Browse Category: Financial Planning

Top 5 money making assets that can help you in achieving financial freedom

What are top 5 money making assets that can help you in achieving financial freedom?

As an individual, if you wish to go strong and steady in personal finance journey, here is the list of top 5 money making assets that can help you in increasing your wealth.

The profitability of different assets / assets class can vary significantly depending on market conditions and individual circumstances. However, historically, the following five types of assets have been considered among the top money-making assets:

  1. Equities (Stocks): Investing in shares / stocks of publicly traded companies can offer substantial returns over the long term. The stock market has historically outperformed many other asset classes, though it also comes with higher volatility and risk. By choosing good companies with strong financial foundation, strong growth potential and dividends, investors can build wealth through capital appreciation and periodic income via dividends.
  2. Real Estate: Owning real estate properties can be a lucrative investment strategy. Property values tend to appreciate over time, and rental income can provide a steady cash flow. Additionally, real estate allows for leveraging through mortgages / loans, potentially multiplying your returns. Commercial properties, residential rentals, and real estate investment trusts (REITs) are common ways to invest in this asset class.
  3. Business Ownership: Owning and operating a successful business can be one of the most profitable endeavors. A well-run business can generate significant profits, and its value can grow substantially over time. However, entrepreneurship involves considerable effort, risk, and dedication.
  4. Bonds: While bonds are not as high yielding as stocks or business ownership, bonds can be an essential part of a diversified investment portfolio. Government bonds, corporate bonds, and other fixed-income securities provide regular interest payments and return of the principal at maturity. They are generally considered safer than stocks and can act as a hedging force in a portfolio. One must have a share of bonds in the portfolio to sail through bad market conditions
  5. Cryptocurrencies (with caution): Cryptocurrencies, such as Bitcoin and Ethereum, have gained popularity as a potential high-growth investment. Some investors have seen significant returns during cryptocurrency market booms. However, it’s important to note that cryptocurrencies are highly volatile and speculative, carrying substantial risks. Investing in cryptocurrencies requires careful research and a willingness to tolerate substantial price fluctuations. Also there is a lot of uncertainty at this point of time about the government regulation and acceptance of cryptocurrencies as an alternate for traditional currencies.

It’s crucial to emphasize that every investment carries its own level of risk, and there are no guarantees of returns. One must asses one’s risk profile before investing in any asset class. Also one should be very clear about the purpose and duration of investment as well. Diversification is a key principle in successful investing, as spreading your investments across various assets can help manage risk and potentially enhance overall returns. Additionally, seeking advice from a qualified financial advisor is recommended to tailor your investment strategy to your specific financial goals and risk tolerance.

Happy investing !

Biggest mistake people make with their Money

Biggest mistake people make with their Money

common money mistakes

“I am too young to start investments”
“I usually have a lot of month remaining after my salary gets over”
“I am barely floating”
“I will invest when I am approaching retirement age”

These are some common statements that you hear when you talk about money matters.

It doesn’t matter whether you are from middle income or higher income group. The problem with money is same across all the income groups. Even affluent and high income category also have ‘these’ issues.

Most of the working professionals have these issues because of their ‘attitude’ towards money.

Not paying attention towards the cash flow

cash flow

“We don’t earn much. By the month end we do not have any leftover money”

If you are earning and if you have to say that you don’t have money left by month end then there can be 2 possible scenario

  1. Either your income is too low OR
  2. Your expenses are too high

If your income is low and you are barely making enough to sail through the month then its a different story. But hey, we are not talking about this category. Here we are talking about the other category – people who are unable to save money because their expenses are way high for them to save and invest.

Here we are talking about those who have decent monthly income but due to their spending habits, they are unable to save and invest anything. This is purely because of their ‘ATTITUDE’ towards money. These people are making a lot of money month on month, but they don’t have any idea where their money is going? Simply because they don’t care and don’t pay attention to it. It is their attitude towards money which we are talking about.

Not paying attention towards Debt

burden of debt


With the advent of modern day banking, credit is cheap and is available easily. Home loan, Auto loan, personal loan, credit card cash advance, home improvement, holiday spending – name any damn thing and you have a credit line available for it. Banks happily distribute credit cards and other loans which makes it easier for individuals to buy anything and everything on credit.

In our grand parent’s / parent’s days, they used to save money to buy anything. These days it’s merely a tap of credit card or a swipe.  Instead of saving for things we want, we borrow money and buy them right away.

This attitude towards debt does not allow individuals to come out of monthly payment cycles and they keep buying unnecessary items throughout their life.

Not paying attention towards Savings & Investments

savings and investments


Most of the working people, earning good income can not cope with emergencies. A car break down, a medical emergency, kids education, marriage, sudden job loss and so on. If anything happens, they don’t have emergency funds to tackle the sudden financial crisis. They rush towards credit line from banks or bank on credit cards.

The attitude towards cash flow and the attitude towards debt discussed above has direct effect on attitude towards savings and investments by an individual. If people know where their money is going, and they do not keep accumulating debt, they will have free money which can be used to save and invest thus strengthening their financial standing.

Taking a closer look towards your cash flow and debt will help you to plan and save money for emergencies and kid’s education. Once you start saving and investing with goals in mind, you can tackle emergency situations too through proper planning and an emergency fund.

Bottom-line is we need to be proactive with money instead of being reactive. Take charge, take control of your money and plan where your money should go. If you do not change your attitude towards money, you will never come to know where your money went.

 

Happy investing !!!

Perfect recipe for your Financial Disaster

Perfect recipe for your Financial Disaster

Wealth creation is not a “Rocket Science”. But it’s neither a “cake walk”.

In spite of being well educated, well traveled across – still we are prone to making mistakes in life. Some mistakes can be corrected easily but some could have long term impact on your life. In financial journey too, there are some mistakes which can have long term negative impact and after certain point it’s impossible to rollback the ill effects of the mistakes you make.

money mistakes

Some of worst money mistakes one can make in financial life

The journey to wealth requires a series of correct steps at right times with regards to your finances. However there are a set of mistakes that exist which can ruin the hard work & self control of years.

  1. Spending more than you earn: Overspending means spending way more than you earn. This will keep increasing gap between your income and expenditure and you will never be able to create the desired corpus for your retirement years. And ultimately the black hole will suck all your resources sooner or later.
    A simple budget for your rescue      
  2. Not working to maximize your career: Basic education is required and it is a must to embark on journey to wealth creation too. Education helps you in understanding things better, take rational approach, take timely decisions, plan strategies etc. Aim should be to maximize your career through education so that you have steady income for expenses and investments.Education is not an essential recipe to become wealthy but a good education can surely land you up in a career which can pay you enough to create wealth wisely

    graduation - higher education

  3. Waiting to invest till the right time comes: There is a Chinese proverb, “The best time to plant a tree was 20 years ago. The second best time is now.” The same goes for investing. Albert Einstein was amazed by the power of compounding and called it the eighth wonder of the world. The key is to start as soon as possible and to stay in the race as long as possible. You cannot time the markets hence the right time is now to start investing. Start with whatever little you can. If you plan to accumulate money and then invest, trust me it will never happen.
    Delaying investments can cost you dearly     
  4. Not saving enough: Unfortunately there is no magic figure or magic formula that if you save X% of your income you will become wealthy after Y years. The perspective of X% differs for a fresh graduate starting job and someone who has spent 30 years in corporate world. Most of the people make mistake in assuming “Things will work out eventually” They absolutely ignore inflation and rising costs of housing, costs of healthcare, education. These costs have a good potential to make a big dent in your savings.invest now7 Simple ways to start saving now
  5. Choosing the wrong life partner: Creating wealth is not a solo journey. It is a team effort involving family members. Once you start working, gradually you tend to settle in life by marrying, planning for home, kids etc. It is very important to choose your life partner carefully. A careful selection can make or break your plan of becoming wealthy. Both the spouses should be on the same page as far as road to financial freedom is concerned and should remain focused throughout the financial journey. 
  6. Not having enough life and health insurance : People usually tend to ignore insurance part in their life. Most of them take vehicle insurance since it is mandatory. When it comes to insurance they they usually take insurance to save tax and generally tend to mix insurance with the investments. This leaves them neither here nor there.

    Result is they are neither covered adequately nor their investment cum insurance policy sold to them by their trusted adviser or some over friendly relative is yielding any positive returns post inflation deduction. By doing this not only they are leaving their wealth creation plan in limbo but also keeping their near and dear ones in danger of financial bankruptcy in case if something happens to them.Why you need insurance
    Why you need Insurance?
  7. Investing heavily into real estate: Real estate is always a big ticket purchase. This is the most expensive thing a person buys during his or her lifetime. Real estate investments are usually advisable once you are done with all other investments with proper asset allocation. House/flat for self consumption is not counted here. Reason why because real estate investments are big ticket purchase. Also the returns are usually good in long term.

    The process of buying and selling could take up to 6-12 months. This makes them illiquid to certain extent. If you tilt your asset allocation towards real estate, you may run a risk. What if real estate pricing falls? One should take holistic approach towards real estate. Also since ticket size is big and you cannot sell part of the asset if you need money unlike stocks/mutual funds/bank deposits. 
  8. Not having a will: No matter what’s your age, you must have a will. Creating a will is not a grandpa / grandmas job. Whatever you have earned, whatever wealth you have accumulated so far should be passed on to your successors in case of something goes wrong with you. A will also prevents strife in families at a later date. Even you should have nomination forms duly filled with the banks and financial institutions where you have accounts. This makes life easy for family members in case of something goes wrong with you.Preparing a will
    10 Money goals to accomplish before you turn 40
  9. Buried deep in debt: Easy consumer loans always lure you to fall into temptations of buying what your neighbors buy. Blaring advertisements in print/electronic/social media do not leave any stone unturned in convincing you that your life is incomplete if you do not buy a certain product.
    Keeping with Joneses syndrome can be a big debt trap. Buy 80 inches 3D LED TV when you deserve, not on EMIs. Buy when you are ready financially. If EMIs are taking a huge chunk out of your monthly income, you are not going to succeed in wealth creation. Have a practice of buying all your stuff with cash – this way usually one tends to buy only needs not wants.

Avoiding above mistakes takes a balanced well planned approach. So gear up and embrace the systematic approach towards your finances.  

Happy Investing !!!

 

Plan your wealth & retirement with Mutual Funds – WealthSamurai

Plan your wealth & retirement with Mutual Funds

 

 

mutual fund investments

A young techie sent me a message “I am 24 years old and I need help with my retirement planning . Can you help me out?”.

Amazing, isn’t it? Hardly around a decade ago it was impossible for people like us – early into the professional life to talk about retirement planning and personal finance. The scenario has changed completely. Now a days I see a lot of young professionals lined up seeking early retirement advice and discuss on the ways how they can accumulate wealth. Till a few years ago, these kind of questions were the subject of discussion for people in their late 40s and 50s

The reason behind this is the younger generation is much more aware about the surroundings. Youngsters are more worried about the retirement and investments. They indeed should be as

  • There is no provision of company funded pension schemes in private organizations and even in most of the Government organizations now.
  • It’s unlikely that the kids / family will help the current generation during their retirement times.  Hence they can not even think of relying on them during their golden years.
  • Due to advancement in medical facilities, people are living longer now. This means they have to provide for themselves for few more years.
  • The cost of living, including the healthcare costs are on the rise and one needs money to fund the living.

So how to get around and plan for a decent retirement for yourself? Rather I should frame this question as “How best mutual funds can be used to fund your retirement plan effectively?”

 

investment in mutual fund

A lot of historical data which is available at hand at many online portals / financial magazines indicates that the returns from a small amount invested religiously over many years in equity mutual funds have always beaten the inflation by a huge margin.

What does this mean? When you are investing for retirement you have to make sure that your earnings are not affected by inflation. Say for example, money in savings bank account as of today earns around 3% as interest per year. Retail inflation usually hovers at around 4%-6%. This effectively means that your money is eroding its value when you keep it in savings account.

When you are investing for a long term or a goal like retirement, you must ensure that you go full throttle to increase the gap between inflation and the returns you generate from your investments.

As per the historical data, over last 10 years

  • Large Cap mutual funds category has generated an average of around 14% returns per year
  • Diversified mutual funds category has generated  an average of  around 17% returns per year
  • Midcap / small cap mutual funds category has generated  an average of around 20% returns per year

So we do have some learning from the statistics above. To keep our earnings well above the inflation – we must tap the potential of Equity Mutual Funds. Right? It is extremely important to to earn well above inflation to save our money from eroding its value.

Now coming back to Mutual Funds, all one has to do is to select a mutual fund which fits in one’s risk taking appetite and set aside a sum every month to invest in it. Do it religiously for eternity – you will certainly hit the jackpot. If you are young, starting your career and love to take risks, pick a more aggressive small cap / mid cap combination. Choose the best funds in the category and you are done. Only catch is you have to invest in it month on month for many years. If you keep on investing and do not withdraw your earnings, you are set for your retirement corpus. One more things, invest a sizable amount. My suggestion is you must aim to invest 20%-30% of your take home income every month.

If you are conservative by nature, pick any top rated large cap equity mutual fund and hang on with it till you reach your retirement age.

 

benefits of mutual funds

Believe me, there are no shortcuts of becoming rich. One has to invest diligently over a long period of time and once you give exposure of time to your equity mutual funds investments none can stop you from acquiring a decent retirement corpus. You will be amazed to see the power of compounding.

One word of caution – do not get disturbed or distracted with short term fluctuation in markets. Every few years there will be sharp down turns which can be used to park more funds and earn better during the upcycles.

If you are young, ready to start – I am reachable at wealthsamurai at gmail.com to help you out.

More Reads:
Want to enter equity markets? Index based ETF funds are the safest bet
6 Sins people commit when computing retirement corpus

Happy 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 !!!

7 Things about personal finance that none tells you

7 Things about personal finance that none tells you

Everyone who is working knows a little bit here and there about personal finance. Most of us are aware of the fixed savings instruments, investment through insurance, provident fund, share markets. Though not in detail but at least we have heard or read about the names of these investment avenues through television channels, magazines, websites, newspapers etc.

 

personal finance

 

If you look at the definition of personal finance from YourDictionary, it says “Personal finance is defined as the management of money and financial decisions for a person or family including budgeting, investments, retirement planning and investments.”

 

I have started my journey towards personal finance around a decade ago. I have also made my share of mistakes during this journey. I sincerely feel if someone had informed me about certain key things in the beginning, I would have certainly not made some of the silly mistakes.

 

Based on my own personal experience, I am listing down few points which none will tell you about personal finance

  1. Building wealth will always take time:
    Building wealth takes time and persistent efforts unless you get some windfall or some inheritance. If you wish to be a millionaire, you have to plan it well and execute it well too. There are no shortcuts, and one needs to put in sustained efforts.

    Remember, there are no quick rich schemes on the way to wealth creation. My own experience so far says that the journey towards building wealth is fun if you learn to enjoy it.wealth creation in personal finance
  2. Early bird gets the worm:
    The sooner you start taking control of personal finance, you have better chance of wealth creation. We all know the concept of compounding. An early start towards personal finance can make compounding work in favor of you which in turn will help you in amassing wealth.

    Also when you start early, you have the time factor working in your favor. When you give time to your investments, they can grow comfortably and with lesser risk.
  3. Look ways to increase income if you want to save more and invest more:
    Passive income such as income from house, income generated through doing freelance jobs in your field of expertise and through freelance consulting adds up and go a long way in creating wealth quickly.

    Also, a better paying job increases your chance to save more, invest more and move quickly towards wealth creation.
  4. Budget and cut out the excess spending:
    This is one of the crucial step in wealth creation. If expenses are more than income, one will always be in negative month on month. With the help of a budget, once you start listing down your expenses, you will be surprised about the crap expenses taking place in your day to day life.

    I was surprised when I started listing my expenses sincerely. I must accept that budgeting has helped me a lot in freeing up the additional money for investments.

    Here is how you can start working with a simple budget
            
  5. Consumer loans are killer:
    Though they look cheap, consumer loans are big dampener in your wealth creation journey. The “easy monthly installment” syndrome forces one to buy more and more. The thirst to gather more and latest never ends because the loans are handy and CHEAP.

    Try avoiding consumer loans as they are a big hindrance in your journey to wealth creation.
    Read: Consumer loans & personal finance
           
  6. You can not build wealth with a salaried job:
    Yes, you read it right. Most of us somehow pull ourselves out of bed each day and go to job. Because job is the only source of income, you must go as there are bills to be paid for the upmarket home you bought last year or for the swanky new car you purchased. If you do not go to the job, how you will generate money to pay the cost of groceries, household expenses?

    With only one stream of income, it’s tough to build wealth. One must work on creating multiple sources of income. Be it some freelance work in your field of expertise or an additional income from an additional floor of your house. Multiple income sources work favorably when you are out creating wealth.
  7.  Learn the basics of investing and work on your investments:
    No matter how the term “investments” is terrifying to you as a layman, one must start learning the basics of investments. Remember, it is not a rocket science. Surely it will take some time to learn the “know how” but you must do it as it will help you in managing your own investments. You should know and work on your investments as it is your own money which is being invested. If you leave it on someone, they may not be honest in working with your money because of the conflict of interest.Financial agents, bank employees, investment advisers are most likely to recommend what works for them, not what works for you.

    READ:
    Start investing in Mutual Funds
    Goal based investing
    When to start investing in stock markets

your money matters in personal finance

 

Once you make these points a habit, you will reap the benefits in the time to come. If you can work around on certain pitfalls mentioned here, the journey towards wealth creation would be slightly more smooth and joyful.

 

Happy Investing !!!

How to achieve Financial Independence? Explained in simple language

How to achieve Financial Independence? Explained in simple language

Almost everyone in today’s era wish to have financial independence. At least most of the people I have met wish so. Isn’t it?

However most of them have no idea how to become financially independent?

financial independence

 

Oh yes, I have heard this term many times in TV talk shows and have also read about it in the newspapers. It sounds too complicated to me. Can you explain to me what is Financial Independence in a simple language?


Financial Independence is a state which is achieved when you have earned and saved enough money so that you do not have to work anymore to support your lifestyle for the rest of your life. In short, you do not have to work to earn money. Don’t get confused. You still can work even after achieving financial independence. You can do whatever work you like, you can work just for pleasure. Financial Independence means you no longer have to slog that 9-10 hour shift everyday in order to pay your monthly payments, credit cards etc.

 

Wow, this sounds great. Can you throw some light on how can I be Financially Independent?

There is a simple time trusted formula with few set of rules for achieving Financial Independence.

  1. Your spending should always be less than your earnings
  2. Increase the GAP between your income and savings – Earn more
  3. You must invest what you save judiciously

If you follow the above 3 step formula, none can stop you from achieving financial independence.

high-income-1

 

Hmm… looks simple per say but how to implement this into practical life?

Ok, let’s take each step one by one

 

  • You must always spend less than what you earn:
      1. It’s quite possible to spend less than what you earn. If you are able to control your spending habits, you will be able to achieve this equation. First tool to achieve this is Budget. A simple budget can save you from many things. It will tell you where your money is going without you making a note.
      2. Don’t splurge in buying that big house just because you can afford it. Buy the right size house. Home ownership can be a quite expensive affair.
      3. Don’t buy big automobiles. Remember, your car is not your asset. Monthly payments on big cars will never let you move towards financial independence.
      4. Be little frugal in your living. Cook at home, eat out less frequently. This will not only save you money but also save your health in the long run. Stay fit and be WEALTHY.

 

  • You must strive to Increase your earnings:

 

      1. Importance of education can never be denied. If you are well qualified academically, you have a better chance to land a high paying job. Keep working towards increasing your income by augmenting your qualifications, certifications. This will boost your ability to save and invest more towards your main objective, which is financial independence.
      2. If you are good at something, try to earn some income from it. For example if you are good at graphics designing, use your spare time to take up some freelance projects which can earn some side income for you.

 

  • You must invest wisely:

 

    1. Savings are important but savings alone will not make you financially independent. Invest wisely so that your money grows at a healthy rate
    2. Use a mix of equity, debt and use diversification so that your investments remain recession proof.
    3. Invest from day 1 of deciding that you want to achieve financial independence. Do not wait for the right time to invest.
    4. Avail tax exemptions to minimise the loss of money to taxes.
    5. Structure your investments properly and practice goal based investing

 

If you are able to achieve a healthy saving and investment rate month on month and manage your investments properly, you can be financially independent sooner than you expect.


We at WealthSamurai always believe in a healthy savings rate and proper investments as the best tool to take control of your financial life.

That’s really a helpful. But how do I know the details like where to invest, which stock, which fund to buy?

 

Once you start tackling the three points mentioned above you will get more insight into the micro equations like where to invest, what amount to invest, what percentage of diversification is required etc. But important is to take the first step towards financial independence and keep going.

 

Happy Investing !!!

 

Why you must Start investing in Equity markets through mutual funds

Why you must Start investing in Equity markets through mutual funds

Most of us are scared of the equity markets. We have some or the other excuse NOT to start investments in equity. For some, it’s risky, for some it’s too technical. Some feel that it’s too complex to understand and they are not qualified enough to understand the nitty gritties of the market ups and downs.

 

mutual fund investments

 

If you have never invested in mutual funds, you are at the right place. This post briefs you on how and why you should invest in mutual funds for various financial goals and milestones in your life.

Search for higher returns on investments make people to look out for investments in equity markets. Investment in equity markets bring “high risk” to the table. Everyone can not be an equity expert to understand the technicalities of the market swings, when to enter the market or when to exit the market. The loss of the principal amount is the biggest threat which keeps most of the investors away from the equity markets.

An equity Mutual Fund is the best tool for common investors to enter into equity markets. It helps them to reduce the risk, earn higher returns and since they are professionally managed, they play fair game.

By definition, “A mutual fund collects money from individual investors and invests the money on their behalf in the stock market, bonds, government securities etc. and it charges a small fees to manage the investment.”

 

investment in mutual fund

 

I am listing down 5 compelling reasons on why one should invest in mutual funds.

 

  1. Equity Mutual funds give higher returns :
    Ultimately every investor aims for a higher return on his/her investments. Equity mutual funds have given much higher returns in the past if you compare it with the fixed income instruments like fixed deposits / recurring deposits / bonds etc. Mutual funds have controlled exposure to the equity markets which in turn gives higher returns to the investors. If you see the returns from equity mutual funds over the last 15 years, most of the funds have given returns around 14%-15% compounded annually. This is much higher than the inflation figures

  2. Mutual funds are professionally managed:
    Mutual funds are professionally managed by qualified and trained fund managers usually picked up from top schools.  Fund manager’s daily job is to study, track the stock markets and tweak the fund’s composition accordingly. Also all the mutual funds in India are governed by SEBI which is a government agency which is governed by the government.

  3. Mutual funds can make you a disciplined investor:
    Mutual funds have amazing concepts of Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal plan (SWP). Armed with these plans, you need not have to bother about logging into your account every month and buy fuds, or switch funds. You can set up SIP, STP or SWP and sit peacefully while mutual funds work with your investments

  4. Mutual funds have greater liquidity:
    Unlike some investments like PPF, Government Bonds, mutual funds have an excellent liquidity. Except ELSS – Equity Linked Saving Scheme mutual funds (which have a lock in for 3 years), equity linked mutual funds can be sold and redeemed within 3 working days. Liquid mutual funds can be sold and redeemed in 1 working day. Thus one does not have to worry about liquidity related concerned when he is investing in mutual funds.

  5. Equity mutual funds are highly customizable:
    Equity mutual funds comes in various shapes and sizes. There are diversified funds, thematic funds, sector funds, large cap funds, small cap funds, mid cap funds, index funds, tax saving funds, arbitrage funds and so on. You can chose funds as per your choice and investment horizon. Mutual funds are not rigid like Government bonds or PPF scheme where you do not have right to alter the composition. Also the switch facility from one mutual fund to other givers it more flexibility.

  6. Mutual funds provide you ease of investment:
    Mutual funds are so convenient. No need to stand in long queues to invest your money or no need to do loads of paperwork to park your money. A simple online account can work for you. Usually one can approach their bank to open an online trading account through which mutual funds can be bought and sold by merely clicking mouse.

 

benefits of mutual funds

 

Looking at the historical data, there is no denial that equity mutual funds gives you much better bang for your money. The returns are much higher than the traditional investment avenues. If you want to get rid of earn-save-spend cycle, you have to look for professionally managed schemes which gives you higher returns.

Look no further, make a good portfolio of mutual funds to get better returns and invest money for your future retirement and goal based investment needs.

 

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 !!!