- It’s time to put your wild spending from your 20s in the past and start spending money more wisely by becoming aware of the most important financial concepts.
- Three Important Strategies to Handle Your Money
- Why a Savings account is not actually savings account?
- Where should you invest money?
- The Magic of Compounding
- Long-term vs. short-term savings
- Mutual Funds
- Stock Market
- How are mutual funds evaluated?
- Expense ratio of mutual funds.
- Fixed Deposits
- Exchange Traded Funds (ETFs)
- Liquidity
- Corporate Bonds
- Index Funds
- Section 80C – How can I save tax under Sec 80C
- Provident Fund (PF)
- Tax-exempt bonds? Who should invest into them?
- ELSS
- How can I save money on taxes with the National Pension Scheme (NPS)?
- Why is insurance not considered an investment?
- ULIPs
- Why Investing in Gold ETF is better than Gold?
- Is Real Estate Investing Good or Bad?
- Why should everyone have an emergency fund?
- Why Loan not a bad word?
- Dividends
- National Pension Scheme (NPS) – How can I save tax with NPS?
- What is your net worth?
- When can you retire?
- Conclusion
It takes a great deal of effort and self-control to be financially knowledgeable. It takes time for it to mature. Some people never save a cent during their entire lives, living paycheck to paycheck.
Although it may not seem appealing, receiving early financial literacy instruction can surely put you on the correct track. So if you have adequate time to begin managing your money, think again.
Even though you think you are still youthful and unstoppable while you are in your 30s, the terrifying truth is that you are already half way to retirement.
It’s time to put your wild spending from your 20s in the past and start spending money more wisely by becoming aware of the most important financial concepts.
Three Important Strategies to Handle Your Money
I’m confident you already know this, but it’s pretty basic. You can earn money in three different methods.
- Increasing income
- By putting aside more money
- By increasing the rate of return on investments
You must acquire skill sets that businesses value if you want to earn more.
You can expect a higher salary the more irreplaceable you are. Because you do not want to spend the rest of your time working, saving is important.
What if you experience an emergency?
What if you have high ticket costs like a wedding, a home, etc.?
But what provides your finances a significant boost? It’s the time when your investments start yielding significant returns.
Why a Savings account is not actually savings account?
You may have a lakh in your bank account, and you must be proud of yourself for making such a large commitment.
I’m sorry to let you down. By keeping your money in a savings account, you are losing money.
Savings account interest rates are typically around 4%, but inflation is much greater than that.
You are essentially losing money. Additionally, there is always the temptation to spend money on items that are not necessary.
Since the main use of money is to make purchases, you ultimately lose your money. Additionally, you will be able to purchase less due to inflation.
Where should you invest money?
By investing, you can put your money to work and increase your income.
Your money can be invested in a variety of ways.
However, each of these three—equity, debt, and asset—is what they all are at their core.
Equity denotes that you will receive a portion of a company’s earnings and that you in some way own a stake in it.
You can invest in equities in a variety of methods, including by purchasing the stock of publicly traded companies, purchasing equity mutual funds that do the same, or purchasing the stock of privately held businesses.
When you give money to someone with a promise of interest, you are in debt.
An illustration of debt is a fixed deposit (FD). Governmental groups borrow a lot of money.
When dealing in debt, there are two crucial considerations to make.
- Duration of Leanding
- Interest-rate
In addition, you should verify the likelihood of default and make sure you will get your money back.
The alternative is to invest in tangible goods like bullion or real estate.
The Magic of Compounding
Compounding is the process of reinvesting income from a commodity, such as interest or capital gains, to generate more income over time. The original principal of the investment and the cumulative earnings from prior periods, which are computed using exponential functions, will generate earnings for the investment.
One of the best moves you can make in your life is to start increasing your money as soon as you can. Simply stated, a positive feedback loop is created when you start earning interest on the interest you have already earned.
Compounding occurs when dividends or proceeds from an investment are reinvested. More yields are then generated by these earnings or dividends. In other words, compounding happens when your assets produce income from previously generated income.
To optimise the potential Power of Compounding, for example, if you invest in a stock that pays dividends1, you might consider reinvested the dividends.
Long-term vs. short-term savings
| Basis | LONG-TERM INVESTMENTS | SHORT-TERM INVESTMENTS |
| Meaning | Investments that have been held for more than a year. | Investments are held for a short period of time. |
| Period | Longer period. | Shorter period. |
| Market Risk | High-risk factor. | The level of risk is low or moderate. |
| Liquidity | Usually illiquid. | A higher degree of liquidity. |
| Rate of Return | Comparatively higher rate of return. | Low rates of returns. |
Mutual Funds
Many people may find mutual funds confusing or intimidating, but a Mutual Fund is basically just a collection of investors’ money that many different people have pooled together.
This investment is managed under the supervision of a qualified Fund Manager. Additionally, it is a trust that collects money from numerous investors who have comparable financial objectives. Following that, it makes investments with the money in assets like stocks, bonds, money market instruments, and other types of investments. Each investor thus possesses units, which represent a portion of the holdings of the fund.
The income or gains from this collective investment are divided proportionately among the investors by calculating a scheme’s “Net Asset Value, or NAV,” after certain costs have been taken into account.
Stock Market
The stock market is one of the components of a free-market economy. By selling stock shares and corporate bonds, it enables businesses to raise capital while giving investors a chance to benefit from the company’s financial success through capital gains and dividend payments.
The stock market provides a platform for directing personal savings and investments into successful business endeavours, which aids in capital formation and the country’s economic growth.
How are mutual funds evaluated?
Investing in mutual funds entails a certain level of risk. On the other hand, a mathematical calculation of past returns can be used to evaluate the performance of a mutual fund.
Due to the relationship between potential risk and prospective returns, there are always chances to invest in mutual funds and generate the greatest potential profits with the least amount of underlying risk.
How to evaluate the effectiveness of mutual funds is as follows:
Comparing Portfolio Quality Risk-Adjusted Results to Peers through Benchmarking
Expertise of the Investment Manager
Goals for Personal Finance
Fees for the Foundation
Expense ratio of mutual funds.
Each product or service you buy or use has a price. Mutual Funds are the same. Asset Management Companies (AMCs) or Fund Houses offer us a variety of Mutual Funds, each of which is administered by a qualified individual.
It takes a lot of money to manage the fund and its operating expenses behind the scenes. This fee, which is distributed to investors as a percentage of the worth of your money, is known as the mutual fund expense ratio.
Fixed Deposits
Banks and Non-Banking Financial Institutions (NBFI) offer their customers Fixed Deposits (FDs), also known as financial tools, to help them save money.
A sizeable sum of money may be deposited into an FD account for a preset amount of time at a predetermined interest rate. After the period, you receive a lump sum with interest, which is a prudent financial move. Banks give various interest rates for fixed deposit accounts.
A Fixed Deposit can be placed for up to ten years, but not less than seven days.
Exchange Traded Funds (ETFs)
Similar to a stock, an ETF, or exchange-traded fund, is a group of assets traded on the stock market. Exchange-Traded Funds are investment vehicles that combine the funds of numerous investors and use them to purchase a variety of tradable financial assets, such as derivatives, debt securities like bonds, and shares.
Most ETFs are registered with the Securities and Exchange Board of India. (SEBI). As a result, novice stock market investors may find it to be a desirable choice.
Liquidity
Liquidity refers to the money that is easily available for spending or to meet financial requirements during an erratic financial crisis. The capacity to access your investment when you need it is known as liquidity. This takes your access to your money into account.
Throughout the process, it also takes into consideration the time needed to finish all the necessary paperwork. For various assets, this process is distinct and different. Although liquidity is a crucial component when it comes to multiple investments, many investors try to minimize its importance.
Corporate Bonds
A corporate bond is a form of debt security that is offered to investors. In return for supplying the business with the necessary money, the investor gets a set number of interest payments at either a fixed or variable interest rate.
When the bond “reaches maturity,” it ceases making payments and the original investment is returned. The security for the bond is usually the company’s ability to return the bond, and this ability is predicated on the company’s anticipated future revenues and prosperity. The company’s physical properties could rarely be used as security.
Index Funds
The Standard & Poor’s 500 Index, for example, is an example of a financial market index. An index fund is a specific type of mutual fund or exchange-traded fund (ETF) whose portfolio is constructed to correspond to or track the component parts of a financial market index. (S&P 500).
Index Mutual Funds advertise their broad market exposure, cheap running costs, and low stock turnover rates. Additionally, these funds stick to their standard indicator no matter how the markets are doing.
Section 80C – How can I save tax under Sec 80C
The money Tax Act of 1961’s regulations may be used by the government of India to tax any money made in India, according to the Indian Constitution. (aside from agricultural income).
This tax is levied on the revenue received by individuals, Hindu Undivided Families, companies, LLPs, groups of people, organizations of people, and other artificial legal entities.
In order to lower their tax responsibilities, individuals may be able to significantly reduce their income tax payments thanks to a few tax exemption provisions included in the Income Tax Act.
Under Section 80C, a number of expenditures are deductible. Some of the most well-known are listed below:
- Public Provident Fund or PPF
- National Savings Certificate or NSC
- Equity-Linked Savings Scheme or ELSS
- Unit-Linked Insurance Plans or ULIP
- 5-Year Fixed Deposit: Bank or Post Office
- Life Insurance Premium Payment
- Principal Repayments on Loan for purchase of House Property
- Children’s Tuition Fee Payment
Provident Fund (PF)
The PPF Account, also known as the Public Provident Fund plan, is one of the most popular long-term savings and investment goods because it blends protection, returns, and tax advantages.
The PPF was first made accessible to the general public in 1968 by the National Savings Institute of the Finance Ministry. Since then, it has developed into a powerful instrument for assisting buyers in creating lasting wealth. Investors in PPFs use it to regularly put money away over a long period of time to build a fund for their retirement. (PPF has a 15-year maturity and the facility to extend the tenure).
Due to its alluring interest rates and tax benefits, the PPF is a top option for small investors.
Tax-exempt bonds? Who should invest into them?
Bonds with a tax-free interest rate are fixed-income assets that are distributed by governmental bodies. The pre-fixed income is paid to owners each year without them having to pay taxes on it.
Like other bonds, they also return the capital sum when the bond matures. These notes are available for trading both directly and through a DEMAT account.
ELSS
An equity linked savings scheme (ELSS), an open-ended equity mutual fund, invests mainly in stocks and other assets with an equity component.
According to Section 80C of the Income Tax Act of 1961, they fall under a specific category of Mutual Funds that are qualified for tax deductions. As a result, they are commonly referred to as tax-saving mutual funds. Taxes can be cut while earning decent returns with mutual funds that give ELSS.
At least 80% of the assets of the plan are invested by these funds in equities. As a result, if you want to invest for long-term goals like creating a retirement fund, their prospective profits are closely linked with the success of the stock market.
How can I save money on taxes with the National Pension Scheme (NPS)?
The National Pension System (NPS) was established as a voluntary, defined contribution retirement savings program to assist participants in making the best decisions for their future through methodical saving throughout their working lifetimes.
The NPS wants to encourage people to make preparing for retirement a routine. Giving every Indian resident an adequate retirement income is a problem that needs a long-term answer.
Individual assets are combined into a Pension Fund by the National Pension System (NPS). Then, PFRDA-regulated professional fund managers make investments in diverse portfolios made up of stocks, corporate debt obligations, government bonds, and bills in accordance with authorized investment guidelines.
Depending on how well the investments perform, these payments will rise and build over time.
Why is insurance not considered an investment?
Financial goods are invested in with the aim of making money after taking into consideration the investor’s financial goals, risk tolerance, and anticipated yield. The commodity can be held onto and periodic returns, if any, profited from, similar to some fixed-income investments.
Alternatively, you can sell it later for a one-time profit to accomplish your financial goals, such as paying for a child’s schooling, a down payment on a house, or as a corpus for your post-retirement requirements.
A pure-term insurance plan provides the user with absolutely no advantages, both during the policy’s term and after it has ended. The nominees, however, are the ones who get the funeral benefit in the case of a premature demise. Insurance is intended to prevent your loved ones from going into destitution after your passing, not to make you rich while you’re still living.
ULIPs
The formal term for ULIP is Unit-Linked Insurance Plan. ULIPs mix insurance and money. Only a tiny portion of your money is invested in your livelihood; the rest is in the stock market. Policyholders can pay their premiums regularly or annually.
The stock market dangers have an impact on investments in Unit-Linked Insurance Plans. (ULIP). The policyholder must endure the financial risk connected with their portfolio.
As a result, your investment choice should take your requirements and risk tolerance into account. A distinct element to consider is the need for money in the future.
Why Investing in Gold ETF is better than Gold?
| S.No. | GOLD FUNDS | GOLD ETFs |
| 1. | Returns associated with the metal business. | Returns that are immediately related to real gold. |
| 2. | There are growth, dividend, SIP, and lump payment choices. | Lower Expense Ratio. |
| 3. | Active management has the possibility for better profits. | It does not save money on taxes. |
| 4. | It is now available for trading on the market. | It is tradable in the market as well. |
Is Real Estate Investing Good or Bad?
Some individuals are passionate about real estate business. Insinuations such as “Real Estate Never Goes Down” are common. However, it is critical to comprehend a few key Real Estate details.
- Plus Points.
- If something goes wrong and you own a house, you will at least have a spot to remain.
- You can also grow something if you have farming property.
- Rent will be generated if you have purchased a home. Similarly, agricultural property will create something and generate revenue for you.
- Negative Points
- In today’s market, real estate requires a large initial expenditure. Unlike stocks, which can be purchased for Rs 100 or Rs 1000, real estate assets are usually measured in lakhs or crores.
- Real estate assets are not very liquid; you cannot trade them at any time.
Why should everyone have an emergency fund?
The term “Emergency Fund” alludes to money set away for use by people in times of adversity. The aim of a catastrophe Fund is to improve financial security by providing a safety net that can cover unexpected expenses such as a medical catastrophe or major house maintenance.
The assets of an Emergency Fund are typically cash and other accessible assets. This reduces the need to squander retirement funds or risk your future security by utilizing high-interest debt alternatives such as credit cards or unsecured loans.
Why Loan not a bad word?
A loan is an amount obtained with the intention of repaying it over a set length of time. The size, duration, and interest rate of the debt will all influence how much must be repaid.
Loans help us in 3 ways-
- We cannot manage to buy something with our current savings, but we can pay for it fast with future earnings and savings. Example: A CAR Loan.
- Tax Benefits: Some loans have tax benefits because the government wishes to promote these particular kinds of loans. Housing and education loans are two examples.
- It can help you overcome inflation (if the loan interest rate is lower than the inflation rate); inflation, believe it or not, eats up the majority of your assets.
If the interest rate is smaller than the inflation rate, you lose money. So it’s preferable to use that money now, or even better, take out a loan!
Dividends
A dividend is a payment given to shareholders by a business that is determined by the board of directors. Quarterly dividend payments are common and can take the shape of cash payouts or stock reinvestments.
Dividend yield, or dividend per share, is stated as a proportion of a company’s share price, such as 2.5%. A common shareholder of a dividend-paying business is qualified to receive a distribution if they own the shares on the ex-dividend date or sooner.
When a company has excess currency due to earnings or reserves, it distributes it to shareholders as dividends. A corporation is not required to pay profits. Some businesses think they can better use this money to grow and provide greater returns.
National Pension Scheme (NPS) – How can I save tax with NPS?
The National Pension System (NPS) is a voluntary, defined contribution retirement savings plan designed to assist participants in making the best decisions for their future by encouraging systematic saving throughout their working lifetimes.
The National Pension System (NPS) seeks to help people establish the practice of saving for retirement. It is an attempt to find a long-term answer to the problem of providing an adequate retirement income to each Indian resident.
Individual assets are pooled into a Pension Fund by the National Pension System (NPS). PFRDA-regulated professional fund managers then engage in diversified portfolios that include stocks, corporate debt obligations, government bonds, and bills in accordance with authorized investment guidelines.
These donations would grow and build over time based on the returns on the investments made.
What is your net worth?
Simply stated, net worth is the quantity left over after subtracting obligations from assets. Mortgages, credit card debt, student loans, and auto loans are all examples of disadvantages.
Obligations that can be deemed burdens include bills and taxes. The items of a person’s bank and savings accounts, the value of their real estate, the market value of their vehicle, and other instruments such as equities and bonds all contribute to the value of their assets.
After all assets have been sold and all obligations have been repaid, the net value remains.
Assets – Liabilities = Net Worth
When can you retire?
Retirement is the decision to cease working and depend on assets or other inactive forms of income. Each individual will have various retirement ages, lifestyle options, and financing ways based on personal preferences and money planning.
Retirement planning involves planning for your future so that you can continue to accomplish all of your goals and dreams on your own. This includes setting your retirement objectives, determining how much money you will need, and making purchases to increase your retirement funds. Every retirement plan is unique.
Because you may have specific goals for your retirement, it is critical that you have a program that is tailored to your particular needs. You do not stop working.
You may have different goals for your existence after retirement.
You might also want to maintain your normal way of living while not worrying about money. Advance planning can define the route to reaching these living objectives without depending on cash.
Conclusion
We trust that these highly important financial facts will help you in your quest to learn more about investing, finances, and money management. Last but not least, please bear in mind that this site is only meant to be read for instructional reasons and should not be interpreted as a suggestion.