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7 Financial mistakes you will certainly regret when you turn 50

7 Financial mistakes you will certainly regret when you turn 50

 

financial mistakes

For a common man, investment just happen. Every working professional becomes an investor for sure at some point during his / her career. It could be

  • By buying tons of insurance policies just because your father also bought when he was young
  • By becoming elite member of a famous get rich quick Ponzi MLM scheme – where only elite and selected few are invited to join. You join this because one of your highflying and partygoing neighbor has selected you to be a part of high flying life.
  • Opening some fixed deposits and some recurring deposits as one of the senior coworker is doing the same.
  • By buying some land miles away from town, purely going by the words of the land developer that the piece will be worth 100 time after x years

Here we see that investment choices are highly influenced by external factors. This external factor could be our family member, coworker, media – digital / print / TV, so called experts or relationship managers from our bank etc.

A common man, influenced by external factors take financial investment decisions. I am going to discuss a few of the financial mistakes made by common man which he will regret once he turns 50. This common man could be YOU – reading this post.

financial-mitakes-2

These mistakes you will certainly regret when you turn 50

Delaying investments

When it comes to decision making about finances and investments, most of us like to postpone it to some other day. This stands true not only for decision making about investments but also for evaluating existing finances.

If you think that you will invest once you have sufficient money at a later date – You are WRONG. Believe me, the later date will never come in your life. The more you delay, more you will lose on the benefits of compounding.

 

Delaying investments? It can cost you DEARLY
The magical power of compounding

 

Not taking any risk with investments

For most of us, investing means opening up a fixed deposit or buying an insurance policy from some relative or a friend. While investing we never check for the real rate of returns or the cost of investment we are making. This ignorance results in the earnings which are far below the inflation rate and highly taxed. Though we do investment, but it results in a loss for us as the net gains usually are less when you figure out inflation and taxes in the earnings.

It is indeed surprising that even young working professionals resort to insurance and term deposits as an investment. When you have age in your favor, you must look to invest into equity through various channels.

Investments in equity will fetch far better returns over a long period compared to the money invested in term deposits and insurance. You can not create a sizeable retirement corpus without the help of equity exposure.

You do not have to be an equity expert to invest in equities.

Want to enter equity markets? Index based ETF funds are the safest bet 
When you should start investing in stocks?

 

Not diversifying the 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.

When you do not diversify, you are unable to take advantage of the better performing asset class. Broadly speaking there are asset class like stock market, Government bonds, bank deposit schemes, commodities, real estate. At any given point of time , certain asset class will be giving better results than the other – based on the market economics. When you diversify, you need not to keep looking at your investments constantly and can sit and relax in peace.

Imagine during a bull run if you place your entire money in stock market and suddenly one day the market crashes and by the time it settles down you are down by 30%-40% on your principal. So no diversification is a big threat to your hard earned money too.

Why I need diversification of investment?

 

Falling prey to dubious / MLM investment schemes

We must accept that we are greedy and our investments are also greed driven sometimes.

We have seen in the past – many ponzi schemes come and go. They do not make anyone rich but most of the investors are left with no money when the scheme suddenly disappears.

Speak Asia, questnet and many such schemes are example where people have invested huge sums and lost their entire investment in no time.

There is no fool proof quick rich scheme which exists. If someone promises this to you, it’s a big trap. This is also true for get rich quick MLM schemes. When you invest, do some logical postmortem of your investment instrument. And always be skeptical about get rich quick and MLM schemes.

 

Mixing investment with insurance

Life Insurance covers your life and safeguard your dependents. Health insurance helps you in emergency situation where in you have to undergo some expensive medical procedure. So the term “insurance” assures you that in case of any unexpected emergency – insurance company will take care of you or your dependents.

The moment you try to mix insurance with investment – you are headed for something which is not right for your portfolio. Insurance linked investments can cost you heavy in the short term as well as long run. The thumb rule is not to mix insurance with investment but still millions of policies are bought every year – just for sake of investments or for sake of taking last minute tax benefits. These policies not only gives below par returns but also force you to have long term lock in. you can not get out of them as the exit costs are very high.

Also by investing in insurance linked investments you are locking your precious capital which can be used to generate much better returns.

Why you need Insurance ?

 

Not taking adequate insurance

Why you need insurance?

You never know what is going to happen in near/distant future. If someone is the only earning member of a family and due to health reasons, he is unable to work, or due to sudden demise of the sole earning member, family goes in no earning mode.

  1. Who will pay the EMIs of home loan, vehicle loan?
  2. How the monthly household expenses would be taken care of?
  3. How to pay kid’s school fee & tuition expenses?
  4. How to pay expensive nursing care? Hospital expenses are skyrocketing these days.

Do not assume that you need to buy insurance policy just because your friend who is a salesman in insurance firm told you to do so. First identify purpose of buying insurance. Assess your requirements, do your research properly and make sure that you are adequately covered with insurance for Your life and your health.

 

money mistakes

 

 

Not having an emergency fund

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.

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

One must have a sufficient emergency fund to tackle any emergency situation. This fund can be parked in any accessible liquid mutual fund which can give you good return and you can access it pretty quickly when the need arise.

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

 

So instead of being sorry when you turn 50, TAKE CHARGE or your finances. Be active and start investments for your needs.

Happy Investing !!!

 

 

 

 

 

 

A simple budget can save you from 5 big troubles

A simple budget can save you from 5 big troubles

Most of us are scared of the word Budget. We think that the word is too technical for our comfort and should be best avoided. Also, most of us don’t like to budget or keep track of our spending. We are least concerned about the reason for this behavior as we think that the life goes on without budgeting also.

Simple Budget

In spite of living in a Hi-Tech era, we avoid using technology to track and plan our finances.

If we start creating a simple budget and start tracking our expenses, we can cure 5 of our life’s major financial troubles. I am sure these financial woes are common to most of us reading this stuff.

Trouble #1
You have absolutely no idea about your money.

  • Only thing you know that salary credit in the beginning of the month.
  • You are clueless where your money has evaporated halfway down every month.
  • You rely on credit cards for month end expenses – not by choice but more because of compulsion.

 

How making and sticking to a budget can change this?
When you start creating a budget and record expenses

  • You know exactly how much money goes where
  • You can cut down on certain unwanted expenses so that your money lasts till month end
  • You are not clueless about your money- you have a proper track of income and expenses

 

Trouble #2
You are not saving any money

  • You do not have any emergency fund
  • You have trouble with money when it comes to fulfil your needs and goals quite often – e.g. you wish to upgrade your kitchen, but you don’t have savings to do so or you want to go for a holiday abroad, but you can not do so as you don’t have sufficient funds.

How making and sticking to a budget can change this?

  • When you start budgeting, you start saving and investing money
  • A systematic goal based savings and investments can ensure that you have money for your future needs and goals
  • You become more systematic with your money when you start budgeting
  • You can plan annual vacations well and as a family you can have a good time

 

How to make a household budget

 

Trouble #3
Your mindless spending habits

  • You don’t realize but your entertainment expenses are very high
  • You are spending way more than you should on eating out
  • Your clothing expenses are all time high
  • You are paying over the roof for your internet and phone bills

 

How making and sticking to a budget can change this?

  • You will come to know about your money leaks when you make budget.
  • You can free up loads of money vanishing through money leaks
  • You can cut down all unnecessary and expensive money spending when you start writing expenses

 

Trouble #4
You struggle to get what you want

  • You are unable to save for your retirement
  • You want to buy a house but you are unable to arrange for the downpayment
  • You are unable to save and accumulate money for your kids education
  • You badly want to travel abroad for holidays but you can not afford to do so


How making and sticking to a budget can change this?

  • When you budget, you have track of expenses and leftover money
  • Leftover money can be invested wisely
  • With goal based investing, you can ensure you have enough money / savings to fulfil your dreams

 

Trouble #5
Cash Flow problem is common with you

  • You do not have a cash buffer
  • You are unable to go even for a casual meal at a good restaurant over the weekend if some guests drop in
  • You do not have enough money for emergency repair of your vehicle

 

How making and sticking to a budget can change this?

  • With budgeting, you can save cash and have an emergency fund which can tackle emergency situation for you
  • Again writing expenses can plug money leaks and free up money which can be utilized towards emergency fund
  • Freeing up money leaks can also help you in building cash buffer which is useful for events like casual dinner out etc.

 

So, take charge of your money. Do not count budgeting and writing expenses as burden. If you start budgeting and writing expenses, you can avoid many common issues and problems related to money which you are facing in your day to day life.

Remember – Budgeting and tracking your spending is the first step towards financial independence and this has been emphasized by every financial planner.

 

Resource:
Here is how to make a simple budget?

 

Happy investing !!!

 

How to save and invest for your Kid’s higher education ?

How to save and invest for your Kid’s higher education?

It’s not a rocket science to calculate how the cost of education has increased in last one decade. Where some of us paid close to nothing for our schooling, we are paying through our nose for our kid’s schooling. I myself studied in a central government school and paid INR5 per month as fees for my entire 12 years of school education. And these days just to buy application form for school admission one has to shell out INR500-INR1500.

 

higher education

 

Now imagine the cost of higher education. The PGP class of the most prestigious B school in India – IIM – Ahmedabad will pay INR19.5 Lacs in 2018 for the two years course. And behold, this amount is 400% higher than what IIM-Ahmedabad charged for the same course in 2007.

 

Almost same is the story with all the undergraduate courses for engineering, sciences and all other subjects. If you extrapolate the fee for the next 10 years, the figures become scary. If you have not planned well for your kid’s education fund, you could get a rude shock. Remember, here we have only talked about the cost of education. I have not even touched the cost of lodging and boarding during the education period.

 

This sharp spike in the tuition fees in last decade or so is a wake up call for parents saving for the higher education of their kids. Through this post I am trying to cover the means by which parents can plan the savings and investments for their kid’’s higher education.

 

The strategy for investment will be different for

  • A new born
  • 5 yrs of age
  • 10 years old kid
  • 15 years old kid

 

Based on which group kid falls, you can choose the strategy for your kid’s higher education.

I am covering very simple means to build corpus fund for higher education. I am not using any complicated investment streams for this.

 

When planning for a newborn

The main benefit of planning at this stage is one get a target investment period as 15-17 years. This target period for investment is sufficient to ride on the equity wave to get high returns and plan for a good corpus without pinching pockets. One can try the below mix

  • Start Mutual fund SIP in 5 equity diversified equity funds (distribute MF investment amounts across 5 different funds). With this you can earn up to 12%-15% gains per annum
  • Don’t fall for ULIP
  • Don’t fall for any child education or insurance plan from insurance companies
  • For a 17 year target, once you reach 15 years, start taking out money from equity mutual funds and start parking in short term debt funds through STP
  • Open a PPF account in your kid’s name and max out the account every year. This gives tax free returns on maturity.
  • Whatever cash gifts your child gets on birthday year after year, use it to fund PPF account. Also there is no harm in asking relatives to give cash on birthdays as opposed to gifts and feed the PPF account.
  • Make sure that you start moving equity investments through equity mutual funds to short term debt funds when target year is about 2 years away. This will safeguard your gains in case stock markets show fluctuations

 

When the kid is 5 years old

In this case, one has an investment horizon of 10-12 years. This is also a good time horizon for using equity as investment tool. The benefit of using equity is generating higher returns. If always gives good returns over a longer duration but returns could be volatile in short term. Below mix can be tried

  • Start mutual fund SIP in 3 diversified equity mutual funds. With this you can earn up to 12%-15% gains per annum
  • Start mutual fund SIP in 2 balanced mutual funds. They have up to 40% exposure in debt instruments so the chances of losing money is little less during turbulent markets
  • Open PPF account and max it out every year. This gives tax free returns on maturity.
  • Whatever cash gifts your child gets on birthday year after year, use it to fund PPF account. Also there is no harm in asking relatives to give cash on birthdays as opposed to gifts and feed the PPF account.
  • Don’t fall for any ULIP
  • Don’t fall for any child education or insurance plan from insurance companies
  • Make sure that you start moving equity investments through equity mutual funds to short term debt funds when target year is about 2 years away. This will safeguard your gains in case stock markets show fluctuations

 

When the kid is 10 years old

In this case, the target investment horizon is 7 years. Equity mutual funds to be used judiciously to generate good returns for close to 5 years and then entire equity investment has to be moved to debt in order to keep the gains safe.

Below mix can be tried

  • Start mutual fund SIP in 2 equity funds
  • Start mutual fund SIP in 2 balanced funds
  • Open RD account (if you are under 30% tax bracket – better to move to debt funds right away )
  • Open PPF account and max it out every year
  • Don’t fall for any ULIP
  • Don’t fall for any child education or insurance plan from insurance companies

 

graduation - higher education

When the kid is 15 years old

In this case, you have only 2 years as investment horizon. You can not rely on equity so all equity mutual funds are ruled out. Your entire folio has to be debt oriented. You can try below mix

  • Invest heavily in short term debt / liquid mutual funds through SIP
  • Open RD accounts (if you are under 30% tax bracket – better to move to debt funds right away )
  • Don’t fall for any ULIP
  • Don’t fall for any child education or insurance plan from insurance companies
  • Liquidate all your investments in physical gold which are in the form of coins/bars and move the money into short term mutual funds.
  • For those who have invested in PPF when the child was just born, they can move the maturity amount in short term debt fund. For them it’s time to consolidate the investments and try to save the gains through moving all investments for kid’s higher education into debt instruments.

 

As a parent one has to take charge and start investing for kid’s higher education. Cost of education is rising and educational loans are an expensive bet. Though it’s good to encourage your kid to part fund his/her higher education through educational loan but since the cost of education is very high, a parent can also chip in some amount with the help of steps discussed above.

 

One final word:

If you start planning and investing when the child is just born or up to 2-3 years old, you have a good time horizon to ride the equity markets. A small amount per month for about 15 years can give you excellent returns without straining your finances. For example if you are targeting INR25 lacs over 15 years, you need to save only INR5000 per month in equity funds. If you delay investing for 6 years, your monthly investment figure becomes INR9200. If you wait for another 3 years, the monthly investment amount jumps to INR23800 and with this you may not be able to take benefit of equity market. So be active and start planning now.

 

Happy Investing !!!

7 Simple ways to control spending and start saving money

7 Simple ways to control spending and start saving money

Everyone among us wants to invest money. Whether you are a fresher out of college, someone who has just got married, new parents, someone in 40s heading towards retirement – each one of us want to save and invest for our future.

invest now

The biggest challenge for us is to find out money which we can invest. You may be a graduate from one of the ace universities earning a fat pay package or working as a senior manager with some MNC – but when you look at the savings and investments you have – less said is better. The common excuse is “I don’t have sufficient money to invest”

People, especially young people finds it difficult to save and invest in the initial years of their professional life. Discretionary expenses are quite high among the youth. In one single outing, huge expenses on food and lifestyle is common among youngsters. Gen Y is more focussed on EMIs instead of SIPs. They love to indulge in buying gadgets and newest cars but they don’t have money to save and invest. Most of the youth have same story to tell. They have lavish lifestyle but when asked about savings / investments, they always come up with a  sorry face.

Investments require a lot of disciplined approach and this discipline is the only mantra to make your investment strategy a successful one. Below is the list of 7 mantras that can make you control your spending and help you save money for investments.

Mantra #1
Save before you spend or Pay yourself first : The common approach towards investment is save whatever is left after all expenses. This way most of the people can not save as they don’t have any leftover money by the end of month. They spend their entire income month on month and are left with no surplus money for savings and investments. The best way to tackle this is set aside a sum – say 25% or 20% of your income and at the beginning of the month and invest it via SIP or recurring deposit so that it’s not within your easy reach. Learn to live on 80% of your salary. This will ensure that you are never short of money for investment.

Mantra #2
Avoid using credit cards and don’t save your credit card information on shopping sites :  It has been proved by many researchers that one tend to spend more if he uses credit card or the payment information is saved in online shopping websites. Always buy things with cash. Also when you go to shopping mall, don’t carry your credit / debit cards. Carry cash instead as you can understand the impact of your purchase when you see actual money going out of your pocket.  Remember – Overspending is the biggest block in financial freedom

Mantra #3
Wait before you buy something expensive: When you are fascinated by the new LED TV during the weekend outing at shopping mall – Don’t buy it immediately. Wait for 30 days. If the same urge is there after 30 days, buy the item in cash. Continue this practice with every expensive item you intend to purchase – be it TV, Car, refrigerator, AC etc


Mantra #4
Avoid peer pressure for spending: You don’t need to go out every evening for a coffee when all your team members go. Once in awhile it is fine but there is no need to have it everyday. Same way no need to go out for a drink to the exclusive (“expensive”) pubs every weekend to chill out with friends. It’s perfectly alright not to indulge in theses practices. Remember these practices are big money drain. We have seen earlier how not to succumb to peer pressure 

Mantra #5
Start investing in small amounts without any excuse: Whatever little money you have saved, start investing in Mutual funds/stocks/recurring deposits without making any fuss. If you keep thinking that you don’t have enough money for investments, things will never improve. You must start with whatever little you have and keep growing your portfolio gradually but steadily. Start goal based investing which can simplify your investment strategy. We have seen earlier – Do not delay investing as it can cost you dearly 

Mantra #6
STOP using window shopping as a de-stressing tool : Using window shopping as an excuse to de-stress can harm you in the long run. Buying / gathering stuff without any objective can drain your money like anything. It also puts you under undue stress as you keep looking for deals on anything and everything which you don’t need. Always advisable to make shopping need based with a list in hand when you go out to buy something. This will keep your life as well as home clutter free and free up a lot of investable surplus money. We have seen how supermarkets are a big trap earlier and how to avoid impulsive buying

 

stop spending

Mantra #7
BUDGET- BUDGET – BUDGET : There is no way around the exercise called BUDGET. Don’t buy any WANT items if it’s not budgeted for. Keeping track of expenses also keep your expenses in check as the figures will give you a real picture. When you start budgeting and writing your expenses, you will free up a lot of GHOST money which usually gets disappeared in your window shopping and unplanned entertainment. This link will help you on how to start budgeting 

If you stick to these practical 7 mantras, you will find yourself saving and investing regularly for your future. Remember, it’s your own money and none other than you can take care of it in a better way.

Happy Investing !!!  

Do you often succumb to Financial Peer Pressure?

Financial Peer Pressure

What is Financial Peer Pressure? Do you often succumb to financial peer pressure?
If yes, here is a guide about how to fight financial peer pressure effectively.

 

financial peer pressure

 

What is financial peer pressure ?

Financial peer pressure refers to people developing new habits because of people they hang out with. For example, you start working and you get a new set of colleagues. You may not be regular with your evening coffee but since new colleagues regularly visit cafeteria for evening coffee dose, you also start visiting the tony coffee joint daily for the same.

Financial Peer Pressure in the longer run can suffocate your financial planing and it has capability to put you down morally too.

Looks like same thing happened to me too when I joined my company last year. Can you give some more examples of financial peer pressure so that it’s more clear to me?

 

In our day to day life we encounter many instances of financial peer pressure.

  • We often plan our summer vacations at exotic places with stay at signature hotels just to show off our relatives and friends.
  • Weddings are the place where people love to show their wealth – be it designer clothes, designer jewelry or lavish spending at the wedding functions.
  • People rush to buy latest gadgets just to show off them to their colleagues.

 

The typical financial peer pressure is visible everywhere around us. Knowingly or unknowingly we also succumb to this financial peer pressure.

  • At home

 

    • Financial peer pressure comes to us in the form of holiday trips. We get tempted by the trips made by our neighbors and relatives and try to go to the same places they visited so that we do not feel inferior to them.
    • We often plan a movie at the multiplex followed by the dinner at signature restaurants on the weekends so that we do not feel inferior to our friends and colleagues. And we have good masala updates for our Facebook timeline.
    • We make it a point to visit malls over the weekend to do some window shopping to satisfy the shopper in us. Do read this to know how supermarkets are a big trap.
    • We always look to buy new gadgets so that we can match the standard of our neighbors. If our neighbor buys a 60 inch LED TV, we try to better it by buying 75 inch LED TV.
    • We always look to buy / upgrade our automobile to show others that we have big car and we are no less than others.

We always buy latest toys for our kids, we send our kids to popular summer camps, we send them to expensive schools just to ensure that people see we are doing good financially and for the heck of not feeling inferior to others.

  • At work

 

    • You make it a habit to join end of the day coffee at coffee joint with your team members
    • Weekly lunch outing to expensive restaurants
    • Event celebrations at expensive lounges / resorts like birthdays / anniversaries etc
    • You join regular office parties and snack parties  
    • You keep updating your mobile phones just because your office colleagues have the latest models.

 

financial peer pressure - workplace

Oh my God, the list is long and well diversified. Unknowingly I am also spending a lot of money just to show off others – which is not required. Can you help me out on how to tackle financial peer pressure in day to day life?

The solution to this menace is not that complicated. Below are few points I am mentioning which will help you out in tackling financial peer pressure.

 

 

  • Stop trying to keep up with others

 

      • You do not have to plan your vacations based on your neighbor’s vacation plans or your friends vacation plans. Plan your holidays based on your likes and more importantly based on your budget. Intelligently planned vacations can save tons of money from going into the drain
      • For kids – stop buying expensive toys just because your neighbor buys them for their kids. Kids are more happy when you spend time with them and they are more happy with activity based games.
      • Say a clear no or fix the frequency of the parties your colleagues arrange. You need not to attend every single party. Right?
      • Don’t follow your friends and neighbors and go for shopping sprees. Whenever you go for shopping make it a point to have written shopping list as frequent window shopping can make a big dent in your budget.
      • It doesn’t make any sense to visit multiplexes every weekend to watch the latest movie and have food in expensive restaurants. You can have a movie night at home. Now with Netflix and host of other service providers it’s possible to have movie watching a less expensive affair. Also food tastes much better if prepared at home with entire family pitching in as helping hand.
      • Stop getting into FOMO – Fear of Missing Out. This will make you feel inner happiness in a better way and you can enjoy life more.

 

  • Take experience – Create memories instead of buying stuff

 

    • Kids would love to go out and have a match of football instead of going to the mall for watching movies every weekend.
    • Take kids to museums, parks, forests, outdoors – help them to see beauty of nature, identify plants, birds, insects. This will make them more happy than sitting in VR room playing video games.
    • Plan vacations such that you see places of natural beauty, historical importance in and around your town. No need to go to maldives to experience beaches when you can have same experience in Goa for less than half the cost.
    • Instead of having theme based parties for kids birthday, you can have activity based party wherein all the kids do some activity which interests them. Kids always love doing activities together.
  • Focus on your monthly budget
    Keep track of your expenses. This link will help you out on how to budget for expenses. Make sure you keep an eye on useless expenses like subscriptions, eating junk, mall visits etc and cut them down.
  • Do not get influenced by Social media
    If your neighbor is visiting Switzerland for summer vacations, you need not to visit the same place just to show that you are no less than your neighbor.
  • Learn to draw a line – Learn to say NO
    This is very important. If you master the art of saying no to the things which harms you, you can overcome the financial peer pressure to a good extent.

 

Some good insights and some practical steps which I can take to counter Financial peer pressure. Thank you for elaborating these for me.

Yes, and one final thing – Your life should be driven by you NOT by the likes of others. This will not only make your life better but will improve your finances in long run. Also this can be considered a positive step towards wealth creation.

 

Happy investing !!!

Goal based investing- A must to be successful with finances

Goal based investing- A killer plan which will always succeed

As per experts and veterans in personal finance, GOAL based investing will always result into success.

 

One of the keys to every project or every task is to have a PLAN. Same is with investing .You need to have a proper plan. Setting right investment goals can go long way in developing a proper plan that works for you.

goal-based-investing

 

Why do I need to set Goals for investments? I have money I can directly put that into stocks as they give higher returns and I am done with it. Every month I will keep buying new stocks with investible money.

 

Taking goal based approach will ensure the below

  • With goals in place it’s more likely that you end up saving required money before you reach goal
  • By having goals you have proper time horizon with you. This makes you to utilize proper asset allocation and minimize the risk by spreading investments across multiple assets over a period of time.

 

Why you invest money? You invest money so that in future the same can be utilized for various needs such as retirement, health care, education for kids etc. When you put money for investing, ask yourself a question – For what I am saving this money? IF you attach your investment to some of important goals then you know how much you are investing and for what specific purpose.

 

Ok, what could be the generic goals to begin with for an investor like me who is not seasoned and just starting?

 

Goals for investment can be

  • Retirement
  • A foreign holiday 2 years down the line
  • Buying a second home
  • Kids higher education
  • Kids wedding
  • Buying a vacation home
  • Upgrade of existing car after 5 years and so on

 

Good. but why goal setting is required for me? Kindly explain this to me

Below are some reasons why goal setting is important and required for everyone

  • Goals help you to avoid under saving.
    If you have planned to save INR10,00,000 for car upgrade in next 5 years and you set aside INR15,000 per month for the same, you would be able to accumulate INR9,00,000 after 5 years of term as principal and well over INR10,00,000 including the interest which will enable you to go for the purchase without scouting for money elsewhere.

 

  • Plan ahead for the goals – save less money
    When you plan for a goal like retirement which is say for example 25 years away, you need to set aside small amount per month towards it. You can also take help of equities as the investment term is fairly large. This will give you better returns as equities tend to give best returns over longer duration.  Same is applicable for the other goals too.
  • It helps you achieving the target more practically
    When you start investing keeping a goal in mind with some target amount – you have flexibility to tweak monthly investments towards it if the target amount value changes. This will help you in staying flexible and moreover you will be more realistic in your approach. 
  • Goals help you save for tangible outcome
    When you have goals, it’s more likely that you will achieve them.When you attach a real outcome, it’s more likely that you will work hard to achieve it somehow. Human is more motivated by real things than by some abstract numbers 
  • Your budget never goes haywire  
    With goals in place, you know how much your monthly spending would be. This will help you in doing proper budgeting month on month and you will be in control of spending and your budget will never go haywire

 

  • You can avoid debt using goal based investing
    When you associate goal based investing with every large purchase, you will have actual money to pay for the purchase. This way you can avoid getting into debt and can remain debt free
  • You can optimize your investment portfolio and maximize returns
    With a set target tenure, you get more insight into your portfolio. You Allocate assets based on the tenure and this way you have an optimized portfolio which means you manage the risk well.
  • You have guilt free spending money at hand month on month
    When you allocate your money monthly towards different goals, the leftover money with you can be spent without any guilt, without thinking that spending the leftover money will cause financial problems at a later date.

 

 

Thanks, I got to know a lot of things and with goal based investing I can do my financial planning in a much better way and the most important thing is I can avoid debt.

 

Yes, and above all goal based investing will make you a better and disciplined investor and can optimize your investments

Happy investing !!!

Are you an impulsive buyer?

Do you often drag yourself into impulsive buying?

 

“An impulse purchase or impulse buying is an unplanned decision to buy a product or service, made just before a purchase.One who tends to make such purchases is referred to as an impulse purchaser or impulse buyer. Research findings suggest that emotions and feelings play a decisive role in purchasing, triggered by seeing the product or upon exposure to a well crafted promotional message.”

impulsive-purchase

 

In your day to day life, knowingly or unknowingly you go through instances where you succumb yourself to the lure of impulsive buying. The product companies are out there in every shop, every mall, every online marketplace – blaring adverts, offers, packaged deals to you. We have seen earlier that Supermarkets do extensive research on how to push their products and how to compel buyers to spend more in their stores.


Can you give me some example so that I can relate whether I am buying stuff impulsively? As far as I know i am not into impulsive buying

  • When you go to supermarket to buy monthly grocery, you pick up few ready to eat meals as they are packaged beautifully and kept in the front area of supermarket. They always have “buy one get one free” offer

  • You go to shopping mall to purchase refrigerator and you end up buying that 75inch LED TV also just because there was an offer going on that. You , being a sincere shopper, got charged emotionally and purchased the big TV just because your conscious felt that you are saving substantially on this purchase. You didn’t even give a  thought to what you will do with the TV set adorning your living room which you bought last year in similar fashion

  • How many times you have noticed that you enter mall for grocery shopping with a budget of INR5000 and end up spending INR 1500 on grocery + “something else” which had a GREAT offer?

 

Yeah that’s OK, but sometime you need to grab the offer that is going on else you will miss the boat and God knows when such offer will return?

A seasoned impulsive buyer always suffer with FOMO – Fear of missing out. If you add up all impulsive MISCELLANEOUS purchase over a period of time, you will be shocked to know the amount you have spent on these purchases.

 

Below I am listing few reasons – why people shop impulsively

 

  • Love of shopping – some people simply love shopping. For them shopping is like a therapy. They are always under illusion that few items here and there won’t disturb their bank balance.
  • Some shoppers are always in loss aversion mode. They fear that if they do not buy certain items which are on sale, they might end up at losing a big amount of money.
  • Some shoppers succumb themselves to twisted offer phrases. “Buy 2 get third free” , “buy this and get that free” etc. The moment they see these offers, they succumb to it without further researching about the product, service, and quality.
  • Some shoppers have genuine desire to save more. They succumb to the offers on supermarkets which says “you save INR100” , “Buy & save INR1000”. In order to feel good , they buy these items.
  • Some shoppers always feel that they should have an edge over others when it comes to latest gadgets, latest fashion , latest automobiles. They always pick up items which they feel will make them look cool among their social network.

 

 

Hmm.. Sounds right. I never knew impulsive shopping is such a bad habit and I must admit that I myself must have lost a fortune by now through impulsive shopping.

Yes, impulsive buying is harmful. By the time one realise this, he/she would have lost a huge fortune on it. This could hamper your financial planning, your early retirement, your retirement plan and can pose a big threat to your financial independence planning.

Below I am keying in few important actions through which we can avoid impulsive purchase

 

  • Always make a shopping list when you go out for shopping – AND “Stick to it”
  • Follow a mandatory waiting period if you plan to buy anything. If you see anything which you wish to purchase, wait for 7 days and see if after 7 days do you have the same urge to buy that thing? Most of the time the urge is momentary and it dies down soon.
  • If you already owe the item you wish to buy and you intend to replace it, clean it. Now see if you have the same urge? E.g. if you have a pair of shoes and you intend to replace, clean the old pair, wash it / polish it. If you still feel that you should go for the new pair, then go ahead
  • Remember – only fools rush in. All gadgets, the first edition always have some glitches and service issues. Better to wait and go for later releases. They are relatively bug free and cheaper.
  • List down your impulsive purchases – revisit the list periodically so that you do not make the same mistake again
  • Keep decluttering your house often. This will keep you in check of all the items you have and you will not end up buying them again. This is specially applicable for stationary items and tools.
  • Avoid going for shopping with RICH friends or friends who are spendthrift. Believe me, you will save a lot by doing this
  • Don’t save your credit cards at online shopping sites. If you save then it’s a matter of few clicks and online order gets executed.
  • Buy all items cash. Parting with currency notes is much more difficult compared to swiping plastic cards.

 

 

Great. Very practical points. I am sure I can implement these easily in my day to day life and I can save loads of money by doing this.


Yes, the advice given above is quite practical in nature and easy to integrate in your lifestyle. Always remember it’s your own hard earned money. By avoiding impulsive buying you can use your money in much better way.

 

Happy Investing !!!

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 !!!