Browse Category: Money

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 !!!

 

What is an emergency fund? And why you should have one?

In personal finance and money management, emergency fund is the first line of defense against the unexpected problems in life. Financial emergencies can happen anytime, and most of the time they occur without warning.

  • What if your car needs immediate repair?
  • What if you are out of job for a couple of months?
  • What if you broke your leg while playing gully cricket?
  • What if a sudden voltage surge damaged your TV/Fridge/AC and all devices?
  • How you are going to tackle this?

Times are good, you can draw money on your credit card, or you can swipe your card to get new TV/New AC etc. You can take personal loans to pay for the home expenses if you are not in job for a couple of months. But all these options come at a cost. Cost is 18%-24% rate of interest per year.

So, you must have an emergency fund, which is money stashed away in an account which is reachable at a short notice of about 1 working day. Now the question is How Much? There is no thumb rule to it. 3 months of living expenses should be sufficient so that in worst case you do not have to rush out and get money on credit.

You can use a high interest sweep in account of any bank or a liquid / cash mutual fund. Mutual fund option is better as it saves you from the high tax if you are in higher tax bracket. Any liquid mutual funds can be cashed in 1 working day. You do not have to plan to earn huge interest on your emergency fund, but let it sit in some avenue which gives some returns and which is easily accessible.

A penny saved is more than a penny earned

“A penny saved is a penny earned”

Most of us would have heard this popular saying. In reality, it is different. Is goes like this

“A penny saved is more than a penny earned”. Yes it is more, much more than you think. There are different angles to it.

If you see from taxation point of view, the penny saved is after tax deduction. That means you have already paid the tax on the saved penny. When you earn a penny, you have to pay tax. And for the highest tax bracket, its 33% tax, so when you earn one penny, you end up having only 0.67 penny at your disposal.

If you see from Work angle, you have already put in effort to earn the saved penny. You had worked x amount of time and put in your energy and earned the saved penny. To earn a penny again you have to put x amount of time, energy and resources in terms of fuel etc for commuting.

Hence you are much better off when you save a penny. Save it and invest it so that you can multiply it for your future needs.

Framework to bring finances under control

Taking control of your financial life is not very complicated, nothing like rocket science. The basic principals are simple, easy to practice if you can co-relate them with your day to day life and the expenses you incur.

  • Get a good education, work towards building your career
  • Spend less than you earn – This is the most important part
  • Track & budget your expenses – Any given point of time, you should know where you are financially
  • Invest diligently rather religiously every month towards your goals
  • Plan for taxes; take informed decisions on your regular taxes and taxes on your investments. Optimize them so that you do not end up paying a lot to the government
  • Keep enhancing knowledge to manage investments, budget and taxes. Remember, it’s your money and none else will help you in planning for your goals unless they have vested interests

The above 6 points sums up the key to financial success. And remember, there is no place for debt which can spoil any good retirement plan. Especially the debt meant for buying lifestyle goods. You need to beat inflation as well as lifestyle inflation to beat the financial blues

Your money is your money!

As title says, “your money is your money“. None other than you would be able to manage it better. Others, who claim they can manage better, have their conflict of interest since they would be doing it for their livelihood. When they earn commissions for suggesting you the investment tools, they can never be honest with you. Here I am talking about the insurance agents, investment advisers and host of bank officials who always push you with some “REAL GOOD” plans

I am not pointing fingers at the financial planners, but at times, they cannot be believed due to conflict of interest clause. Their “BEST PLAN” might be the “BEST PLAN” for themselves but may not suit your needs.

A common man, who is working his way up in his career, is an educated person. He has basic knowledge of this world, how to live, survive, commute, plan things. Why not take charge of the finances instead of outsourcing it to someone who is unlikely to give you honest advice. We as employee help our companies to grow by managing their balance sheets, why not help ourselves by managing our own balance sheet of household finances & investments?

So remember, your money is your money. If you outsource your money management to someone, he will be more interested in sucking the commissions out of you by suggesting funds/avenues which gives him better commissions instead of suggesting you honestly where to invest. So take charge, control your finances. And believe me, with little knowledge you can be easily at the driver seat.

You alone will be the best person to guide your investments which is ultimately going to lead you to a financially stable retired life.

Why Money is Important?

A popular advert for a leading credit card company says “There are some things money can’t buy, for others there is MXXXXXCard”

Philosophically it can be said that money is not the most important thing in this world, but the fact is that without money, none can survive. We need money to buy food, buy a roof at our head, buy services to sustain our life/lifestyle and above all it gives us a kind of security.

  • When you are a student, you need money to fund education
  • When you start working, you need money to buy basic necessities
  • When you are married, and have family, you need money to build wealth and buy comforts
  • When you are sick, you need money for the healthcare
  • When you retire from work, you need money to sustain your lifestyle and fund expenses
  • When you are dead, you need money for your last rites

 

Money is required for every single stage of your life. We live in a world that thrives on Money. We don’t see this trend passing / changing anytime soon. The best thing is to use money as a tool, a mere tool so attain happiness. Not in terms of buying all luxuries available out there but to make wise decisions to have happiness and spread happiness in life of people who are connected with us.

Money is important but it’s also JUST money. Of course we should study hard, work hard to earn money but at the same time we must not lose our sleep over money. We should strive for a balanced life where you stop and smell the roses at will.
Wealthsamurai is about living life being lively, not about running around scouring for money all the time. We must focus on living a quality life instead of measuring our life by quantity of stuff we buy