Browse Tag: #investing

I am Too young to start with investments

I am Too young to start investing

“I have just started working last year. I am too young to invest.”
“I will invest once I have sufficient money. Right now my salary could barely survive by month end”
“Investments are for the later part of life. Let me enjoy now”
“I don’t want to invest my hard earned money now, I will do it later”

I get to hear above statements from a lot of youngsters who are fresh out of College, earning handsome income and are hell bent on spending all what they earn month on month.

too young to invest

Yes, but isn’t it true? Let me enjoy my earnings. I am a fresh pass out and I have a full 40 years of professional life ahead of me. I can take up investing later.

When you delay investments, you miss out on power of compounding

Albert Einstein is purported to have once remarked that the most powerful force in the universe is compound interest.

In simple terms, compounding is the financial equivalent of a snowball, rolling down the hill and gathering momentum as well as weight. More the ball rolls down, more weight it gathers in terms of the snow that get attached to it and more its momentum increases. By the time it reaches down the hill, it can well translate into a small avalanche. More the distance of travel, more is the impact of snowball.

Almost all personal finance websites/blogs and all financial magazines emphasize on power of compounding. If you start early, use compounding effectively, the end result could be a huge avalanche of money. The key is to start early and remain into the game.

Power of Compounding

 

I agree about the power of compounding. But I do not have spare money for investments. Many young professionals will not have any money left as the expenses are on the rise.

It is all about priorities. Since we know that most of the things in this world revolves around money, we have to give a certain level of priority to investments. “Pay yourself first” is the phrase widely used by financial planners across the globe. Instead of investing the money which is leftover after incurring all the expenses in a month, invest first and manage the expenses with the leftover money.

Once you make this a habit, you will become more responsible towards your finances.

And when you start young, you can amass wealth easily as you are giving time to your investments and supplementing your investment corpus by adding certain amount month on month.

I agree. But how to manage the expenses? Inflation is high and cost of living is rising rapidly month on month. If I invest my income then from where will I get money to pay utility bills and shop for groceries?

You don’t have to invest your entire monthly income. Take out say around 20% of your after tax income and invest every month. Manage your monthly expenses with the rest 80% of your  monthly income. Make use of the tools like Excel sheets for your benefit. Budget your expenses, cut down money leaks, increase your invest-able income and invest diligently.

Why you need insurance

Ok understood. Can you simplify this for me step by step?

There is no one sure shot formula for investments. But everything works on certain simple principles

  1. Start early – this will give you sufficient time to grow your money.
    Delaying investments? It can cost you DEARLY

  2. Budget your expenses.
    Making a simple budget to improve your personal finances
    A simple budget can save you from 5 big troubles

  3. Spend less than what you earn
  4. Invest your savings through proper diversification – consistently month on month
    Why I need diversification of investment?

  5. Cover yourself for any eventuality through health insurance and life insurance
    Why you need Insurance ?

  6. Have adequate emergency fund
    What is an emergency fund? And why you should have one?

  7. Don’t get into debt trap
    Consumer Debt & personal finance

  8. Don’t indulge in buying stuff
    Financial success : It’s not about the Stuff you gather

invest now
Bottom line is – it is your own money and you only have to take care of it.

Personal finance is not a rocket science but it requires your careful attention on money matters in your day to day life.

Happy Investing !!!

10 Money goals to accomplish before you turn 40

10 Things to accomplish with money before you turn 40

Money matters a lot in our life. Arguably money is the biggest facilitator in this world for a comfortable life.

midlife investments

When we touch the magical number of 40 years in our life, we can safely consider ourselves as quite mature. Mature in handling personal life, professional commitments and to a certain extent our finances.

Here is the list of 10 milestones or financial accomplishments we should aim to achieve by the time we touch 40. These milestones are also important as 40s are considered as peak performing years in one’s professional life.

  1. You should have a dedicated folio for your retirement savings with at least 10%-15% of your monthly net income going into it. If you are looking at 60 years as your retirement age then by the time you cross 40, you must have 10%-15% of net monthly income going into retirement corpus and that too with a raise in amount every year.
    This ensures that you are not stressed with your finances once you approach retirement age.
    6 Sins people commit when planning retirement

  2. Your investment folio should not have retirement as the only goal. By the time you cross 40, you should have identified financial goals in life and should have started goal based investing.
    A goal could be kids higher education, kids wedding, buying a vehicle 10 years down the line, upgrading your house from 2 bedroom to a 3 bedroom etc. A proper planning makes the execution easy.

    goal based investing

  3. Try and finish paying up your home loan / mortgage by the time you hit 40. At 40, you would already have completed a professional stint of about 15 years. 15 years are good enough to pay off the home loan and free up the property.
    If your home loan is still around, take immediate steps to pay it off ASAP as by doing this you can free up a lot of investable income which can be safely redirected to your retirement corpus.

  4. Clearly establish money and life goals for your later life. Plan your finances around your goals and make them happen. Life goals could be – at what age you wish to retire? Where would you like to settle? How do you look at post retirement life? How to tackle day to day finances when you are at the fag end of your life?
    It’s better to roughly identify such goals and start working on them. This will give you enough time to plan financially for these goals.

  5. Cover yourself adequately with life as well as health insurance.
    Note that more you delay, more premium you have to shell out. Do I need to say that the healthcare costs are skyrocketing. By the time you reach 40, you and your dependents must be adequately insured to tackle any emergency situation.
    Why you need insurance ?

    Why you need insurance

  6. You must try and have a side hustle by the time you touch 40. It can simply be a freelance consulting in the field of your expertise or it can be your hobby which you can monetize. The idea is to have some alternate source of income. This extra income can do wonders to your investment portfolio.

  7. By the time you hit 40, you should have the list of all investments made, all financial details of bank accounts, insurance, nominee details etc handy with you and with your spouse. You should also have regular discussions on investment and money matters with your spouse. This will keep both the spouse on the same page with respect to money.

    investment discussions with spouse

  8. By the time you hit 40, make it a habit to revisit your investments periodically. Not only revisit, but do readjust the investment from asset allocation perspective keeping in mind your life and financial goals. Also you may require to tweak your investments from the perspective of external factors like sudden change in government policies, global cues. Note that these external factors can quickly eat up your gains in your investments so make sure that you periodically revisit your investments.
    In addition to external factors, as you age, you have to tweak asset allocation too in order to align your folio with your life goals.
    Delaying investments can cost you dearly

  9. By the time you hit 40, you must learn the art of staying fit and follow a fitness regime. When you are young, you play a lot, you move a lot. Some of the young lads work out a lot. Once you cross 30, due to professional and personal commitments in life, the exposure to physical activity gets curtailed.  
    Ensure that you create a fitness regime and follow it religiously before you hit 40. Now how does fitness is related to finances? It’s an old saying – HEALTH is WEALTH. More fit you are, longer you can enjoy healthy life.
    Stay fit and be WEALTHY

  10. Last but not the least – Make a will and have a proper inheritance plan before you touch 40. Life is quite unpredictable. We don’t know the future and can not even predict what will happen tomorrow. However with a will and an inheritance plan of our financial assets we can streamline the things a lot for our dependents. By 40 you must finish this task so that you can be assured of a smooth transition of your financial assets in case of any eventuality.

    Preparing a will

Bottomline is that if you plan things well in advance, you won’t get surprises on the course. This is specially true with the financial planning. Since 40s are considered as peak performance years in your professional life, it is advisable to set few things right before you reach 40.

Happy Investing !!!

2018 is here – Simplify your finances in 7 easy steps

2018 is here – Simplify your finances in 7 easy steps

New year 2018 is here. A new year is always a great time to start/restart your life for better. It’s a time to re-haul your life, review and take steps to remove negative components from your life and move towards positive.

One excellent component to re-haul is your financial life. Be it saving for your retirement, saving for marriage, saving for kids education or be it the repayment of debt which is hovering on your head.

 

2018 and finances

 

You can simplify your financial life in 7 easy steps this year. The only effort required from your end is commitment to put your financial life in order. So take charge of your life, use the new year as an opportunity to boost your finances.

  1. Take inventory of all your Debts:
    Be it home loan, credit card balance, vehicle loan, personal loan you took for vacations, loan against property or education loan. List them down in descending order of the interest rates. Once you have the list, start attacking the highest interest loan with extra payments regularly.

    This way you can save loads of money in terms of outgoing interest on these loans. Who doesn’t want to be debt free – so target the same for yourself.

    Consumer debt & personal finance

 

  • Close all the unused bank accounts and cut off your unnecessary subscriptions:
    List down all your bank accounts including ones which you had opened many years ago and you are not using it anymore. Keep one personal account and one business account – close rest all of them. Remember all bank accounts require certain minimum balance and you do not need many bank accounts. With payments going digital way, it’s better you close all your accounts except one.

    This will free up a lot of money for you which can be used for debt repayment or investment. Similarly review magazine subscriptions, newspapers subscriptions etc as in this digital age mostly all publications have online version and that too free.

    This will save you from money leaks and the saved money can be utilized in a better way for further investment.

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

 

Money leak - how to fix it

 

  • Review your insurance needs:
    Be it life insurance, vehicle insurance, homeowners insurance or health insurance. Review all of them, compare premium for the similar sum assured with other service providers. Call them up and bargain for the premium amount – there is always a room for bargain. Look at your age, your other family member’s age and tweak sum assured based on the needs and finalize the most cost effective plan for yourself. Repeat the same exercise for your vehicles.

    You will be surprised to know the amount you can save by switching to different service providers / porting the policies to other service provider.

    Why you need insurance ?

 

 

  • Review and tweak your investments:
    Be it PPF, Mutual funds, Stocks, shares, Fixed deposits, recurring deposits, post office deposits or commodities. Review all of them in terms of gains since you invested in them and what current rates they are offering. You might want to close down some dead investments based on the returns or shift to more fruitful ones. Based on your requirements and goals, tweak the investments in order to gain better returns. It’s always good to do a thorough review of your investments once a year and rejig your portfolio.

    If you have not yet started investments, it is right time to start investing gradually towards your goals in life so that you have enough funds when you reach your life goals.

    Delaying investments can cost you dearly 
    Diversify your investments

 

diversification-of investment

 

  • Make a budget and stick to it for the entire year:
    Budget is one of the major step on the 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. 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. Don’t think it is complicated. Keep it simple to suit your needs and it can work wonders for your financial life.

    Once you have data for a few months – say three months you can see and analyze the expenses you have incurred under different heads. This will help you free up money for fruitful investments.

    How to make a simple budget 
    A simple budget can save you from 5 big troubles

 

 

  • Use tax exemptions to minimize your taxes:
    Government runs many schemes which can be utilized to minimize the tax impact by investing in them like RBI bonds, infrastructure bonds. Investment towards PF, PPF is also tax exempted so as investments in equity linked mutual funds and life & health insurance.

    If you are running a business many exemptions are there in terms of expenses incurred towards the business.

    File your returns efficiently, take appropriate steps to pay minimum tax using exemptions. This will help you with more money at hand which can be utilized to invest more efficiently.

 

tax exemption

  • Educate yourself:
    You may not be an expert on finances but basic investments through various vehicles is not a rocket science. A lot of literature is available online which helps you in taking informed decisions. Do not rely solely on the other so called financial experts from your neighbourhood and local banks to help you out with your investments.

    A little reading and self education can do wonders for you. So take out some time from your busy schedule and start reading about personal finance and investments.

 

One final suggestion is to keep a piggy bank at your home to save all the loose change you gather. This will also inculcate savings habit among the other members of your family, especially the kids.

At WS, we always stick to the policy that “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 avenues, they can never be honest with you.

Wish you a very Happy and Prosperous New Year 2018 !!!

 

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 !!!

 

 

 

 

 

 

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 !!!

Delaying investments? It can cost you DEARLY

Delaying investments can cost you DEARLY

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.

 

delaying your investments

Yes, I agree. Even I have not thought of investments as of now. Somehow I feel it is not my cup of tea and anyways my money is safe in bank, I can always invest it at a later date when I feel the time is right.


Unknowingly, you are ignoring an important fact that there is a REAL cost which is associated with the delay in investments. Most of us tend to get away with this as there are no immediate visible effects of these delays. Nor we proactively calculate the potential damage it can cause. 


Your money laying in savings account gives you 3%-4% returns whereas it can give you 12%-14% if invested in proper channels. Imagine the difference a 9% returns can make on INR10,00,000 over a period of 20 years. As per compound interest calculator – it comes to INR5,604,410


You realize this only when you need funds for a certain life goal. Then you realize that had you invested your money at the right place, you would have got much better returns. Be it while buying a car, buying a house or for kid’s higher education or a wedding in family. If you keep delaying, you need more amount as investment at a later stage to achieve desired funds. The early you realize this, better it is for you. You must know how to use the magic of compounding to your advantage.

 

What could be the possible ways to avoid this delay and properly set the investment cycle?


There could be many things responsible for the delay at your end. You first need to identify the problem which is withholding you. It could be

  • A large sum of money laying around in savings account
  • Multiple savings accounts you have opened over the years – each with certain minimum balance and other service charges
  • Some investments got matured, amount in savings account but no re-investment done
  • Your own belief that “this is not the right time to enter the markets”
  • Not taking any decision to exit from certain bad investment
  • Not nominating anyone for your accounts/ investments


Your reason for postponing investments can be many

  • You are too busy and you do not have time to build and manage your portfolio
  • You think that you do not have enough money to start investing
  • You are afraid of making some wrong investment decision and you fear losing money
  • If someone suggests some investment product and handover the brochure, you find it too technical to read and it seems decoding the product attributes is too complicated job for you
  • You are comfortable with what you know that is you have done some fixed deposits as they are simple and easy for you to understand. For this reason, you do not think beyond fixed deposits.


Rightly said, looks like I am also holding some of my investment decisions because of the points raised above. Now tell me how to break ice ad keep going strong on investment front?

 

You have to overcome your fear. To learn swimming, you need to enter the waters. You then need to test the depth of the water and then swim where you are comfortable. So

  • You think that you do not have enough money to start investing – Investments can be started with an amount as low as INR500 per month. If you keep thinking that you do not have enough money, you will never be able to start investments. Remember – “The journey of a thousand miles begins with one step.”

 

  • You are afraid of making some wrong investment decision and you fear losing moneyStart small. Start with products which gives you fixed returns and keep reading about investments. The only way to overcome your fear is knowledge about investment basics
  • If someone suggests an investment product and handover the brochure, you find it too technical to read and it seems decoding the product attributes is too difficult job for youDo not enter into complex investments. Start with basic and simple products which your bank offers over the counter like fixed deposits, recurring deposits etc.
  • You are comfortable with what you know To diversify and to make an optimized portfolio, you need to add different forms of investments at some point of time. Even if you are comfortable with fixed deposits only, you will still have to gradually add mutual funds, stocks, commodities etc in order to make your folio slightly more stable and to give you returns which are above the market inflation rate.

Do not delay your investments

 

You can take few small steps on how to start investments and be consistent with it

  • The key is planning – You must spend some time in evaluating your current status, identify the problems and plan the corrective actions based on your findings 
  • Study a little bit – Read finance blogs, magazines, read economic times and gain some basic knowledge about investing, mutual funds, equity markets, portfolio diversification etc.

 

  • BUDGET This is the most important step as it will tell you how much investible surplus you have for investments month on month. A simple budget can be made using this link

 

  • Automate investments – Do not wait till the month end to invest the leftover amount after expenses from your salary. Learn to pay yourself first. Your monthly investments should be done within the first week of the month. With the budget thing, you will know how much investible surplus you have for a month. Plan investments based on it and automate your investments. 
  • Review your investments every quarter – If possible, take stock of your investments every month. This will not only motivate you but also will keep you on top of your investments. You will have figures handy about your exact net worth, liabilities etc based on the monthly data you compile. 
  • IF NOTHING WORKS, hire a financial planner – Take professional help. But do involve yourself in planning and execution so that you can learn and you are aware of what is happening with your money. Afterall it’s your money. But make sure that you hire a good professional, not the local insurance agent who is always eager to sell you insurance policies.

 

We at wealth samurai always believe Your money is your money – it is you who has to take care of your money. None else is more interested in growing your money through investments than you. Whoever shows interest will have his/her personal interest attached in helping you. So take charge of your money, your financial investments, your budgeting and work towards achieving financial freedom

 

Happy Investing !!!

Compound Interest – Let your money work for you

Don’t always work for money. Instead make money work hard for you

“Let your money work for you”

 

compound interest

 

I think we must have read / heard this saying many times in life. This is quite a famous quote often used by investment advisers. This is related to power of compounding which is very powerful tool if exploited properly.

If you are someone who wish to have good returns on your investments, wish to retire early, wish to have financial independence you need to exploit power of compounding and make it one of the pillar of your overall financial independence strategy.
I will just give a small example to reiterate the faith in this strategy. For assumption, I have taken 10% as returns on investment which is quite possible in today’s scenario.

If you save INR1,000.00 per month for 12 months, at the end of the year you will be left with INR12000.00

Year 1
You will earn 10% interest making total amount INR12,000.00+INR1,200 = INR13,200

Year 2
You will earn 10% interest on INR13,200 and total amount would be INR13,200+INR1,320=INR14,520

Year 3
You will earn 10% interest on INR14,520 and total amount would be INR14,520+INR1,452 = INR15,972

Year 4
You will earn 10% interest on INR15,972 and total amount would be INR15,972+1,597=INR17,569

Year 5
You will earn 10% interest on INR17,569 and total amount would be INR17,569+INR1,756 = INR19,325

So in 5 years, your initial investment of INR10,000 turned to INR19,325 – You have almost doubled your investment without doing anything
Now, to show the outcome of consistent investing, let’s take a scenario where you invest INR1,000 per month for 5 years that is 60 months and let’s see the result.

Year 1
You have invested INR12,000 and your total amount after 12 months stands at INR12,665

Year 2
You have invested INR24,000 so far and your total amount after 24 months stands at INR26,645

Year 3
You have invested INR36,000 so far and your total amount after 36 months stands at INR42,076

Year 4
You have invested INR48,000 so far and your total amount after 48 months stands at INR59,110

Year 5
You have invested INR60,000 so far and your total amount after 60 months stands at INR77,911

If you continue this investment for 15 years your INR1,000 per month investment becomes INR4,14,774

If you continue this investment for 25 years your 00 per month investment becomes IR13,19,273


————Here the magic unfolds ————

 

If you replace investment amount by INR5,000

If you continue this investment for 15 years your INR5,000 per month investment becomes INR20,73,872

If you continue this investment for 25 years your INR1,000 per month investment becomes INR65,96,367

So your INR5,000 per month investment for 25 years @ 10% per year will yield you INR65,96,367

This is simply a huge amount and can give you a big shot in your retirement Kitty.

You can use any compound interest calculator and tweak rate of returns and amount to see the magic. You will be surprised.

Idea is to find an avenue which gives you maximum return on investment for your risk appetite and to stay invested for a long time (>15years) to reap the benefits of compound interest. Compound interest works miracle with large sum invested for a long duration. The best part is it’s a passive income for you as your money is working for you.

Start as early as possible -> Make regular investmsnts -> Stay invested for a long duration -> Reap the benefits of Compounding

If you delay by a year, you will loose lot of money. Don’t think that you will loose only first year’s interest money if you delay by a year. You will loose interest of the final year if you delay. Do your basic math and you will come to know the losses.

No doubt great Albert Einstein has summed it up correctly

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

 

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.

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.

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