Chill Maadi

The question is how different it is to manage larger sums of money compared to a few lakhs when one is young.

My view is it becomes simpler if you know what you are doing. By the time you are 45/50 you already know who you are, what is your risk appetite, what are your goals, what are your characteristics as an investor and spender. These behaviors are more important than selection of the illusive best stock or best mutual fund scheme.

Once you know your financial goals and if you can invest intelligently to accumulate an amount close to that amount then you are safe. You can then think of protection of your corpus and how you will draw from the corpus in retirement.

The important thing is that the more factor of safety you have the more you can take risk, that is stay longer and invest more in equity. In theory that gives you more chances of having a larger corpus at death to be left for your heirs.

If you have only just about adequate sum at the time of retirement then you must have the safety first approach thus invest more in debt so that capital erosion is avoided as much as possible. But if you have 30-40%more than what you need for the retirement duration then you can take risk and continue in equity.

Again this depends on your investment behavior. I have seen people worrying too much about stock market movement who have a portfolio of less than 1 lac and earning more than that in a month. And there are others who may have crores in their portfolio but can take 5% drop in a day in their strides. As you age you know who you are and then behave accordingly. It’s a personal matter and there is no right or wrong in it.

Personally I can keep my cool about market gyrations, so I can keep a larger sum in equity even though I am retired. But that is just me. Another person should follow a completely different route.

Another point is more money does not mean more stocks or more mutual fund schemes. It is just you have more units of selected stocks or mutual fund schemes. Thus there is no additional burden to track as you accumulate more money on the way.

So young men and women, do not worry unnecessarily about the future, concentrate on the corpus building, do experiment with different investment products with lower sums and try to understand yourself. It may sound easy, but it is not. Also, concentrate on other things in life, money is only a small part of life it is NOT life, it is just an enabler, by itself it does not give you any joy or happiness. Thus you need both good health and company of friends and family to enjoy what money can buy.

Picking a fund is really easy – Steps followed by a common investors : –

You would go to a website then check various funds ratings and its past performance statistics and you end up with a fund under your belt. The amount of research while selecting and finalizing a fund would vary depending on your level of understanding. But still in the end you would select a fund and justify your selection and begin your investment journey. All said and done the bigger question that we never encounter in the matters of personal finance is when do we really exit a fund?

Fluctuations, fluctuations and bigger fluctuations defined by big market movements really scare the common investor a lot. These days many are worried with their day-to-day returns! As in many blogs these questions are posed a multiple times. People really start fearing what’s next? Shall I redeem now? What do I do? Everyone start trying to safeguard their falling investment value and starts wondering shall I press the panic button!!

Well that’s exactly what you should refrain from doing in times like this. The whole idea of investing is to optimize your returns and maximize it by a margin

Market movement should not be the driving force for you to redeem your funds. Please note this is very much an intrinsic nature/trait of the market. They keep fluctuating in varying degrees. You need to stick to these market ups and down.

1.  The very primary reason why you should sell a fund is because you need your money. It’s as simple as that irrespective of the market movement.

2.  When you are restructuring/re organizing your portfolio. Why because you’re needs/your goals/ your requirements have undergone a change over a time period so you would dump few funds and select those funds which are more appropriate for your current situation in life.

3.  When your funds are doing badly over a longer time period. The time when you had invested you were pretty okay with the fund style but then it gradually changed its fund structure and started performing badly, another couple of years the fund lost its sheen. You should note that a fund cannot be solely judged based on a single market fall since there are many funds which would have given negative during the same time period. If this falling returns cycle remains the way in different market conditions then is the time to dump it. (Please do check the statistics though). If you are only trying to time the market well you will always have a lot of catching up to do. Markets will go down dramatically. Market fluctuations should not be the reason for you to sell. If that was the case and you are a risk averse investor)at the first level you should better remain with fixed income instruments provided by Banks like FDs/RDs/time deposits etc.

4. If you reach your goals simply sell your funds and redeem it. If you don’t set out any goals for yourself then it’s another story. But, if you have a specific goal in life with a defined time frame and a target amount and you have reached your goal redeem it friend. Don’t be greedy at that time.

Health insurance, for those who have it, pays for medical and dental treatments in the event of illness. There are different types of health insurance policies that provide cover for care at varying levels. By qualifying for health insurance cover, paying the monthly or annual premium, you may claim on the insurance for your health care treatment needs.

Consider the benefits of health insurance

In a country such as the United Kingdom, having health insurance provides a number of benefits:

• Access to medical and dental treatments through private care
• Receiving treatments not available through the National Health Service (NHS)
• Having more choices in healthcare provision
• Getting treated faster without delay caused by waiting lists
• Options to be treated abroad
• Cover in event of emergencies

Increasingly, people are seeking treatments through private care, such as for orthodontic care, cosmetic treatments, implants and transplants. By having health insurance cover, a person may choose to be treated through private care and receive treatments otherwise not available through the NHS.

For example, dental treatments with invisible braces may not be available through the NHS, nor may an individual qualify for a weight loss surgery or treatment. Health insurance gives options in healthcare of provider and treatment.

Some people are placed on waiting lists due to the number of people seeking healthcare through the NHS. Waiting for a medical or dental treatment may cause discomfort, distress and even worsening of a medical or dental condition. By paying affordable monthly health insurance premiums, medical care may be accessed sooner and the costs are covered by the insurance company.

Insurers may partake in partnerships with other cheap medical aid companies, giving their members additional benefits, such as options in treatment abroad. More and more people are combining travel with treatments at world-class retreats.

Weighing private care versus NHS care

Certain people may benefit from gaining their care solely through the NHS. Those on benefits who cannot afford even the small monthly health insurance payment gain advantage from free medical and dental care through the NHS for meeting their treatment needs. In such cases, health insurance may not be suited.

Health insurance may suit the wider population, giving access to both NHS and private care. Any of us may be affected by an emergency situation at any time, whether on home soil or travelling abroad. Health insurance may provide the necessary cover at home and abroad to receive the treatment needed.

Cost of health insurance

There are choices in health insurance plans, what they cover and monthly premium amounts. Comparing providers is a start to learning how you may be able to access treatments of choice. Health insurance may be tailored to suit individual or family needs.

Children should be taught the value of money. Here’s how you can motivate your child to save money. Money is important. It gives people the power to make decisions and grab opportunities.

Educating children on its importance should start early in life. Children should be motivated to become regular savers and investors. Here are some ways through which parents can educate children about managing and saving money.

As soon as child starts counting, he should be introduced to money. Parents should play an important role in providing them with information. For instance teach what they can buy with a one rupee coin and tell him how to recognize the money, the symbols in the coin etc. There are 2 ways that children learn – by observation and repetition. Talking to children about your values on money – on how to save it, how to make it grow, and how to spend it – will have a lifelong impact on them.

Children should be made to understand the difference between ‘needs’ and ‘wants’. This will enable them to make good spending decisions right from childhood. Setting goals is also important for learning the value of money. If a parent has the habit of buying everything that his kid asks for, it will only spoil the kid. What you can do at home is set a goal for your kid – give him a task and award him with pocket-money in denominations he can count. Once the money grows he is entitled to buy toys, chocolates, Etc. this would make your kid responsible.

Keeping good records of money is another skill that ought to be taught. It is a good idea to maintain a book for keeping good records of money, saving and spending.

I came across an interesting old article called “10 Rules to Building Wealth.” I enjoyed the article and thought it made sense, so I’m presenting a summary of the article here:

1. Start early – The power of compounding interest is amazing. The earlier you start paying debt down and saving money, the better off you’ll be.
2. Use your EPF – If your employer offers a EPF matching program, you’re crazy not to take them up on it. Not only are the funds compounding tax-free, the matching program brings your returns higher than any reasonable investment out there.
3. Keep it Simple – If you have a full-time job outside of picking stocks, leave it to the experts and pick a proven mutual fund, or even better, simply pick a market index. .
4. Don’t Try to Beat the Market – It’s almost impossible for you to beat the market, and even most professionals have yet to do it over any significant period of time, so stick to basic mutual funds or market indexes.
5. Don’t Chase Trends – Your goal is to grow assets over the long-term, there is no sense in trying to time the market or chase trends.
6. Make Saving Automatic – Once you’ve found the debt solution for yourself and successfully paid off your high-interest debt, make saving automatic by setting up a plan or direct debit.
7. Go Heavy on Stocks – If you’re in it for the long-term (which is how you build wealth), go heavy on stocks, they’re above-average performers.
8. Hold Down Fees – Avoid mutual funds or asset management programs that charge high fees.
9. Ditch Credit Card Debt – Ideally, credit cards are to be used only for convenience. The high interest rates these cards charge can quickly eat into your returns or savings plans. Find your own debt solution and get out of credit card debt as soon as possible.
10. Defer Taxes – Buy and hold, avoid selling assets if you don’t need to, as this creates tax liability, when you could be deferring this liability and earning interest or returns.

Start saving now!

The saying “there’s no time like the present” is particularly meaningful when it comes to saving and investing. That’s because of the magic of compound interest, sometimes referred to as the ‘rule of 72’.

Save your next pay rise

When you receive a pay raise, think about saving the extra money you receive each fortnight. You can do this by reducing any non-deductible debt you might have, such as credit cards or your mortgage. Or you could make extra contributions to your super, or other forms of saving. You probably won’t even notice it’s gone, and you will be surprised how quickly this money can grow.

Keep track of your money

Keep receipts for all of your purchases during a week, then add them up. You’ll be surprised how much money you spend on smaller impulse items – money you could be investing instead!

Set goals

Choose your investment goals and a timeframe in which you will aim to reach that goal. Your timeframe will help you decide where to invest your money.

For example, for a short-term goal like an overseas holiday, you might choose a more conservative investment such as a managed fund or other cash based investments, so you can access your money at any time. For longer-term goals like retirement, you might look to invest in growth assets, such as shares, through your superannuation account.

Though we are often taught that debt is bad, even on this website, in some cases, it may actually make sense to retain a debt, especially if the alternative costs more. For example, it does not make sense to drain all of your financial resources paying your mortgage off, if you know that if anything goes wrong, you will incur high interest credit card debt.

In other cases, it simply isn’t feasible to pay cash for large purchases, like a home or college. In fact, in these situations, debt may actually be beneficial to your financial picture.

In the majority of cases, you will not have the cash to purchase your home outright. You have to carefully consider how much money you can afford to put down and also how much home you can comfortably pay for. Obviously, the more money that you put down upfront, the less you will pay in interest and for your home.

But before you rush to drain your cash reserves and put down every available cent to cut the interest payments on your mortgage, you will need to consider other financial issues. Since mortgage rates are typically a lot lower than interest rates on other debt, using all of your available cash towards purchasing your home is not always a wise decision.

Traditionally prospective homeowners put down a 20 percent down payment in order to get the best mortgage deals. However, in a booming housing market, prospective homeowners are wooed by low down payment and no down payment home loans. It is important to remember, though, that the less you put down the higher your monthly mortgage payment will be and he more you will pay in PMI.

So it makes sense to not pour all of your cash into a home, especially if you will end up with credit card or other personal debt, because the interest payments on mortgages tend to be lower than the interest payments on other debts. Plus, you can deduct the interest on your mortgage when you file your yearly taxes.

When it comes to paying for you child’s college education, it makes more financial sense to allow your children to borrow for college rather than to borrow against your retirement. In this case, your children have numerous financial resources available to pay for college, such as student loans and scholarships, often at discounted rates. However, when your retirement funds are gone, they are gone.

Also, your retirement funds are not considered when applying for financial aid for your child’s education. This is why using federal loan programs for your child’s education makes better financial sense than borrowing against your retirement.

Many people consider borrowing against the equity in their homes to pay for college. This is not recommended, because you risk losing your home if you run into financial difficulties.

It is always best, of course, to try to save for your child’s education. Then your child can borrow the portion that you cannot pay. Student loans have guaranteed low interest rates and no payments are due until after graduation, which a big plus when considering financing options for college.

Depending on the situation, sometimes debt makes sense financially. Debt such as mortgages and educational loans often cost less than other financial debt. In these cases, it may be wiser to borrow than to drain all of your financial resources. Becoming debt free is an admirable goal, but not at the cost of all of your resources.

When you are planning a budget, it is necessary to analyze how you are spending your money, so that you can see where you need to make adjustments in your spending habits. The first thing that you will need to do is take a look at the budget that you have created and figure out where you can cut expenses.

This is especially important if you are spending more than you earn. If you are in this position, you are not alone. As a matter of fact, statistics show that many families who bring in Rs. 5,00,000 or less each year are spending more than they earn. This data seems to back up the assertion that people are in the habit of spending more than they have, thereby creating debt and placing themselves in a precarious situation.

If you are in this situation, then it will definitely benefit you to construct a budget that helps you to minimize your spending immediately.

However, if you are not spending more than you earn, you may still want to evaluate how you are spending. By doing this, you are able to identify areas in which you may be overspending. For example, if your family is dining out every night, you might want to consider cooking at home more often.

When you are planning a budget, you should only include income that you are certain of receiving. This means that you should not include bonuses from your job or tax refunds as income. These things should be considered extras. When you receive this extra cash, it makes sense financially to save or invest this bonus income for the future.

When setting your financial goals using your budget, you should aim to spend only about 90 percent of your income. The remaining 10 percent of your income should be set aside for the financial objectives that you have relegated as the most important.

In order for your budget to be successful and to meet your financial goals, you need to track your expenses on an ongoing basis so that you can eliminate cash leaks. One of the simplest methods to track your expenses is to use some sort of personal financial software. Many computers these days include versions of basic financial software, such as Microsoft Money. By tracking your spending on an ongoing basis, you are able to maintain the spending levels that you have set as goals.

By tracking your expenses, you may also realize that some of the goals that you have set in accordance with your budget are not very realistic. If this is the case you will need to adjust your budget. It does not make sense to set financial goals that unattainable. You also should not set goals that are not very challenging.

Most likely you will make several revisions to your budget before you actually achieve one that is reasonable for your financial situation. Once you become used to using your budget to help you achieve your financial goals, you will find that managing your money is not as difficult as it may have first seemed.