Random Ramblings

Inflation is a powerful term. It has helped change public discourse & has also been instrumental in rise and fall of governments. It is this fancy number which, of late, has been hovering not too far from the 5% (per annum) mark in India. Roughly put, this means that you are paying 5% more for the commonly used things than a year back. Of course, there are some bad years too as far as inflation number is concerned. And these bad years can dent your finances, especially if you are living paycheck to paycheck. But has your cost of living really increased by around 5% (or whatever the inflation number is) over last year. And 5% over year before that? There is no one size fits all answer to the above question. But for a good chunk of people this "inflation" number is probably more. This is more to do with tendency of ones needs, wants and desires increasing over a period of time. So, while inflation measure the price increase in a fixed basket of ...

In my earlier posts I have often argued that personal loan is one of the worst form of loans, and I stand by it. And maybe, this subject line may seem to be a click bait! Yet there are few benefits (relatively speaking!) of taking a persona loan vis a vis the other alternatives available at that point of time.  Here are a few of them: It can help you tide over unforeseen emergency. (e.g medical, or sudden unplanned expense for child's education).  It may, at times be, less worse option than taking a credit card debt, or maybe even a consumer loan (depending upon the rate of interest offers) If you analyse your personal loans and realize that you have been losing lot of money, you may be tempted to take corrective actions and this can do wonders for you in long run! It may help you build a credit history. Not sure, if taking personal loan is worth it, though.  And if instant gratification at the cost of potentially paying more for it (and jeopardizing financial ...

In one of my earlier blog posts - Saving & investing money versus living life king size I have broached upon the concept of  opportunity cost of saving/ investing. Post which I had discussion with few people on this and realized that this can be a concept that can be explored further. Whatever you choose to spend/ splurge has a associated associated opportunity cost in terms of what that money can do in terms of future value if it is invested somewhere. For instance the fifth wrist watch you added to your collection after spending Rs. 3500 could have been avoided, and you could have invested equivalent amount elsewhere. Or the 4 unnecessary weekend pub hopping which costed you Rs. 5000 could have been invested somewhere. Or spending Rs. 500 per month on your DTH subscription which you don't use because you have Netflix & YouTube! Or the Rs. 1200 worth of new gym bag when a regular bag may suffice ... Agreed that one can't keep on doing this for each and every spen...

There are several approaches to investing one can take. And there can be many of these approaches that can be right. Not necessarily the ones with maximum returns, but the ones which fit your objectives. It can be maximization of returns (but with capacity to take risk), capital protection, diversify and so on. Yet we make mistakes. Almost everyone does at some point of time or other. And many times. However, some mistakes are more common than others.  Based upon my observations, here are the most common mistakes that investors make: 1. Too much debt in life - These people typically correlate affordability of things to access to loans & availability of EMIs. EMIs can come in different shapes and sizes. It can be 10% car loan, 12% personal loan, 14% consumer loan or 36% credit card debt! And before you realize. you are in a debt trap. Many of these people may though, not stop SIPs in stock market, because "stock markets give 15% assured returns in long run", they h...

Should you save money or should you live life king size and enjoy your life - is one of the perennial question about people who are interested in doing a bit of financial planning. (Of course, the question doesn't arise if you don't do financial planning at all - you'll, in all probability chose the latter). Taking a step back, one needs to understand what is meant by "living life king size" in the above? Rather than going into an attempt to give a standard definition, I'll try to pose scenarios - Do you always want the latest model of iPhone? And the iPad? And you are willing to consider buying an Apple Watch also? Your car needs an upgrade every few years? From an Alto to i10 to Honda City to (hopefully!) CRV in few years. For you affordability of things means easy access to EMIs? You want to keep upgrading something or the other in your house every few months - One year it may be the cupboards, the other year it may be the sofas, and the next year...

Often one is sold (or at least made an attempt to!) products/ schemes/ investments which seem great, and sometimes too good to be true. But these great things are usually built upon some assumptions, some seemingly credible, some seemingly shady. But are all these premises true or there is more to it than what meets eye? Few instances - - An insurance/ ULIP agent selling us policy which gives x % returns (but assures nothing, so you may be exposed to more risk than what you think) - SIP returns calculator letting you calculate based upon "assumed" 15% rate of returns (reality can be different on either side - so, be aware of both scenarios unless you are an incorrigible optimist!) - Bank FDs giving assured rate of returns, assume that banks will be able to return money (or the government, partly, if the bank goes bust!) - Assumption that real estate will grow @ x% and give "assured returns"? Or your will earn rent equivalent of EMI (don't understand how!...

"Things you own end up owning you" - Fight Club __________________________________________ Minimalism - A buzzword which one hears often, seldom understands and rarely follow. But many people (including me) have it as a part of their wishful thinking. Different people have different interpretation of minimalism. For some it is about things, for some it is about the things they own (or not own) For some this includes non-things too (for instance, number of people one interacts with in day to day life). For others it may be about prioritizing experiences over things. For some it may be about partially automating a part of their lives. The above interpretations may not be mutually exclusive. Nor they need be one of them or just one of them - there are many more interpretations & combinations of interpretations possible. But one underlying thing is the need to de-clutter. More so, if one tends not to be too attached to things. How can minimalism be helpful? Here is ...

PPF (Public Provident Fund) is one of the common investment options among Indians - be it salaried individuals or someone else. In addition to offering Income Tax benefits under Section 80C, it also offers assured returns (current rate of interest is 7.6%). And even the interest earned is also completely tax free. But is it really worth investing in PPF or are your investments better off in some other avenues? Here are some pros and cons of investing in PPF. Pros Tax benefit up to Rs. 150,000 under section 80C of Indian Income Tax Act.  Good rate of returns - currently at 7.6%. Rate of returns is typically 50-100 bps higher than that of FD in major banks. Effective returns are more since the interest earned is also tax free.  Since there is a lock in period of 7 years (after which you can start withdrawing partially), this can form a habit of forced savings, if you are someone who is prone to impulse buying. Over the years, the amount of interest you can earn on you...

Any one with even an iota of interest in personal finance & its workings would probably know that credit card debts and personal loans are usually the worst kinds of debt traps that you can fall into. Yet many people fall into that trap again and again. Many people do come out of it eventually but some don't & this becomes a part of their "lifestyle". That you are eventually paying much more than you need to, if you default on credit card payments intentionally or unintentionally (probably @ 36 % per annum or something similar) or take a personal loan (say, @ 12% per annum or so) is not hard to fathom. However behind these numbers, there may be even a deeper story - that usually that of not having control over expenses or not having created a buffer amount. While there may be some pressing need like unplanned or recurring medical expenses which fuels sudden demand of money or an unexpected job loss, in many other cases this need may be fueled by lack of plani...

"Investment" - This word is much used and often much abused one. One keeps on hearing this almost all the time be it in office or catching up with friends or attending a family functions - almost everywhere. More so when we are fed with lot of information about how one needs to make money work to get more money. However, for a lot of people, the clarity on one question is often lacking - What is the purpose of investing? And even if one knows his/ her purpose of investing, it is often not implemented in real life. For instance, purpose of one's investments may be having sufficient funds in times of need. Yet they may opt for a personal loan when faced with pressing need for money. Based upon my observations, below are some of the most common purpose of investments (in no particular order) I invest because there is some sufficient funds lying with me and I can get great returns. I am investing for some specific goal - buying a house, education of kids, m...

Stocks (and hence mutual funds) are often sold as something that give "assured" long term returns over a period of time. While this has been true for most of the times, and all time if we consider a long enough time horizon in India's recent history but is this always true? Can it be possible that stock markets can give lesser, say 10% returns over next 10 years? Or 5 percent annual returns? Or, taking inspiration from Nicholas Taleb, a black swan event happens and your end up barely recovering 80 percent of your principal amount (i.e. 20 percent loss) -   Theoretically yes.  Hopefully no.  I am not a predictor of future, nor are thousands others who claim to have more than 1000% percent surety of future events. So, if you are contemplating taking a personal loan @ 12% for some financial need and want to be invested in a mutual fund for "assured" 12 / 15/ 18/ 25 percent returns, maybe you need to rethink. If you want to borrow money @ 12% just to inv...

Taking a loan for buying a car, and paying around 10 percent interest on it is not uncommon. On one hand it gives ownership of a car while on other hand it makes you feel the pinch of EMIs. But is taking a car loan worth it? Sharing few thoughts - - If you don't have enough cash in hand but buying car is a necessity due to commuting requirements or business requirements, there may not be any other option. - If you think that you will become more financially disciplined & avoid unnecessary spending, then go ahead. But then, it poses a large question about your fiscal discipline. - If you are using for your business, then you may be able to get tax benefits & loan may help. - If you think that - "Interest rate is 10% only and mutual funds will give me 15 percent", then revisit your assumptions. Mutual funds/ stocks have historically given good returns, but are you sure that you will get 15 or 12 or 24 or whatever percent of "assured"returns th...

How often have you heard that - Real estate prices never fall? Given the recent woes in the sector, this is no longer true for most of the markets in India. And the question of whether real estate sector is worth investing, especially for investing purpose, remains. Let's look at some arguments made by pro-real estate enthusiasts & sharing my comments on the same. 1. Tax savings on home loan - Yes it makes sense, and you can save a substantial amount if tax by investing in a house. These can fall under: Section 80C - Payment of principal of home loan can make you eligible for tax exemption under Section 80C. And so can PF/ PPF/ NSC/ ELSS etc, which may give better returns too. Current limit for this is Rs. 1.5L per year across all instruments. Section 80B - Payment of interest of home loan (up to Rs.2 Lac per annum). Does tax savings in this case offset the cost of borrowing? Probably by a little. But if you are hitting an interest of close to the maximum amount with...

There are people who love splurging, thanks to credit card. There are people who avoid credit card like plague, due to fear of overspending or online frauds? There are people who love credit cards due to rewards they offer. Which category do you belong to? _____ Credit cards can be an amazing tool to manage your finances. Sure, the savings may not be huge if you don't spend much, but then, you can always enjoy those extra rewards that come along side. Few ways this is possible: 1. All credit cards have a rewards system associated with it. Regular use of credit cards can help you accumulate points and later on redeem it for anything ranging from a pen drive to shopping vouchers to flight tickets to vacations. 2. Most credit card usually offer up to 48-50 days of credit period. Assuming that you pay 3 days before the due date, for a purchase made in any monthly cycle you can usually get 15-45 days of time to pay it off. Averaging this over long term, this is interest...

Rahul heaved a sigh of relief. Finally his loan tenure was over, and his car was paid for. The loan which took away some chunk of his not-too-high-but-not-too-low salary was all paid for and he was the owner of a not-so-new Honda City now. Not that he needed it in a city like Mumbai where he used to use public transport to commute to office, but yes, it was used for his weekend trips to shopping malls with his wife. Rahul was in early 30s, and with the Honda city paid for, he had now arrived in life. Now he would have some buffer amount to save, and take his savings from five digits to six digits. He finally had a sigh of relief. With the car loan over, now he could now make a down payment for Royal Enfield and still have some cash for down payment for his new iPad too, soon. __ You can also check out this article on BeingFinWise

Of late, I have been observing people around and specifically trying to understand their attitude towards personal finance. And during several of several such observations, I have realized that there are a lot of things that people are probably not doing right. While everyone has his or her own priorities while planning for personal finance and chasing goals or things in life, here are some of my observations about some of the possible flaws and incorrect assumptions made by people.  1. Assuming that stock markets give almost assured returns  While historically markets have given good returns over long run & will probably continue to do so in future, the returns are not "assured" . So a person selling you mutual funds saying that it gives 15% annual returns is intentionally or unintentionally misleading. Markets may give you 15% annual returns. Or even 25%. Or even 10%. Or even no returns at all. Probably, the recent rally in markets has made people to assume and sal...