Browse Tag: #financialfreedom

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 !!!

 

Seven Baby steps towards financial freedom

Seven Baby steps towards financial freedom

Do you know how marathon runners are trained?

If someone thinks he should run a marathon, and goes for the run very next morning what will happen? It will be a disaster for him. Right?

baby steps to financial freedom

 

A marathon runner must start small initially with 1 kilometer, 2 kilometers run and so on. He has to gradually attain the 42 kilometers mark. He has to gradually build stamina, develop endurance, have many practice sessions before he hits any competitive race.

All this happens over a period of time. This can not happen overnight. Hope you all agree with me on this. A runner has to set small milestones first like a 5 kilometer run, 10 kilometer run, a 25 kilometer run and so on. Once all small milestones are reached, a runner can confidently go for a full length 42 kilometer marathon.

Same is with financial planning. If you are at ZERO level or you have just started journey towards setting finances in order, thinking about financial freedom will look impossible to you. Journey towards financial freedom is a long journey. You have to create numerous milestones which will make the journey also interesting and you will always be motivated throughout the journey. Achieving these small milestones will also give you a sense of accomplishment in the course of the journey. Not to forget, these milestones will also keep you away from backtracking.

Below are some important milestones you can create in order to stay focused and not to lose interest while journeying towards financial freedom. The order is important as you can not run a full marathon without conditioning yourself for a half marathon. Isn’t it?

 

climb to financial success


Step 1
Start making a budget. Write down all expenses month on month. It is important. It will help you in knowing your spending  pattern.This will also give you an idea about your investable surplus – the money which you can utilize for investments moving forward. (How to make a simple budget)

Step 2
Save about 6 months of expenses in cash or liquid funds. This amount should be easily accessible to you. This is your emergency fund. This is meant only for emergencies like some medical attention or in case you lose your job. This will keep you afloat when you do not have any income to take care of expenses and will help you in not falling in debt trap during any personal emergency.

Step 3
Gradually but steadily pay off all your consumer debt. Consumer debt is considered as a bad debt for an individual. Debt for TV, appliances, vehicles, furniture etc falls under consumer debt. One these debts are tackled, you free up a large monthly investable surplus.

Step 4
Start saving for retirement. Most of us will not receive any pension or annuity. Keep somewhere around 25%-30% of your monthly salary as your investment for retirement. Make a good balanced folio and start investing. Your folio can be a combo of Debt, mutual funds, PPF etc.

Step 5
Start investing for your kid’s education. You can dedicate an equity linked mutual fund for this. Also you can open a PPF account when your kid is born and maximize investment into it every year. A combo of PPF and an equity linked mutual funds can do wonders for your kid’s future.

Step 6
Pay off your mortgage/home loan. This will remove a big burden from your head. It is good to feel debt free. But this is little tough as usually the amount is quite high. But I strongly recommend you to do this as paying off mortgage will free up a huge chunk of money for you as an investable surplus.

Step 7
Keep re-adjusting your portfolio once in a couple of years and enjoy life. Keep reading, pursue your hobby, keep traveling but remember that your money has to outlive you.

These are small steps. You can start any time, at any age. Important is you make a START.

Happy investing !!!

Why you need Insurance ?

Make sure you are adequately insured:

Definition of insurance: A promise of compensation for specific potential future losses in exchange for a periodic payment.

The definition clearly says it all. However, the companies which offer insurance provide a bouquet of products. Whole life insurance, term insurance, endowment plan, ULIPs, health insurance is some of the product categories. However, each classification may have one or many products with slight variation

Why you need insurance

 

Why you need insurance?
You never know what is going to happen in near/distant future. If someone is the only earning member of a family and due to health reasons, he is unable to work, or due to sudden demise of the sole earning member, family goes in no earning mode.

  •  Who will pay the EMIs of home loan, vehicle loan?
  •  How the monthly household expenses would be taken care of?
  •  How to pay kid’s school fee & tuition expenses?
  •  How to pay expensive nursing care? Hospital expenses are skyrocketing these days.

    Leave apart human life, what if your vehicle needs emergency repair? If the repair cost runs into few thousand of rupees and you do not have contingency funds at hand for this repair, it will be pain for you to arrange the sum and repair your vehicle right?

Answer to above questions in case of unexpected happening is INSURANCE. Insurance make sure that there are no financial hardships to family if something goes wrong.

Do your own research – A little bit of homework is a must

Do not assume that you need to buy insurance policy because your friend who is a salesman in insurance firm told you to do so. First identify purpose of buying insurance. Insurances can be of few types

  • Life insurance: The only purpose of life insurance is to provide safety net to the people if the person taking insurance dies a premature death. This is for the ones who have people financially dependent on them. This gives them means to offset financial losses in case of their demise. The best or rather ideal route here is to take term insurance policy. This is the least expensive solution and serves its purpose well. There are many online calculators available for calculating premium by various service providers online.Other life insurances like whole life policies / ULIPs are also available but they are usually not worth due to the cost associated with them. The investment returns from these products are poor compared to investments in other options.There is no benchmark formula, but general thumb rule is that take insurance cover equal to your liabilities plus 10 times of your annual income. So if you have a home loan + vehicle loan of INR20 lakhs, your insurance cover should be of INR20 lakhs plus 10X your annual income. 10 times of income will give your family a sustained monthly income to cover the expenses for family members
  • Health insurance: If you go back a little in history and compare historical cost of medical treatment, it doesn’t take rocket science to arrive at conclusion that the cost of medical treatment has gone up considerably. And keeping the trend, it will keep moving upward. You must insure yourself to cover the cost of medical treatment. There are host of factors on which the health insurance premium depends. But it is worth comparing offerings from different service providers and to take the best plan based on your requirements. Health insurance will safeguard you from cost of medical treatment and will save tons of cash for you. Also, a healthy family of four, husband, wife and two kids should have a INR8 lakh family floater health plan to cover emergency medical expenses.
  • Vehicle insurance: Vehicle repairs are expensive. Imagine a situation where your vehicle meets with an accident. The vehicle becomes immobile and you need to fine a tow truck. Then the cost of repairs which can break your back. As per the government rules, it is mandatory to take insurance and people usually opt for a third party cover in order to cover any litigation cost arising post accident. But you must opt for a comprehensive plan as there are a lot of costs associated with repairs once your vehicle is involved with an accident. Again loads of online calculators available and based on your needs, opt for the best plan that suits you.

There are other insurances also like home owners insurance, renters insurance, asset insurance, travel insurance but the most important and must have ones have been covered earlier.

If you are not insured and some mishap occurs, your financial plans will go haywire. Also taking proper and adequate insurance is one of the building blocks of financial freedom and wealth creation. Not taking insurance or not taking adequate insurance can make a serious dent in your investment portfolio.

Bottom-line is that one has to make sure that he/she is adequately covered through insurance, both for life as well as health.

Overspending – the biggest block in financial freedom

We dream about having nice things, big cars, nice homes, latest gadgets, fancy cloths. The moment we start working after graduating from university, we start accumulating the things we dreamt as a kid or student. Thanks to the media around us – be it print media, social media, electronic media, TV channels blaring advertisements 24X7. They make us convinced that if we do not owe the latest, we are not human in sync with the world. The tone of modern day advertisements is that we are inferior if we do not have the latest gadget, latest fashion.

Overspending - hurdle in personal finance

 

Once the income starts coming in Post University, we welcome all the stuff, toys to keep us happy. We submit ourselves to frequent outings with friends and relatives and many more things which we could not do being a student. Owing the stuff and frequenting restaurants is considered as a new COOL. Suddenly we feel urge to buy new automobile because all our peers have one. We want to outshine our peers hence we want the best automobile, fully loaded with all amenities – just to show off and in our heart we feel “we deserve it”. We look to get hold of the well deserved large house in the toniest neighborhood which we were eying from long. Consumer credit is readily available. This gives us a good excuse to buy the latest 80 inch 3D LED. Obviously we need these gadgets to flaunt ourselves in our circle. Also this reflects in the society that I am cool and doing well in my professional life.

We try to do everything except saving & investing money. It’s always good to pretend that we do not have sufficient income to start investing now and we will have much better success with investments when we have higher income than what we are earning now. A big chunk of our earning is dedicated to the monthly payments that are going out for the nice house, a big car, 80 inch 3D LED and many more gadgets which we have accumulated – just to show off that we are doing well.

This tendency to spend salary as and when it comes makes us struggle financially month on month. Every month we have a list of TO BUY and the list never gets trimmed. One item leaves the list, another item occupies the place. So what can we do if we are making 6 figure incomes and still struggling to pay for necessities to survive day to day life? We must put a cap on non – essential spending. Cut it down so that we have precious cash saved for essential spending and investing. It will hurt for a month or two, but we will not die if we do not have latest iphone 7 in our kitty or if we do not have the latest Honda or Toyota parked in our garage.

Unless we stop spending recklessly, we will not come to know what is essential and what is non essential spending.

A simple plan: How can we check overspending

1. Make a list of monthly expenses without which we cannot live like Home loan EMI (mortgage), electricity bill, maintenance charges, telephone bill, and internet bill. Mark them as NEED

2. In another list, keep all expenses which are our WANTS, like eating out, buying latest phones, new cloths, and outings during weekends etc.

Now once the list is made, strictly write every penny that you spend under respective list. Over a month or two you will get a very clear picture that what you are spending on essential items and what is being spent on non-essential. Cut down on non essential, put brakes and see the magic. In a couple of months you will have a very positive cash flow and loads of money freed up for investing.

This is basic money management, not a rocket science. We need not to be an expert in finance to make money work for us.

Overspending has to be tackled at the earliest if you are not having a positive cash flow month on month. Overspending can ruin your retirement plans and can even upset your life’s balance sheet. If you wish to retire early to pursue your passion, if you are looking for financial independence, if you want to generate passive income so that you do not have to depend on your day job – you must sit down and do the basic exercise to assess your expenses and come harsh on overspending.

Believe me; cutting down overspending can work miracles on your cash flow. You can free up a lot of money which can be invested judiciously to generate good returns over a period of time.