10 Small Money Moves That Can Have a Big Impact

When it comes to money, small changes may work better than big ones. It's because smaller bite-size changes are more likely to grow into new habits that stick. These changes may seem minor, but they can have a major impact. 

Try these 10 small money moves to build habits that can have a major impact on your financial success.

1. Save a Little

Sure, saving a lot would be great. But saving what you can is even better. Maybe that’s Rs. 10 a month into the piggy bank on the kitchen counter, putting an extra Rs. 100 a month into your bank savings account, or beginning a 1 percent contribution to your provident fund. Small moves like this have a big impact over time.

2. Make an Extra Payment

What if you made one extra mortgage payment a year? Or rounded your car payment up to the nearest hundred dollars? A little extra here and there can mean your mortgage is paid off years in advance or your car is paid off months in advance.

One word of caution — with mortgages you may have to make the entire extra payment at once rather than paying a little more each month. If you add a little extra each month the lender may not apply the extra payment to principal. Contact your lender to find out how to pay extra in a way that the excess payment reduces your principal balance.

3. Learn Your Bracket

Taxes matter. If you pay them, you should learn how they work. Start by studying the tax brackets. When you look at the bracket you’ll see that after your taxable income exceeds certain limits, the tax rate goes up. Once you understand this you can see the benefit of contributing higher income amounts to a retirement/provident funds or traditional PPF - the deductible contributions save you money at the higher rate.

4. Switch to an Index Fund

Just because you can’t see the fee being deducted doesn’t mean it doesn’t matter. Mutual funds deduct fees before they give your share of the investment returns. It’s been proven that one of the best ways to find the best performing mutual funds is to switch to lower fee funds — which usually means using an index fund. As your account balances grow this simple change can save you thousands year after year.

5. Project

It would be hard to find your way through a thick forest if there was no trail. It can also be hard to save for retirement without a sense of where your actions will take you. Online retirement calculators project your path - they help you see how your savings will grow over time and what kind of income might be available to you later. If you’ve never run a projection - get online and give it a go.

6. Read One Finance Book

A single book can impart knowledge that will serve you for a lifetime. Even if you don’t like reading, surely you can get through one book? The one I would recommend is Behavior Gap, by Carl Richards. It’s a great book on how our behaviors cause us to unknowingly make dumb decisions with our money.

7. Organize

Financial stuff can feel overwhelming. A simple step you can use to make it more manageable is to get your financial information organized. I was buried in debt at one point in my life. I didn’t want to see how bad it was - but it was only after I forced myself to organize all my credit card statements and tally up the totals that I began to make significant progress toward paying things off.

8. Buy Used

Cars, furniture, clothing… you can almost always find what you want and pay less for it by buying used. If you get in the habit of looking for used items first you can save hundreds, sometimes thousands, every transaction.

9. Cancel Something

Too many of you have some type of recurring charge that is coming out of your bank account or being charged to your credit card — and it is for something you don’t even use. It might be a magazine subscription, annual membership renewal fee, or something you signed up for accidentally. Scour your statements and set aside the time it will take to cancel those things you don’t use.

10. Turn off Financial TV

One client told me that one of the things he really liked about working with a financial advisor was that he didn’t watch financial TV anymore. He found life to be far more relaxing once he tuned that stuff out. Everyone can benefit from turning off the financial stock tip shows. Put a solid long-term plan in place and watch stuff that will make you laugh - not stuff that will only stress you out.

https://www.thebalance.com/small-money-moves-with-big-impact-2388361

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Asset Allocation: 5 Things You Should Know

The general saying – “Don’t put all eggs in one basket” – in itself explains the concept of asset allocation. Asset allocation is the process of deciding how to divide your investment across several asset categories like stocks, bonds/fixed deposits real estate, gold and cash. The general goal is to minimize volatility while maximizing return. The process involves dividing your investment among asset categories that do not all respond to the same market forces in the same way at the same time. Diversifying your funds in different asset classes helps you to gain from volatile market conditions in the long run. Asset allocation is a key to become wealthy in a life.

Asset allocation is defined as an investment strategy that aims to balance risk and reward by allocating a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.

• Individual's goals —  Individual investment goal like short term, medium term or long term
• Risk tolerance — how willing you are to experience the market’s ups and downs in exchange for more growth potential over the long term 
• Time horizon — how long you expect you’ll need your assets to last 

Here are five things you must know before doing asset allocation:

1.       Know asset classes

Investment options are broadly classified into equity, debt, hybrid and cash. The exposure of investment to funds should be according to the timeline of financial goals decided by investors. Howsoever, the market’s up and down requires certain asset allocation strategy from time to time.

2.       Understand your strength

Asset classes are chosen according to the risk appetite of investors. Basically, it is the tolerance power that an investor can take over the market. An aggressive investor is some who can take 70% to 80% of exposure in equity while a moderate investor can go for 50%-50% or 60%-40% and a conservative investor whose main goal is to protect its core value can take an exposure of 20% to 30% in equity. As a thumb rule, we can say that if your life expectancy is 100 years, so whatever your age is today the same amount of debt exposure you can take and the remaining can be taken into equity as per the time horizon.

3.       Evaluate your portfolio

It is necessary to observe the performance of your portfolio which can be reviewed by checking which funds are able to beat their respective benchmarks (Nifty and Sensex). Strategic asset allocation plays an important role between investors to investors on the basis of their risk tolerance and appetite. Investors should understand the critical sides of the portfolio. Therefore, it is advisable to consult a financial advisor in every review process.

4.       Diversification

To make your investment portfolio less risky, it is necessary to diversify your investment component. It means that diversification itself requires a concern over market trend and moreover to optimize the risk properly you need to review over funds category from time to time and apply asset allocation strategy as per the required need.

5.       Structure and re-balance your portfolio

At times it becomes necessary to understand the market movement and accordingly you need to release and buy investment asset. Investment vehicles like mutual funds require a level of understanding among investors. In fact, it is one of the best investment options which enjoys the power of economies to scale in which pooling of funds in a single scheme is done by a number of investors which in turn is much higher than getting a single stock. A single stock can have its own cons related to market fluctuations. Keeping a regular watch on your portfolio taking suggestions from your advisor is the basics which each and every investor should follow and regularize their asset at every interval of time.

The Bottom Line

Asset allocation can be an active process to varying degrees or strictly passive in nature. Whether an investor chooses a precise asset allocation strategy or a combination of different strategies depends on that investor's goals, age, market expectations and risk tolerance. The right asset allocation can help you maintain your confidence through economic ups and downs and may even increase your potential for better returns over time.

#WealthyMantra

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Dos and Don’ts of Financial Planning

Good money habits are the key to financial independence. When you deal with money, you would not want to take any chances. You might do everything right with your money. Yet, you run out of luck when the financial need arrives. These basic dos and don’ts of financial planning could set you on the path to financial success.

Do’s

Identify Your Goals: 

Successful financial planning is dependent on the financial goals you set. It is necessary for you to know why you want to draw out a plan. Begin by asking yourself some straightforward questions. Why do you want to save money? What are your short-term and long-term responsibilities? What are your expectations from a retired life? Answers to these could give you a heads-up on your purpose for planning your finances.

Stick to Your Budget: 

Understand your current and future financial requirements. This will help you create a budget. However, sticking to the budget is important too! Cheating on a budget is as good as not having one. Know the difference between what you want and what you wish for.  Though you could treat yourself to little surprises once in a while, remember to spend less than what you earn.

Make The Right Investments: 

Investments are a favorable way to wealth creation. With a little caution, look at the ways to invest your money. Your investments could reap rewards if you choose where to place them. Try and identify what kind of investment suits your needs the best. Ask yourself how much and how often can you set aside money to invest. Can you afford a long-term investment? This could help you make right investments that suit your purpose.

Purchase Insurance: 

Money saved is equal to money earned. You can multiply your wealth, or save enough for the lean periods. Buying an insurance plan provides both savings and protection. If you do not have one, you could lose a substantial amount to uncertainty. In an emergency, the funds will have to come out of your savings. Some policies offer added benefits such as tax savings. Some could serve your financial goals along with adding to your wealth. These include retirement or pension plans that give you annuity benefits.

Don’ts

Procrastinate: 

Starting early has advantages. You must start financial planning as soon as you can. Delaying this decision will lead to lost opportunities. Starting early also prepares you to prioritize your responsibilities. In the long run, you will have more time by your side to save or to invest. Even if you make wrong decisions, you have time to rectify them. Additionally, you can handle risks better.

Refuse Financial Help:

Financial help does not mean accepting monetary help. That is debt. Financial help is taking financial assistance from a professional to plan better. If your planning efforts have not yielded results, it is alright to look for guidance. A finance advisor or a wealth manager is an expert who will analyze your goals. They could devise a robust plan for you to get to your financial goals.

Go On Credit:

It is easy to have a good time when someone else pays. However, this philosophy is not convenient if you want financial independence. Borrowing money on credit could force you to pay out of your savings later. You could start keeping a check on the number of times you swipe your card. You could also restrict borrowing to fund your passion. A debt can eat into your savings faster than you think.

Mishandle Your Money: 

Don’t abuse your money; respect it. You might want to stick to a few thumb rules. Do not leave extravagant amounts as tips. Avoid lending money. Remember to recover any money that you lend. Any money saved under the carpet does not earn interest. Have faith in the power of compounding and invest early. Every penny counts. Therefore, you should be careful in handling your money.

There isn’t a perfect list of dos and don’ts that work. When it comes to financial planning, different approaches work for different individuals. Yet, a more practical approach is likely to make financial planning a success.

#WealthyMantra

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10 Essentials to Stay Wealthy in 2017

Come New Year and its celebration time. It’s generally a happy time spent with near and dear ones. In the same spirit, it’s good to take stock of one’s financial well-being as well and chart a set of resolutions that could help you stay wealthy in the year 2017.

Here’s a list of ten resolutions which could help you with this:

Resolution 1: Go digital. With online banking, wallets and UPI seeing a significant penetration and surge, a large portion of transactions can be done digitally. What’s more, one can earn some good karma by introducing these facilities to one’s maid, cook or driver!

Resolution 2: Move excess money in the bank to an FD or a liquid fund. Too much money in the bank is not going to help. What with most banks offering 4% on saving accounts.

Resolution 3: Stick to the asset allocation that has been decided for the portfolio. Reams of data have been published outlining the virtues of asset allocation. The trick is to stay the course and not get swayed by short term volatility.

Resolution 4: Continue the SIP even if that near-term data looks shaky. In the short run, SIPs may not appear great, but for a great majority of investors, regular disciplined savings is a tool that can build a nice corpus over time. Caveat here is that one should ensure there aren’t too many or too few schemes in the list. If you are a new investor, it’s always a good time to start an SIP.

Resolution 5: MF scheme selection should be based on long term trends in performance and consistency of fund mandates and managers. Most investors and their wealth managers tend to highlight near term performance over long term consistency. It’s important to allow some time for the portfolio picks to play out. Similarly, while stock picks are great conversation items at parties, selection of the stock needs to be after careful research. Remember, one’s financial well-being is more important than idle party chatter. If an investor does not have the time or inclination to conduct this study, its best to allocate monies to a set of well rated mutual funds.

Resolution 6: The Indian mindset considers Bank FDs to be safe and comfortable. Of course, they are. But, with falling rates along with tax on the income, these are not great long term investment options. Its critical to measure the after-tax returns on any investment. An investor can diversify into Debt MFs and FDs of well rated and safe Institutions (for someone in the low tax bracket).

Resolution 7: A trend that is emerging of late is for wealth managers to offer portfolio management schemes and close ended private equity fund and real estate funds. These sound sophisticated and exotic, which in turn, drives investors to believe that these are superior vehicles to simpler instruments such as mutual funds etc. However, one needs to assess the level of risk, cost and historic performance (if any) before committing to these options. Most have steep exit costs or lock-ins. Hence, exiting may be expensive or not possible at all. If the investment thesis does not play out as expected, there may be no flexibility to exit and reallocate. A detailed study and careful examination is a must, before signing up.

Resolution 8: It is imperative to monitor an existing portfolio at regular intervals. MF schemes may have outlived their utility or may have changed the mandate. Stocks may not have turned out as expected. A clean up ensures robustness of the portfolio. Even better, if there’s a quarterly or a half yearly review built in.

Resolution 9: Current lifestyles have forced us to take stock of insurance needs. While a decent health cover is always helpful, sufficient term life cover is an absolute must. Unit linked plans need to be viewed as investment products and measured accordingly, whereas most investors blissfully, ignore this aspect. Pure term cover works as the best form of life insurance. Period.

Resolution 10: A house keeping exercise will do a world of good in keeping one’s portfolio ship shape. Important documents and bank accounts need to be up to date to reflect the current details. Unused bank accounts need to be shut, as there is no point in retaining too many accounts. An aspect a significant percentage of Indians tend to overlook due to sentimental reasons, is to ensure a will is written. Age is not a consideration here as human life is dynamic and uncertain. Large households and families with special needs, would be well advised to look at setting up Trusts to ensure continuity and smooth transition of wealth.

The 10 commandments outlined above are timeless and thus, it’s always a good time to revisit them. The motto for the year ahead should be simplification and consolidation.

30 minutes a week can go a long way in ensuring a robust financial portfolio.

Cheers to a wonderful 2017!!!

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The Magic of Compounding

Napoleon Hill author of best seller ‘Think and Grow Rich’ is often credited as saying that ‘Make your money work so hard for you; so that you do not have to work for it.’ Various books have been written on the art and science of making money based on more or less the same principle.

Mathematically speaking ‘Make money work for you’ is called as compounding or simply compound interest. Albert Einstein was amazed by the power of compounding and called it the eighth wonder of the world.

The only way to attain the wealth you desire is to spend less than you earn and to save the difference. The rich are not rich because they earn a lot of money; the rich are rich because they saved a lot of money. Those who become wealthy do so by spending less than they earn. There is no other source of saving, and, by extension, of building wealth.

If saving is the key to wealth, then time is the hand that turns the key to unlock the door. There is no reliable method to quick riches. There are, however, proven methods to get rich slowly. If you are patient, and if you are disciplined, you can produce a golden nest egg that will hatch later in life. It might appear that the pittance you save now could not possibly make a difference, but that is because you haven’t considered the extraordinary power of compound interest.

Before we move on to identifying financial goals and how to achieve them it is important to understand the power of compounding and regular saving.

Understanding Compounding

Regular saving in relatively safer financial instruments yielding moderate returns can work wonders over a long period of time. If a parent starts saving Rs 25 daily for their child from the day he or she is born for the next 25 years at a rate of 10 per cent compounded annually, they would be able to gift the child an amount of Rs 9.25 lakh on his 25th birthday.   

Apart from the money the amount will teach the child the advantage of savings. If he learns to save and invest in the same way as his parents and starts saving Rs 3,000 per month religiously in the same instrument earning 10 per cent compounded annually he would be able to get an amount of Rs 1.02 crore at the time of his retirement (60 years).

Compounding works wonders over longer period

Wealth cannot be accumulated overnight, like a tree it needs to be nurtured. Compounding teaches us that it does not take too much of money to save a decent amount. What is required is the discipline of regular saving and time on your side. Longer the time better will be the return.

Take the earlier example of the parent saving Rs 25 daily for a period of 25 years. In order to get the same amount in a span of five years they would have had to save Rs 400 every day. If the parents had saved Rs 150 every day for a period of 10 years they would have been able to save around Rs 9 lakh.

Another way of looking at the above example of retirement planning is that the amount of Rs 3,000 per month saved for 35 years, from the time he starts saying to his retirement, will earn the person Rs 1.02 crore. This is equivalent to receiving Rs 34,000 per month for the next 25 years of his retired life, assuming that the entire amount of Rs 1.02 crore does not earn any more interest post his retirement. In reality the amount of Rs 1.02 crore itself will be earning an interest of Rs 10 lakh per annum if it is invested in a fixed deposit yielding 10 per cent return, which would work out to Rs 83,330 per month.

In other words a small saving at a time when you are working and can afford to save can result in good revenue at a time when you yourself are not earning. This is what Napoleon Hill meant when he said to make your money work for you.

Impact of interest rate on compounding

It is a no brainer to suggest that higher the interest rate higher will be the returns. But interest rates have a magical impact on returns.

We will go back to the parent’s example to understand the impact of interest rates. Assume the same Rs 25 per day is kept in the savings bank earning 4 per cent interest. At the end of 25 years the parent would have been able to give their child a gift of only Rs 3.81 lakh. If on the other hand they would have invested in an 8.5 per cent instrument the return would have been Rs 7.35 lakh. While a 12 per cent instrument would have given them a higher amount of Rs 12.65 per cent.

However, as interest rates rises so does the risk. Higher yielding returns are possible only from riskier instruments like equities.

The problem with higher returns are that they are not steady and predictable in nature. Because of this unpredictability element they are difficult to work with in long term planning. There might be number of years when the return would be negative which would be counterproductive for the purpose.

Compounding and goal planning

Financial goal planning has to be on a steady and predictable return. Starting to save early in life prevents us from taking riskier bet. It is harder for your savings to catch up with your needs if you start investing later.

How to get rich slowly

You can make compounding work for you by doing a few simple things:

1. Start early: The younger you start, the more time compounding has to work in your favor and the wealthier you can become. The next best thing to starting early is starting now.

2. Make regular investments: Don’t be haphazard. Remain disciplined, and make saving for retirement a priority. Do whatever it takes to maximize your contributions.

3. Be patient: Do not touch the money. Compounding only works if you allow your investment to grow. The results will seem slow at first, but continue on. Persevere! Most of the magic of compounding returns comes at the very end. Compounding creates a snowball of money. At first, your returns seem small; but if you are patient, they will become enormous.

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