Wednesday, 2 October 2013

How To Get Rid Of Your Debts.

We all take debts in our life at one point or other to meet our financial needs. Taking debts is not a problem but failing to repay them, most certainly is. 
Learn more on how you can solve your debt related problems and lead a debt free life, before you find yourself helpless coming from the swamp of Debts!!!!

Don't Ignore, Write it down:

          The first and foremost thing to do while in debts is to acknowledge that you are in debt. Sit and write it down.
          Mention all the debts you have taken and make a list with the ones having highest interest rates first. Prioritize how you want the pay your debts- with the ones having highest amount or the ones you can easily pay. I would personally suggest, pay the ones with highest interest rates, so that you pay less interest in the long run. Or if you are the other type who enjoys to clear their debts in terms of debts left, do that. Either way can work. Just continue to do that.

Stop adding more debt

          The important thing to do while dealing in debts is to avoid more debt. Try not to take any more debt, unless it is very essential. Just imagine, you are digging a hole, you take out two shovels of soil and throw back 4 of them. Will you be able to do that? Obviously no. So, while trying to get out of debts, make sure you make it a point not to take more debts.

Tell your friends and family.

          This might be sounding odd. But the moment you commit that you are in problem, your mind will start working on that one. You will be consciously working on that. Also, your friends and family can help you with this. In such times, their support is very important one.

Track spending and identify areas to cut back.

          A budget is not really hard to follow. You don’t need a sophisticated software to plan and prepare your budget. Just take up a pen and paper, make arrangements for your daily needs and electricity, groceries bills. Then make up your miscellaneous expenses. These are the areas, where you can look to cut out. Spending less on eating outside or watching movies won’t hurt you much.

Stop saving.

          Yes, need to stop saving. Not that you should not have emergency fund, you need to cut back your savings and utilize them for paying your debts. While in debts, the interest rate you are paying for the debts are much higher than those you would get on your savings. In a way, you are hurting your prospects in a long term. If you are saving and paying minimum repayments on your debt, it will take a long time to perish. Instead, attack your debt aggressively and try to clear them first. You will be saving in the long run.

Positive attitude.

Yes You Can!!!

         Like everything else in life, getting out of your debt is heavily dependent on your attitude. You must have the ‘Can DO’ attitude. Don’t give yourself into the victim’s mentality. Stop having self-doubts and attack the debts from the front, until they are gone!!!

So, now you have got everything you need to get rid of your debts. Stick to your plan and see your debts disappearing in front of You!!!
Learn more about the 9 financial mistakes we make.

Saturday, 28 September 2013

Do You Make These 9 Financial Mistakes?

We all make mistakes in our life, we just don't acknowledge it. Let's get straight to the point. Read about common mistakes we make in our financial life.

#9 Spending your money on rubbish.

 Yes, really. And you don't have the slightest idea of doing it. Why??? Because who don't like to spend on buying expensive designer clothes, branded shoes, perfumes and list goes on. Even if you don't buy pricey items, but keep on buying unnecessary things, you don't need, it adds fast. But it doesn't dawn on you until the credit bill arrives. Most of us are guilty of spending money on things we don't need. As the age old saying goes,'Cut your coat according to your cloth.' Chronic overspending and high-interest, revolving credit card debt are your worst enemies when it comes to financial success. Spend like you’re poor and you are much more likely to become rich. As Warren Buffett puts, "If you buy things you don't need, you will soon sell things you need."

Solution: Make a budget and stick to it.

#8 Failing to save for emergencies.

You have heard it hundreds of times: you should have at least six months of income in an emergency fund. But it's easier said than done. Most of us can get hit with major unplanned expense, whether it is a car or home repair, medical bill, accidents or unexpected job loss. When these things happen- and they do- people often get blindsided on what to do and get into immediate panic mode. This situations can really become worse if we don't the financial safety cushion.

Solution: Well, it's pretty easy- make an emergency fund and religiously put money in that. Also you can start savings fund. These simple habits can make a difference.

#7 Living Off Credit

Have you ever wondered, how that credit card in your pocket make you purchase things that don't need at all. have you ever purchased anything impulsively and then regret about it? So, what is the end result because of this habit? Your credit card bill goes on piling up and a time comes when all your savings are spent on paying your credit card bills.

Solution: Prioritise your spending. Whenever you need to purchase, look for the best rates offered and first research about it. Take debt only for important purposes like education, house. As a rule of thumb, try to keep your purchases under 20% of your income.

#6 Paying the minimum repayment on your credit card.

Yes, you know this. Credit card interest rates are the highest. By allowing your credit card debt to mount up, you are mounting up the amount you have to pay and saying 'yes' to years of cash repayment. 

If you have savings and also paying minimum repayment on credit cards, you are probably paying much higher interest rate on your credit than in any of your savings. For example, suppose you have a loan of Rs. 1000 and the same amount of savings. The interest rate on your savings might be 10% but on loan it would be about 14%. The maths part is really easy. On savings you are getting Rs. 100 while on loan you are incurring a loss of Rs. 280; a net loss of Rs. 80. This will impact your future spending power in a big way.

Solution: First of all try to clear your highest interest rates credit. This will help you pay minimum interests overall. Use your savings to pay of your debt. You can save in the long run.
(Read more on How To Get Rid Of Your Debts.) 

#5 Children are kept away from money concepts.

Many children (even teenagers) have a minimum understanding of money. They only view it as a way of getting stuffs. They don't understand the basic value of hard-earned money. They remain unaware of the fact how hard you work to put the food on the table or the electricity or phone bills you pay or the schools fees you have to pay. 

Instead, they get it easily in the form of allowance or 'pocket money'. Add to that some parents make a mistake of doing as per the whims of their children and provide them with whatever unnecessary things they ask for, that too, without even asking a question.

Solution: Try to instill savings habit in your children right from the beginning. Encourage your child to put aside some money in their piggy bank. Or you could provide them some tasks to earn that money, so that, they understand the value of money. 

#4 You don’t have a plan.

When it comes to planning, you don't have any budget or spending limit, particularly on non-essential items. By budget here, I don't mean a hard and fast budget, but to keep track of your spending on frivolous things. 

Many of us simply don't bother to keep a tab on our expenses. We are often shocked by the credit card bill that comes at the month's end. Then we pay it and forget about it. This could make a mess of your finances. By planning prudently, your savings can improve a lot. In this way, with the power of compounding, you can save a lot for your future.

Solution: Prepare a plan on how to spend the money. Keep aside fixed amount of money for essential spending and saving.

#3 Not diversifying your investments portfolio.

Taking too much (or too little) risk. A 30 year old having all his savings in Defensive portfolio(See more on Defensive Portfolio) is playing too safe or a 60 year old putting all his income in aggressive stocks(Read more to learn about Aggressive stocks) is playing with fire. Identify your risk tolerance and spread the risk across different portfolios like stocks, bonds, real estate. 

Solution: If you want to minimize risk, try different portfolios to invest with different proportion to them. A Hybrid portfolio can work best for you.

#2 Turning every investment into a speculative bet.

This is a big one you that you must avoid if you want to become wealthy. The main focus of your investments should be cash flow rather than capital appreciation. If you have cash flows, instead of looking to spend your money on speculations and small cap companies, try to invest it in some other investment opportunity. Taking too much risk can cost you dearly. You should have other options as well.

Solution: Invest around 10% of your assets in Speculative Portfolio and diversify assets in other areas.

#1 Using Your Heart, Not Your Head


Friday, 27 September 2013

5 Types of Portfolio To Increase Your Returns: Part 3

Hey, welcome back... So far we have seen three very different strategies for building Portfolios- Defensive, Fixed Income and Aggressive.(Read more about Defensive Portfolio and Income & Aggressive Portfolio .) So, two of the most fascinating ways to diversify your assets are Speculative portfolio and Hybrid Portfolio.

The Speculative way of doing it: Speculative Portfolio

Have you ever played a gamble? If yes, it's fine and if no, then it's fine too. Don't worry I am going to talk about gambling here. But when it comes to the part of Speculative Portfolio, it comes closest to a pure gamble. As an investor, you buy speculative stocks for spectacular gains rather than normal ones. However, it presents more risk than other type of portfolio. 

Where to invest?

Examples of speculative 'plays' include Initial Public Offerings(IPOs), technology or health care firms that are working or researching on a new product or a breakthrough technology, a new oil company yet to release its first production results. Another classic example of speculative play is to make an investment decision based upon the rumor that the company is subject to a takeover. Some say that the leveraged ETFs in today's market represent speculation also.

The Highs and Lows of it

A speculative portfolio is the riskiest way of investing money. But with great risks comes greater returns. Again, these types of investments are alluring: if you pick the right stock your returns could go sky-high, but the downfalls are also scary.

What to do then?

Speculative portfolios are the ones that require the most homework. Before investing in any stocks it is essential to examine the management quality of the firm, but this becomes even more important in the speculative end of the town. One needs to be aware of the happenings about the company and confident that the management can carry  out the targeted plan of action. The one thing every investor should remember is that speculative stocks are typically trades rather than the classic 'buy and hold' investment. The rule of thumb is to 'buy low sell high'. It is advisable that one should invest a maximum of 10% of assets to fund a speculative portfolio. All that being said, if you call the right shot, you could end up with returns that dwarf those of your other investments.

Hybrid Portfolio- Best of Both Worlds!!!

Yes, you heard it right. The main objective of these funds is to offer you the benefits of both- equity and debt. Hybrid funds do well in case the markets are going down, as they have the cushion of debt. So, they are better equipped in handling the ups and downs of the market. However, in case of rising markets, they may not deliver in comparison to their (100%) equity counterparts.

Allocating it properly

Basically, a hybrid portfolio would include a mix of stocks and bonds in a relatively fixed allocation proportions. This type of approach offers diversification benefits across different asset classes, since equities and fixed income securities have negative correlation with one another. It can also consist a mix of blue chip stocks and bonds in a rigid allocation proportions. Generally, allocation is done in 70/30 ratio, 70% exposure to equity and 30% to debt.
Hybrid Portfolio

Making it work for you

There is a lot of flexibility in the hybrid portfolio approach. It means venturing into other investments, such as bonds, real estate, commodities. REITs and MLPs can also be a part of your investment allocation. The principle behind this approach is to allocate your assets in various ways so that they have negative correlation. For example, government bonds tend to offer higher yields during recession times and this balances out the dips that the stock market takes during these periods.

Bottom Line

Having laid out all the strategies on how to invest your assets, investors should consider in investing in all types of portfolio in a variety of ways and to see which works for them best. This will not only increase your returns but also cover you for the risks associated with the market to a great extent. Despite the extra effort required for this, it will boost your confidence as an investor and devising a strategy of your own for the long run.

Read more About 9 common Financial Mistakes that you don't know you are making!!!

Wednesday, 25 September 2013

5 Types Of Portfolio To Increase Your Returns

Stock investors constantly hear the wisdom of diversification. As the age old wisdom goes, "Don't put all your eggs in one basket". This not only helps in increasing the performance or return on investment but also in mitigating the risk. It does make sense to diversify your hard-earned money against the roller-coaster market. There are many ways of diversifying and depends upon investments in various stocks and sectors. We look at the following portfolio types: Defensive, Income, Aggressive, Hybrid and Speculative. In this post, I will be concentrating mainly on Defensive Portfolios.

Defensive Portfolios:

The Defensive Portfolios aim to preserve capital with secondary objective of income and inflation protection. Defensive Stocks do not usually carry a high beta (volatility w.r.t. market) and are isolated from broad market movements. They are deemed as "non-cyclical stocks". Cyclical stocks, on the other hand, are sensitive to 'Business cycles' and are strongly tied to the overall economy. For example, during the times of recession, companies that tend to basic needs do better than those are focused on luxuries.

So, what are some sectors that would be deemed defensive? For starters just think of the essentials in your life and find companies that make these products. It can be anything ranging from: foods, beverages, utilities to pharmaceutical and medical stocks. They will always be in demand and less affected by the market performance.

Long term Performance Compared to Benchmark (20% S&P500 + 80% Barclays Aggregate Bond Index
To sum this up, defensive portfolio is prudent for most investors and dividends offered by most of these companies help to minimise downside capital losses. Although, defensive stocks rarely tend to see high rates of organic growth, they are suitable for investors who want to play safe.

Read more About 9 common Financial Mistakes that you don't know you are making!!!

Saturday, 21 September 2013

5 Types of Portfolio To Increase Your Returns: Part 2

 Hello friends. Last time we started off with the first of the five Portfolio types, namely, Defensive Portfolio(Read more about Defensive Portfolio). In this article, the main focus would be on the Aggressive Portfolio and the Income Portfolio.

Aggressive Portfolio:

As the name suggests, an Aggressive Portfolio consists of stocks with high risk/ high reward proposition. Stocks in these category have a high beta, which means they are very sensitive to the overall market. Higher beta stocks experience larger fluctuations relative to the market on a consistent basis. Suppose, your stock has a beta of 2.0, so it will typically move twice as much in either direction to the overall market. Hence they are considered to be high risk/ high reward investments. 

The majority of aggressive stocks are the companies in the early stages of their development and have a unique value proposition. This entails a very high degree of research, as these companies are, by their very nature, not very well known. Look online for the companies that have rapidly accelerating earnings growth. The most common sectors to scrutinize would be the technology sector but a company in any sector that is pursuing an aggressive growth strategy can be considered. As is evident, risk management becomes crucial when building and maintaining an aggressive portfolio. The key lies in employing a strategy of cutting the losses quickly and taking profits.
Aggressive Portfolio

Who should invest

An aggressive portfolio is appropriate for an investor with a high risk tolerance and a time horizon longer than 10 years. Aggressive investors are willing to accept periods of extreme market volatility (ups and downs in account value) in exchange for the possibility of receiving high relative returns that outpace inflation by a wide margin.

Income Portfolio:

An Income Portfolio's mainly focus on making money through dividends or other types of distributions to stakeholders. While the underlying assets may go up or down in value, the prime focus is on the income derived from them, as they are not so volatile as the assets. These assets are more or less similar to defensive stocks, except that they offer higher yields. An income portfolio should generate positive cash flow. Assets that can be used in this type of portfolio include Real Estate Investment Trusts (REITs) and Master Limited Partnerships (MLPs). These companies return a great majority of their profits back to shareholders in order to minimise their tax liability. Other income based assets include Government and Corporate Bonds, which are effectively IOU notes issued by government and companies with a fixed interest rate attached to them. Also REITs are an easy way to invest in real estate without bothering to own real property. However, keep in mind, that these stocks are subjected to economic climate. During economic downturn, REITs can take a beating, as building and buying activity dries up.

Income Portfolio

An income portfolio can make for a stable accompaniment to most people's paycheck or other retirement income. Look out for stocks in slow growth industries that have fallen out of favor and have still maintained high dividend policy, as these offer the opportunity for capital growth as well as income. Utilities and other slow growth companies are an ideal place to start the search.

So far, we have seen three types of portfolios depending upon the investments in various sectors. The risks involved vary with the selection of stocks and the expected gains in the same proportion. The next article will conclude with the Speculative and Hybrid Portfolio.

Read more About 9 common Financial Mistakes that you don't know you are making!!!

Thursday, 19 September 2013

Welcome to financestudentblogger

Hi friends...
This is my first try at writing blogs. One article has already been published. Hope you would like it.
The posts will mainly contain about personal finance and sometimes related to other financial fields as well.

Feel free to comment and ask any questions.

Read about 9 Financial Mistakes That We Make....