Browse Category: Investment

Framework to bring finances under control

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

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

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

Your money is your money!

As title says, “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 tools, they can never be honest with you. Here I am talking about the insurance agents, investment advisers and host of bank officials who always push you with some “REAL GOOD” plans

I am not pointing fingers at the financial planners, but at times, they cannot be believed due to conflict of interest clause. Their “BEST PLAN” might be the “BEST PLAN” for themselves but may not suit your needs.

A common man, who is working his way up in his career, is an educated person. He has basic knowledge of this world, how to live, survive, commute, plan things. Why not take charge of the finances instead of outsourcing it to someone who is unlikely to give you honest advice. We as employee help our companies to grow by managing their balance sheets, why not help ourselves by managing our own balance sheet of household finances & investments?

So remember, your money is your money. If you outsource your money management to someone, he will be more interested in sucking the commissions out of you by suggesting funds/avenues which gives him better commissions instead of suggesting you honestly where to invest. So take charge, control your finances. And believe me, with little knowledge you can be easily at the driver seat.

You alone will be the best person to guide your investments which is ultimately going to lead you to a financially stable retired life.

Money & Life stages

From one’s point of view, there can be different stages in life with respect to money. Remember, this is only perspective – in general for a common man.

As one goes through different stages in life, the financial condition & goals are likely to change. They cannot stay constant over the entire life span. What holds good for you at early employment stage may not hold true when you are at the peak of your career. What is good for you at the peak, will likely change when you retire. If you manage your money well, you can strike a balance in all these years and can have a good plan for the years to come.

Stage 1:
Initial career years
From an Indian context, most of the parents pay for the kid’s education till University stage. So the first stage I am taking is early career years. The immediate goals for this stage may include buying a vehicle (a car or a two wheeler), planning for home, home furnishing, building a good credit history. However this might change soon as kids have started moving out on own soon and since education has become quite expensive, education loan is gradually become a trend now.
There is lot of energy and dreams at this stage. This stage decides how you will shape up your life, hence decisions taken are important and have long term impact on your life.

 

Stage 2:
Starting a family and career building
 One may switch jobs for earning higher compensation to increase financial kitty, growing savings, buying home, start to plan for retirement funds, start a family, begin saving for kids education, buying adequate insurance etc Income typically rises in these years.
The right investment decisions taken at this stage leaves a long lasting impact on your life. Also since these are initial years, money accumulated and invested wisely comes handy at a later date.

 

Stage 3:
Pre-Retirement years
Your expenses more or less stabilize now due to high income. Kid’s higher education, their marriage , prepayment of home loan, any other long term loan prepayment, putting away more funds for retirement, taking professional help for financial planning/ retirement planning. At this stage you become more organized for retirement planning.

 

Stage 4:
Early retirement years
You are officially retired, but you may want to work for sometime more as you are in good health. This is just to support the lifestyle, travel. You now work towards consolidating the retirement savings into a regular monthly income, managing taxes, and do everything in making your savings last till you breathe last. Preparing will also come during these years.

 

Stage 5:
Twilight years
You may become less mobile due to age and health issues. The goals include planning for assisted living (trend is picking up in India now), tax optimization, efforts to make your money / savings outlive you. Prepare yourself for this stage well in advance when you are at stage 3 & stage 4. You can consult people who are undergoing stage 5 and plan well in advance.

To sum up, your goals will change with each stage and if you are well prepared mentally for each stage, you can plan well. A well planned, goal oriented life will put you in less stress financially and ultimately make you sail through your retirement years.

The ultimate retirement goal for anyone it to outlive his/her retirement fund.
If you plan well at different stages of your life, this goal is quite achievable.

~ WS

9 Ways you can ruin your wealth creation plan

 

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 have long term impact on your life. In financial journey too, there are some mistakes which have long term negative impact and after a point it’s impossible to come back from red zone into the green zone.

Worst money mistakes one can make

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

I am listing them down below, they are not in sequence, but randomly placed. Anyone of these can ruin your financial plans and rock your retirement years

  1. Over spending: Overspending means spending more than you earn. This will keep increasing gap between your income and expenditure and ultimately the black hole will such all your resources.
  2. Not working to grow & maximize your career: Basic education is required and it is a must to embark on journey to wealth creation. Education helps you in understating 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.
  3. Waiting to invest till 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.
  1. Not saving enough: Unfortunately there is no magic figure or magic formula that if you save X% of your income you will become wealthy. 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 can make a big dent in your savings.
  1. Marrying the wrong person: Creating wealth 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 life partner carefully. A careful selection can make or break your plan of becoming wealthy. Both the spouses should be on same page as far as road to financial freedom is concerned.
  1. Not having enough insurance (life as well as health): People usually tend to ignore insurance. They take insurance to save tax and mix insurance with 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 advisor is yielding any positive returns post inflation deduction. By doing this they are leaving their wealth creation plan in limbo.
  1. Investing heavily into real estate: 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 ad 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.
  1. Not having a will: No matter what’s your age, you must have a will. Creating a will is not 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 going wrong with you. Will also prevents strife in families at a later date. Even you should have nomination forms properly filled with banks and financial institutions where you have deposits. This makes life easy for family members in case of something going wrong with you.
  1. Buried deep in debt: Easy consumer loans lure you to fall into temptations of buying what your neighbors buy. This 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 ac hunk out of your monthly income, you are not going to succeed in wealth creation. Have a practice of buying with cash.

 Avoiding above mistakes is not a rocket science, but takes a balanced well planned approach. As I said earlier, any one of the above is capable to derail your train to wealth creation.