IS THE MONEY SPENT ON YOUR KID AN INVESTMENT OR AN EXPENDITURE ?

Investing on our kids can be considered as an emotional long term investment and there is no other investment which is as important as investing on a kid is for any parent. We always dream of making our kids doctors, engineers, MBA’s, Civil Service Officers and many more right from the day one of their birth. In the process of realizing our dreams we spend a huge sum of our earning or saving or wealth on them. You may wonder why I am counting the money spent on our own kid or why I am talking about investment and expenditure. Yes, just for a minute think practical and say why we want our kids to be in a better position or why we want kids. Of course, the answer should be, either we want them to take care of us when we are not earning; or when we can’t help ourselves; or we want our own kid as the representative of our family in our absence; or we want the continuation of our family tree. And please be little more practical to accept the fact that all the other material things you create in this earth are mostly created for our kids or will be transferred to our kids, right from our house, investment in various means and your name and fame. The process of bringing up a kid till he/she becomes a grown up and matured man/woman in the society is a very long term process and the risk is very high during this time like investing in stocks. Investing in stocks may give you huge returns sometimes and may not return even the principal amount sometimes. Similarly, investing on our kid may yield us back huge returns (which can be name, fame, wealth, etc) or many a times it may not even consider us as the owner of that investment. Yes, dear readers, that is what is happening across the globe in many families today. Most of the parents have lost complete ownership right on their kids. It is high time to understand whether we are spending our time and money in the right way or not. We must also recheck whether this spending is expenditure or an investment. If you are buying a good shirt, book, food, required entertainment or something which will fetch you the desired results, then it is an investment. But if you are not stopping your kid from using your hard earned money for smoking, useless hangouts with friends and any such things, then it’s a pure expenditure which won’t fetch you back anything. I was explaining, what is corruption to a group of participants at one of my recent seminars. Corruption does not start with Government officials or Politicians, but it starts at home when a kid is aged 8 or 9. If you give Rs 100 to your kid to buy groceries for home, he will come back and say that he spent Rs 80 to buy the items where as he had actually spent Rs 70. He is taking Rs 10 without your permission. This is because of the failure of most of the parents in making their kids realize the importance of every rupee they spend from their parents’ earning or saving. Things to Keep in Mind There are many things that you need to keep in mind when you try to mold your child; First thing is; Do not waste your time by telling your kids to study instead make them understand why they have to study. There is no point in injecting information into their mind unless and until they realize its value. What I mean to say is instead of teaching them 1+1=2; make them understand how it is 2 and why it is 2 by quoting good examples. Secondly; Never make your kids study for marks make them understand the importance of learning every new words, concepts, etc. Two things which make human beings different from other animals are Memory and Logic. Whatever human beings have created today are the outcome of his logic and intelligence. As I told earlier by-hearting the things will help them only to improve their memory power but understanding the facts will develop their logical reasoning power. This will gift you a wonderful kid with a high level IQ (Intelligence Quotient) When your kid takes birth he/she is like a newly purchased computer which has no software installed in it. You will have to install the required software when time comes and update it as and when required. For example if you are an accounting professional and handling only accounts related works you don’t have to install Photoshop (a designing software) in your system because it is not at all related to your job. Like the same mold your child with the required skill and capabilities which will help him/her in the future to achieve great things in life. Let us take one more example; Imagine you are trying to open a word file in your system without installing MS Office. Do you think the file will get opened….??? No way…!!!  It is your mistake that you didn’t install MS Office in your system, after doing such mistake how can you expect your system to do that action…..??? A computer can run with all these features only when operating system is installed in it and your kid’s operating system is nothing but the culture, character and the skills you inculcate in him/her. The kid will become a successful doctor, engineer or something else you expected only when all these fundamentals are strong. There is one more thing you need to look into ie; before trying to install a program in your system; you should make sure whether your system is compatible with this program. For instance there are softwares which are compatible only with Windows Vista, if you try to install it in windows 98 it will not work. Like the same before deciding on what your child should become, you should know his/her tastes, interests, talents, etc. Ask them what they want to become, only then you can create a find blend of ideas which will take them to success. I have quoted this example to make you aware of your role in building your child’s career. If you want your child to become a doctor, create such an atmosphere in your house from the day one. I am not telling you to buy the complex medical equipments and place it in your house, instead make your child feel the importance of this profession, tell him/her what a doctor does, how important a doctor’s service is to the society, how he saves people’s life, etc. Today most of the doctors, engineers and other people carrying big designations are unable to present themselves better in front of a crowd. This is only because of the lack of basic skills training. Parents enjoy their son or daughter going to college even at the age of 25 or 30. If you make your kid engaged only in preparing for the life till the age of 30, when do you expect your kid to stand on his/her own.....? This is the mistake generally parents do, they concentrate only on giving education not on its implementation, by the time they complete their education they will become bookworms and will not be in a position to make the real use of knowledge. Today’s world is very attractive and the chances of your kid getting attracted to too many thing is very much possible. But have you built the required resistance power in him/her to judge and choose what is good and  what is bad….??? To bring up a kid the parents’ contribution is just 50% and the rest is absolutely from the world around him so make your kid to contribute equally to the society and the nation as he/she takes care of you.

Posted By - Mr. C.S. Sudheer- 

UNDER CONSTRUCTION V/s READY TO MOVE PROPERTY - WHICH ONE ?

There is absolutely no confusion in saying that everyone wants to buy a house, a dream home which they can call their own. However, one big confusion among buyers is whether to buy an Under-Construction Property or a Ready to move in Property. Each of these options has its own pros and cons and it is extremely important to be aware about the advantages and disadvantages of Under construction and Ready to move properties. Lets look at them:

Negative Points of Under Construction Properties

1. Delay in project & Dispute of the Land & Permissions

If you know of any project which was delivered on the exact day that it was promised, its rare! Delay in the project for various reasons is one of the top most issue with under construction properties. On an average 2 years is the deadline given by the builders, but it gets delayed and further delayed most of the times. 2 yrs can turn out to be 4 or 5 yrs of wait in a lot of cases and this adds to the frustration of buyers.

This delay is caused mainly because of the dispute on the land, cash crunch and most of the times incomplete permissions from authorities. Builders start the construction after obtaining most of the required and most important permissions, but at times there might be few permissions which are still going on, but builders start the construction. So it becomes very important thing for a buyer to check all the required permissions and the ownership details of the lands. This is very true for small builders especially.

One important point to note is that even though the house is delayed by just 1-2 yrs and finally comes in your hand, but in a lot of cases promised amenities are given after a long period and some people are still waiting for that swimming pool which was promised in 2001 .

2. You don’t get what you see

The biggest issue, I repeat – the biggest issue of under construction properties is that you never get what you are promised or have seen as sample flat . Sample flats are built-in a way and decorated in a manner that your heart will met down and you will sell your self to grab that opportunity, and over years you will build so much expectations from your under construction house. But when you really get the possession, you will realise that a lot of things are not up to the mark and not as per the promise done. Sometimes layouts are changed & you may not like the new one.

Another issue is over promise in many things. For example – Some builders give false promises that Municipal Corporation Water Supply will be made available in the society after 3-6 months of completion of construction of society, but some builders never fulfill this problem once all the flats in the Society are sold. The builder’s objective of selling the flats is fulfilled and then he is not interested in the problems that people face. A lot of times oral promises are done on many things like cost of parking, extra facilities like swimming pool, gym etc and then they are not fulfilled. And at the end, you are in a situation where you can’t do anything. Either take it or fight a case against the builder and many hassles that come along. Hence please never agree to any oral agreements under any circumstances – Always insist on written agreements with clear delivery milestones etc. One bad experience from T. Ashok is like this

The builder did not construct shelfs and almirahs as promised. He left the house only with walls and lafts. So, I had spent more than 2 lacks for wooden works in kitchen and two bed rooms. Really that was a big burden for me apart from loan amount. So, here after anybody buying house, must ask the builder to mention all in agreements like painting, shelfs, windows, doors,etc., otherwise they may suffer like me.

3. Quality of work may be compromised

Another issue is the quality of work that gets done. The quality of the construction material used, Doors and windows fillings can be compromised with, electrical sockets and switches can be of cheap quality, plumbing can go horribly wrong and even the facilities like parking space, children playing area and other amenities might be below the mark or what you expected and when you complain about all this, there will be all sort of explanations like losses in other schemes, cash flow issues and the cost increase by builders and a new series of promises that it will be done soon. For an example watch this video experience for bad quality of construction and unkept promise by Unitech

4. Income tax claim is headache unless you get the possession certificate

I hope you knew that you can avail for tax benefits only after you get the possession of the house. Saving tax on the EMI’s is one of the big reason why many people plan their house buying, only to realise later that they never thought about this aspect. So if you are going to buy under construction property , be ready to pay rent + EMI and not getting any tax benefit unless you get the possession certificate, and incase the construction gets delayed by few months to 1-2 years, it will be frustrating.

Positive Points of Under Construction Properties

1. You start paying slowly & conveniently

The best part of Under construction properties is that it is affordable for most of the people through a home loan. When I say “affordable”, all I mean is that from payment perspective life is easy. You make a down-payment which is generally 20% of the property price and then start making the monthly EMI’s each month and this is how a lot of people are able to own the house. Later after few years , a lot of people feel comfortable as their salaries go up, but the EMI’s value is very much the same. Even if one is not taking a home loan, they can pay the money in parts as it can be construction linked payment.

2. Choices of floor or location are much wider

There are various locations where new projects come up, so the choice in terms of location or which floor you want are generally high. If you are not happy with 12th floor, you can pay more and take the 3rd floor, but in case of ready to move apartments, if 12th is available, then that’s all you have. No choice!

3. Good scope of Price Increase

Under Construction properties are generally in the outer area’s or the non-core part of the city and hence the price appreciation due to future development is good in under construction properties. However this is not true in each and every case. You still have to look at the location and future plans around that area. But the point is that compared to ready to move in apartments, under construction properties have more potential for price increase.

Negatives Points of Ready to Move Properties

1. A lot of legal work and documentation

Generally there is a lot of legal work and documentation required in case of Ready to move properties compared to Under construction, because there are no fresh documentation, but a lot of “transfer” documentation.

2. You need to arrange all the money in one shot for down payment, registration etc

In case of Ready to move in properties, all the payment has to be made upfront and all at one time. There is no stages in payment like you have in Under construction properties. So even if you are buying it on home loan, you have to pay all the down-payment, registration charges, stamp duty etc all at one go.

3. Chances of getting duped!

In case of ready to move in properties, there is a big risk of getting duped. You have to make sure that you investigate things very properly. There are cases where same property has been sold to more than 1 person. Make sure you hire a good real estate consultant or a good lawyer who can study the documents well and the fine prints.

4. Inflated Price already

The price appreciation in case of Ready to move properties is generally lower than Under Construction properties from percentage increase point of view (not absolute increase). Most probably the ready to move in properties which are much older than 5 yrs, a lot of development around them has already happened and the price appreciation has taken place for most what is deserves.

Positives Points of Ready to Move Properties

1. You buy what you see

When you buy Ready to move properties, you exactly get what you have seen. There is no chances of getting duped at least in those things which you can feel and experience. This is not in the case of Under construction properties , because you never see the actual thing , you see samples or the “projections”. It’s a good idea to talk to the people around or the neighbors about the water/electricity and other things and take their feedback.

2. Immediate relief from Rent & travelling cost

A lot of people who are paying very high rent or travelling very far for their work tend to buy the ready to move houses because they want immediate relief from the high rent or travel cost and one can get it in ready to move properties.

3. You can know what kind of people live around you

This is one big advantage of ready to move houses. You can already see who your neighbours are, what community they belong to , what income level they have and if you would like to be with them or not . In case of under construction houses , you are never sure what kind of people will be around you.

Conclusion

So the final conclusion from various experience is that if you want to buy the house from investment point of view, then buying an under construction house makes sense. However if its mostly from living purpose and you want to consume it for your own purpose, then buying a ready to move house makes more sense. Also all the pros and cons discussed can vary from case to case and the points discussed here are based on a general information and feedback.

Source – manish Chauhan – www.jagoinvestor.com

BANKS - LOAN SETTLEMENT - CREDIT SCORE

What your Bank will not tell you about Loan Settlement ? It hurts your Credit Score !

Over 88% of new home loan borrowers in 2011 had a CIBIL score of 750 and above. Do you have a score of 750+ or not ?

So now by default if your CIBIL Score is less than 750, you stand a very low chance of getting any kind of loan to be approved. Most probably your loan application will be rejected. However, today we are going to talk about “Settlement” aspect of Loans. Lets see more!

CIBIL has really made life worse for a lot of people. A lot of people have misused their credit cards or other kind of loans , on top of it outstanding loans piled up so much over time, that they could not pay it off completely. Banks suddenly told them- “Hey, Don’t worry if you can’t pay off your Rs 3 lac outstanding loan, just go for settlement and all you need to pay Rs 60,000. We will send you NOC letter after that”.

Are you one of those who went for Loan settlement months or years back ?

Settlement of Loan is not a solution

A lot of people feel that Settlement of their loan outstanding in case they cant pay it off is a permanent solution to their worries? However, for one and the last time, understand that SETTLEMENT of Loan is just a temporary solution. It’s just a short cut way to get rid of constant reminders from banks and credit recovery agents. Banks do this because they know you are a waste and mostly you will never be able to pay back your 100% dues, so they settle for whatever you can pay! . Atleast they will get something back from you.

This settlement of loan will NOT clear your name in CIBIL report. In fact its a negative sign. It shows that you took loan, happily used it, ballooned it with late charges/interest by not paying on time and finally bank in frustration said - “Fine… Let’s take whatever we can get out of this guy, if we don’t get some part right now, we will not get even a penny later”.

Mak was worried why his name is appearing on CIBIL report as “settled” and his loan application was rejected.

I want to remove my name from Cibil report, I Used to have 2 CC, from HDFC & another from citi bank, I do had personal loan from citi finance, which I settled long 2yrs back for which I have settlement letter as well. Recently when I applied for a Bajaj finance loan for home electronic, It got declined, reason given to me was as my name reflected as a defaulter of Cibil. Please advice me to clear of my name from Cibil.

What Mak has to understand is that Settlement is a negative thing, and banks will report this incident to CIBIL and mind you, your status will be marked as “Settled” for next 7 yrs. So forget about getting any kind of loan from any bank for next 7 yrs at least. Once 7 years passes, then the SETTLED status will be removed , however your credit score by that time will be so low , that you will not get any loan even after that point, unless you work on improving your credit score. Now if your score is low at that point, it will again be very difficult for you to get any kind of loan (because of low score). So ultimately, the final conclusion here is that once you settle your loan, it becomes very very negative thing for you and your future and over the years it will not let you get any kind of loan unless you pay off each and every paisa of your loan.

Loan Settlement is Tempting

Settlement gives you instant gratification. It’s something you really want to go for? Obviously, it gives an impression that all your worries will be taken off by the bank, its shown to people as an “opportunity” by banks. And most of the people fall for it. Swetha is one of those people who is confused about the Settlement of her loan

I have a personal loan and i have defaulted , my loan completes in the month of april the collection guys asked me to settle the loan for half the price of the remaining loan amount which is rs 44000 and he said the NOC will be mailed to within 15-20 days and also can i get a loan again . Please guide should i go for the settlement or payoff the whole amount.

No doubt, once you settle the loan and pay the settlement amount, the banks will not bother you anymore by calling and asking you to pay. They will also send you an NOC that this guy has settled his loan of X amount by paying Y amount (Y<X). But please don’t be mistaken that bank will forget you and is so generous that it will show any mercy on you. Bank will make sure your life is hell after that point. You will not get any kind of loan from that bank plus, they will send this information to CIBIL that this guy was not capable of paying off his full amount and hence we showed mercy on him by settling his loan. Please mark him/her as “SETTLED”.

Unless you pay off each and every penny/paisa of your original loan outstanding, your CIBIL report will show status “Settled” and it’s a very bad sign. Finally let me tell you what CIBIL website has to say about “Written Off” or “Settled” status in CIBIL report.

Given that a CIBIL credit report helps a loan provider ascertain your ability to pay additional debt based on your past performance, a ‘’written off’ or ‘’settled’’ account implies that you have not been able to pay your past dues. Hence, Loan providers may view accounts that are reported as ”written off” or “settled” negatively and this may affect your chances of a future loan approvals. - from cibil website

Conclusion

If you have settled your loan earlier, first check your credit report and see what is your score. If its low (lower than 750) , you will seriously face getting any kind of loan in future, So the only solution is to pay off the loan outstanding. Talk to your bank and pay it off. This will still not improve your score immediately, over next 1-2 yrs , make sure you pay your existing loan/credit card on time and dont mis-use your credit capability. Your score will improve over time.

Source : Manish Chauhan – www.jagoinvestor.com

INCREASE IN EDUCATION LOAN LENDING

Banks are concerned as non-performing assets in education loans are as high as 6%. Meanwhile, SBI, largest public sector lender, announced an interest rates cut on education loans up to 1% 

The committee constituted by the Reserve Bank of India (RBI) to re-examine the existing classification and suggest revised guidelines for the lending to the priority sector, has recommended an increase in lending limit for education loan by Rs5 lakh. 

The committee headed by MV Nair, chairman, Union Bank of India, in a report suggested to that limit under priority sector for loans for studies in India may be increased to Rs15 lakh and Rs25 lakh in case of studies abroad, from existing limit of Rs10 lakh and Rs20 lakh, respectively.

The RBI has sought comments on the report of the Committee. 

Redefining the scope of education loans by removing the limits and fixing it on the basis of parents’ income, covering vocational and skill development under its ambit and establishing a credit fund to cover therisk of defaults were some of the suggestions received by the committee. 

There is no suggestion on the lending up to Rs4 lakh, given without any security or collateral. Experts say that this category also has highest number of repayment defaults. 

Non-performing assets (NPAs) in education loans are as high as 6%. To bring down NPAs in education loans, the government is considering the option of setting up a credit guarantee trust.

Last year, the Indian Banks’ Association (IBA), which has formulated the model education loan policy, had recommended of creating a credit guarantee fund to tackle the problem of rising defaults in the loan category of up to Rs4 lakh. The committee has said that it is under consideration. 

Recently, IBA asked lenders to impose stricter terms on loans given to students getting admission under the management quota. “Any loan considered by banks for students getting admission under the management quota would be outside the model scheme. Banks may fix appropriate terms and conditions for such loans,” IBA said in a guidance note.

Experts, say that there is need to address the issue of lending to students under management quota as it might impact large number of students opting admission through this route. 

According to Prashant Bhonsale, country head of Credila Financial Services, a private lender specializing in education loans, “Though the move is in the right direction considering the risk factors from the point of view of the lender, there is a need for risk-management framework for lending to these average students.” 

An official of Mumbai-based public sector bank, which has seen 16%-17% growth in the education loan portfolio, confirmed that, “It is left to each bank to decide on the lending to students under the management quota. It won’t come under the IBA policy. We are looking into it. I cannot commit anything right now.” 

According to the current guidelines, banks lend up to Rs4 lakh without any security. But for loans between Rs4 lakh and Rs7.5 lakh, they can ask for personal guarantees, and for a loan above Rs7.5 lakh, a collateral is required.

After the apex bank eased its monetary policy, State Bank of India, largest public sector lender, announced an interest rates cut on education loans up to 1%.

Source : February 23, 2012  Moneylife Digital Team

WHY PEOPLE AVOID FINANCIAL PLANNING

“What is this planning … slanning???? Weddings use to take place when there were no Wedding Planners. Today also we marry our daughters without these so called money grabbers!!!”

We as Financial Planners also hear similar tunes when we speak about Financial Planning concept. And my inference is that people do not appreciate any kind of PLANNING as a matter of fact. Doing a thing in the most scattered way has its own pleasure. People know that we are talking in their favor but they avoid seeing a Financial Planner. They avoid financial discussions and even shun learning for which they have to pay nothing. Why do people avoid Financial Planning? Based on my interaction I am summarizing why people say no to Financial Planning.

10 reasons (excuses) why people avoid Financial Planning

See if you are still in trap of these excuses or have gone over them:

1. You do not understand Financial Planning:

You still are not aware of the Financial Planning. Although media is over it and web pages are full of it but still, since you had your mind diverted, you are not familiar with it. No issues here as you are “never late” if you have “not arrived”. Spare some quality time and get to know the concept of Financial Planning. Speak to a professional who can clarify your doubts. Try to seek examples where a Financial Planner has changed some one’s life. 

2. You do not endorse the concept:

You are well aware about the concept but still think this is not enough. The conviction has not reached the desired levels. Try to address your distrust over the concept. I also advocate that conviction in the concept is the first most requirements. A Financial Planner can convince you but you need to be in sync with him as he will put you on the driving seat as you are the driver and he is simply the maker of that custom-made vehicle, which is called a Financial Plan.

3. You think Financial Planning is for Rich people:

Once I was talking someone who make Rs 8 Lakh annually working for a telecom company and he said “Hemant, after all the budgeting, expenses & tax planning I save Rs 2500/- a month and this makes Rs 30000 a year. And, if I take your services half of this amount will be your fees, so why will I pay Rs 15000/- to manage Rs 15000/-? What a check mate explanation!! I simply answered that it is your misconception that you can save only Rs 2500/- a month. A Financial Planner is not a guardian of your already earned wealth. He is basically the “Creator” and “Augmenter” of wealth. Your present economic condition has nothing to do in engaging financial planning. Some people say they don’t have money for grocery, utility & school fees, yet they throw away and step over money like they don’t need it. 

4. You feel you have already done it:

You have already taken a life insurance cover and have a sip. You have bought a bit of Gold every Diwali and have taken a home loan to avoid tax and invest in reality.  And you think this is what a financial planning means. No friend, this is not financial planning. You are moving here with no goals. You have no end here and you do not know what you are doing is enough or not. If someone is claiming that this is financial planning, he is misleading you. The Financial Planning is s comprehensive field covering lot of aspects.

5. You believe only making investments is Financial Planning:

You invest a lot. Whatever comes any insurance policy that is launched or any IPO that comes, you eagerly put some money into everything. Financial Planning is not only about investment planning. It deals with other disciplines like risk management, insurance, estate, tax planning etc which are equally important. You need to take a correct guidance and then place the foot.When someone asks you what you really want out of life, you’re probably not going to say you want an investment that delivers best returns. Think.. 

6. You think you are blessed hence you will not require Financial Planning:

Some of you also think that luck is on your way and you do not require planning. May be you are counting the inheritance money that you might be getting or your parental business or you are just a happy go-lucky character who lives in each moment of life. For you I would just say that you are just enjoying the cherry which is over the cake and forgetting the cake which might turn out to be sour. Hope you do realise this before the cake gets stale to eat while you were too busy with the toppings.

7. You think you can handle it on your own:

You have made your own calculations about your future expenses and have started planning on your own. Your planning can never be comprehensive which will cover all mandatory aspects. What is the use of fighting a war where you have not planned your ammunition? You are not aware of your enemies strengths and even do not know how long this war will continue? Please come into light and face the reality. You are expert in your field but not in financial planning or investments.

8. You are a compulsory procrastinator:

You have a habit of being a non- starter. You do not initiate at once. You wait for other to start then you keep on postponing it till the last minute. You also fear of losing so you do not initiate at all, or start when it is an emergency. Lot of people has this strange thing that despite being convinced they make delays. In investment planning we deal with a genie called “Power of Compounding” and this genie can do wonders if you give proper time to him. Time has a value and delays can be very painful. Delay can have significant impact on your financial life pyramid. 

9. You enjoy free lunches only:

You feel that you are made to enjoy the freebies. Nerds make payments and smart ones enjoy the nature. You are wrong my friend. May be in other field of life this might be true but in this field you need to invest. Here you will find lot of sharks with honey draped faces to make a prey out of you. Even a single wrong meeting, advice or transaction may ruin you and future of your loved ones. It is best to engage a professional who can advise over the vested interest of product sellers and can synchronize your financial life. For this you need to pay and over a period you will realise it was worth paying.

10. Don’t read this as a TENTH excuse as it is ’n’ – n number of other reason that people keep giving.

These are the top reasons that came to my mind. And I am sure I have missed many – please share with me in comments.

SOURCE : WWW.TFLGUIDE.COM - Hemant Beniwal

INCOME IS NOT WEALTH

Let me ask you a question. Ajay earns Rs 1 lac per month, and his friend Robert earns Rs 40,000 per month. Who is more rich and in better position ?

In all probabilities most of the people would say Ajay because he earns more than Robert and that too 2.5 times of Robert’s salary. However you can’t give the judgement so fast, because we have not mentioned how much are their expenses, or in other words how much money they burn at the end of the month and what is amount is actually saved. What if Ajay’s expenses are Rs 90,000 and Robert’s expenses are Rs 20,000? In that case Robert would be saving 20,000 per month and his rich friend Ajay would be saving just Rs 10,000 per month. Right ?

What matters is Savings, not Income

So you can see that the real thing that matters is the money saved!, not earned. However more income helps in more savings at the end, but its not true always!. The real wealth gets created by your savings and not just by earning big!. So, if you are earning a lot and saving a lot of it parallely each month then you are in a good position. But if you are earning a lot, but spending a LOT too, then in reality you are no better than someone who is earning less and saving less. In that case, from the future aspect, wealth creation will either be too low or it just won’t happen.

Lots of people who have big incomes are actually not very good at saving money – they’re used to having plenty of money coming in, so they don’t pay enough attention to the money going out.

For example – If you and your friend both are saving Rs 20,000 per month and in long run, it’s going to continue that way, it really make no difference for how much you both really earn, because in the long-term, your wealth creation is the function of how much you save and how much of it you actually invest properly.

So this boils down to one big question – “Are you just rich by your Income or are you really rich by savings?”.

A lot of people earn very high salaries, but they end up spending most of it. You can blame this to high standard of life style, high status symbol and all sort of expenses, but your real worth is what you save at the end. I know one friend personally who is a bachelor and he makes around 1 lac per month, but spends 70,000 per month and I know one more friend who earns 70,000 and spends 20,000 per month. Though the first one earns more than the later one, the wealth creation is happening pretty fast for the second guy, even though he is earning lower than the other friend.

Now the question is – How much of your income do you save?. By Saving, I mean any kind of savings which is left with you at the end of the month after expenses + the investments you do in different places (because even that’s part of saving only).

Whats your Saving Ratio?

A good indicator to know is finding a simple ratio called “Savings Ratio”. Just divide your savings at the end of the month by your income and that’s your saving ratio? How much is it? Is it 20%, is it 30% or is it 75%. How much is it?

Lets see an example . Say Ajay makes Rs 50,000 a month and he pays rent of Rs 10,000 , pays another 12,000 in home related expenses, spends another 6,000 in entertainment and outings and at the end of the month is left with Rs 22,000 , thats Rs 22,000 saved with income of Rs 50,000 – which is 44% saving ratio . You can do it on monthly or yearly basis , but put some numbers on table and do this important calculation.

I would personally say that a saving ratio of more than 40% is a good enough number. But if its below 20%, you should really do something about it. So what are your plans about increasing your saving ratio from this point onward? What are your thoughts about this concept of Income Rich and Savings Rich ?

Source – Manish Chauhan – www.jagoinvestor.com

ACTIVE INCOME V/s PASSIVE INCOME

This post is dedicated to one of our client Vinit Garg, who is an amazing person and extremely committed to his financial life. He is into a job and is rigorously working on creating passive income in his life. We had a few conversations on creating financial freedom and creating passive income and he has started taking some serious actions in this area which is inspiring.

You can only have two types of income streams in your life, either active or passive. Most people manage to create active income but a few are able to create structures for creating passive income. For creating passive income it really does not matter whether you are in job or business, if you create desire for creating passive income you will find out a way to do it. I and Manish spend a few hours each day on creating passive income in our business.

Typically we are told to study hard, get into a good institute, and find a job, get married, produce babies, buy a house, buy a car, and start making investments (some good and some junk) and buy insurance policies to save tax. No one told us about creating passive income which is so very important!

Here are the four elements that make your financial life complete:

§  Income- It happens from business or job

§  Expense- This is compulsory, No escape

§  Savings and Investments- Varies from person to person (debt, equity or other)

§  Passive income vehicles- Rarely in focus

Income is happening; expenses are compulsory, saving and investments are also taking place but the focus is missing on creating sources of passive income in life and if you really want to create an extraordinary financial success than work on creating passive income sources.

What is passive income?

This is an income where you are not working to create it but your money is working for you or your people are working for you. This income is on an auto mode where some income generating is happening on its own. You have put some structures in place that helps you create on-going income year on year.

Two types of passive income you can generate:

Immediate passive income:You can take a few steps in your financial life that can start giving you passive income immediately. For example rental income it starts the moment you give your space on rent, dividend income, and bank interest is something to think about.

Future Passive income: I know many of you are loaded with many responsibilities in life so you carry the dream of creating passive income but are unable to do it now. No problem start creating vehicles that will give you passive income in future to you. You can start making conscious efforts in this direction and passive income starts flowing to you after a few years.

Most people mix retirement planning with financial freedom which is not the right way. When we talk to our clients we really want them to get out of the myth that retirement corpus will be enough for them to live a good life.

Retirement corpus + on-going passive income = makes you free from the worries of money.

Start working on your financial life instead of working in your financial life:

When you work in your financial life you create active income and passive income is created when you start working on your financial life. If you want to create passive income you will have to focus on your activities of your day. We know what our high-return activities are. We know what our low-return activities are and we know what our no-return activities are! But then we pretend we don’t know why we are not able to find time for creating multiple sources of income.

§  I know one person who has 15+ ATM centres given on rent. One of my neighbours owns ATM centre and has given his premises to a bank that helps him create 2-3 lac of passive income every month. Various blogs and websites create passive income; many writers get royalty income which is passive. One of our clients is creating passive income from the parking space he owns, one of our client did a brainstorming in their office on creating passive income. I have spoken to people who have created multiple sources of income in their life they are no different than you and me. You will be shocked to know but your friendly Insurance agent also has a huge source passive income in his life through your policies. I am sharing this because at times passive income opportunities are just in front of us.

One of the things that I really want every investor to start working on is creating passive vehicles. You have one financial life and with passive income you can make the most out of it. A lot of people are concerned about their financial future all you need to do is brainstorm and seriously work on creating passive income. I have found a few ways of creating passive income, if you participate fully on this post I will be willing to share all with you.

This week action (Brainstorm with the help of these questions)

How many sources of income do you have?

Are you currently taking any actions for creating passive income in your life or not?

How many ways you can create passive income in your life?

Source : www.jaagoinvestor.com – Nandish Desai