Chill Maadi

AT THE HEART of sound investment theory is a simple calculus known as the Power of Compounding. I know – it sounds like the punch line to a joke you might overhear at a CPA convention. But believe me, there’s nothing nerdy about it.

What the bean counters know is this: If you put your money in an investment with a given return – and then reinvest those earnings as you receive them – the snowball effect can be astounding over the long term. This is particularly true in retirement accounts, where your principal is allowed to grow for years tax-deferred or even tax-free.

This is how it works. Suppose you have Rs. 10,000 in your bank account and decide to put it into an investment with an 8% annual return. Over the space of the first year, you earn Rs. 800 on your investment, giving you a total of Rs.10,800. If you leave those earnings alone, rather than pull them out to spend, the second year would deliver another Rs. 864, or 8% on both the original Rs. 10,000 and the Rs. 800 gain. Your two-year total: Rs.11,664 and climbing.

As you can see by playing with the numbers, compounding produces modest – if steady – gains over the first few years. But the longer you leave your money in, the faster it begins to grow. By year 20 in our example, your money would have quadrupled to more than Rs. 46,000. If you had invested Rs. 20,000, it would have soared to more than Rs. 93,000.

Of course, the power of compounding also works for cash accounts such as money-market funds. But if you adjust the interest rate downward to 4%, you’ll see what you’re giving up: Your 20-year return on that Rs. 10,000 drops to around Rs. 22,000. Now dial the interest rate up to 10%, the average historical return of the stock market. At that rate, your Rs. 10,000 investment balloons to a rich Rs. 67,275.

The lesson is this: The longer you leave your money invested and the higher the interest rate, the faster it will grow. That’s why stocks are the best long-term investment value. Of course, the stock market is also much more volatile than a savings account. But given enough time, the risk of losses is mitigated by the general upward momentum of the economy. We’ll show you why in the next lecture.

JUDGING BY THE FACT you’ve taken the trouble to find this Web page, our guess is you don’t need a lot of convincing about the wisdom of investing.

You’ve probably been beaten over the head with the notion that you need to start early to fund your retirement or send your kids to college. And you’ve likely heard your fill about the fortunes being made in the stock market — some of them by people you figured were severely challenged by mowing the lawn, let alone investing wisely.

But even if you are enthusiastic about getting started, jumping in can be daunting. That’s why this set of investing courses begins with a simple dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make a considerable amount of money in the markets. You merely need patience and a willingness to put your savings to work in a balanced>portfolio of securities tailored to your age and circumstances.

To see why, you have to understand how investing works. It’s not about throwing all your money into the “next Infosys,” hoping to make a killing. And it has nothing to do with getting a stock tip from your brother-in-law and clicking over to your Demat account to buy as many shares as you can get.

Investing isn’t gambling or speculation. It’s taking reasonable risks to earn steady rewards. As we’ll see, it works because buying stocks and bonds allows you to take part in the relentless growth of the world’s economy, which hardly follows a straight line, but does trend up over time. It’s also true that the longer you stay invested, the faster your money will grow. This neat trick — called the Power of Compounding — is a mathematical certainty, something you can bank on.

Satish is a family man, with a spouse, two children and dependent parents. Although, he has no major medical expenses till now, Satish is confident that in case of a medical emergency, his corporate health insurance would help him. Nevertheless, Satish is making a mistake by relying completely on his workplace insurance. Although, his medical expenses may have been negligible so far, time will take a toll on his family’s health and more medical complications will crop up. The chances are high that his corporate insurance will become insufficient.

Like Satish, many people believe that their corporate health insurance is adequate and there is no need to buy a separate health insurance policy. However, what they fail to acknowledge in the entire process is that our changing lifestyle, exorbitant medical costs and inflation rate may make it necessary to have an individual health cover. Also, let’s not forget that buying a health insurance would cost high as we grow old. So, is it wise to rely only on corporate health cover? Does it make sense to buy an individual health plan? Let’s try to find answers of these questions.

What is included under corporate health insurance?

It is a group insurance that covers all employees of an organization under a single plan. Besides covering maternity and pre-existing ailments at nominal rates, your corporate health insurance can give you an option to expand health coverage with voluntary deductible.

What is included under individual health insurance plans?

It includes insurance policies which a person buys for themselves or for their family. It covers both personal and family floater health plans. Unlike corporate health insurance, here an insurer can increase the coverage by opting for some additional covers, such as top-up and super top-up, as per their current life-stage. Here, premium rates depend on age and current health state of the insurance applicant.

Corporate health insurance Vs Individual Health Plan

• Cost: Some organizations offer their corporate health plans at free of cost, while others charge a nominal amount of, say Rs 200 or 300/month. On the other hand, in individual health policy, your premium outgo can go anywhere between Rs 6000 and Rs 8000 for Rs 5 lakh coverage.

Further, premiums of group health policy are deducted from the salary itself as opposed to individual plans wherein premium is required to be paid separately.

• Waiting period: While corporate health policies cover illnesses or medical conditions right from day one, there is a waiting period of, say three or four years, before they are covered under individual health plans.

• Underwriting: For a corporate health plan, a company accepts all employees, irrespective of their age or health condition. However, in case of an individual health plan, insurers can accept or reject the policy application on the basis of an applicant’s age and medical condition.

• Customization: As corporate health policy is purchased by an organization, it is not possible to customize it. Your individual health plan, on the other hand, can be customized to suit your requirements.

• No claim bonus: With a corporate health policy, if you don’t make a claim throughout the policy tenure, you as an individual, do not get any no claim bonus. However, in case of an individual health plan, if there is no claim throughout the policy tenure, you are entitled to get a no claim bonus in the form of low premium or additional cover at free of cost.

• Tax benefits: In a corporate health plan, all premiums are paid by an employer, and therefore, you can’t claim for tax deductions. On the other hand, as you pay your premium on an individual policy, you become entitled to get tax benefits as per the prevailing Income Tax laws.

Is corporate health insurance sufficient?

According to BigDecisions.com, over 95% of middle-class Indians are underinsured. As per the study, most of the salaried professionals believe that their employer insurance cover is sufficient and doesn’t need to be supplemented.  However, chances are high that your corporate health insurance may prove to be futile due to the following reasons:

• Limited number of people covered: It is not necessary that your corporate health policy may cover your dependent parents and children also. This would create a huge financial gap because elder people usually need frequent medical attention.
• Low sum insured: Rising medical inflation leads to high hospitalization costs. However, corporate health plan may prove to be insufficient to meet your medical expenses. Further, there may be caps on various things, such as room’s rent, and surgeon’s fees.
• Out-of-pocket expenses: Many corporate insurance policies have additional clauses, such as co-payment, and deductible. In fact, according to an ICICI Lombard report, 76% of companies have incorporated co-pay and room-rent limit clauses. It means employees need to bear costs out of their own pocket.
• Job switch: If you change your job, it is not necessary that your new employer will also offer you health cover. As soon as you leave your current company, you are out of the insurance umbrella of the existing corporate health plan.
• Post retirement: Retirees are not covered by most of the corporate health schemes. However, medical costs rise with an increase in age due to the need for frequent medical care. Unless the person had foresight to buy an independent health cover earlier, he will be left with no cover at this age.
• Change in work policies: According to Marsh India, over 70% of employers surveyed in 2013 had modified their health insurance plans between 2011 and 2012 to manage high medical costs. They introduced changes, such as partial or full withdrawal of parental cover, high compulsory deductible and high rent restrictions. As a result, employees are left with low coverage.

Conclusion

It is strongly advised to buy a standalone health insurance which is like a safety net around you and your family. The cost of an individual health insurance is also reasonable which makes it an apt choice for most of the people. Please add that it is easy to buy a health cover online and you can also compare plans. Plus health insurance plans are portable.

We cant write about premiums, since they may vary by the time this article goes live. In addition, premium varies for people who smoke, it is always a good idea to mention smoker and non-smoker when giving such examples.

Also, over the last few years, medical inflation has increased at a rapid pace, both in urban and rural India. Hence, it is important to buy an individual health plan equivalent to your annual income.

One’s credit score is a pretty good indicator of his or her financial health. Without a good credit score, a person will not be able to take out a loan or get a mortgage. It is also important to note that many employers check their prospective employees credit history before hiding. Fortunately, there are things that people can do if their credit is less than perfect. Below are a few ways to improve your credit score.

*Check your credit*

– There are many people who walk around with bad credit for years and do not know it until they are denied credit. Experts recommend checking one’s credit score at least once a year. People who have had a history of bad credit are advised to chick theirs more frequently.

*Reduce Debt*

– Most people are in debt these days. Some people are in debt for a good reason such as student loans and mortgages. Others are in debt because they made the careless decision of spending more than they can afford. Regardless of the reason, excessive debt can ruin a person’s credit. Paying of that debt can improve a person’s credit.

*Pay Bills on Time*

– One of the worst things that a person can do to his or her credit is fail to make bill payments on time. When a person does not pay bills on time, he or she gets negative credit reports. On the other hand, people who make payments on time will get positive credit reports, which can improve a person’s credit score.

A person who has a good credit score will have the greatest chance of getting approved for a loan. They may also have an easier time finding a good job. Checking one’s credit score once a year, reducing debt and paying bills on time are the keys to improving credit score. Financial advisors are a great resource for people who need additional help improving their credit score.

Mutual fund is collection of stocks or bonds. It is a characterized by a financial relationship which exists between a company or fund manager who will handle all the trading for their clients and investors who provides their stocks, bonds and other securities and who are willing to trust their money’s worth to the company. Mutual funds are characterized depending on the type of investments they allow their fund manager to do transactions with. These include equity mutual funds, bond mutual funds, REIT mutual funds, balanced funds, and target date funds.

There are several reasons why people are attracted to mutual funds. The primary advantage it provides to its investors is the power to achieve broad diversification. Another benefit will be the reduced cost compared to direct investments. You still need to pay management fees but since it is a collection of bonds or stocks, these fees are widespread to all the investors. Lastly it also offers simplicity. You need not put much effort in learning the in and outs of this process. You simply buy particular number of shares of a company and you can simply sit back and relax. The professional money manager will do all the hard work for you.

This is especially true for money market mutual funds. It acts just like a normal savings account and allows its client to redeem their funds any time of the day. Nevertheless, these type of investments puts very little control on the part of the investor. It is the mutual fund manager who handles the major decisions and trading. Your yield also depends on the number of shares you bought or the amount of investment you put into it. You take the gamble of allowing your money to rest on the trading market does not protecting it from market losses. So before deciding to invest on anything, try to do thorough research on the pros and cons of different investments. It may indeed offer cheaper expenses on your part but the hazard may be higher.

When the future is uncertain, as it always is on Wall Street, the best defense for mutual fund investors is a broadly diversified portfolio. But sometimes people confuse the idea of diversity with owning many different funds, and they wind up with a hodgepodge of investments that don’t perform in harmony with one another.

Think of the care we take in mapping out our career paths. We seek advanced degrees, we plot our moves up the chain of command and have a vision of where we want to go. But when it comes to investing, we often end up shooting from the hip, making decisions based on tips we see in magazines or on TV, or suggestions from co-workers and friends, says Richard A. Ferri, in his book “All About Asset Allocation.”

If this describes the way you’ve accumulated your assets, chances are your portfolio is not working as hard as it could.

Right now, stop everything, develop a plan. A long-term plan that will work for you for the rest of your life. This is about reaching financial security. And that doesn’t mean getting rich. The right asset mix can help you achieve financial security, not only for yourself but maybe for your heirs.

If you allocate your assets wisely, you’ll be exposed to all parts of the market, and won’t be left scrambling after the herd when one area gets hot. Your portfolio would already hold real estate, commodities and international stocks, at levels appropriate for your risk tolerance. When these areas do well, all you’d have to do is collect your profits when you rebalance.

In short, asset allocation is the second-most important decision investors make. The most important decision is to invest in the first place.

It’s easy to get distracted by the complexities of securities selection — deciding which stocks, bonds and mutual funds to buy. There are so many available, and no shortage of people eager to sell them to you. But it’s a mistake to buy the ingredients of your portfolio before you’ve figured out your recipe for investing success. And ultimately, knowing what you need, and why you need it, will make buying the actual securities that much easier.

Too many people … have a portfolio that has no rhyme or reason, and their asset allocation was basically determined by individual security selection instead of the other way around. You should make the decision to invest, you should decide what assets you’ll invest in, and then you decide what to buy. That’s the top down approach.

A number of factors will go into your asset allocation decision, including your age, income level, total wealth and your tolerance for risk, which is a very personal decision. Another issue to consider is liquidity; if you need ready access to your invested funds, you could wind up with lower returns.

When developing your plan, avoid the trap of looking at the segments of your portfolio in isolation. All the things that comprise your total net worth should be considered as part of an integrated whole, including your home, (which really is an investment in real estate) any defined contribution plan you participate in at work, and your future earnings power. You may be very comfortable investing in the industry you work in because you understand it so well, but you should be wary of compounding your exposure to risk.

The most basic asset allocation involves distributing your risk among stocks and bonds, but to have a truly diversified portfolio, you’ll need exposure to more asset classes than these two, such as real estate and other alternative investments loosely correlated to the rest of the market. More sophisticated investors can look for deeper diversity: Instead of just owning a world fund, you can invest in European securities, Pacific Rim stocks and emerging markets. Choosing low-cost exchange traded funds and index funds can help boost your total return.

If you need reassurance that the plan you’ve come up with is a good one, consider running your ideas by a trusted investment professional. Go to someone who works on a fee-only basis, rather than someone who works on commission, so you’re assured of an unbiased opinion.

The main thing is to gain enough confidence in your portfolio’s structure that you’re not second-guessing yourself in downturns. The market’s gyrations can test even the most diversified portfolio. But if you have a clear understanding of what you own and why, you’re less likely to make a performance-damaging leap when things get rough.

But don’t try to be a perfectionist. It’s impossible to develop an asset allocation that will work every time, in all conditions. Wall Street professionals have tried, and their efforts have proven that the perfect portfolio does not exist.

The problem with all investing is you’ll go through periods of time when what you’re doing isn’t working. But that doesn’t mean you shouldn’t do it. Come up with a good plan with all the data you can gather, implement it and maintain it, and just hang in there. That’s the solution.

1. Penny Pincher’s Book: Easy Ways of Living Better for Less – Hundreds of Money-saving Tips :Unlike a lot of books dedicated to “simple living” this isn’t for yuppies trying to get out of the rat race but for people trying to get by on modest budgets Full of ideas for saving money and living a frugal lifestyle and obviously written by people who have done it “for real”.
2. Mr Thrifty’s How to Save Money on Absolutely Everything: This text aims to save you more than you paid for it. It has hundreds of ways to save you thousands of pounds on anything you ever buy, from building work to babies toys, cars to carpets, houses to heating.
3. 50 Things You Can Do to Improve: How to Spend Less, Save More, and Make the Most of What You Have: Introduces fifty strategies to help readers gain financial independence by creating an investment portfolio, buying a house, planning for retirement, and getting organized.
4. The Complete Tightwad Gazette: Whatever your financial situation this book has something to offer. For those submerged in credit card debt, or any kind of debt for that matter, there is a wealth of practical advice which, according to the many readers letters at the end of the book, has brought people back from the brink, saving marriages into the bargain.
5. 100 Questions You Should Ask about Your Personal Finances: And the Answers You Need to Help You Save, Invest, and Grow Your Money:This is a book that teaches you how to get a grip on your money, tame your debt, and educate yourself along the way. What readers should take away from this book is the idea that everyone can learn how to create wealth and security for themselves and their family. It isn’t brain surgery. Managing your financial future is something that can be easily learned. And if you do it right, you might even find it to be a lot of fun.
6. How to Live Green, Cheap, and Happy: Save Money! Save the Planet!: At last! A guide to downward mobility with an eco-spin. This book’s philosophy is simple: What’s good for the planet is good for the bottom line. The greener you are, the cheaper you can live, and the happier you’ll be. This book will help you: Wean yourself from your cash habit and create your own ‘eco’-nomic system; Live closer to the Earth and farther from the banks; Cut down on — and in some cases cut out altogether — many of those everyday expenses that really add up.
7. 1001 Ways to Save, Grow and Invest Your Money: Even after you”ve made the decision to save, you need to know where to put that money so it will grow into the nest egg you need to fulfil your dreams. This book offers a simple diagnostic approach to help you figure out your own financial situation.’

Everyone likes to go on holiday but not many of us like paying for them as after all they are one of the most expensive purchases that we make in a year. In order to save ourselves money like most purchases it is important that we shop around and compare prices from a wide variety of travel agents whether online or down your local high street.

The major benefit of shopping online for a holiday is that it is very simple for you to compare lots of prices of different holiday destinations very easily and quickly from the comfort of your own home, without having to stand about in a queue.

Which type of holiday deal is best for you depends when and where you want to go and how happy you are to book your own flights and accommodation or whether you would feel better just going to the one shop and letting them do all the work for you. The more flexible you are with your dates and destinations then the better the deal you are likely to get and if you are willing to leave booking your holiday until the last minute you have the chance of picking up a real bargain.

The package deals offered by travel agents can be competitively priced if you intend to go to some of the more common holiday destinations. The reason for this is that travel agents buy all the seats in the planes and most of the rooms in hotels they can negotiate cheaper prices for the accommodation and flights than you could on you own. However whether the price they intend to sell the package holiday to you is competitively priced is another matter.

The websites of travel agents such as Thomas Cook and Thomsons allow you to view accommodation in the area that you want to spend your holiday. Their sites also allow you to make your booking online, to compare local prices with those back home, to purchase your travel insurance, to purchase your foreign currency and travelers cheques, to arrange your car hire and purchase almost any other holiday related product you can think of. Some travel agents even offer special discounts for booking online as opposed to buying from their shop in the high street. In terms of getting a feel for how much it would cost to go to your desired holiday location this is a good place to start.

Once you know how much it would cost to go on a package holiday from one travel agent you simply visit another travel agents website to find out how much they would charge you until you find the best deal. You can then either buy this holiday or if you fancy saving possibly even more money why not try and see how much it would cost you to purchase tour flights and accommodation yourself.

A recent survey showed that more and more of us are taking this option to book our own individual holidays using online sites such as Trailfinders, Cheapflights and Expedia. Arranging your own holiday sounds a daunting task but in fact thanks to the internet it is fairly easy to do.

Whilst the package holiday might look like a good price you can save yourself even more money by getting yourself the best deal on accommodation in your holiday destination and by arranging the cheapest or most convenient flight times to suit your journey. You can also shop around to get the best deal on car hire (Hertz and Avis are two popular sites), on holiday insurance and on foreign currency rather than being tied to the one travel agent.

When buying foreign currency beware of people offering commission free deals as these tend to offer less competitive rates than others so be sure to compare the rates as well. Also always try to avoid using bureau de change at airports and ferry terminals as these tend to offer some of the worst deals so plan a little ahead of your holiday.

Is the amount of money you earn sufficient to allow you to live comfortably? If you are similar to the majority of the people in the UK, the answer is no. It does not seem to matter how much we each earn because we all seem to have trouble living on it. It seems to be in our nature that even if we get a pay increase or make money some other way all we do is to go out and spend this extra income.

The problem with spending all our money is that we never put enough away for any unexpected costs (such as car repairs, burst pipes etc). When they happen we have to borrow money to cope and then have to pay back the amount we borrowed along with interest. However, by doing this we have entered into a vicious circle as our earnings have stayed the same but our outgoings have now increased by the amount of the loan repayments. We are therefore forced to reduce our standards of living as we cannot afford to spend so much money on items we could afford before we had to borrow the money. It then becomes even harder to save money than it was before and if another unexpected cost comes arises and we have to borrow more money then the circle gets smaller and smaller and we are on a downward spiral in monetary terms.

It could be suggested from the above that all we have to do is to earn more money in the first place but as stated above all we would do is to increase our outgoings to meet those additional incomings. No, what we really need to do is to manage our money better.

There are a variety of reasons why we do not manage our money better.

Lack of knowledge

Most people lack the financial knowledge to manage their money better. This can be due to them being bad money managers as they believe they are unlikely to be come rich because their parents and friends are not rich and so they do not make the effort to learn how to manage their money better. Instead they simply follow the crowd and if their friends have poor money management skills then they will inadvertently copy these bad habits. A good money manager should try to improve their knowledge by reading the financial pages of the papers, or financial sites on the web to find out how best to maximise their money. This would allow them to find out about the best places to save their money, the cheapest places to borrow money and to find out about tax free products.

Lack of planning

Most of us live for today and try not to think of tomorrow, we have no plan that we follow in terms of our spending habits. A good money manager would have a budget, showing his income (wages, dividends and interest) and a list of his expenditure (mortgage, electricity, food, clothing, alcohol etc). By comparing these two lists the good money manager will know if his income exceed his expenditure in which case he can save money or alternatively if his expenditure exceeds his income then he needs to either reduce his expenditure or to increase his income.

If you draw were to sit down write now and draw up a budget you would probably be surprised as to much money you spend on items that are not essential and that you could live without. Living without a few of these luxury items would allow you to save money up for any unexpected emergencies that might arise and would save you having to borrow money.

Once you can start saving you can set yourself targets, for example to increase your savings by £1,000 by this time next year. The following year you could increase this target to £2,000, then £4,000 the next year and so on. If you can meet your targets you will be well on your way to having a financially secure future.

Want it now attitude

In the UK at the moment there are very few people who live within their means, most of us see something we want and instead of waiting and saving up for the item we either put it on our credit card or take out a loan to pay for it. The banks and credit card companies are almost throwing money at us with “But now, pay later” advertising so we end up taking their money, paying them a hefty amount of interest and hoping that at some point in the future we will be able to afford to pay them back.

However, a good money manager should be willing to wait because they know if they save money up to pay for the item they are earning interest on their savings whilst a bad money manager ends up paying interest on their borrowings. Given that some credit cards are charging in excess of 20% it does not seem a good idea to borrow money when we could just wait a little bit longer and save up for the item.

Delaying saving

If you invested £10,000 in an account at a fixed rate of interest of 5% with the interest compounding every year, it would build up to £26,533 in 20 years, ignoring the effects of taxation. Lets imagine a friend invest £10,000 at a fixed rate of 10% it would seem reasonable to expect his balance after 20 years would be £53,066, being double the £26,533 but in fact it would £67,275. This shows that a small difference in interest rates can make a significant difference in the value of money over time. This is known as compound interest because you are earning interest on the interest your initial deposit has earned.

The earlier you start to save the more money you will earn as shown by the fact that if you invested invested £10,000 when you were 20 for 40 years at a fixed rate of 10%, it would be worth £452,593 when you were 60. However, if you invested the same amount when you were 30 you would only receive £174,494 when you were 60. Worse still if you waited until you were 40, your investment would be worth only £67,275 by the time you were 60.

Interest rates are currently considerably less than 10% but the above signifies how important it is to make your money work for you and to highlight how small differences in savings rates can really add up. You should therefore keep an eye on the interest rates you receive from your savings to make sure they are competitive against other savings accounts.

Good money managers

To become a good money manager we need to improve our knowledge of financial matters as this will ensure we get the best savings rates and pay the lowest rates on our borrowings. We should shop around and not just ask the nearest bank or building society if they will lend us some money.
We need to have a plan as to where we are going based on our current income and expenditure. By sticking to a budget and being prepared to wait for something we want it will save us money rather than costing us money. The sooner we start to apply these ideas then the sooner we can become good money managers and start out on our road to financial security.