Browse Category: Finances

Do not wait to invest

It is often said that “the best time to start investing is NOW!”

Do not be surprised with the fact that most of the new investors are always confused about what is the right time to invest. Quite obvious, the educated ones want to save their principal amount and with whatever knowledge they have gathered, they know if they enter at extreme market highs, they could stare at huge losses few years down the line.

 

right time to invest

 

Everyone knows that one cannot time market. Instead of fretting about when to enter the market, tie your investments to how long you wish to stay invested. Always associate a goal with your every piece of investment. Along with the goal, also try associating a timeline too to your investment. For example, if you start a PPF account – you have a time period of 15 years (lock in period) to invest. In addition to 15 years, you can add blocks of 5 years to this term. So now you can associate the goal of buying retirement home with the proceeds of maturity amount after 20 years. INR1,50,000 systematic investment for 20 years can yield approximately INR4,50,000 on maturity.

Once you start working, you have enough financial goals staring at you

  • Buying an automobile
  • Buying house
  • Finances for wedding
  • Starting a family
  • Kids education
  • Retirement planning
  • Medical expenses
  • Taking care of dependents

And the list can go on…..

Take control of your life. Be at the driver seat. Identify goals in your life, assign a timeline and start investments for specific goals. Do not wait for the next salary increment, next promotion, your marriage, markets to go high or markets to come down and any other lame excuse that you can come up with to start putting money aside for your retirement years.

There are enough indicators for you to start investing the moment you start earning.

  • If you are in private sector, you will not get pension
  • Due to betterment in medical facilities and healthcare, average age of a person is increasing. You may have to live around 20 years in retirement before you die or may be longer. How you will fund your expenses?
  • Inflation is eroding the investment portfolios at a greater rate than ever as medical costs, housing costs, energy and every other service cost is increasing at a greater rates.
  • Cost of education for kids skyrocketing
  • Day to day living expenses are increasing

Whatever your dreams about retirement are (playing golf, traveling etc); you have to make sure that you outlive your money. If it’s the other way round, you will have to struggle a lot to place food on your table.

As I had mentioned earlier, your money is your money and only you can manage it better. You will have to invest and make your money grow so that you have enough funds for the retirement years. This will make you not to rely on your children to feed you during your old age and you can maintain your self esteem.

Investment is not a rocket science. If you are reading this, you must be having access to internet and internet is the biggest source of information in today’s world. It does not take special skills to get information about various avenues for investments based on your investment appetite. There are plenty of online tools which can compute returns over a period of time, based on historical data. Use them to tune your investment planning and you are good to go. Most important is the first step. Unless you take first step, you cannot climb the stairs. Same is with investments. Study, identify your goal, associate a time period to it and take plunge. You will learn many new things and there is always room to correct your mistakes in this journey, but the most important thing is the first step.

Do not think that your real estate property will take care of your retirement years; this thinking has created many house rich, cash poor individuals. You have to spread out your investments, must have proper asset allocation so that you can earn a regular income from your investments in your golden years. If you do not know how to invest, where to invest, start reading and do not hesitate to take help of experts. Investing has to be continuous process, month on month, year on year till you retire.

Remember you have to outlive your money without being burden on your children.

Happy investing !!!

 

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

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

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

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

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

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

A penny saved is more than a penny earned

“A penny saved is a penny earned”

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

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

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

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

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

Framework to bring finances under control

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

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

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