Inquisitive Gallivanter

Monday, 9 October 2017

CRACKED, !! How to save money in india !!

How to save money in india !! CRACKED,

Experts write billion words about investment. But it's surprising that how little's written on how to save money. People save money in India naturally. But how to save money consistently year after year? Saving money is an art. Saving and investment of money is required for long term wealth creation.

Second Step is to budget all expenses. Recall all expense that you made in last one year. It should cover all expenses starting from utility bills, cooking gas, groceries, vegetables, vehicle fuel, house rent, EMI etc. Expense that we fail to budget are vehicle insurance premiums, emergency funds, unplanned purchases, property tax, miscellaneous expenses, vehicle maintenance, gym, dining out, prepaid mobile recharge, etc. The point I am trying to emphasize is, our list of expenses shall be exhaustive. Once we have identified all expenses, start putting values against each.

Third Step will be to identify how much we can pay to ourselves. Suppose monthly income is $100. Total expenses comes out as $85. It means $15 is the money we can save from salary. This $15 is that money that no matter what we do, will never be needed to manage our day-to-day needs. Pay yourself first this amount ($15). How?

Fourth Step will be how to pay oneself. Remember, you have two bank accounts, ‘salary’ and ‘savings’. Online transfer this $15 from your salary account to your savings account. This transfer of money should be done the day pay cheque gets deposited in your salary account. Before you pay any bills, pay yourself first. You should never feel that this money ever existed in your salary account. You should not miss this money. Consider it as a dead beat. Making yourself feel poorer is better. If we have less in your hand, we will spend less.

But remember that feeling poorer is not the real goal. Feel poorer for long term wealth creation is the objective. If we have excess money visible, our mind start playing pranks with us. It will generate ideas of spending on needless things. This is the reason why the world richest man Warren Buffett leads a humble life. His focus is wealth creation by saving and investing and not on lavish spending.

The picture should be pretty like going on cruise for vacation. Your family should get an idea that they can save anything from small coins to big notes. The objective is to save heavily so that the piggy bank gets full in quick time. This type of exercise does two things for us. Firstly the family realizes that if they want to buy a big thing it takes time to realize a dream. Your family will learn that it takes effort and patience to buy a thing. Your kids will learn how to fight the temptation of immediate gratification. Make it a habit of your family that in case they want to buy a thing they shall discuss with family and start a piggy bank for creating a savings fund. This cultivates the habit of savings which they will cherish all their life.

At the end of the year when we get a pay rise It is always very satisfying. But generally we end up spending all of our our pay rise by increasing only our expenses column.

So lets see how WE can trick our mind to save more. If you have kids you can also involve your kinds in this game. Buy a piggy bank and set-it-up in the middle of your home. Sit with your family and try to picturize what you will buy when this piggy bank is full. For sure when we get a pay rise we can expect a proportional rise in standard of living. But a proportional rise should also reflect in ‘pay yourself column. Till last month your salary was $100 and your were paying your self $15. If your salary grew to $120 then you pay-yourself should also rise proportionately to $18. The advantage of increasing the Pay Yourself Column is that it adds to the income. The higher you are contributing to your Pay yourself column the more be your cash-in in the form of income. It creates a cyclic process. High Income > High Savings > High Income.

Suppose you decide that you want to buy a car, it is very easy to get car loans these days. If you will decide today, tomorrow you will get a car loan and within a week the car will be at your door steps. But I will suggest to delay your gratification. As a rule of thumb, instead of paying just 20% as downpayment for a car you must pay at least 50% as your downpayment.Suppose your want to buy a car whose price is $13,350 (INR 6,00,000). Ideally a bank will pay you loan for 80% of the cars value ($10,700, INR 4,80,000). But do not go by this temptation to pay just 20% and have a car. Instead wait till you have 50% funds ready for down payment. You must create a piggy bank for buying this car. This piggy bank will be like a mutual fund SIP or a money market fund. Rule is, you are not allowed to but the car till you have 50% funds ready for down payment in your piggy bank. You can also do similar exercise while buying a house. Set aside each month a sum of money that on a later date you can use for buying your house or your car.

5. Pay a Hypothetical EMI for your New

Home

Presently 1gm gold will cost approximately $40. This nothing compares to what we spend on weekends. It means every month if we save $20 it will be sufficient to buy a 5gm gold coin at the end of the year. The idea of highlighting gold purchase here is because of its ability to lock funds. Once we buy gold it is not easy to spent it (like cash). Moreover gold also show reasonable price appreciation in long term. Suppose you buy 5gm of gold each year for next 20 years. At the end of 20th year you will have 100gm of gold. If gold price appreciates even at a decent rate of 6% per annum, after 20th year its rate will be close to $1500/10gm. It means 100gm gold will be worth close to $15,000 (Rs 9,00,000). I personally consider gold/silver as an excellent way to save money from salary. It is a great tool of locking money from getting spent on trivial things.

This is one practice that I am personally following and had saw its benefits. Prepayment has not only allowed me to save on interest but it also allowed me to close my loan in half the tenure. There was a stage in my life when I was diverting all of my ‘pay yourself funds’ towards my loan prepayment. Home loan prepayment is a very realistic way of saving money. Every time I make a prepayment I know that I have saved huge interest. I will suggest my readers to at least once read this article on loan prepayment and decide for yourself whether this is worth trying or not.

But let me ask you this question, do we have an option? If we are not opening a savings account can we manage with something else? No we do not, we must have a savings account. Our savings account helps us to have salary, helps us to pay bills, helps us to have debit card/credit cards, pay home loan etc. So why to needlessly ponder about low yields from savings account. Better option is to choose best among worst. Yes, these days not all banks offer same interest on savings accounts. Lets open a savings account in a bank that is offering highest interest on savings accounts.

Interest Rates on Savings Account

Deposit Type	Name of Bank	Offered Interest Rate
Saving	YES Bank	7%
Saving	Kotak Bank	5.50%
Saving	Ratnakar Bank	5.50%
Saving	All Other Banks	4%

Small savings like these can make hell of a difference in long term. In India, rules allow us to save money from salary as listed below:

U/s 80C - Over all exemption is Rs 100,000/year (Investment in ELSS, PPF, NSC, LIC, Home Loan Principal etc)

U/s 80D - Over all exemption is Rs 15,000 (Rs 20,000 for Senior Citizen)(Health insurance for Self, family, dependent parents)

U/s 80E - 100% interest on education Loan is exempted from Income Tax (Education loan taken for higher studies of self, spouse, children) .

When we practice small small, we also inculcate these good habits in children. Small saving habits works on the principle of 'delaying gratification". Lets see some small savings habits that we can implement in our day to day life:

Driving a diesel car will save you Rs20/liter compared to Petrol. Driving aCNG car will save Rs 35/liter compared to petrol.
Buying groceries in bulk from places like D-Mart can reduce your monthly bill by about 3-5%.
Instead of buying new books to read, try a smart phone app that provides free audio-books. This can save at least Rs500 per month.
When you leave your house switch-off electrical appliances. Never leave chargers/TV/Phone/Music/Laptops/Microwaves on standby mode. This itself will reduce your electricity bill by nearly 3%
Buy clothes in bulk on those February month SALE. Idea shall be to buy all news clothes for that year in February (as far as possible). Use these new clothes as and when the occasion comes. This can save you nearly 30-50% of cost you spend annually on clothing's.
Try jogging early morning in open air. This can reduce your gym bill by Rs20,000 anually.
Before you swap your credit card, ask yourself if you had to pay by cash, would you have paid for this purchase? Generally because we are using credit cards, we buy things we cant afford. This small habit of self checking ca reduce your unnecessary purchases by 5-10%.
Plan your annual vacations in advance. Book air tickets 3-4 months in advance. Do hotel bookings 3-4 months in advance.

If we are not aware of our affordability we will fall prey to overspending. How to prevent oneself from overspending? How to save money in India each month and prevent it from getting overspend? I will give a solution to these problems from my personal experience. I tried many alternatives to check my bad habit of overspending. But nothing seem to work. One day I was conceptualizing an article on personal financial statement and I got this idea. Since that day I have followed this practice and it really helped me to save money each month. I will give few examples to explain how I use this cash flow report. One day my family decided to replace our old dilapidated refrigerator with a new one. The cost of that refrigerator was Rs 49,000. Before we commit to buy that refrigerator I ask to my self "Can we afford it"? To answer such questions I dig deep into my cash flow report. In 'miscellaneous shopping' row I checked how much saving we have accumulated. I found that we can easily buy one. In the same time, I was suppose to pay school fee of my child. The fees was close to Rs 35,000. When I checked my cash flow report I found that I was running out of funds. As this was uncompromisable expense I decided to borrow money from 'miscellaneous shopping' fund. As a consequence we were not able to buy refrigerator. But we knew that probably in next couple of months we can buy one. So such cash flow reports not only helps us to check affordability but it also helps to manage emergencies.

Depending on ones requirement, it is advisable to save 12 months prior to the real expense date. We are 3 people in my family. It is inevitable to buy gifts & arrange a small party during 3 birthdays and 1 marriage anniversary. If the expense is inevitable why not save for it from start of the year? If we are not saving it means we are spending it somewhere else. It means, when the priority comes (like Birthday's) we dig into our emergency funds or investment to meet the needs. This causes a very serious dent to our goal of financial independence. The best way to save for Birthday's & Anniversary is to start a recurring deposit (RD). This will also earn decent returns and will also lock your savings for each 1 year. I have started following recurring deposits for my family.

In my house I have noted items like kabuli chana (white gram), rajama (kidney beans), maida (wheat flour), tooth paste etc frequently appearing in forgotten-list. This list is endless. We can only come to know about it when we start searching for it. Best way to start searching is by not doing grocery shopping one weekend. Then, looking into your inventory for any thing that can be cooked and eaten. This will not only clear your food-store, but will also save good money. It is really an interesting habit. I will suggest everybody to try it once in 2 months.

This may sound too foolish suggestion to save money but it really works. Almost all household maintains a huge inventory. Funny thing is that we are not even aware that we maintain it. Sometimes it happens that this inventory gets stale and then we realize it.

Not only it will make us debt free, but it will also save huge money. Many people does prepayment of home loan. They accumulate money (savings) & then make prepayment. I will propose an easier alternative. As soon as you get your annual pay-hike, make visit to your home loan bank. Tell them that you would like to increase your home loan EMI. I will suggest you to increase your home loan EMI by 5-12% each year. I have observed one of my friend using this trick very effectively. They managed to pay back their home loan in less than half the total tenure. So go on and increase your home loan EMI. Make it a good habit. Increase the EMI judiciously each year.

First, it initiates a strong desire to save money. If idea is to generate future-fixed-income, its very inviting. Higher will be the fixed income (like from MIP) less dependent we will be on our salary. It ultimately translates income financial independence. The only drawback with MIP's are low returns. But believe me, do not discourage yourself to start a MIP because of lower returns. Look at MIP as Savings option that is given long term returns close to 5-6% per annum. A savings plan giving these returns is very good. Some might ask that if we are locking our money for long term (in MIP max is 11 years), why not invest in equity? Some might even say that if return is close to 5-6% why not buy a Fixed Deposit? Both questions are valid. But in MIP we are able to generate fixed income after some years. Equity can never promise fixed income. Fixed deposits can give higher returns its too liquid. People are often found redeeming their FD's prematurely. Considering that purpose is to generate fixed income, MIP's are very good 'savings' option.

16.Lock Your Savings Forever

One day I asked one of my friend, how much is your saving? He replied 30% of his take home salary. I said that’s very good, but how much do you save out of it? He became puzzled, so rephrased my sentence. I asked, out of 30% how much you never spend? What happens is, though we save money today, but we eventually end-up spending them.

This does not help our cause. Real saving is that saving that never get spent. Generally, what we keep in savings is very liquid form. Liquid money gets spend very easily. Savings account, recurring deposit, fixed deposits are good saving options but it does not lock our money. When we do not lock money it gets spent. So the efficient saving is that money that can never get spent & keep appreciating in value. Suppose one has home loan, use the savings to make prepayment of loan. Once prepayment is made, that money can never be spent elsewhere. Moreover, prepayment also saves huge sums of interest component. Similarly if one is carrying any type of loan (auto, personal, education, credit card etc), saving must first be used to prepay loans. This is one very effective way of locking savings from getting uselessly spent elsewhere. One can also use savings to buy as much as tax-savings options. It is a rule that says, be 100% tax efficient and 100% debt free before investing money. We spend so much time thinking about stocks and mutual funds. But instead, we make more money by simply saving tax & clearing-out outstanding loan by prepayments.

17.Budget higher than necessary

People who spend money according to budget can use this tool to save more money. The trick is simple which will helps to save money unknowingly. It is common belief that if one has to save, it must be done unknowingly.

Too much awareness about saved money will ultimately lead to spending. If saved money is ultimately getting spent then that saving is useless. Try this trick and you will be surprised how easy it becomes to save money month after month. The trick is, we adapt to higher expense within couple of months. So after a couple of months one does not realize that they are budgeting more than necessary. Hence this savings gets accumulated month after month. It is important to proper channelize the savings. One can either put them in fixed deposit, invest the money, lock it in emergency account etc.

18.Trick Yourself & Save Money

We are all natural spenders of money. We can spend money more easily than we earn them. Hence it requires special tricks to continue saving money for long time. We can actually trick our mind and influence it to save more money.

a) Buy a Day of Financial Independence: Suppose ones annual expense is $24,000. Divide this by 365 and the value you get is $66. This value can be used to motivate our mind to save. The value is more achievable and encouraging. Every $66 saved means the person is actually buying a day of financial independence for his/her family.

b) Reduce frequency of spending: When we say that we must give something all together to save money, that statement itself makes it difficult to practice. Instead of giving up something all together its more practical to reduce its frequency. A habitual dinner cannot give up drinking in a day. But if frequency of drinking can be reduced to once month, that itself can be considered as a success.

c) Idling triggers spending's: Have you ever noticed yourself planning to buy a Smart TV while you are knee deep in work in office? No, when we are busy doing something our mind cannot go on a spending spree. Its the idle mind that's the culprit. Keep yourself busy. Developing a hobby is a good way to keep oneself engaged all the time.

d) Make all your big Purchases in Cash: Credit cards has made spending's too easy for us. We buy now and pay later. This facility has made us a compulsive spenders. We do not feel the money leaving our pocket. On the contrary, studies say that people who pay by cash are more likely to live more frugal life.

e) Spend only on things you use most: We spend most of time home in our living room. In metropolitan cities, people spend more time driving on road. In smaller cities people spend more time watching TV. Its a good idea to identify which activities take most of your time. Spend money to make only these areas better. This realization will help you understand that where you can avoid your spending's.

Build Wealth In Your 30s? How? Click to know more ..

Build Wealth In Your 30s? How?

If one knows the formula to build wealth, making money becomes more effective. Majority live a mediocre life. The reason for this mediocrity is, people do not know the wealth formula. In order to effectively build wealth, knowledge about wealth formula will give lot of clarity. Wealth formula is not a short-cut to build wealth. It just shows the right path to build wealth.

Building wealth should be on everyone's priority. But not everyone is seen following this priority. People generally get used to do their 9-5 job. At the end of month they get paycheck that makes them happy. Some people are paid more, and some are paid less. People get used to this mediocrity. It takes times for people to realize that they are only like a robot.

Same job they have to day after day, year after year. Even if they do not like it, they still have to do it for paycheck. Over time, people get extremely dependent on their paycheck. By the time they realize their evil dependency on paycheck, its already too late. It is essential for people to start developing a foundation for self early in life. In wealth terms, this foundation is called 'financial independence'. Complete financial independence can only be achieved gradually. It cannot happen in one day or one year. Developing a parallel source of income (alternative to paycheck) is essential.

How to realize ones financial dependency on paycheck

Its not so difficult. Consciously take a decision not to use one months salary. That month, only savings will be used to pay for all expenses. Try this experiment for a month. The longer you can survive without using paycheck, the more financially independent one is. Majority cannot pass the first 10 days of the month. Its true that this experiment will make you very uncomfortable. But once you come out of it, you will be a changed person. You will start asking difficult questions to self. What happens if I loose my job? How will my child continue education? How will I pay my EMI? Realizing how dependent we are on salary is step one to build wealth. Everything after that will start happening automatically.

Realize how asset and liabilities contribute to wealth building

When people do not have financial goals, they tend to get distracted. Instead of accumulating assets they start buying liabilities. To know difference between asset and liability we can use simple mathematics. We know that 1+1 = 2, & 1-1 = 0. Asset is +1 and Liability is -1. Our effort shall be to accumulate as much +1's and minimum of -1's. In the process of building wealth, important is to realize, which items are +1 (asset) and which is -1 (liability).

Do not confuse Liability with an Asset

There is difference between an asset and liability. Assets adds money to pocket. Liabilities takes money out of pocket. To build wealth wealth, accumulate more and more assets and minimize possession of liabilities. Asset accumulation does not mean buying a house, fast car etc. Assets are like cash reserves, equity, bonds, bank deposits, rental property etc. Our financial goals should be to accumulate income generating assets. Financial goal can be like "In next 10 years time I shall be earning at least Rs 50,000 in form of rental income from property". Here rental property is the ‘assets’. The rental income is the return on investment. If one wants to build wealth, then they must learn these keywords, 'asset' and 'return on investment (ROI)'. This is a litmus test for any asset. It helps us to differential asset from other items (liabilities). We may consider an item as asset, but if it is not generating ROI is cannot be an asset. A combination of asset and ROI has potential to build wealth over time.

Magic Formula to Build Wealth

See that magic formula that can guide anybody on how to become wealthy. This formula is a result of excellent research work done by experts in the past which when applied will certainly lead to wealth creation.
INA = Income from Assets
INJ = Income from Job
FI = Money required for Financial Independence
EX = Expenses

In order to understand this formula lets take an EXAMPLE 1:

INA (Income from Assets) = $0 / month
INJ (Income from Job) = $1,500 / month
FI (Money required for Financial Independence) = $2,000/ month**
EX (Expenses) = $ 1,000/ month

Applying this on Magic Formula:

$0 + $1,500 < 2,000 + 1,000

INA + INJ < FI + EX.
Income from asset (INA) is zero. Income from job (INJ) is $1,500 against expense (Ex) of $1,000. But in order to become financially independent one requires $2,000 each month which is unavailable. Hence person is not on right way to become wealthy. Income from Asset (INA) must be increase to support income from job (INJ). A stage must come where INA > EX. This is a condition of financial independence.

EXAMPLE 2:

INA (Income from Assets) = $2,000 / month [return on investment]
INJ (Income from Job) = $1,500 / month
FI (Money required for Financial Independence) = $2,000/ month (money invested will strengthen INA)
EX (Expenses) = $ 1,000/ month

Applying this on above formula of wealth:

$2,000 + $1,500 > 2,000 + 1,000 Income from asset (INA) is $2,000 against expense (EX) of $1,000. It means the person is financially independent. He is already making $1,000 more from Asset income, above EX. Hence the additional $1,000 goes to fund FI. As he is already financially independent, money diverted to FI is only making the person more and more wealthy.

INA + INJ > FI + EX

Conclusion

In order to become wealthy one must have streams of income more than than expenses. From above formula we will notice that almost 90% of population will have INA equal to zero or amounting to negligible. To become wealthy increase the weigtage of INA. Also, most people in this world have never thought of applying Financial Independence to their expenses. In order to become wealthy channel your income to feed your “money requirement for financial independence”. There are several investment options that allows investors to feed money for their goal of Financial Independence.

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Monday, 9 October 2017

CRACKED, !! How to save money in india !!

1. Pay Yourself First

2. Open a Piggy Bank at Home

3. Your Pay rise should also reflect on “Pay You Self First” rule

4. Set a piggy bank for yourself and your wife

5. Pay a Hypothetical EMI for your New

Home

out of college and had joined your first job. If you start this virtual home buying, by the time you are 30 and you actually need to buy a home, you might have already

6. Accumulate Precious Metals Like Gold or Silver.

7. Prepay Your Loans

8. Open Savings A/c in Bank offering highest interest rate

9. Save huge money by Planning Taxes

10. Develop Small-Saving-Habits

11. Prepare a Personal Cash Flow Report

12. Always Save Money for Birthday's & Anniversaries

13. Skip Grocery Purchase once in every two months.

14. Increase Home Loan EMI by 5% each year

15. Save Money to Generate Future Monthly Income