Money Owl http://moneyowl.in DIY Financial Planning Tue, 10 May 2016 11:51:57 +0000 en-US hourly 1 https://wordpress.org/?v=4.4.3 http://moneyowl.in/wp-content/uploads/2016/02/cropped-Owl-blue-bg-512x512-32x32.png Money Owl http://moneyowl.in 32 32 One thing which can beat most of your investments: Getting paid well http://moneyowl.in/getting-paid-well/ http://moneyowl.in/getting-paid-well/#comments Thu, 11 Feb 2016 21:08:51 +0000 http://moneyowl.in/?p=377 There are a couple of my friends, who, despite a solid educational background are earning much lesser than their peers. Unfortunately in India, one's talent is not recognized unless she/he is vocal about it. No employer is going to give you good increment, despite good reviews, unless you ask for it. There will always be Read More ...

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There are a couple of my friends, who, despite a solid educational background are earning much lesser than their peers.

Unfortunately in India, one's talent is not recognized unless she/he is vocal about it. No employer is going to give you good increment, despite good reviews, unless you ask for it. There will always be reasons: cost cutting, economic crisis and so so. However once you put your papers, the same company is willing to pay you more to retain you

The following strategy will work for those who are valuable contributors to their companies. Most people just take their review and increment judgments for granted and do not negotiate for a raise. And they are left wondering why, despite being a hardworking and talented employee, they are not financially rewarded well.

Know your market value

The secret to solving the above mystery lies in being aware of your market value and skills. You can do the following

  1. Read market reports on the salary ranges for your experience and skills
  2. Attend interviews of other companies even if you don’t join them to understand the market. 
  3. Know that salary is a range,not a hard and fast figure: keeping talented employees is the biggest challenge for most companies
  4. Ensure you discuss with your goals with your manager much in advance and have specific targets set for you

Once you are ready with all this information, in your next review, you are at a much better position to negotiate for a raise. You know

  1. You have performed well in your job against the targets set for yourself
  2. Your market value in the job market
  3. You aren’t desperate; you are at a positional advantage in the negotiation
  4. You aren’t easily replaceable

Companies are willing to pay in the top range of market value for their best employees. It costs them more to hire a new one and retain them. They would rather have you if what you are doing is important to them and aren't easily replaceable. Even if they hire a new one, it would take time for the new person to understand the organization and start contributing to the firm.

In the worst case, you can change jobs, which is what most people do in reaction to the poor salary increments during reviews. They give up, put with that or shift a job in a fit. However, unless you gain more in terms of designation, opportunity and other benefits, shifting jobs for salary is a bad idea. Frequent jumps to companies in your CV make you look like an unreliable employee. This doesn't mean you shouldn't negotiate. You employer will have more compelling reasons to pay you well when you are well aware of your market value. Your are not being unreasonable here, just asking for fair salary

Some companies have polices to pay at top range, they may not pay the best but they compensate with other benefits in terms of work quality and culture of the organization. Some may offer you best salaries but the work could be crappy. You have to make a choice which not only pays you well but provides you good learning and a career.

Increments in salary have compounding effects

Your starting salary is very important; it acts as a base for your future incomes. Look at the chart below of 5 guys hired at different salaries, with different performance ratings, and their salary after 5 years of service with the organization.

negotiate a raise

As you can notice, employee E who has been performing consistently every year still can't catch up with employee C or D who are hired at higher range, but been only average performers or lesser. Employee A had to be a consistent top performer to stay ahead. Hence it is very important for you to get your salary re-rated as per market value. An oversight at your hired salary can have a large impact on your future income. This is because, the low salary base at which you are hired, is compounded into your future. The simple act of negotiating for getting paid well would have a much bigger impact in your wealth creation than any financial planning may have.

Ensuring you are fairly paid is the simplest step in your financial planning, which can help you achieve your goals faster. You could also look at increasing your incomes by owing small businesses, pursuing your hobbies as business (if your employment contracts allow you) and through investments.

Check out our free DIY financial planning course, where you would be sent step by step instruction to help you manage your money. It would need 1.5hr a week for 4 weeks to get stock of your finances, savings, earnings etc.


Disclaimer: This article is for educational purposes only and is not an investment advice / financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

     

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Why your get rich scheme by stock trading usually doesn’t work http://moneyowl.in/making-money-by-stock-trading/ http://moneyowl.in/making-money-by-stock-trading/#respond Thu, 11 Feb 2016 19:46:08 +0000 http://moneyowl.in/?p=372   You see those ads - on stock trading tips,  advice reports where more than 90% trading calls are successes, ads by brokers and advice firms who want you to believe money making by trading is an easy game you can win  I've also known people, who haven't invested a penny in their careers, start Read More ...

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You see those ads - on stock trading tips,  advice reports where more than 90% trading calls are successes, ads by brokers and advice firms who want you to believe money making by trading is an easy game you can win 

I've also known people, who haven't invested a penny in their careers, start trading with their retirement money to multiply their wealth. Some even go to the extent of doing trading full-time quitting their regular jobs. But a bit of thinking and analysis will tell us the reality

 

The game is set against you

Do a survey of your friends who trade; how many of them actually make money? My experience so fat been only a very few people manage to make money. Most lose. Trading is a zero sum game; you can make money only at the expense of someone losing it. Despite whatever people may claim on forecasting stock movement, trading is almost gambling. 

Statistically speaking, this game is set against you, the normal trader. Imagine a novice football player thinking he can beat the masters at their own game. Likewise is trading; there are huge institutional players  with deep pockets, IIT/IIM/Harvard/Yale MBA graduate employee traders with decades of experience, supported by automatic trading systems which trade based on formulas that are back-tested against real data and such techniques. They can drive the market, manipulate prices as they want. It is really a game between those big players. You and I are marginal onlookers who scrape any chances left. You can't make money playing against most of them.

 

Trading is a full time business

Traders who make money aren't average. They spend years training themselves behaviorally, reading a lot about technical analysis and several others. They build their own systems and identify a strategy which works for them and play along it. They don't get this as soon as they start trading. With patience, they lean to manage money better. They try to not bet the entire money. They build the skills, understand market movement and develop expertise. There is years of effort, learning and practice behind their success. You cannot just think you would start making money by trading so easily. Moreover, thinking you can manage it doing part-time is foolishness.

 

No quick route to financial success

Except for lottery winning or inheritance, there is no short-cut to becoming wealthy. All the businesses that invest crores to generate 10-15% return on capital will start trading if it was so easy. Even trading is like a business, considering the amount of time and money they have invested; the returns are comparable to any other businesses. Moreover, the opportunity cost lost in terms of their career, the time spend on some other things instead of trading could he humongous. With that perspective, quitting job to become a full time trader is a sure shot route to ruining oneself.

 

Money making is about habits

The real success of making money lies with developing habits which make you wealthy by default. Develop them one by one and you would be much better off even before you realize. And it takes time; however, slowly but surely, you will move forward and reap the benefits of this habits. Check out my other post on the real secrets for bulding wealth. People who are good money managers develop good habits, and by default they make money even without consciously realizing it. Fortunately building such habits is much simpler than finding out the next multi-bagger stock which will triple your net-worth in a year

 

Check out our free DIY financial planning course, where you would be sent step by step instruction to help you manage your money. It would need 1.5hr a week for 4 weeks to get stock of your finances, savings, earnings etc.


Disclaimer: This article is for educational purposes only and is not an investment advice / financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

     

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Taking home loan to make you richer http://moneyowl.in/taking-home-loan-to-make-you-richer/ http://moneyowl.in/taking-home-loan-to-make-you-richer/#respond Thu, 11 Feb 2016 18:56:50 +0000 http://moneyowl.in/?p=356 Owning a house is a dream for many in the middle class. There are those in the Gen X who did not manage to do so, despite working till the age of retirement.  But the new middle class bread winners, who earn a hefty 5-digit monthly salary are looking to purchase home before or after marriage, while still in their youth.   It’s not a bad idea to own a home, to feel the pride of being a home owner or secure a permanent space  for your Read More ...

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Owning a house is a dream for many in the middle class. There are those in the Gen X who did not manage to do so, despite working till the age of retirement. 

But the new middle class bread winners, who earn a hefty 5-digit monthly salary are looking to purchase home before or after marriage, while still in their youth.  

It’s not a bad idea to own a home, to feel the pride of being a home owner or secure a permanent space  for your kids to grow in a good environment . Except don't make your home the biggest liability. This is how you can make the most your home loan .

 

Limit your home loan to 30 lakhs

The Govt. of India wants you to own a home or in fact multiple homes. It gives tax exemptions for

  1. Repayment of home loan principal under Sec 80C upto Rs. 1.5 lakh
  2. Repayment of  home loan interest up to Rs. 2 lakh for a self-occupied property. In case of multiple properties, which are given on rent,  this limit doesn't apply  if you are paying tax on the rental income you receive 
(For more tax matters, check  this page  or here )

So, for an individual to take complete advantage of home loan, he must be paying an interest of Rs 2 lakh interest, in addition to a principal of Rs 1.5 lakh i.e max 3.5 lakh annually. This comes upto Rs 30,000 in equated monthly installments or EMI, which in-turn corresponds to around Rs. 30 lakh, 20  year home loan at current rates. 

Note that, most of your repayment in the initial years goes in paying the interest. Those who take home loan are annoyed that despite paying EMI for two or three years, the loan outstanding does not come down much. With time the interest component decreases and the principal component increases. You won't be able to get the complete benefit all the years.

If you have a higher loan, repay the loan partially to reduce the outstanding amount to Rs 30 lakh. Higher loans are only a financial burden.

 

Take home loan jointly with your earning spouse

All the above benefits are available for joint borrowers of home loan as well. So your spouse can get the benefits if they are co-borrower and share the property ownership. The loan amount will be split as per the ownership ratio, which can be proportionate to the incomes of you and your spouse. Your loan eligibility increases as well, taking it to a maximum of Rs. 60 lakh, therefore allowing you to purchase a big home.

 

Do an SIP in a good equity mutual fund for 1/5th of the home loan

The average long term returns of Indian equity mutual funds have been around 15% so far. This means, you can get back the entire EMI amount you paid for your home at the end of the term by investing 1/5th of the amount. Say you have a Rs. 20 lakh home loan with a around Rs.20,000 EMI for 20 years. If you invest Rs 4,000 in a SIP, you will get back all the Rs. 48 lakh you paid in EMI at the end of the term loan. Isn't that great? Why does it happen? The difference of 5% between mutual fund returns and home loan interest over 20 years saves you so much money! Read more about this trick in my other post.

 

Invest in a new property or specified bonds to save tax when you sell property

Say, you purchase a home now and sell it after three years, you attract long term capital gains tax on the profit you make, however, if you purchase another property within a year, you can avoid paying it. You can also invest in specific bonds of NHAI or REC to save on the tax. It’s also prudent to ensure all the transactions take place withing a financial year to minimize paper work and others due to the spread of transactions across multiple financial years. Read more about this in this page or here 

 

I believe home is an expense, and a good thing to own. However, it can work against you if you treat it as you only investment or if you are in the business of selling and buying homes continuously. Spread your investments across multiple classes. Take home loans to make you better off 

 

Sign up for our free DIY financial planning course, where in you would be sent step by step instructions to help you manage your money. It would need just 1.5hr a week for 4 weeks to get stock of your finances and build bridges for your bright future.

 

Disclaimer: This article for education purposes only and is not an investment advice/financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

 

     

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Find your insurance requirement http://moneyowl.in/find-your-insurance-requirement/ http://moneyowl.in/find-your-insurance-requirement/#respond Sat, 23 Jan 2016 14:14:36 +0000 http://moneyowl.in/?p=281 India is an under insured country – across the board, life, medical, property or others. The only area where insurance penetration is high is with vehicle insurance without which you won’t get the registration. Let us look at each category to find out your insurance requirement, in the order of importance   Medical Insurance Yes, Read More ...

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India is an under insured country – across the board, life, medical, property or others. The only area where insurance penetration is high is with vehicle insurance without which you won’t get the registration. Let us look at each category to find out your insurance requirement, in the order of importance

 

Medical Insurance

Yes, people think Life Insurance is the most important, but no, Medical Insurance rates higher. Insurance starts with you for you. Life insurance benefits your dependants, not you.

As we age, our health expenses increase and hence every one must have a medical insurance. Fortunately for salaried employees, most companies provide coverage under group policy. Moreover, the terms and conditions are favorable for you. However, self-employed and others need to have enough coverage and need to start early.

A person needs a coverage of at least 5-7 lakh to cover medical expenses, in the current environment, where private hospitals are the preferred option. They are increasing much faster than inflation as investors want to milk the hospitals for investment returns. So your medical insurance should double every 7 years broadly

 

Do’s and notes:

  1. Prevention is better than cure. Maintain your health and don’t abuse your body. All those who think they can give up their 70’s and 80’s to enjoy 20’s and 30’s don’t last even for 40’s and 50’s
  2. Do some form of workouts. Check out 5Bx. You can definitely spare 11 minutes a day for your health 
  3. Take insurance while you are young when
    1. The premiums are lower
    2. Holding periods for the specified diseases will get finished before you actually need the insurance
    3. You still are not diagnosed with diabetes
  4. Take insurance via a good and reputable Third Party Administrator (TPA). Most of them are brokers who sell policies and also act a liaising agent on your behalf helping you with the claims process. Dealing directly with the insurer is a painful process; they typically give you some toll free number and you would be frustrated repeating the story all over every time you call them. The TPA will assign you a relationship manager who is supposed to be a single point of contact for your claims and queries
  5. Claiming medical insurance from employer
    1. Ensure, you know the process, and keep the contact numbers ready in case you need to use your corporate insurance by your employer
    2. Ensure you provide details of your dependents – parents, spouse's parents in the intranet/third party portals. Typically there is only a short window to add details. Missing this step out of negligence can prove costly later
    3. Print out the applicable Insurance I-cards and keep them ready
  6. Use your company policies to cover your parents; they may have favorable and cheaper than market ones
  7. Check co-payment terms for your parents
  8. Premiums (as of current scenario) increase drastically once a person crosses 55. Ensure your parents are insured before they reach 65; post which most companies don’t provide insurance. Existing insured ones can renew until they reach 80

 

Life Insurance

Life insurance ensures, your dependents aren’t adversely affected financially in case of your death. A good coverage will help your dependents sustain their lifestyle before they can get to a point of self sufficiency. The most adversely affected persons are your children. A good coverage should provide for

  1. Provide for living, education and other expenses from the interest received from the bank at least for next 10 years
  2. All your outstanding loans

Simple way to calculate:

No of dependants  x  Avg expenses per person / 10 year Govt. Bond Yield + total debt outstanding (including home loan, personal loans etc) + Education expenses for children till their college + marriage expenses for your daughter

Say I live in Bangalore, have a non working wife and two kids and two elderly parents, the way I calculate is

(3 x 2,0000 + 2 x 30,000) x 12/7.5% + 50 lakh (home loan and others)+ 12 x 2 x 2,00,000 (education for two for 12 years with 2 lakh on average (approx.) + 50 lakhs (miscellaneous) = 3.5 Crores

 

You can adjust (decrease or increase) the coverage if

  1. Your spouse is working
  2. Parents have medical coverage and receive pension
  3. You have accumulated assets which can survive your family
  4. You are likely to be a diabetic, which is so endemic now
  5. You smoke and drink which will certainly make your life riskier 

The trade off is the premiums you pay vs. the coverage. You can stagger the coverage if you think the premium is too high. One needs less coverage when young, increases once you are married and have kids, and reduces after your kids graduate from college when they can manage themselves. So you could take a crore coverage now, add another two crores after 5 or 10 years. This is a more advisable plan, however, if you are diagnosed with diabetes by then, the premiums will shoot up. The choice is yours

 

Do’s and notes:

  1. Take term policies for 30 years
  2. Insure early when you are young and healthy
  3. Specify if you smoke, it will increase your premium, but better be correct than hide and give a chance for the insurer to reject your claim
  4. Stop taking endowment policies which insure you for 5 lakhs or 20 lakhs for a lakh premium annually. Do you really think such tiny coverage would really help your family in case of your death?
  5. Don’t try to save on premiums or recover them via investment cum insurance plans. Insurance is meant to give your dependents huge sum in case of an unforeseen event, in lieu of the small premiums paid periodically. Insurance is not an investment
  6. While selecting for a policy, go with an insurance company with 
    1. Trust-able agents who will help your family to claim the amount; typically a relative or a friend who is an insurance agent
    2. Good claims settlement ratio, higher the better
    3. Check for consumer complaints and general legal cases against them; just google it for reviews, don’t need elaborate research
    4. Have enough offices and contact points to talk to, if any disputes
    5. Have been a longer player in the industry

 

Home loan Insurance/ Education loan insurance/ Personal Loan Insurance

Typically banks add an insurance component when you take loans. If you already have adequate insurance, you can assign the policy for the loan outstanding amount. You don’t need to pay additional premium to cover the loan. Also most people prepay education loans and personal loans, before the term of the insurance policy. Note the policy numbers / file the policy documents so that these can also be claimed.

 

Vehicle Insurance

Insurance requirement reduces as the life of the asset decreases. Say a car, post two three years after purchase, don't fetch you if your sell it. Even if you insure for a higher amount, the insurance company is going to pay only the replacement value, not the amount you've insured for.

So, renew the insurance only for an appropriate coverage corresponding to the asset value, whether car, factory, property or others

 

Crop Insurance/ Liability Insurance and others

These are not standardized and mostly over the counter agreements. Do your own cost benefit analysis when you take them

 

Sign up for our free DIY financial planning course, where in you would be sent step by step instructions to help you manage your money. It would need just 1.5hr a week for 4 weeks to get stock of your finances and build bridges for your bright future.

 

Disclaimer: This article is for educational purposes only and is not an investment advice/financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

     

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Bank rejected your loan application? Redeem your CIBIL score http://moneyowl.in/buildyourcibilscore/ http://moneyowl.in/buildyourcibilscore/#comments Sat, 23 Jan 2016 13:58:56 +0000 http://moneyowl.in/?p=276 There are many who are victims of a bad credit score. People don’t pay the amount on time, attract late charges and interest on the payments. They update those non-payment details in CIBIL which tracks your loan repayment history, screwing up your CIBIL credit score. This inturn might lead to banks/loan providers rejecting your loan Read More ...

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There are many who are victims of a bad credit score. People don’t pay the amount on time, attract late charges and interest on the payments. They update those non-payment details in CIBIL which tracks your loan repayment history, screwing up your CIBIL credit score. This inturn might lead to banks/loan providers rejecting your loan application. Sometimes the reasons for rejection are so outrageous, even when a person earning so much

 

What is CIBIL?

Credit Information Bureau (India) Limited or CIBIL is a Credit Information Company (CIC) which collects and maintains records of an individual’s re-payments of  loans and credit cards. This information is submitted to CIBIL by banks and other lenders, on a monthly basis to create Credit Information Reports (CIR) and credit scores called CIBIL TransUnion Score which are provided to lenders in order to help evaluate and approve loan applications.

 

What is  CIBIL role in the Loan Approval Process?

CIBIL’s credit score helps loan providers quickly determine, who they would like to evaluate further to provide credit. It  ranges from 300 to 900. Typically loan providers prefer credit scores which are greater than 750. Banks charge you higher interest rate if your CIBIL score is lower or there are adverse comments on your repayment in the Credit Information Report.  Some banks even reject loans for this reason alone

 

The Negotiating Power is with you

CIBIL is only a score, not a binding law which determines your fate. It all depends on how you can negotiate with the banks or lenders or what your other options are. Despite your bad lending score, you can bargain for a better interest rate if you can convince them or make them compete among themselves to give you a loan. However, people are afraid to bargain and take the credit officer judgment as final. The other thing you can do is rectify credit score.

 

Here is how you do it:

  1. If you had applied for loan, ask your loan officer what was your credit score and if there were any adverse comments
  2. If he cites any such comments, go here, purchase your score and credit report 
  3. Check the comments, any adverse one and mark them by whom they were made
  4. Connect with the customer care department of the company, call-centre guys don’t really help. Even if those guys are the only way raise a ticket and ask for it. Use this for further communication
  5. Pay your entire dues (Yeah, you must eat that frog!) get your balance to zero and ask them to update details and remove negative comments in the CIBIL report
  6. After that, if any friend/your relationship manager have access to  your CIBIL Score, check if these were rectified
  7. You can also raise dispute with certain comments made directly to CIBIL using this link . Even if the credit card company or bank doesn’t respond, you can deal with CIBIL directly
  8. Once those comments are changed, your score might improve, however confirmation with the CIBIL would be better
  9. And finally don’t close your credit card in frustration/revenge against one company. Swallow your pride, maintain two credit cards and pay diligently
  10. Set auto pay on your credit card dues for full amount in your bank account so that you don’t miss them
  11. It is essential you have some repayment history for your score to improve. If you close your credit card accounts, you are not giving them any information to update. So maintain two credit cards at different billing periods. Check out the article on how to use credit card and its benefits
  12. After a period, say a year or two, because of due payment and removal of non factual negative comments, the credit score will improve. You can re-check your CIBIL score to verify it as well

This is a long process, your credit score don’t change overnight. Avoid getting into pitfalls of arguing with banks/credit card companies or take emotional decisions, deal with them to ensure, they don’t screw up your score. There are some service providers who say they would help clean your credit report over night. It doesn’t happen and you're better off staying away from such claims.

Essentially, even if credit score is not so good, if you can make banks/loan providers compete with you, you could negotiate a lower interest rate. In a year or two after consistent repayment, your credit score will improve

Check out our free DIY financial planning course, where you would be sent step by step instruction to help you manage your money. It would need 1.5hr a week for 4 weeks to get stock of your finances, savings, earnings etc.

 

Disclaimer: This article is for educational purposes only and is not an investment advice/financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

 

     

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Why credit card is the best gift from banks http://moneyowl.in/why-credit-card-is-the-best-gift-from-banks/ http://moneyowl.in/why-credit-card-is-the-best-gift-from-banks/#comments Sat, 23 Jan 2016 13:47:21 +0000 http://moneyowl.in/?p=269 Woah! some guys may find it outrageous for that statement, but yes, I stick to my title. Here are the benefits -   Interest free spending – Most credit cards give a 45-day free credit period. With a limit of Rs.1.5 lakh, it comes to upto Rs.3000 monthly savings on interest if used. Forget about Read More ...

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Woah! some guys may find it outrageous for that statement, but yes, I stick to my title.

Here are the benefits -

  1.   Interest free spending – Most credit cards give a 45-day free credit period. With a limit of Rs.1.5 lakh, it comes to upto Rs.3000 monthly savings on interest if used.
  2. Forget about tracking expenses – use credit cards. I use credit cards wherever possible, recording all my spending. I don’t waste time tracking all my expenses, my credit card statement does it for me. Some credit card statements even categorize the spending based on the merchant. Time saved is money earned
  3. Find your monthly expenses in a few minutes – Take your bank statement, add your cash ATM withdrawals, add to credit card bills and there you go that’s your monthly spend. Check for three months to get your average spending
  4. Builds me a better credit rating: Yes, timely credit card payments are recorded in CIBIL score which banks look at to determine your credit rating. If you don’t have any loan history, this record will show that you are credible guy to lend
  5. Credit card companies offer cash back or reward points which can be enchased later or exchanged for some coupons/items. They may not be much but over time accumulates to good amount
  6. Negotiate with the credit card company executives to pay you reward points for the annual fees you pay. Considering the movie tickets off, airport lounge and several other benefits from Signature cards, it’s a great deal if your lifestyle matches with that spending.  Chose the one which fits into your regular spending, not the one which they offer in the name of rewards
  7. Maintain two credit cards at different cycles – one of my card comes for payment on 8th and another on 30th. I use one card for first 15 days and the other one for next 15. It means I end up delaying payment for more than month.
  8. Manage your urgent cash requirement: This is the one which gives the biggest bang for the buck. Having credit cards allows me to not to maintain any cash in my savings account and put it to better use instead. With credit cards accepted everywhere; in any urgent circumstance, I just use them. And it gives me more than a month to accumulate funds for it

For all those benefits, the only thing I must be very careful is to pay bills on time; else it might screw up my CIBIL score or put penalties. Even to prevent this, all I need is to set auto-pay in your bank account to pay the entire bill itself. That will keep that worry away.

So with all those benefits listed above, do you really think credit cards are bad?

Check out our free DIY financial planning course, where you would be sent step by step instruction to help you manage your money. It would need 1.5hr a week for 4 weeks to get stock of your finances, savings, earnings etc.


Disclaimer: This article is for educational purposes only and is not an investment advice / financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

     

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Real secrets for building wealth http://moneyowl.in/real-secrets-for-building-wealth/ http://moneyowl.in/real-secrets-for-building-wealth/#comments Sat, 23 Jan 2016 13:28:01 +0000 http://moneyowl.in/?p=265 There's this famous conversation between a prude lady and a carefree gentleman:   Lady: Do you smoke? Guy: Yes I do.  Lady: How many packs a day? Guy: 3 packs. Lady: How much per pack? Guy: $10.00 per pack. Lady: And how long have you been smoking?  Guy: 15 years Lady: So 1 pack is Read More ...

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There's this famous conversation between a prude lady and a carefree gentleman:

 

Lady: Do you smoke?
Guy: Yes I do. 
Lady: How many packs a day?
Guy: 3 packs.
Lady: How much per pack?
Guy: $10.00 per pack.
Lady: And how long have you been smoking? 
Guy: 15 years
Lady: So 1 pack is $10.00 and you have been smoking 3 packs a day which puts your spending per month at $900. In 1 year, it would have been $10,800. Correct?
Guy: Correct.
Lady: If 1 year you spend $10,800, not accounting for inflation, the past 15 years puts your spending total at $162,000. Correct?
Guy: Correct.
Lady: Do you know if you hadn't smoke, that money could have been put in a step-up interest savings account and after accounting for compound interest for the past 15 years, you could have by now bought a Ferrari?
Guy: Oh. Do you smoke?
Lady: No.
Guy: Then where's your fucking Ferrari?

 

 

Most of us have this mentality that financial planning means penny pinching and not spending on things, counting every money spent and extreme frugality. But there is only so much we can save by not spending. The easier option is to focus on few big things which increase your income rather than scraping for pennies.

 

In the words of legendary investor Warren Buffet, scraping for penny stocks is tantamount to picking up “smoked cigarette butts” – you can find a lot of them and free, but wouldn’t let you have a real good puff. It wouldn’t take your far even. Rather, its best to search and invest in those high quality assets which make them you really rich.

 

Likewise, doing accounts on every rupee spent, making detailed rupee budgets, beyond a point, doesn’t help much because you are spending too much time and energy on insignificant things.

 

Get few things right and you will not have to live a miser's life, and be able to enjoy your vices without guilt. Truth to be told, everyone has a vice – smoking, alcohol, sex, poker, trading, Facebook, TV or any other form (I am certainly against Smoking and Alcoholism, don’t read this post as supporting it).

 

The important take away from the cigarette joke is not let your vices prevent you from being wealthy. I personally know many people earning Rs 1.5 lakh every month but still in debt.

 

Talk to me to ensure that does not happen. 

 

Wealth creation is about habits

You don’t have to break your head on picking up the best multi bagger stock or do day-trading to become overnight financial success. Those rarely happen.  Rather a person who regularly set aside a few thousands even in a basic FD will have more savings. Say from 2009, you have been keeping 10,000 in an FD. You would’ve made Rs.11.40 lakhs  pre-tax. Check out your friends who trade/invest in stocks; most of their portfolio and savings wouldn’t have crossed Rs 3-4 lakh despite spending so much time researching, analyzing. That time could’ve been spent elsewhere unless one really enjoys doing it

 

Build an Auto Pilot wealth machine which makes you wealthy

 

A few habits like setting credit card payments on auto pay, doing an SIP every month where certain amount goes to PPF/FD/Mutual Funds can do wonders than most people achieve doing all kinds of stuff. You could focus your time on adding an alternate source of income, opening a small business or just trying out your hobby. I wanted to highlight the Financial Planning which allowed me to quit my high paying job and test out my startup itch.

 

But you don’t have to quit your job. One of my friends is passionate about photography. He spends his additional time there and is adding 20% to his monthly salary. Money is just a byproduct.

 

Also, humans aren’t machines, their willpower is limited, as is their energy. Too much focus on several things is not only impossible but ineffective. Rather focus on just a few things which can really change your life for good. You must know the Pareto principle otherwise called 80/20 rule where 20% of things count for 80% of results. Focusing on those 20% can make lives much fuller and easier

 

What should you do next?

Check out our free DIY financial planning course, where you would be sent step by step instruction to help you manage your money. It would need just 6hrs of your time to get stock of your finances, savings, earnings etc.

 

Disclaimer: This article is for educational purposes only and is not an investment advice / financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

     

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How this trick reduces your home loan EMI to 1/5th of the original amount http://moneyowl.in/how-this-trick-reduces-your-home-loan-emi-to-15th-of-the-original-amount/ http://moneyowl.in/how-this-trick-reduces-your-home-loan-emi-to-15th-of-the-original-amount/#respond Sat, 23 Jan 2016 13:19:35 +0000 http://moneyowl.in/?p=258 So, you've bought a home or planning to buy one. Questions such as : How much loan should I take? How much EMI should I pay? Should I pre-pay my loan? All these questions pop up when you are planning one. Ask me, because I've been through the pain myself. Here's what I recommend.   Read More ...

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So, you've bought a home or planning to buy one. Questions such as : How much loan should I take? How much EMI should I pay? Should I pre-pay my loan? All these questions pop up when you are planning one. Ask me, because I've been through the pain myself. Here's what I recommend.

 

A 20,000-25,000 home loan EMI is ideal

Commit to paying 20-25% of the total price, as the remaining 75% will be loaned by banks. As a thumb rule, one's EMI should not cross 40% of net take home pay. So if your salary is around Rs 70,000 per month, EMI shouldn't cross Rs 28,000. For a 20-year loan, this comes to around Rs 30 lakh. Add around Rs 10,000 EMI for an additional Rs 10 lakh loan. 

 

Ideally a Rs 20,000 EMI (Or Rs 20 lakh loan) is the best option since the entire amount can be used for tax deduction - Rs 2 lakh home loan interest exemption and principal exemption in Sec 80C investments under Indian tax laws.

 

Buying a 2BHK vs 3BHK

One may feel the loan EMI will be higher for buying a 3BHK -- it is really tough if the property prices are in crores like in Mumbai or in certain areas of Bangalore and other cities -- but if your salary growth prospects are better, go for a 3BHK.

As the salary increases, EMI burden will reduce and you may not need to buy a bigger home when your kids grow up. Also, when people are young, they have lesser overall expenses and can save on the discretionary ones which otherwise would've been spent. Else, you may have to sell the current house and purchase a bigger one later, which may or may not happen, especially if the family expenses become bigger than the incomes.

 

Don’t repay the loan early

Home loan interest rates are less than 10% now which is lower than long-term equity mutual fund returns of about 15% on average. This 5% margin over a period of 20 years home-loan term can make a huge difference. To illustrate, if you take 1/5th of the EMI and invest in an equity mutual fund, all the money you pay for your loan over the term (principal plus interest) will be returned to you at the end. Having such a big corpus when you are at end of your career is a real boost. Hence, it is better to keep EMI lower and not pre-pay the loan if it is the only one. You can always close the loan at will, if you have cash with you

Homeloan vs SIP

 

Do an SIP for 1/5 of the home loan EMI

As illustrated above, by investing less than 1/5th of the home loan, EMI, you could get back all the money you paid in principle and interest towards your home loan at the end of the term, effectively reducing your EMI to 1/5th of your original amount.

Set up an SIP which automatically deducts 20% of EMI on the same date as that of your home loan. You won’t even notice it, but will be elated when you receive the big fat paycheck at the end of 20 years. Need help? Talk to us

 

Disclaimer: This article is for educational purposes only and is not an investment  advice / financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

 

     

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How a bit of financial planning helped me quit my high paying job for my startup dreams http://moneyowl.in/how-a-bit-of-financial-planning-helped-me-quit-my-high-paying-job-for-my-startup-dreams/ http://moneyowl.in/how-a-bit-of-financial-planning-helped-me-quit-my-high-paying-job-for-my-startup-dreams/#comments Wed, 20 Jan 2016 19:42:20 +0000 http://moneyowl.in/?p=170 I’m Obu, a typical IIT IIM graduate with a very atypical story. I found out about the existence of IITs only in grade X. I qualified, graduated and got snapped up, most predictably, by a bank. After a few years of corporate career, I decided to venture out on my own, much like many of Read More ...

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I’m Obu, a typical IIT IIM graduate with a very atypical story.

I found out about the existence of IITs only in grade X. I qualified, graduated and got snapped up, most predictably, by a bank.

After a few years of corporate career, I decided to venture out on my own, much like many of my collegemates.

But here’s the real kicker: Unlike most of the startup founders, I am not broke. My peers build their startup on their savings and often have little to give to the family. In contrast, my early-stage startup and my personal finances are totally separate. I am definitely not broke, have an income along with the home loan EMIs taken care of, all managed without the glorified venture capital funding.

How do I manage this? I’ll tell you in a bit.

But here’s a little flashback: My first job at a bank was in the financial capital of India, and it opened new worlds in my mind. I learned about money, equity markets, mutual funds and everything in between, and devoured all books that came my way.

One such book that had a big impact on me was “Rich Dad, Poor Dad”.

If your primary source of earning your livelihood is your job, then your freedom is tied to your job. Once you get entangled with debt, costly lifestyle, your choice is limited

And when I realized that the book was specifically speaking to people like me, I quit, and decided to put my civil engineering skills to good use, by working for an engineering consultancy firm.

But my heart lay in creating large-scale impact, and the corporate bureaucracy was not something I wanted to waste my time on. I could not even think of starting up as it was 2009, we were in the midst of a recession.

Meanwhile, I cleared the CAT entrance exam, and got an admission into IIM Kozhikode as I believed having the “IIM-tag” would help me go the distance.

I ended up in Mumbai (again!), this time in the investment banking division of one of the big four global finance firm.

By 2015, I had paid most of the education loan, had enough to manage my survival without a job and to start a company with seed fund. I did through savings in my scholarships, income from trading while in IIMK, some killer investments I did in equity market at the lows of 2009.

But the money monster continued to haunt me: This time, when I was finally ready to startup, my mother wanted me to buy a house. Being the obedient son that I am, I took a loan of Rs 20 lakh, and now have a Rs 20,000 EMI to pay for the next 20 years.

The best part, however is, I’m financially stable, even without a full-time job in hand. I, a 28-year-old native of Andhra Pradesh, am a walking project, experimenting all the theories that take root in my brain, on myself. And so far, I’ve fine-tuned them to the extent that they work swell for me.

I am able to consistently generate enough income for my survival without spending too much time. (Trading is fools dream, I would advise against anyone thinking of living by trading!).

I am working on a new exciting idea besides selling mutual funds and investment advice, which earns me some commission.

I now earn around Rs.10,000 -15,000 per month without spending too much time on it. In addition, my home loan EMI of Rs 20,000 is taken care of on autopilot.

It is definitely not enough, and insignificant compared to my earnings and savings from job, however, the positives are - I can survive without a job and without depending on parents.

There are several hundreds of people like me, each with a dream, but bogged down by financial and family constraints.

“A person is really free when he doesn’t need a job to sustain his life. That’s when he can afford to do things which he like than succumbing to the rat race and intense competition of mundane corporate life.”

So I thought, why not open-source it, share the knowledge with the world?

Which brings me to the point: I’m starting a DIY course on financial planning, so one could pursue dreams, while having complete control over one’s finances. Do join in and help me help you kick-start your passion projects

     

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