Browse Month: November 2017

A high income does not guarantee a RICH YOU

A high income does not guarantee a RICH YOU

Almost everyone among us aim for a higher income. We all work very hard towards achieving the fat pay package which we always dream of. For most of us, it’s a straight equation – more the income – more the bonus and we can be rich throughout our life and can retire rich in peace with loads of money.

high income

 

 

Unfortunately with respect to finances, the equation is not so straightforward and simple. Had it been so straightforward, guys with high salaries would have become filthy rich and all of them would be happy by now.

More money, more income is sadly not the answer to financial woes of human beings.

Don’t get me wrong!

Here I am not denying the importance of the high income for an individual. A high income gives you a head-start in planning personal finances for you. It also gives you distinct advantages in the process of building wealth.

Here are the 5 indicators which points that you can not be rich even with the high income

  1. You are trying to keep up with joneses : This one is a major pitfall. While uncontrolled spending can leave anyone broke, keeping up with joneses will never allow any high income household to become financially responsible. whether  we are working in corporate jobs or living in a tony neighborhood, there is a lot of peer pressure which compels us to own latest cars, expensive homes, latest gadgets, to party every weekend etc. Easy credit availability by the banks also fuels this mentality and the advertising ensures that you feel outcast if you do not buy the latest gadget or the fastest car.financial peer pressure

    Do you often succumb to Financial Peer Pressure?  

  2.  You think investments are to be done only when you are nearing retirement : Many individuals are highly qualified in their respective streams. They did well in studies, mastered the art of their trade and earn a lot. Many are doctors, engineers, designers – earning high incomes. But they seldom pay attention to investments just because of ignorance. Their incomes are high, their expenses are high. Their monthly income is usually equal to their expenses. Since their expenses are met month on month, they do not think of investments. Also they do not feel the need of taking consultancy on the 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. Unknowingly, one ignores 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.

    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.    delaying your investments

    Delaying investments can cost you DEARLY 
     

  3. You keep accumulating depreciating assets : When you have a high income, it’s easy to reach your financial goals of life and retire rich with sufficient money. Unfortunately most of us start pouring money towards depreciating assets. We tend to spend money on the asset class which loses its value quickly. We fail to identify these money drains and our money keeps losing its value over time. 

    By the time we realize this, it’s usually too late and a lot of money had already gone into the drain.

    Latest cars, high end furniture, multiple vehicles, latest gadgets, luxury brand accessories are some of the items that comes under this category.    Car is not asset

    Your Car is not your ASSET ! 
    Financial success : It’s not about the Stuff you gather     

  4.  Your fixed expenses are very high: If you compliment high income with less expenses, the leftover is the investable surplus. This investable surplus can be systematically invested to build wealth.

    If the income is high and so the expenses, you will not be left with investable surplus. The lack of investable surplus will never let you accumulate wealth. The major expense month on month is the fixed set of expenses. Expenses like home loan / mortgage payments, monthly payments towards car and any other vehicle, utility payments etc.

    A bigger house translates into a higher monthly payment for mortgage, higher utility bills, higher maintenance cost, higher home association charges. Same stands for cars. A bigger car translates into a bigger monthly payment, a bigger insurance premium, a bigger maintenance cost, a bigger wear and tear costs.

    One need to identify fixed monthly costs and try to keep them at minimum. Buy the right house you need, do not overspend. Same stands true for your vehicle. 

    Overspending - hurdle in personal financeOverspending – the biggest block in financial freedom
    What are money leaks? How to find out your money leaks and plug them?)
     

  5.  You do not budget and you think that you are managing money well : Poor spending habits, uncontrolled expenses can be a disaster to your finances. They can even put you in a really bad situation financially.

    But if you are not budgeting and not tracking your expenses, it can also cause a big disaster to your finances. It can not only put financial stress on your retired life, but also your day to day finances can get affected badly.

    Tracking expenses becomes more important when your income is high. In case of high expenses, it’s good to track expenses and find money leaks. If you do not track expenses and budget, you can easily blow up your monthly income and will never come to know where all your money went. This will not leave you with any investable surplus to build wealth and achieve financial independence.

    So, take charge of your money. Do not count budgeting and writing expenses as a 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.

    Simple Budget
    A simple budget can save you from 5 big troubles

    Here is how to make a simple budget? 


    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 !!!

 

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 !!!