The lessons we can learn from the rich

The billionaires have specific habits which make them like that, we can learn few things from them to how become a billionaire and remain so.

1.   Smart Rich people live below their means

Most of the super-rich people do not splurge, or spend just to show-off. They choose modest houses, drive ordinary cars, and fly economy class. Warren Buffett still lives in the 5-bedroom house he purchased more than four decades ago for a mere $31,500. Mark Zuckerberg, founder and CEO of Facebook, drives a manual-transmission Volkswagen hatchback.

The learning

               i.        We shouldn’t buy a house on loan if we can't afford the EMI.

              ii.        EMI or rent of the house should not be more than 40%

            iii.        We shouldn’t spend more than 5% of our income on car loans.

            iv.        We shouldn’t stretch our finances to compete with others or just to show off.

2.   Smart Rich People save & invest first, spend later

There is a famous saying by legendry investor Warren Buffet “If you buy things you don't need, you will soon sell things you need,“.

Most smart rich people pay themselves first by saving and investing at least 20% of their income and spending the rest. Even if we are earning less, the disciplined saving habit will ensure a secure future and we won't have to struggle close in later part of our life. We should also make sure that we have an emergency corpus for rainy days.

The learning

               i.        We should automate our investing.

              ii.        We should ensure that our regular investments i.e. SIPs get invested as soon as we get our pay check.

            iii.        We should keep at least six months of monthly expenses for emergencies.

3.   They spend less on clothes, shoes, food

The smart rich people use their money on productive purposes. They don't usually run behind brands for designer clothes, shoes or accessories etc just for the sake of it. They spend on things that will keep them and their progeny rich in the future, not what will make them look rich in the present. This is the reason facebook;s   founder Mark Zuckerberg's in simple t-shirts or filmstar Rajnikanth is dressed in plain dhoti-kurta off screen.

The learning

               i.        We should control our expenses in those assets whose value is likely to go down only. Like clothes, accessories, cars etc.

              ii.        For example we shouldn’t spend more than 3-4% on clothes, 5-7% on vacations, and 10-12% on food.

            iii.        We should invest more in those assets which will increase our wealth, 3 They save & invest first, spend later.

4.   They look for discounts, coupons and ways to cut costs

Most of the smart rich people are smart spenders. They use discounts, sales, coupons, rewards or loyalty points to save money wherever they can. We should not forget small discounts add up to big money over time.

Whether it's US stars like Kristen Bell or Premji, who ensures his employees switch off lights in offices, they know how to cut costs.

The learning

               i.        We can use mobile apps like Paytm etc to pay bills or book tickets since they offer cash backs and discounts.

              ii.        Use discount sites and online price comparison sites to avail of discounts on various kind of purchases.

5.   Smart Rich people use credit cards wisely and limit their cash expenses

Sometimes if we have lot of cash in our pocket we indulge in buying unnecessary things.

Mostly the smart rich people don't carry too much cash. They also prefer to use credit cards wisely. There is debate whether plastic money makes us to spend more? This can be answered that prudent and disciplined use of credit card can be good rather than bad. We should repay the entire dues of the card in full and squeezing all benefits out of these.

The learning

               i.        Use credit cards wisely as this helps to keep better track of expenses.

              ii.        They offer free money in terms of rewards and benefits.

            iii.        It also creates a good credit history which helps to get loans at competitive rates when we actually need

            iv.        Now chip based cards also offer greater security from theft as compared to cash.

6.   They value quality over cost

There is a famous hindi saying “Sasta roye Barbar, Mahnga roye ek baar”.  It Means  a person who buys cheap things have to repent many times while the person who buys costly things have to repent only once. Here the costly thing does not mean costly by price but buy quality.

Smart rich people do not buy stuff because it's cheap, but because it's good quality that will last them longer. For example if we buy a cheaper home appliance, we may end up spending more on maintenance and repairs, or replacing it with a new item in a shorter interval.

The learning

               i.        We should conduct a cost-value comparison before buying a product.

              ii.        We should not buy something very expensive which is not going to be used for long and have very limited life clothes and expensive mobiles etc.

7.   They give back to society

Most of the rich people like Bill Gates, Warrant Buffet, Azim Premji have donated huge sums to charities and pledged their wealth for philanthropic purposes. Even common people also donate to the social wellbeing. However we should keep our net worth in mind while giving back to society and do not be over enthusiastic.

The learning

               i.        Before donating we should ensure our own financial well-being first.

              ii.        We should try to get tax benefits under Section 80G by donating to recognised institutions.

            iii.        This also ensures that money is used for the real benefits of the needy people

To become rich and remain so is also like a habit where we have to consciously make efforts to be careful with regard to our incomes and expenses. If we do it prudently we will remain rich forever.

Mutual funds: The Myths and The Reality

Mutual Funds are in India for decades however still there are lot of doubts in the minds of the investors. In this post we have tried to sort out various myths and the reality about them.

1 – SIP is the name of an investment product

Many people think that “SIP” is the name of some investment product other than mutual fund. We heard people saying – “I want to invest in SIP”. However SIP means SYSTEMATIC INVESTMENT PLAN, which means a way to regularly invest into mutual funds. Wherein a fixed amount is automatically debited from our account and gets invest in mutual funds on a pre-defined date.

2 – SIP is only on monthly basis

Generally people make investment on monthly basis however an SIP can also be done even on a weekly, fortnightly or quarterly basis. While monthly SIP is the most suitable for all (we all get monthly income), but at times if we want to invest on different frequency that can also be done.

3 – Just SIP and forget it

Many investors think that once they have started a SIP investment or even lump sum investment then just forget it for next 10-20 yrs. However a wise way is to constantly review (once in a year or so) the performance of the schemes and take corrective decisions. But we should not over do it and start looking at weekly and monthly returns.

4 – Once started we can’t stop the SIP in between

Many investors think that after starting SIP for X yrs, then it is a commitment and we can’t break in between and if we break then will face some penalty. However the truth is that once we start the SIP, we can anytime stop the SIP in between it may take one month normally. So we shouldn’t worry while starting the SIP as it can be stopped the day we want to stop it.

5 – Once SIP is done we can’t increase, decrease or add lum sum in same scheme

Many investors have misconception that if they have started an SIP in a fund ABC, then they can’t add additional money in the same fund under the same folio or they can not increase or reduce the SIP amount. However the truth is that we can add additional SIP in the same scheme even in same date or we can cancel the existing SIP to start lesser amount SIP. We can also add lum sum amount in the same scheme any time as per our own convenience.

6 –Once started We can’t skip any SIP payment

Many people get worried that what will happen if they skip the SIP. Mutual funds units are allotted on the current dates NAV basis, so if we do not have sufficient money in account the units will not be allotted on that day. For that Mutual funds company do not charge any fine or penalty for this, but our bank can levy a some ECS retun charge for this like Rs 200/300. However we can still invest same amount through online or physically for one time purchase after that. However it is better to be disciplined enough to make sure that our SIP’s go on time, but also does not hurt badly in case of emergency

7 – We should stop SIP when markets are down

SIP is a better and disciplined way of investing. Unless we are expert in understanding markets and how they will behave which actually no one knows, it does not make a lot of sense to time SIP’s . Its better to let them run in all kind of markets and focus on your long term goals.

Many investors stop their SIP’s when markets tank which is not right. Infact, this is the best time when we should accumulate more Mutual funds units in our portfolio, so that when markets are up, we can reap the benefits.

8 –When stock markets is high we should avoid starting new SIP

Although it’s better to wait when market is high but nobody knows that market will go up further from here or will go down. So its better to keep on investing regularly rather then trying to guess about the market.  Its better to continue withr SIP’s irrespective of market conditions. And when markets do down, it’s time to increase your SIP amount

9 – SIP is always better than Lump sum Investments

Actually we can’t say which is better. When market is more volatile SIP’s can outperform the onetime investments. SIP’s however are more suitable for a common man as it’s a monthly commitment and averages the risk of market’s volatility. But when market is continuously rising lump sum investments can give higher returns then SIPs.

10 – Lower NAV is better than higher NAV

This is a very confusing and interesting myth among investors. Many people think that a smaller NAV mutual fund is a better deal compared to a higher NAV mutual fund.  Due to this reason people rush to new fund offers just because the NAV is at Rs. 10/-.

The fact is that in case of mutual funds NAV has no significance. It’s ZERO !

Mutual funds appreciation is directly related to percentage growth in the NAV not in absolute numbers. For example if we have invested  Rs 1 lacs in a fund with NAV of Rs 10, and if the mutual fund performs great and in next 5 yrs it doubles in value, then the NAV will rise to Rs 20 hence the fund value will rise to Rs 2 lacs. However if the NAV was Rs 100 per unit, still the effect would be same as the NAV would have increased to Rs 200 and investment value will increase to Rs 2 lacs. Same in earlier case.

11 – Dividend in mutual funds is better than Growth option

All the Mutual fund schemes have both options i.e. growth and dividend. Many investors think that dividend option is better because they are getting “extra dividend or extra money” . However it’s not true.

Dividends is not extra ! , Once dividend is paid from the scheme, the NAV comes down by that margin. Further  if the fund is not an equity fund, a dividend distribution tax is first paid by AMC, which lowers the return of investor. However in case of growth option, the money remains in the fund itself.

For example, ABC fund with NAV of Rs 50 declares a dividend of Rs 5

·         Now in case of dividend option , Rs 5 will be paid to investor and NAV will come down to Rs 45.

·         However in case of Growth option, nothing is paid to investor , but the NAV is Rs 50.

12 – Mutual funds means Investment in Stock Market

Another common myths is that mutual funds are highly risky because they invest in stocks. However this is half true. Mutual funds have different schemes i.e. Debt Funds, Balanced funds and equity mutual funds. Only Equity and Balanced mutual funds invest in stocks and are risky or volatile. Debt funds invest in debentures, bonds and Government Securities which are not related to equity market. Infact some of the debt schemes i.e. Liquid funds are quite safe and can be considered as substitute to saving/current account.

13 – Mutual funds do offer guaranteed returns

Mutual funds do not offer a guaranteed return like a fixed deposit.  Returns of mutual funds are based on market value of the basket of securities in that scheme. The returns vary depending on the type of schemes i.e. debt or equity based schemes. Although the returns are not guaranteed they can be predicted based on historical returns, fund manager’s expertise, securities in the scheme portfolio and investment horizon. This is one of the main reason that many investors who want assured returns shy away from investing in mutual funds.

14 – Past returns indicate future returns for the mutual fund scheme

People think that if Scheme A has given good return in past it will continue to give that kind of return in future. But this is not true. Although past returns can tell that the fund did well in past and there is some probability due to legacy that it will perform well. But it’s not which can be 100% sure. The fund’s performance depends on the securities it has at that point of time and what decisions fund manager takes in future.

15 – More Mutual funds means Better Diversification

Normally a single mutual fund scheme invests in 50-70 stocks. So when we invest in an equity mutual fund, our money is already well diversified across sectors, types of companies etc.

When we add other mutual funds of same category, many of the stocks could be same hence giving hardly any further diversification. If we further add other similar schemes we may not be doing any diversification actually.

That is why it’s of no use to invest in 10-20 mutual funds of same category. 2-3 funds of a similar category are the fine for an investors perspective  if we want to invest more we can invest in the same schemes thorugh lum sum or SIPs.

16 – Tax saving under 80C is not possible through mutual funds

Many people who are investing in PPF and Insurance for many years think there is no alternative or better way to save tax. However mutual funds do offer 80C benefits. ELSS or Equity linked saving scheme is the category of mutual funds which gives 80C benefits up to Rs 1.5 lacs with lesser lockin period of three years.

17 – In ELSS all money can be withdrawn after 3 yrs if one is doing SIP

Many investors have this belief that is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs, they can withdraw all their money. However that is not true. Each investment in ELSS is locked for 36 months from the date of investments. Which means that the first SIP which goes in 1^st April 2017, will be unlocked only in 31^st March 2020, Similarly the SIP made on 1^st May’17 can be redeemed only on 1^st May 2020.

18 – Mutual Funds means big Investments

Many small investors don’t enquire about mutual funds thinking it needs lot of money to invest. Hence they stay away from mutual funds and stick to recurring/fixed deposits and other products. The truth is that we can start monthly investment of even Rs 1,000 per month in most of the funds and for onetime basis, it can be Rs 5,000 .

19 – Mutual funds mean long term investments

Mutual Funds are the investment products where we can invest for as short as one week to as long as ten-twenty years. Liquid mutual funds are for short term i.e. a few week to equity funds where we can invest for decades. There are other products in between for short to medium term time horizon.

20 – We will lose all our money if Mutual Fund company goes bankrupt

Mutual Funds are governed by SEBI and have five tier structure. There is a Sponsor,  trust, an Asset management Company, Custodian of Securities and Registrar. The way it’s designed and regulated that it’s almost impossible for investors to lose money due to a scam or AMC going bankrupt. Sponsor sets up a mutual fund, Trustees are responsible to regulate the mutual funds and ensure it to adhere to the regulations, AMC manages the funds, Custodian keeps the securities and Registrar is responsible for registering the sale/purchase transactions and keeping the investors data. Since the mutual funds units does not lie with AMC (it just takes decision of buying and selling) but with custodian and hence they are highly secure.

21 – Investment in Mutual Funds needs demat account

Many people think that demat account is compulsory for investing in mutual funds. However it is not true, we can invest in mutual funds without Dmat account as well as through existing Dmat Account, but it’s not mandatory.

22 – Mutual funds investments needs lot of formalities

Mutual funds investment needs one time KYC formalities like we need to do for opening Bank Account. After that we can buy/redeem mutual funds in a very simple one page form or also through online. We do not need to provide all KYC documents every time we invest/redeem form the mutual funds. However selecting schemes based on goals and time horizon could be little difficult for a new person and its better to take guidance from some experts.

23 – In Mutual funds only humans can invest

Actually any one can invest in mutual funds be it individuals, HUF, Companies, Partnerships firms, trusts or societies.  All we need to do it so provide the required KYC, and then investment in mutual funds can be made. For companies who have current account money can be invested in liquid or debt funds and redeem them anytime by which we can earn money in the idle money.

24 – Mutual Funds are for young and not for retired investors

As mentioned above Mutual funds have various types of schemes which can cater the requirements of all class of investors be it a young office goes to a Middle aged executive to a retired person. A person can select debt schemes if he wants more security of his funds he can also invest in a debt oriented mutual funds, which can have some equity component for some return kick! Few schemes offer monthly or quarterly dividends (equity/balanced fund offers tax free dividend) which can be a better option for those who don’t have regular cash inflows. One can also go for Systematic Withdrawal Plan (SWP) and withdraw a fixed amount each month.

25 –In Mutual funds our money gets locked

There is another misconception that in mutual funds their money gets locked for a specific period. But the truth is that in case of mutual funds, most of the funds are open ended funds, which means that we can invest anytime and redeem anytime. Although there is some exit penalty in many of the mutual funds which ranges from 3 months to a year. However in ELSS funds (which comes under 80C) and close ended funds (which specifically tell you the duration for lock in) there are lockin.

26 – Mutual funds can’t be a substitute to FDs

Although in India Mutual funds are just 15% of total FDs, In US, mutual funds are already several times bigger than Fixed deposits with more than 67% of the population invest in them. It is also going to happen in India. Currently Indian mutual funds have around 18 lacs crore, which has doubled in last 4 yrs, and set to grow very fast in the next decade. So if someone thinks that mutual funds are some alien concept, he has to rethink. It’s very popular now in India and one of the standard investments products.

27 – Mutual fund redemption is complicated

Redemption in mutual funds is very easy and now through online apps we can do it by sitting at our home without  visiting mutual funds or registrars.This does not need any approval from anyone.

28 – TDS is applicable when mutual funds are redeemed

In mutual funds, there is no Tax deducted. We get the full amount in our bank account and then we need to calculate the tax amount and pay it later. However in debt mutual funds Mutual fund companies need to pay dividend distribution tax but the dividend in the hand of investors is tax free. For Equity schemes the capital gain is tax free after one year. But in case of NRI’s, if they redeem their debt funds, then TDS is applicable.

29 – I can’t invest in mutual funds as I can’t get money when I need it

Mutual funds are highly liquid and we can get our money ranging from instant redemption to 3-4 days depending on the fund type. In fact Liquid/ultra short term funds can be used as a substitute to Saving/Current Accounts as they can provide instant or liquidity within one day.

30 – We can’t withdraw a part of investments from mutual funds

Actually we can redeemed  any amount from Mutual funds as per our convinience. We can either chose specific number of units or the amount we want to redeem (in that case it will calculate the units accordingly). So that way, it’s a great product as unlike FD or RDs wherein we can invest and redeem any amount as per our convenience.

31 – We can’t switch from one scheme to other

There is another misconception that we cannot move from one scheme to another across the same fund house. We can switch from one scheme to another in same fund house without selling. However from one fund house to another we need to redeem from one scheme to other.

32 –Bigger and well-known brand’s Mutual funds are always better

A lot of first time investors in mutual funds investors want to go with trusted brands like LIC, SBI, or ICICI etc. The truth is that the Mutual funds are totally separate entity hence they may not reflect the same quality of performance as of their parent companies. We should not confuse with LIC mutual funds as LIC insurance or SBI mutual funds as SBI bank.

Mutual funds are totally different and specialised business, and it needs asset management expertise. A small fund can also have high quality funds and should be considered.

Mutual funds are very good investment options however they should be used wisely based on the investor’s specific needs, financial goals, time horizon and risk appetite.

INVEST SIMPLY THROUGH FOUR BASKETS APPROACH

It becomes very difficult for a non-financial background person to have a detailed financial plan and follow it systematically. So how can we make the investing things simple? In this post we will try to simplify the investment process in a lay man’s way.

Firstly we have to figure out our income, expenses and savings. We should also identify our primary and secondary goals which we want to achieve. We can divide our total income into four baskets based on the priorities of the need for the money.

The first part of the savings should go for immediate requirements and emergency purpose; like if we lose job how are we going to survive and meet our daily expenses. We can keep 3-6 months expenditure in this basket. The money saved for this purpose can be invested in liquid/ultra-short term mutual funds or may be in short maturity fixed Deposits. The main objective of this basket is to get the money as and when required therefore liquidity of this investment is of paramount importance. Now, many app-based systems for investing and redeeming money from liquid funds have been introduced which can move funds back and forth with ease and speed. They offer almost double the returns of savings accounts while being potentially much more tax-efficient.

The second basket of savings could be statutory or forced savings. Under Section 80C government gives us exemption for savings. Certain instruments are qualified for this savings which includes PPF, Insurance, ELSS, NSC etc. This type of savings helps us in two ways: first it reduces our income tax outflow as well as it forces us to save for a minimum period of 3-5 years. Some of these investment like PPF, ELLS are tax free at the time of maturity also hence gives full benefits of the savings. We can save upto Rs. 1.50 lakhs under 80C and additional Rs. 50,000 in NPS under section 80CCD. This saving can be used for short to medium purposes and can also be recycled for future tax saving purposes. Apart from this we should also have proper mediclaim polices which are also tax exempted for self, family and parents under section 80D.

The third basket of our savings could be based on our specific medium term goals. These goals/expenses can be figured out with more certainty as they are in near future say 3-5 years’ time. For example we would like to buy a house in next five years and need to put down an initial payment. Or we need a new car in three years, as the existing one will be pretty old by that time. We can separate these needs from the long term needs as they are more predictable and have shorter time period as compared to longer ones. This kind of savings can be put into balanced or hybrid mutual funds which are more tax efficient and have better returns comparatively. They are less volatile, and have a lower tax outgo than bank FDs.

The fourth and last basket is the one where we would be investing for a longer time horizon for example eight to ten years and more. These savings could be for our own old age requirements, or for kids education/ marriage etc. These investments would be based on our age and specific needs. Since these investments are for longer durations they can be kept in equity based investments options i.e. equity mutual funds. Even though equity funds can be volatile in the short term, they are the only asset class which can provide good enough returns in the long term to beat inflation and provide substantial returns. The income earned from equity mutual funds is fully tax free so gives us the maximum benefits without any cut.

To achieve anything we first need to know our goal, similarly to achieve a financial freedom we must know our specific goals and plan accordingly. For a starter, the four basket approach could be a good beginning in this path of financial freedom.

What to do when Market is continuously rising

This week BSE Sensex touched 30,000 mark, Nifty has already crossed 9000. As the stock market is touching new highs, many of us get jittery about what to do some also get over excited in this market. SO what should we do in this kind of situation and how to avoid temptation and errors while making most in this kind situation.

1.  Numbers are not just numbers look behind them

If we just look at a number in isolation it does not gives any clear information. Time value of money and the basics behind the numbers are more important to understand its significance.  Similarly the absolute number of the Nifty, BSE Sensex or any individual stock may not give a correct picture. We should look at Valuations based on earnings, growth and other factors to determine the actual value of that stock or group of stocks.

2.  Asset allocation is the Key

It is true that equity valuations are currently high as compared to historical averages. Hence expected returns are less. Still if we compare equities with other asset class i.e. bonds, gold, real estate it remains relatively attractive over the long term period of three years and more.

Another factor that determines market levels is Cashflow in the market of funds. Foreign Institutional Investors continuously buying Indian Stocks and Domes Institutional Investors like Mutual Funds are also buying. In this scenario when we do not have any other better asset available we can keep on investing in equity market,  We understand that equities may be volatile in the short term, but investors with a medium to long-term horizon should continue to invest in equities, preferably through SIPs. A staggered approach for investments through SIP or STPs could be better way in this scenario.

If we have a large sum to invest, it is best to park the funds in liquid or ultra short term bond funds and do a systematic transfer to equity funds over a period of time. This may help to average out the purchasing cost over a period of time.

Another strategy for investments in this scenario could be dynamic asset allocation or balanced funds. In Dynamic asset allocation funds mutual funds reduce equity exposure when the market valuations are high and increase it when the valuations are low. Some funds reduces the equity exposure below 65% required for getting equity tax benefits through derivatives.These funds can also be looked at to reduce equity exposure while getting the tax benefits in more efficient way.

Corporate Results, inflation behaviour and the interest rate movements, implementation of GST are major factors which should be looked at in near future to seek the direction of the market.

3.  Understand the actual risk

Normally, the large cap stocks are value higher as compared to mid and small cap stocks. However, currently it is the other way.  Mid & Small cap stocks are value much higher as compared to the large cap companies. This could get corrected to its normal levels in near future. In this scenario its better to be more careful while selecting stocks or mutual funds so as to avoid potential risks.  

4.  Nothing comes cheap so be careful

When markets are at very high levels people get tempted to buy penny stocks assuming they may multiply in future. Some people think that if stock price of a a company is very little it means the risk is also little but this is not true. Ultimately the return is calculated on percentage terms. If a stock priced at Rs. 4 falls to Rs. 2 or a stock of Rs. 1000 falls to Rs. 500 the loss will be same. As a basic we should always remember that any company’s stocks has to be valued on the fundamental factors like business growth, management, financial performance etc. and not on the absolute price.

Further little priced penny stocks could also be easily manipulated by operators and are best avoided.

5.  Trading has more excitement than actual gains

We keep on hearing various stories from friends & relatives that someone has made lot of money by day trading or playing in the futures and options (F&O) markets. It’s not so easy and may not be always true. We should understand that trading is a specialized activity and requires lot of expertise and knowledge of the market. Small investors should better to keep themselves away from these temptations.

6.  Insure the risk

The large investors who have significant equity exposure can take hedging positions to reduce their risks in equity market. investors can follow less aggressive hedging strategies like buying puts at higher levels and selling at lower levels to protect themselves from significant falls along with covering a steep rise in the markets. 

When something goes to a new and uncharted territory, proper prudence and maturity is required to see beyond the current hype so as to not get carried away with it and also to keep the eyes on reality. The Indian stock market may be like that at this juncture hence we should keep our eyes and ears open while taking any kind of decisions in this market.

Why should we SAVE MONEY ??

Everyone want to spend money so as to live comfortably and enjoy the life but in this article I want to discuss why should we save. Yes we can think that its very obvious why to save, but still lets find out more the reasons behind savings. Here while talking about saving means saving and investing both.

Normally we all feel that “saving money” is only related to securing your future. The equation for them is

Save money = Lead a better life tomorrow

However there are various other angles we need to think about, and that’s why we are going to discuss this in details. So lets understand it more in details:

1 – Securing our future

The most basic and core objective of saving money is to use it for our future requirements. We save or accumulate the money and use it for your future requirements.

We must know that “One day, our regular income which comes by name of salary will stop coming”

There will come a time when we will be left with 30-35 more years of our life and there won’t be a regular salary coming into your account like it happens today. We need to create a big enough corpus, which helps us to lead a life we desire for next few decades even when there is no regular inflow and which should last till our death.

Few people may think that they can avoid creating their wealth because their kids will take care of them. However it’s up to us to decide if that’s the right approach towards life or not.

Savings and Investing what does it means?

Saving: Saving money is very important. We should save money because if one day suddenly we need money we will have it with us. If we just keep on spending all the money that we get and one day we need money we will not know what to do

Investing: Investing makes our money grow. Just as a plant grows from a seed to a plant. When we keep our money in a savings bank we get interest but if we will invest our money in fixed deposits, shares, mutual funds, public provident funds, etc. our money will grow from a small amount to a big amount faster.

Start saving some money for future

To start with If  someone can’t manage to save enough money, at least he should start saving some money starting from TODAY itself . Let me share with you some numbers on this. If a 30 yrs old person invests Rs 5,000 per month for next 30 yrs consistently, then @13% average return over long term, a total of approx Rs 2.2 crore can be accumulated.

The amount of saving is something depends on person to person and even small amount can also make a big difference in a person’s life. We should remember that Anything is a good start! , may be upgrade later – but at least START RIGHT NOW.

2 – To allow us to do what we love to do

Let’s ask a basic question: Do you love what you do?

It is not just work we are talking here but about pursuing our passion for living or doing full time job in the area which we love to do. What we mean here is that do we have enough time and money to do things we love for few hours each week? Something which we truly want to do other than our regular job work?

·        Do you want to socialize more by throwing a party for your friends, but worried about the cost and affordability?

·        Do you love photography, but those costly lenses seem to be out of your current budget?

·        Do you love travelling to new places, but you are stuck because the home loan EMI needs to be paid first?

·        Are you afraid to tell your boss that you want to go on a month long road trip, with your best friend which was planned years back?

·        Want to go on a weekend trip with your friends, but seems it’s out of the budget!

Yes It’s going to be very tough to really achieve all the points mentioned above, if our bank balance is not sufficient. So what we understand here is that Less money means less power with you to do the things in your own way!

We basically need money or time to pursue our hobbies and both of these will come only when we focus on creating wealth.

There is a famous saying that “ Making Money is a hobby that will compliment any other hobbies we have, beautifully.”

If we are so much dependent on our monthly pay checks, it’s going to be very suffocating going forward. Enough wealth in a person’s kitty gives him that power to do things he loves.

3 – To enjoy and live a better lifestyle

There are many thing which don’t need money lie A great nap, a conversation with a good friend, a simple meal with your loved ones. However we should remember that this a materialistic world and we need money to do a lot of things in life.

Yes, I am talking about those materialistic things.

·        A beutifull house

·        A luxry Car

·        Dining in a famous restaurant

·        Partying with friends

·        Buying the I Phone

·        Going on an exotic trip

·        Redesigning your house

We need to spend money on various experience and possessions, only if we actually have the money at the first place (not always, but most of the times). We can be able to do it only if we have money saved at the first place.

While some one can argue that we can always take a personal loan and upgrade our car or go on that vacation etc. However we are talking about the way we do not increase our burden and tension but to enjoy without the tension which comes with the loans.

So lets understand first that What kind of life are we looking forward in coming times? Is our wealth enough to lead us there? Are we doing enough for that?

4 – To have financial independency

Financial independence means when we don’t need to work for earning money.

While retirement is linked to age (which is generally around 60) , the financial independence is a function of wealth and not our age. Financial independence can happen even at the age of 35 or some may be not even independent at the age of 60.

Financial Independence is also referred as financial freedom : Where our passive income equals our desired lifestyle expenses”

For a normal investor, financial independence can happen only when we start our wealth creation journey well in the start of working life and are disciplined enough not to disturb it for long time.

Millions of people go to their jobs in the morning with different moods depending on the day. They are happiest on Friday and very sad on Sunday night. We need to seriously start investing for the goal of financial independence if this is the case with us.

We should reduce our dependency on our active income (salary) as we move from age 30s to age 40s . We should have created enough wealth in the first 10-15 yrs of our working life that some part of our expenses can be met by passive income which our wealth can generate if things go wrong.

It does not mean that we should create wealth stop working and start living on the passive income right away, but we need to create that situation for so that It will bring peace of mind.

5 – To have tension free mind

Not have enough money brings a lot of tension. If we need peace of mind, we need enough wealth on our side which can give us comfort. If we do not have enough wealth we will keep worrying about future every now and then and every small financial problem will give a goose bump and force us to think about scary future.

If we don’t have enough money it  is bound to cause a lot of stress.

Various thoughts will cross the mind …

·        What will happen if I lose my job?

·        How will I meet my financial goals?

·        What if I suddenly need a lot of money for medical emergency?

·        What if I am not able to give my kids all the things they want?

It is possible that even a respectable amount of money saved at might not end our worries, but it will surely bring some peace of mind and lower the stress.

As a general rule of thumb, If a person has worked for X yrs in his life, he should at least have X/2 years worth of basic expenses saved at the end. This could be a general formula which one should aim for at the least.

6 – To pass on to our loved ones

We can see that a lot of families struggle for money generation after generations. The grandfather worked for money all their life, then father and then the son is also doing the same.

Many people who struggle financially set a goal in life that their kids should not face the same. They want to leave them a house and some wealth which makes their start a little easier in life. Although they also teach them money lessons and make them responsible.

If we create wealth in your life, we can leave some part of it for your kids so that they can pursue things they truly wanted to do and not work just for money to bring food on the table.

A lot of wonderful people are never able to do things in life which they truly want to do. They are not able to live their own life fully because of the money matters. If they already have some comfort on their kitty they can do much better in their life without fearing for just to meet the needs.

Finally

To conclude, there is a great possibility that one or more things mentioned below will happen to you if you do not get serious about saving money in your life going forward.

·        We will be spending a lot time worrying about future and how will your life end

·        We will depend too much on others (your kids may be) for money

·        We will have hard time maintaining a good standard of living

·      We will be too dependent on our active income and will be forced to keep working even when we don’t like it

·        We will find it tough to lead a better life compared to current lifestyle

·        It will be hard for us to focus on things we love to do, because we don’t have enough money or time

If we have still not crossed the age of 45, We still have a good chance to create a respectable corpus by the time we retire, even though we have lost a lot of time for compounding. This needs a proper planning and assistance through a good advisor.