Personal Finance; Different Avenues (Part 2)

Last week, I had written about Personal Finance and talked about certain points. In case you haven't read it, you can check it here.

In today's post, we will discuss about three different avenues available for you to invest and in some cases to protect your savings.

• Fixed Deposits and Recurring Deposits
  
  These two are the financial instruments which you would have easily come across in today's world. FDs and RDs provide a higher rate of interest than a regular savings account. The maturity date is fixed when you opt for a tenure ranging from 7, 15 or 45 days to 10 years. The interest rate usually varies between 4 and 7.50 percent, however it is based on the monetary policy adopted by the Central Bank of any country.
  
  Recurring Deposits is a kind of term deposit mostly useful for people with regular monthly income to deposit a fixed amount every month into their recurring deposit account and earn the applicable interest rate.
  
  The most important point to note while calculating the returns from FDs and RDs is Tax Rate. The interest earned from these instruments are chargeable to Income Tax.

• Public Provident Fund
  
  PPF is a savings and a very popular tax saving instrument in India.
  The scheme is fully guaranteed by the Central Government. A minimum yearly deposit of Rs 500 is required to open and maintain a PPF account. The maximum amount which can be deposited in a year is Rs 1,50,000/-.
  The interest rate is compounded annually and paid on 31st March every year.
  The total duration of the scheme is 15 years and thereafter the subscriber can choose to extend for blocks of 5 years each.
  The interest rate is declared quarterly.
  
  The important point here to note is that there is a lock in period of 15 years. Premature withdrawals are allowed from the start of the seventh Financial year. Entire corpus on maturity is tax free.
  
  For more on PPF click here.
• Stock Markets
  
  One can invest in Stock Markets either by investing directly in stocks or through the Systematic Investment Plan(SIPs) with the Mutual Funds.
  
  For investing directly one needs to open a demat account with a depository and a trading account with a broker.
  The basic difference between Trading and Demat account is that Demat account keeps your shares electronically and Trading account keeps your funds which are invested in Stock Markets.
  Investing directly is generally perceived to be little more difficult than investing via Mutual Funds. The key while investing directly is to understand the basics first and educate yourself.
  
  This is a vast subject and here are a few re plugs of old posts on it which might be useful :
  http://pratikmantri.blogspot.com/2016/11/mistakes-you-should-avoid-while.html
  http://pratikmantri.blogspot.com/2016/06/key-learnings-from-investing_43.html
  http://pratikmantri.blogspot.com/2017/05/books-on-investing-and-stock-markets.html
  
  
  The other option to invest in Stock Markets is through the Mutual Funds route. The basic concept of MF is that it pools money from many investors to purchase securities. MFs help in diversification, liquidity and professional management. MFs not just in invest in securities/stocks but they also invest in debt markets.
  
  There are few funds which are eligible to get you the rebate in Income Tax in India, they are Equity Linked Savings Scheme (ELSS). There is a 3 year lock in period in ELSS.
• National Pension System
  
  It is a voluntary defined contribution pension system in India. It is tax efficient under various Sections of Income Tax Act and is managed by Pension Fund Regulatory and Development Authority (PFRDA).
  
  It is a market linked product but with restrictions on its withdrawal but provides an attractive long term saving avenue to plan for retirement.
  
  You can find all the details about NPS here.

There are other savings instruments like National Savings Certificate, Sukanya Samriddhi Yojana which I have not discussed since that would have made this post even longer!

Personal Finance; Basics (Part 1)

I have always come across many people who have done all the hard work in their respective careers and professions but have been unsure of how to efficiently manage their personal finances. I will attempt to present few basics of Personal Finance in the layman's language.
So, Personal Finance at a very basic level is managing your money in the most efficient manner. It includes saving, investing, insurance requirements, retirement planning, real estate needs and tax planning.

It is about meeting personal financial goals, funding different goals like your child's education and marriage, planning for your retirement, buying a dream home or just accumulating wealth.

The first rule of personal finance is always 'Pay yourself first' this simply means that a certain percentage of income needs to be saved before it is spent. Income minus savings is expenses and not the vice versa. Once you have identified your financial goals, take an estimate of inflation adjusted requirements and decide how much of savings or investment is needed to achieve that. Saving the 10 percent of your income is a good start according to me and then increase it to 20 or 30 percent. You also need to manage based on your phase in life like when you are young, you have relatively less liabilities but that increases as you age. There are a very few basics on this, one of them is 50/30/20 rule.

The 50/30/20 rule is a very popular budgeting method. This method can be divided into the following three parts:

• 50 percent of your take home income should ideally go towards living expenses including routine household expenses, groceries, rent, utilities etc
• 30 percent of your take home income should ideally be for lifestyle expenses and spending on things like dining out, travel etc
• 20 percent of your take home income should be saved for your future goals including retirement, short and long term goals and also paying down debts.

The idea is to create a broader framework for maintaining a better control for your finances. The above percentages can be changed based on the age and circumstances of the person since we cannot accurately predict everything in the financial terms.

Another aspect important here is maintaining an adequate Emergency fund of say 3-6 months. As the name suggests, it is generally for financial emergencies. It can happen anytime hence you need to provide a cover for your household and monthly recurring expenses by saving enough. You cannot risk missing an EMI.

Keep a Tab on your expenses. If you are someone who is used to living a life from paycheck to paycheck then you are probably spending too much or need to work hard to increase the income. There might be a lot of unplanned expenses which can be avoided. There are lots of apps like Mint, Level Money which help in monitoring the expenses, using that might be useful. You can also categorize the expenses based into necessities or luxuries, fixed or variable. A more focused approach will lead to positive results in no time but you need to stay committed to the plan.      

Happy Saving!

Credit Cards, Worth it or not?

We all have heard of Credit Cards and usually get a lot of spam calls and messages for opting for a certain Bank's credit card. Here, in this post we are going to analyse whether it is a good idea to go for a credit card or not.

The Advantages

• It helps you build your credit history. Your credit history is your track record of borrowing and paying it back. It also determines your credit score, which is the basis of sanction of loans. Good credit score will always take you closer to your financial goals (by getting loans at competitive interest rates) if used responsibly.
• More secure than actual cash. You don't have to carry cash all the time for your purchases. If you lose your Credit Card or someone uses it for fraud, you can report such unauthorized usage to Card issuer and can block the card at the earliest.
• Reward Points and Cashbacks. If you use a credit card for your routine expenses, then reward points will add up fairly quickly. You can choose to redeem those points based on your requirements. 
• Better purchasing power with increased credit limits offered to card holders.
• Interest free credit and in some cases interest free EMIs too thereby helping you to manage your cash flows a bit better. 

The Disadvantages

• Uncontrolled spending. You get a higher credit limit and might push few people to go beyond their means. They will then enter the vicious debt cycle. It's important to only spend that much which you can payback every month. 
• Credit Cards Interest, Fees and Penalties. The interest rates on the outstanding amount if remaining unpaid after the due date usually ranges from 2.80 % per month to 3.9 % per month or more than 30 % per annum. This is 45 % p.a. in some of the cards. There are late payment fees, Cash Advance charges apart from the interest accrued on the outstanding amount.

We have looked at both the pros and cons of Credit Cards. Now here are certain important aspects related to credit cards which are mentioned in the Card agreement which we usually don't read.

1. If you have a dispute over billing say for Rs 500 then also pay the total outstanding amount which has been billed. Here's the fine print on that, say for example, you have a bill which is generated on 1st July with its due date falling on 18th July and you didn't pay the full amount because of dispute, right. Now, for all the transactions which you have done after 1st July will attract interest and penalties. You will be charged for interest on Rs 500 as well as the unbilled transactions from 1st July.
   So, this is a big don't in credit card. There are good dispute mechanisms in place and you can expect a refund for any disputes but recommend to pay the billed amount. 
2. Don't ever withdraw Cash from Credit Cards. You will start paying interest on every spends from thereon.

Conclusion

• Use a Credit Card and maybe use multiple cards with higher limits and lower limits but pay off the bills well before the due date.
• Use a credit card instead of a debit card when you are not sure about merchants because debit cards are much more difficult to recover money from. 
• A prudent Credit Card user can easily reap maximum benefits by managing reward points and other loyalty programs. 

Credit cards can easily turn from being a blessing to a curse if it is not used with control. Always ask yourself whether you really need this thing or not? Can paying it with cash possible? Stay interest free as long as possible.

What Unexpected 'Stay'cation At Home Means To Us

The breakout of Corona Virus has meant that we all have been confined to our homes. It has been a dramatic shift in the schedule for most of us who were used to an outgoing life but this has also been the time for us to reflect on our life. It is the time to revisit our priorities and probably reset them.

Staying indoors has meant spending a lot of time with family which was not the case before in our fast paced life. This pause, however untimely and unexpected it is, should be used an event to re-energize ourselves . The fact that I am writing this on my blog for the first time after 2018 can be the best example! :)
There is so much that can be done productively at home to improve our self. And there is always the right time to do that.

What matters has sharply come into focus. Family, Love, Health, People, Community, Generosity and most of all self awareness about a particular situation. Talking to parents and having their complete attention is like having childhood back again. Simply priceless!
We can do so many productive things while at home. Here's what I can think of:

• Reading books which many of us purchase but do not read or leave it midway. I think we can do that and take up writing once again which can be in any medium like blogs, journals or Quora.
• Pursuing a hobby which doesn't require you to go outdoors like Painting, Cooking, Paper Crafts etc
• Doing household chores and even doing it completely and giving your Mom/Spouse some rest.
• Yoga and Exercises at home. Keeping yourself physically and mentally fit is always important.
• Go for some mind games like Sudoku or Chess or any other game which challenges your mind.
• Talking to your loved ones who stay far away. There's nothing like that. Call up that friend whom you haven't spoken to in weeks since you were busy.
• Eat well nutritious food to stay healthy.
• Learn something new by opting for online courses on the subject/hobby of your choices.   

Haven't included Web series because that's by default everyone's choice. 

That's it. Hope you make the most of these times. Be positive and keep learning and improving.