Browse Tag: wealthsamurai

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 !!!

 

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.