stores.

Supermarket are money drain

 

The layout Trap

The layout of supermarkets are organized in such a way that daily use items are always found at the farthest place from the entrance. Once you enter to buy your supply of bread or milk, you need to wade through the entire store with each shelf literally shouting the offers to you – on useless items. And being a ‘good buyer’ we always end up picking a couple of useless products because of some stupid offers on them.

It is easy to avoid the TRAP

It is not that there is no way to avoid this trap. Impulse buying can be tackled tactfully by visiting these super markets with a written buying list of items you intend to buy. And you must stick to this ‘buying list’. The buying list is something that requires a little bit of effort from your end to make. This is in order to keep your list as efficient as possible.

Do keep the following points in mind for preparing an efficient buying list.

  • Plan main grocery shopping trip only once or twice in a month. This applies to the items like flour, pulses, rice, cooking oil, spices, supplies like sugar, tea powder, coffee powder, cheese, sauces etc. Estimate the quantity you would require of these supplies and enter them in your beginning of the month main shopping list. At the most when you enter the super market, you can strictly look at the offers on the items in this list and weigh them by arriving at per unit cost of item – with discount and without discount. Take whichever is the cheapest BUT the price point – with discount should justify the quantity you are buying. Use common sense; do not buy 25 Kilograms of sugar just because you get 10% discount on buying 25 kilograms pack when your monthly requirement is only 2 kilograms of sugar.
  • Reserve a weekly visit just to buy the stuff which is perishable and you need their supply often. This is for the products like eggs, milk, paneer, curd, juices, yogurt etc. You cannot stock these items for long at home and they are always better if consumed fresh as they come with a short shelf life. You can include your weekly bread supply too in this list. Go to the supermarket on a weekend, check offers on these products and purchase them. Here again use common sense when you are comparing discounted price with the quantity.
  • Add items from your main shopping list into the weekly list for which you are low on supply. For example, if you have some unexpected visitors at home for a few days, you are sure to go low on the supply of cooking oil, wheat flour, rice, sugar etc. Do not go separately to buy these items on a weekday. This is waste of time, fuel and energy. Instead, add the low stock items in the weekly shopping list and buy them on a weekend. Since weekends always have some discounts running to attract buyers, a chance of you getting a better price is always there.
  • Take review of the stock levels once in 15 days and again add items which are low in quantity in the weekly shopping list. Here again it should not be the case that you have monthly rice consumption of 5 kilograms and in spite of having 10 kilograms in stock you have gone ahead – added the item in the monthly shopping list and bought another 10 kilograms just because there was an offer running on the item.
  • NEVER ever enter any super market for shopping with empty stomach. When you are empty stomach, your hungry stomach guides you through the fast food stuff and compels you to buy stuff like cakes, pastries, ice creams, snack items. Your hunger makes you succumb to buy sandwiches and pizzas thus killing the purpose of entering the super market to buy grocery items and save money by buying your monthly requirements in one visit.

Super stores play mind games with people. Armed with the data and analytics, coupled with brainstorming of grade A pass outs from business schools, they literally direct you on what item to place in your shopping basket. You need to be a little smart and systematic to dodge the useless offers thrown at you when you enter a super market and only buy the items you need to buy.

A visit to the supermarket for grocery shopping could turn a big money drain and destabilize your budget for the month if not planned carefully. Over a period of time, these visits have potential to derail your financial planning and can make a big dent in your wealth creation plans.

When you should start investing in stocks?

When is the right time to start investing in stocks?

Most of the people who start looking to bring their financials in order have a question in their mind. “When should I start investing in high return instruments?”

They are fascinated by high 20%-30% annualized returns from equities. They have some extra cash which they want to invest for some time and even before anything happens, they convince themselves into investing the spare cash in high risk equity markets in order to rush towards achieving financial independence.

 

stockmarket

 

This reminds me of one of my friend, who reaped exceptionally well returns during the dot com boom and used to tell me how easy it was to tame equity market and double your money in no time.

Unfortunately he had invested all his eggs in one basket that is into the stock market and lost big time during the 2008-2009 market crash. This friend of mine had borrowed a lot of money to buy stocks in hope of making big and that too very quickly. But things didn’t work out as he expected.

There are two basic investment criteria of investing in stock which every investor should consider before taking plunge in stock market investing

  1. You do not have high interest loans looming at you:
    This implies that you should not have high interest loans like personal loan, consumer loans, credit card balances and rotation of balance on credit cards etc. The basic home loan is perfectly fine as home loans create assets and the home you bought is giving you shelter. Stock market investments are high risk investments. If you have high interest loans and still you go ahead with investment, you might land in trouble. There is no fixed investment life-cycle in stock markets. Sometimes you may have to remain invested if market conditions are not good. This might affect your loan repayment ability if you are planning to pay off the loan monthly payments from the returns on your investments in stock market.
  1. You have sufficient emergency fund to bank on during emergency situation:
    Emergencies never give you written intimation before they come. Emergencies bring mental trauma as well as financial hardships too. What if you lose your job due to some meltdown and you do not have money to pay for utilities and your home loan? To counter this type of situation, you must have sufficient liquid emergency fund to pay for rents, monthly home payments (EMI), utility bills etc. Ideally you should have an emergency fund to fund your 6 months of unemployment which should take care of all your bare minimum expenses in case of emergency. This fund should be somewhere stacked in liquid fund which can be accessed quickly. Never put your emergency fund in debt funds, equity linked mutual funds, insurance or stock market. Idea is you should not depend on market conditions to take back your money.

Also, one more important aspect you should consider. Being educated, you should know what you are doing. Take charge of your investments as it is not a rocket science to do a bit of arithmetic before taking the plunge. You need not to be an expert but a basic idea on how mutual funds work should be alright to start investing into mutual funds. Central idea is to avoid the risks posed by high risk investments as a naïve investor.

Investing is fun, it can be highly rewarding but to enjoy it you must set your house in order first, explained above in two simple points. This will cover yourself from the risks posed by the high risk investments in equities and you can do proper asset allocation to counter the risks.

 

 

Your Car is not your ASSET !

Your Car is not your ASSET !

Yes, you read it right. Your car is not your asset. Or as a matter of fact, none of your vehicle is your asset unless you are into transport business. If you ask any literate human being about “what is an asset?” you will get a spontaneous reply as “It is something that has value and the value appreciates over a period of time / or it generates some regular income”.

 

Car is not asset

 

But if you ask same person to list down his assets, he will most likely to write car as one of the line item. Cars are no ASSET. A fact which is hard to digest?

• Car does not appreciate
• Car does not give you income, unless you are a taxi operator
• Car does not keep your principal safe (what you chipped in to purchase it)

When you are writing line items in your asset lists, cars are definitely no-no. They are money drain and are more status symbol in today’s world.

They depreciate quickly, they drain your money quickly –

  • You need to pay insurance,
  • You need to pay fuel costs,
  • You need to pay maintenance costs,
  • You need to pay registration and
  • You need to pay emission related expenses to keep them road worthy
  • You need to pay for wear & tear costs

Imagine, one fine day when you do not have a monthly income coming in, you are retired from your day job. Even though you have a big car parked in porch, it will not give you good or money to buy food. My point is this – a car cannot generate a regular income for you hence it is not an asset. An asset is something which generates monthly income for you like your real estate property given on rent, a fixed cash deposit with your bank, a commercial shop you owe generating monthly rentals for you, gold coins appreciating over the years.

Here I am not saying that Car is bad. I am aware of the convenience it brings when you are moving from point A to point B. My statement is just to make it clear to you so that you do not consider your car as an asset. I want to de-link you from the thinking that you are really doing well in your life by driving a big nice car which is taken on monthly payment. It is absolutely absurd to think that you look wealthy by owing a big car.

Bigger the car – bigger the money drain it is.

  •  You incur more expense on monthly payment,
  •  You incur more expense on insurance payment,
  •  You incur more expense on periodic maintenance, and
  •  You lose more money when you dispose it off

Cars are means to carry you from one place to other. They should not become status symbol in your life. Buy what you need, a decent piece not a luxury metal object.

Bottom-line is that if you keep buying expensive cars on payment and think your car as your asset, you are moving away from financial independence. An expensive car is never a good investment decision and is a hindrance in early retirement plan.

 

CHOICE is yours as MONEY is yours !!!

 

Overspending – the biggest block in financial freedom

We dream about having nice things, big cars, nice homes, latest gadgets, fancy cloths. The moment we start working after graduating from university, we start accumulating the things we dreamt as a kid or student. Thanks to the media around us – be it print media, social media, electronic media, TV channels blaring advertisements 24X7. They make us convinced that if we do not owe the latest, we are not human in sync with the world. The tone of modern day advertisements is that we are inferior if we do not have the latest gadget, latest fashion.

Overspending - hurdle in personal finance

 

Once the income starts coming in Post University, we welcome all the stuff, toys to keep us happy. We submit ourselves to frequent outings with friends and relatives and many more things which we could not do being a student. Owing the stuff and frequenting restaurants is considered as a new COOL. Suddenly we feel urge to buy new automobile because all our peers have one. We want to outshine our peers hence we want the best automobile, fully loaded with all amenities – just to show off and in our heart we feel “we deserve it”. We look to get hold of the well deserved large house in the toniest neighborhood which we were eying from long. Consumer credit is readily available. This gives us a good excuse to buy the latest 80 inch 3D LED. Obviously we need these gadgets to flaunt ourselves in our circle. Also this reflects in the society that I am cool and doing well in my professional life.

We try to do everything except saving & investing money. It’s always good to pretend that we do not have sufficient income to start investing now and we will have much better success with investments when we have higher income than what we are earning now. A big chunk of our earning is dedicated to the monthly payments that are going out for the nice house, a big car, 80 inch 3D LED and many more gadgets which we have accumulated – just to show off that we are doing well.

This tendency to spend salary as and when it comes makes us struggle financially month on month. Every month we have a list of TO BUY and the list never gets trimmed. One item leaves the list, another item occupies the place. So what can we do if we are making 6 figure incomes and still struggling to pay for necessities to survive day to day life? We must put a cap on non – essential spending. Cut it down so that we have precious cash saved for essential spending and investing. It will hurt for a month or two, but we will not die if we do not have latest iphone 7 in our kitty or if we do not have the latest Honda or Toyota parked in our garage.

Unless we stop spending recklessly, we will not come to know what is essential and what is non essential spending.

A simple plan: How can we check overspending

1. Make a list of monthly expenses without which we cannot live like Home loan EMI (mortgage), electricity bill, maintenance charges, telephone bill, and internet bill. Mark them as NEED

2. In another list, keep all expenses which are our WANTS, like eating out, buying latest phones, new cloths, and outings during weekends etc.

Now once the list is made, strictly write every penny that you spend under respective list. Over a month or two you will get a very clear picture that what you are spending on essential items and what is being spent on non-essential. Cut down on non essential, put brakes and see the magic. In a couple of months you will have a very positive cash flow and loads of money freed up for investing.

This is basic money management, not a rocket science. We need not to be an expert in finance to make money work for us.

Overspending has to be tackled at the earliest if you are not having a positive cash flow month on month. Overspending can ruin your retirement plans and can even upset your life’s balance sheet. If you wish to retire early to pursue your passion, if you are looking for financial independence, if you want to generate passive income so that you do not have to depend on your day job – you must sit down and do the basic exercise to assess your expenses and come harsh on overspending.

Believe me; cutting down overspending can work miracles on your cash flow. You can free up a lot of money which can be invested judiciously to generate good returns over a period of time.

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 suggestions, plan 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.