Earnings - Savings = Expenses (Right).
Twenty Commandments for Personal Finance
Miss you.........Take Control Of Your Salary Before It’s Gone
excel spreadsheet for this helps a lot, but a simple diary or notebook will
also do. Create an earnings page where you list down all your income sources.
The other page will be your expenses page.
- Where you spent your money?
- When did you spend your money?
- How much did you spend?
- What did you spend it on?
- Was it a need based spend or a want based spend?
You have a set of assets and liabilities and some assets still to be created.
Now the classic dilemma starts : Clear the old debts or keep them as it is and Invest this amount in a new asset or investment avenue
Psychology plays a part in whatever decision we make, including investment in stocks. Sometime our built in psychology is helpful and many a times it is not. When psychology is not helpful we call them psychology traps. Investment in stocks is also guided by few psychology traps which influences us in making bad investment choices and lose money.
Usually people fall in love with their investment decisions and cling to shares, whose market value has declined and immediate chances of recovery are remote, but will not take decisions either to withdraw or reduce their exposures.
They hold on to this belief that their past decisions of these investments were infallible, and the stocks will turn around. Most investors have such shares in their portfolio, which they keep on clinging to despite making losses with no chances of recovery in foreseeable future.
Remedy from this trap lies in taking a detached view while reviewing the portfolio, basing decisions on market reality and avoiding the ego trip.
Many investors while deciding on a stock, consult fellow investors, and accept such views which approve their own choice and reject the contrary views. Such selective approval often lead to bad decisions, but the investor holds on to it as his/her choice has been confirmed by other investors.
Avoiding such traps will be possible if the investor while seeking approval from other fellow investors should be rationally looking into the background of these investors. Alternately, the investors may take into consideration both supportive and opposing views and then make the decision to invest or not.
Psychological Trap No.4: Copying Mindset
One should, therefore, avoid investment decisions, which are made by blindly following successful investors.
The classic example is of Long Term Capital Management Company (LTCM) which went bust in late 1990s, which was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at firstname.lastname@example.org
1) Application Fee: Covers the preliminary expenses of a bank for conducting verification. Rs 1,000-Rs 5,000.
2) Processing Fee: Covers the cost of the credit appraisal. Fee depends on borrower's profile, income and the type of loan. Rs 10,000-1% of loan.
3) Administrative fee: Some lenders split the processing fee into two parts. The one charged after the loan is sanctioned is called admin istration fee.
4) Technical evaluation Fee: For high-value properties, two valuations are done, and the lower of the two is considered for sanctioning a loan. Some PSU lenders charge a fee for doing this evaluation.
5) Legal fee: Most lenders engage firms to scrutinise borrowers' legal documents. Generally, banks include this cost in the processing fee, but some PSU lenders charge it separately.
6) Franking fee on sale agreement: In some states, there is a stamp duty payable on the property agreement with the builder/seller. 0.1% of cost-Rs 20,000.
7) Franking fee on loan agreement: Some states, Maharashtra and Karnataka, for instance, levy a fee on the loan amount. 0.1-0.2% of loan.
8) Notary fee: If you are an NRI, then your KYC and the POA (power of attorney) needs to be notarised by the Indian embassy or a local notary available abroad.
9) Intimation of registration fee: Intimation to the subregistrar's office is a new process. Followed only in Maharashtra. Rs 1,300.
10) Indemnity cost: The borrower needs to indemnify the lender for certain risks, for instance, if the builder faces a delay in receiving an approval or the property tax is yet to be paid fully by the seller, or some other.
11) Adjudication fee: To start the process for a home loan application, if you are the POA-holder of an NRI, the notarised POA needs to be adjudicated here in India before submission to the lender.
12) Fire insurance fee: Most lenders who are into bankassurance insist on this.
13) Documentation fee: For getting the loan agreement signed, getting the ECS mandate activated and a few other formalities, some lenders charge this fee. Rs 500-Rs 2,000.
Refinancing Home loan or simply put balance transfer to new bank
- interest rate (most popular)
- Option of lowering tenure if one has monthly surplus
- Increase the loan tenure to reduce EMI payments
- Shift from floating rate to fixed rate, or vice-versa
- His current EMI = Rs 46,094
- Outstanding principal = Rs 36,34,030
- Outstanding interest payment = Rs 30,37,655
If Mr. Sharma refinances his loan at 10.50 per cent interest rate for the remaining 12 years:
- New EMI = Rs 44,486
- Total interest payments = Rs 27,71,902
- Potential savings = Rs 8,62,128
- Loan amount: EMI payments are a combination of principal repayment and interest paid on the principal amount. So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.
- Interest rate: Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally, it is advisable to continue with the existing loan unless there is difference of at least 0.75-1.00 per cent between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.
- Loan tenure: Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs, and lesser the tenure, the higher the EMIs. Similarly, the total interest paid is directly proportional to the tenure. The higher the tenure, the higher the total interest paid. So if one has an increase in salary, but does not have a substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.
The Actual Period
The 44 (or 55) days begin at the start of your statement period and end when your payment for that purchase is due. In total, this interest-free period is made up of the monthly statement period plus the time you get to pay your statement balance.
When To Start
Get a longer interest-free period by making purchases at the start of your statement period.
How To Keep It Going
Always pay your closing balance in full by the due date to avoid interest charges and retain your interest-free period in the next statement cycle. If you choose to rotate the balance by paying minimum due amount, you may not get interest free period on further payments
Each person’s statement cycle is different. Check yours to see when your month begins.
Paying your bill regularly is a good thing, but paying only the minimum due is not. It casts doubts about your financial stability.
Maxing out your Credit limit
It’s ideal not to use more than 60% of your credit limit. If you max out your credit, it’s taken as a sign that you rely too much on credit.
Skipping payment due to a dispute
If there’s a dispute regarding some charges, don’t skip paying the bill. It spells double trouble! Once the dispute is settled, the Credit Card issuer will reverse the disputed amount to your account.
If your Credit Card application gets rejected for whatever reason, especially more than once, it will damage your Credit Score. So, make sure you provide the correct information to avoid rejection.
You have worked for money and accumulated a sum, now let the money work for you
While the prospect of further rate cuts by the RBI are boosting sentiments in the stock and bond markets, it is also making traditional fixed income investors nervous. Sooner or later banks and other institutions will bring down the rates on offer, signalling an end to near double-digit rates you are enjoying on various deposits at present. But there are ways to side step the rate cuts and continue enjoying higher returns for some more time.
Lend to corporates
While bank fixed deposits and recurring deposits would be the obvious choice for many, those with a slightly higher risk appetite and looking for a higher yield may opt for any of the corporate fixed deposits or debentures available. Experts reckon investors can lock in to current high yields before rates on these instruments also start going down. Vivek Rege, MD, VR Wealth Advisers, says, "In the midst of falling interest rates, you may not get such opportunities for a while." For instance, investors can get anywhere between a 50-200 bps (0.5%-2%) higher yield on the range of company FDs, compared to traditional bank fixed deposits. Fixed deposits from non-bankingfinance companies (NBFCs) are offering 9.5% to 11% for three year tenure under the non-cumulative interest payout option (See chart). Certain manufacturing companies are offering slightly higher coupon rates, in the region of 12% on three-year fixed deposits. The interest earned on these company deposits is taxable at the rate applicable to your income tax slab.
If corporate FDs are not your cup of tea, you may consider putting your money in non-convertible debentures. Although there are hardly any fresh issues in the market currently, you can purchase any of the existing instruments listed on the stock exchange. Make sure toinvest only in those instruments which are not maturing within the next one or two years. Since rates are expected to fall quite a bit in the coming year, opting for a NCD which will mature only 12-18 months from now will expose you to reinvestment risk, where you will be forced to park the maturity proceeds at a lower rate. For instance, Shriram Transport Finance NY bonds offering a coupon rate of 11.25% under the cumulative payout option has a residual maturity of 1.52 years. The yield-to-maturity (YTM) on these bonds is 10.6%. On the other hand, the Shriram Transport Finance NU bonds with same coupon have a residual maturity of 2.55 years. They are currently offering a YTM of 10.72%.
A big benefit of opting for NCDs is the possibility of capital appreciation in these instruments as the rates fall. This offers you a chance to sell them at a profit, instead of holding on to them till maturity. Raghvendra Nath, MD, Ladderup Wealth Managment, says, "With bond yields likely to come off by 1-1.5% in the coming months, investors could fetch decent capital gains on their NCD holdings." Besides, NCDs are a tax-efficient option as these are eligible for long term capital gains after one year. This means your gains will be taxed at a lower rate of 10% instead of at the rate corresponding to your income tax slab. However, the interest curearned on these NCDs will be taxable as per the tax slab of the investor. Keep in mind though that these NCDs are not easily tradeable despite being listed on the exchanges. As Nath says, "Liquidity can become a constraint for retail investors in NCDs." The trading volumes in some cases are very low, which makes it difficult for the buyer or seller to enter or exit at the desired price point. So you may end up buying at a higher price and selling at a much lower price than what you were looking for.
Credit quality is crucial
In both cases, investors must give due importance to the credit quality of the issuer. While your bank fixed deposits offer the highest degree of safety, company FDs and NCDs carry a much higher degree of risk as these are unsecured instruments. Invest only if you are convinced that the issuing company's financials are strong. Rege cautions, "Do not get swayed by the higher yield. Ensure the company's business model and financials are on a strong footing." This can be gauged from the credit rating assigned to the paper by the rating agency. 'AAA' or similar rated papers offer highest degree of safety, but fetch lower return. 'AA' and lower rated papers come with attractive coupon rates, but imply a higher degree of risk.
Investors need to be careful especially when dealing with some lesser known names in the manufacturing space. Nath reiterates, "You may take a call on lower quality paper provided you are dealing with marquee names in the manufacturing space, which boast of sustainable business."
By Sanket Dhanorkar, ET Bureau | 9 Feb, 2015,