Browse Tag: #wealth

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.

 

 

Accelerate your NETWORTH , Here’s HOW?

Here is a post on How to accelerate your Net Worth & achieve Financial Independence. Increase in net worth will accelerate your journey towards Financial Independence

Net-worth gives a clear measure of your wealth. In accounting terminology, “net worth is really everything you own of significance (your assets) minus what you owe in debts (your liabilities)”. Assets include cash and investments, your home and other real estate, cars or anything else of value you own.

 

how to increasse networth

 

Now when it is clear what is net worth, I am sure you would want it to keep growing at a healthy rate. A healthy growth rate in net worth will give you a confidence in your life with respect to your finances.

Here are some of the methods I am listing down which can accelerate growth in your net worth. All these steps are simple and you can implement them in your financial plan to stay on top of your finances and off course net worth.

 

  • Work towards paying all debts.
    Kill the debt with highest interest first. Usually the personal loan which we take for some holidays or some family function carry the highest interest rate. Same is with the credit card debt. Make sure that you get rid of personal loan and credit card debt. Then focus on getting rid of consumer loan which you took for buying that 85 inch cool TV, auto loan for your cool SUV. The EMI on these loans might look small but if you do that math you end up paying a lot in interest on them. Remember the price you pay for any item bought on these loans are the cost of principal plus the cost of interest. Once you are done with all high interest loans, target home loan. Yes, though you get benefit on home loan but a loan is a loan. The feeling of having freedom with no loan is something out of the world.

  • Increase your contribution towards the Employee provident fund.
    If you do not have PF – Provident fund account with your company, open a PPF account with any public sector bank and max-out the limit of yearly deposit in the first month of every financial year. These account ensures that over a long run, you accumulate enough corpus which can help you plan your retirement years they way you want.

  • Make a budget.
    This article details on how to make a basic working budget. Once budget is made, trim your unwanted expenses. Remember you will not be able to trim your unwanted expenses unless you make a budget. Be on top of your expenses and cut down all unnecessary expenses.

  • Do not let your extra cash sitting idle in low interest savings account.
    If you have huge amount sitting idle in savings account, it is losing its value. Currently savings account give only 2%-3% interest. And the inflation is 6%-7% which means your money is losing its value. Immediately put your money to work harder through mutual funds, sweep in deposits, fixed deposits, stock market based on your risk appetite. The returns in these investment streams are higher than the regular savings account and money in them ensures that you are beating inflation and not losing value of your money.

  • Start building a mutual fund portfolio.
    This is from long term perspective and invest into this through systematic investment plans across a diversified range of mutual funds consisting of diversified equity funds, balanced funds, large caps, mid caps. This does not need expertise, it only requires basic knowledge which is available freely on the internet.

  • Reinvest all the income generated from your investments.
    Do not blow away the gains from your investments. If you keep re-investing, it will help in increasing your investment corpus considerable and that too quickly. Also this exercise of yours coupled with the brilliance of compound interesting will accelerate your net worth growth.

  • Invest a fixed amount regularly, every month.
    Pay yourself first – this should be the mantra. Automate your investments. Suppose you receive your salary in the first week of the month, keep your systematic investment plan SIPs automated for the first week of every month. This will ensure that you keep investing every month without a break. Remember – the one who invests regularly and over a long duration reaps the benefits.

  • Invest all the windfalls you get. Do not splurge.
    Gifts and inheritance money can be very helpful in accelerating your net worth.  Remember more money you put in investment, more your investment corpus would be and more money it will generate.

  • Do not go crazy about new vehicles every few years.
    Remember that vehicles are merely an instruments for going from point A to point B. Also remember there is a huge cost associated with the new vehicles in terms of insurance, maintenance, running cost etc. And it is a fact that a vehicle loses about 20%-25% of its value the moment it comes out of the showroom and it is a depreciating asset.

  • Do not accumulate loans to purchase stuff.
    Every new loan you take is a liability and is a hindrance in your plan to financial independence. Every new EMI / monthly payment added to your monthly income will surely decelerate the net worth growth.

If you follow the above listed steps diligently and track your progress, I am sure you will see a positive movement in your net worth. You need to improve, evolve your approach constantly in order to see your net worth moving northward. Each one of us has different lifestyle, different expenses but what is discussed in this article are basic building blocks to improve your net worth.

Improvement in net worth will result in creating wealth and early financial independence. Don’t you want the same?

Making a simple budget to improve your personal finances

 

Making a simple budget to improve your finances. This is an important step in reaching your financial goals and financial independence

I am sure there will be many among us who have never actually attempted to make a budget or even noted down their expenses on a daily basis. Many of us would have never experienced the need to see all their income and expenses in one single sheet – which is more due to negligence than lack of knowledge.

How to make a household budget

 

 

Why budgeting is important?
All large companies and organizations do their budgeting, write their expenses, do regular audits in order to see if their actual spend is as per the budget or not. They hire specialists to do this job as they want to prevent any money leak and also they want to be on top of their expenses so that they don’t lose money in a big way.

 

How about budgeting at my personal level?
At personal level, we do not need the kind of skill level that corporations employ to do budgeting, but a basic work on spreadsheet which is not too much time consuming is enough. This is just to have a quick access to your financial status at any given day and to plan any expense which is not a regular one like purchase of a new car, or a foreign holiday.

 

I don’t have knowledge of accounting software / tools required to do budgeting
No worries. For keeping track of personal expenses and basic month on month budgeting, you need to be an expert in using accounting software or tools. As this is Information Technology era and all of us are well versed with MS office (MS excel to be more precise), which is more than enough to do the designated task of budgeting.

 

What do I need to do with MS excel?
First make a list of all your spend in a month. For starters, make four columns in the excel sheet.

  • First one should have the date of expense
  • Second should have the place where you spent the money
  • Third should have the amount you spent
  • Fourth one should be the category of expense (classification as food, grocery, housing etc)

 

how to make budget in excel

 

Every single expense, I repeat every single expense you incur should go in this excel sheet. Why? You need data. This data will make foundation of your budget. And the data accumulated over few months will give you enough food to analyze your spending pattern and believe me; it will help you save tons of money.

At the end of the month, sum up all. You will be amazed to see how much you spend, when there is no budget for expenses.

Now – sort these expenses by category. Sum up the money you spent in each category. This category wise spend will be the backbone of your budget for the next month.

Easy so far? Isn’t it?

Now make a new spreadsheet which will be the budget for your next month. Keep four columns in this sheet.

  • First is category name (housing, food & groceries, fuel etc)
  • Second is what I spent on category last month
  • Third is what I intend to spend in this month on the category
  • Fourth is how much I actually spent on the category (this will be filled once the month gets over)

budget summary - household

 

So many things to do? This looks little tough for me. Do I need to carry this exercise every month?
This might look little tough as you are not used to of doing this. Only the first cycle would take time, then it’s a kind of a cake walk. Once you have completed one cycle, format is ready. You only need to enter the data from month 2 onward.

Ok got it. Now how is it going to help me save money?
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. Once you have data for a few months – say three months you can see and analyze the expenses you have incurred in each category. If you are spending way too much on eating out or buying cloths, it would be clearly visible in the category expenses figures. You can dig a little deeper to check and see if you can trim these high spend category expenses which are not required for survival or which are mostly want related expenses.

Armed with the data of few months, you can repeat the exercise of trimming the unwanted expenses. The money which gets generated from cutting down unwanted expenses will improve your cash flow and will give you an opportunity to invest this money in order to generate higher net worth. This higher net worth in turn will lead you to financial independence at a quicker pace. Wealth creation is all about the art of increasing the gap between your income and expenses and keep investing the difference across the investment spectrum to generate higher and stable returns.

Budget is one of the major steps in 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.

Focus more on increasing net worth

In the journey to financial independence, the most widely accepted approach is to earn more and more in due course. The formula is quite simple. Earn a good professional degree, gain experience and keep moving up the corporate ladder. This growth will give you thrust in your income too. So more your income is, more you have money.

 

networth & wealth

 

However there is one more catch. What if you are earning INR1, 00,000 per month and your monthly spend stands at INR1, 00,000 per month. This is something which is worrisome. This will be a kind of status-quo where you are placed extremely well in the corporate ladder and earning a handsome paycheck every month. However on asset / net worth front you are ZERO. You will not be able to create any asset which will appreciate and give you good returns in due course.
So, increase in income does not necessarily mean increase in your net worth. On the road to financial freedom, you must focus on increasing net worth and track it month on month so that you have all figures about your financial growth at hand.

It’s great to have a 6 figure monthly income but not focusing on net worth will make you work like a workhorse till you die. Instead of focusing only on increasing income, once must focus on increasing net worth as net worth again will keep increasing thus making a substantial gain on monitory front through investments and asset appreciation. Here you must note that more your income is, more your tax liability will be. However assets you make are taxed in different bracket which is quite less when compared to your tax on income. You are taxed on what you earn, not on what you own.

Off course I am not undermining the importance of increasing income, but if this increase in income is coupled with serious attempts to increase net worth, your hard work will bear fruits much earlier than anticipated.

Why you should focus on net worth:

  • The major component of the tax is computed on the income, not the net worth
  • Higher net worth gives you much more financial security compared to high income levels.
  • High income can be spent easily and loose its value, but higher net worth is not that easy to dilute and spend. This way the assets, equity you create is safe from impulse purchases
  • Net worth always keep growing – the components will keep on working and giving you passive income hence overall net worth will keep increasing

 

How to increase net worth?

  • Practice frugality: This is the first step. This will ensure that your expenses are always less than your income
  • Pay down your debt on war footing: Debts are trap. They suck money in terms of interest. Though monthly payments look small for any debt, especially consumer debt, but if you consider the entire cost of debt, it is indeed a high figure.
  • Track your expenses: This will give you a very clear picture where your money is going month on month. If you keep tracking, it will give you clear alarms about money drains.
  • Have an emergency fund: This will help you in fighting emergencies like car break down, home repairs, sudden job loss etc. You need not to break your fixed deposit or take out money from retirement savings for emergencies.
  • Start investing based on your appetite and with proper asset allocation: This will help you grow your net worth and in turn your wealth. Also a proper investment portfolio gives you a good passive income month on month and is your best buddy in the race towards financial freedom.
  • Find ways to increase your income and keep investing religiously all the raises you get: This will help you in avoiding lifestyle inflation. Believe me lifestyle inflation is the biggest wealth killer. If you divert salary raises towards investments, you are enhancing your wealth in the longer run.
  • Track your net worth month on month: This will give you clear picture of your performance towards your financial freedom. Also this will tell you every month whether you are moving in right direction or not?
  • Look at starting some side hustle, or some side business in addition to your day job: Again this will bring additional money which can be invested again to increase your wealth. Anything which contributes to your wealth speeds up your journey towards financial freedom.
  • Avoid any consumer debt: Again consumer debts are traps. They force you to pay higher amount for the goods and come with processing charges. Plan to pay cash and learn to live within means.

No doubt focus on increasing income is important in creating wealth. But income is only one part of the overall equation which contributes in creating wealth. But focus on net worth will make you an individual with multi pronged approach on creating wealth.

Habits of Financially Successful People

 

financial independence

7 Habits you can observe in financially successful people

I am sure you must have come across loads of successful people around you. It may be through media, social media, print media, or electronic media. I am also sure you must have wondered what makes them so successful. No doubt, there is hell lot of hard work that goes behind anyone being successful, but a successful person inculcates certain habits in their daily routine which makes their chances of succeeding much more.

Just like merely saving money cannot make you wealthy, it is same with success. It’s not only hard work, but smart working and making use of resources around you optimally make you successful.

One needs a proper plan and a proper execution both in order to get successful in any task. If you are preparing for any examination, you should plan in such a way that you cover your entire syllabus systematically and make sure that you do it well in advance of examination date. Also, getting fit and healthy just before during exam time is important which will ensure proper success in the examination.

Same holds true for financial success too. By financial success we mean a stage where you feel financial independence in your life – that is you no longer need to work for money. This is what is called as early retirement, where you “work what you like” – not “Like what you work”. As per some of the major financial planning books and personal finance websites, there are 7 common habits/traits exhibited by financially successful people

 

  1. They live their life “goal oriented”. This means they create elaborate plans for finances and keep changing them as per the external conditions to keep themselves on track. Measuring goals give them a perspective of what they are doing is on right track as per planning or not.

 

  1. They are organized in every aspect of their lives. They plan properly for every task, allocate proper resources and keep measuring the progress. This is true with the work they do at their workplaces as well as their personal lives.

 

  1. They are open to suggestions, plan adjustments. They are capable to adjust their plans with changing dynamics around them. This is must as a good plan has always scope of adjustment in order to achieve the desired outcome.

 

  1. They are action oriented. They take actions, quick in decision making based on facts and accept accountability of their decisions. Same is the quality of a good leader.

 

  1. They are frugal. This is the most common behavior among all millionaires. They stay away from lifestyle inflation. Lifestyle inflation is one of the biggest hurdles in financial independence and wealth creation.

 

  1. They are good team worker. They team up with spouses and near friends to work collectively towards the financial goals and plans. When you are a good team worker, you get inputs from all members and this ensures success of overall plan.

 

  1. They are persistent. They have plans, they work towards achieving the goals and they try out hard to work towards it. They do not give up easily. When a plan is laid out, persistence and perseverance can only guarantee its success. Wealth creation is all about persistence as it cannot be created overnight – except when you win a Jackpot.

 

Financial success is not an overnight affair. It requires a planned approach where you are persistent and it may take few years to take shape or see initial results. You may face many hurdles in due course, but staying put, fighting odds bravely can lead you to financial independence. You have to believe in yourself, stay focused and stick to the basics. There is no rocket science involved.

 

 

 

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.