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Old 13th April 2010, 12:09   #16
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Whats happening with the insurance ULIP controversy? Can someone explain in simpler terms? Is it to do with the market linked Life insurance?

ULIP is diffferent from SIP?

All i could understand is:
1. 20% of the amt invested would go towards the commission
2. There is no clear management and clarity where the amt is invested

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Old 13th April 2010, 12:23   #17
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Originally Posted by pramodkumar View Post
systematic investment like an RD or chitfund
There is nothing systematic about investing in chitfund !! I would avoid them like the plague. chit funds should be renamed cheat funds.

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Originally Posted by prajwalkashyap View Post
The SIP plan of some sort will "force" u into disciplining yourself in a way.
I agree.. This is exactly what I did. I had pretty decent returns from Fidelity India Mutual funds. Also, I put some Rs 50K in NSC, just to ensure that I cannot liquidate and spend it away !! It is still locked away safetly until 2012!

Also, Dont buy a house/apartment on a home loan if you cant finance AT LEAST 50% of cost with your savings.

I hear people saying that you can pay EMI instead of paying rent!! There are two problems with that:
1. In case of any money trouble, you can reduce your rent by downsizing. But you cant reduce your EMI!!
2. EMI goes on for 15-20 years - The interest component is staggering if you actually compute it out.

Last edited by spadival : 13th April 2010 at 12:24.
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Old 13th April 2010, 12:28   #18
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Originally Posted by bullinb View Post
Contingency fund is just that - for contingencies like loss of job, an unexpected expense etc. It is NOT meant for day to day expenses. Contingency funds should not be touched unless there is a dire need.Bank FD is liquid enough for this purpose. You can break the FD anytime without losing the principal and as long as you don't break, it continues to accrue interest and add to fund.
It actually sounded different to me that bank FD's are best. But thinking terms of contigency, yes it makes sense that FD's are good.

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Originally Posted by spadival View Post
There is nothing systematic about investing in chitfund !! I would avoid them like the plague.
Sorry bud, chit funds with RELIABLE source helps to an extend; its just that the interest rates are higher with chit funds at the question of risk & reliability.

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Originally Posted by spadival View Post
Also, Dont buy a house/apartment on a home loan if you cant finance AT LEAST 50% of cost with your savings.
I don't know how to appreciate you further. This is the most, most, important point. Many people think buying a house is investment; yes I do agree to this is investment, but, borrowing more than 50% for a housing loan is crazy to me. Good that you've bought this point out.

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Originally Posted by spadival View Post
I hear people saying that you can pay EMI instead of paying rent!! There are two problems with that:
1. In case of any money trouble, you can reduce your rent by downsizing. But you cant reduce your EMI!!
More than true

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Originally Posted by spadival View Post
2. EMI goes on for 15-20 years - The interest component is staggering if you actually compute it out.
Could you elaborate this pls?

Last edited by aargee : 13th April 2010 at 12:29.
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Old 13th April 2010, 12:35   #19
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Could you elaborate this pls?
What he meant was that typical home loans run up to 15-20 years as the full tenure.
As long as you are paying home loans, if one calculates deeper, the interest component on the principal amount itself adds up to more than 50% as long as the loan amount is being paid across the full tenure. This more than compensates the "investment" part of the thinking and actually turns this "investment" into a "liability" !!

As a ball park estimate, if a person takes a home loan for a 20lakh home, he/she ends up paying almost 10 lakh only on the interest if the payment is only as specified by the bank over a 15-20 year period. And the bank takes all the interest payments first, then only start the principal amount. This almost ends up with 7-8 years of EMI towards the interest itself. If one pays up a large amount towards the principal (typically, once a year), then the interest components computes to much lesser, but that's not too common.



Prajwal

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Old 13th April 2010, 12:39   #20
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I'll put this foremost question to everyone, including Pramodh. How many of you have reduced your monthly expenses? I firmly believe that by doing so, you can actually start saving a lot. I'm just curious to understand if I was the only person to undergo the pain on reducing the expenses or are there several people along with me? I don't intend to say that I stopped eating out, I stopped going to cinema hall etc; what I intend is my monthly expense was Rs X, now I've brought it down to Rs X-Y & that Y is a considerable number.
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Old 13th April 2010, 12:49   #21
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Originally Posted by aargee View Post
How many of you have reduced your monthly expenses?
Let me put it this way - my expenses have risen less than my income . A little prudence right from start has saved me from the pain of reducing the expenses.
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Old 13th April 2010, 12:51   #22
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Quote:
Originally Posted by aargee View Post
I'll put this foremost question to everyone, including Pramodh. How many of you have reduced your monthly expenses? I firmly believe that by doing so, you can actually start saving a lot. I'm just curious to understand if I was the only person to undergo the pain on reducing the expenses or are there several people along with me? I don't intend to say that I stopped eating out, I stopped going to cinema hall etc; what I intend is my monthly expense was Rs X, now I've brought it down to Rs X-Y & that Y is a considerable number.

That's a good thought!

Speaking from my own example, I try to purchase monthly groceries from Big Bazaar. This gives me a 1-2% savings. I pay the bill using a SBI card which gives a further 2% cashback.

For electronics, I try to replace only when it is broke and not because it is outdated. That too, I pay using 0% EMI options wherever available.

I prefer riding a bike to work and keep the car for family outings only.

Me and my better half usually buy clothes during off season sales.

All of the above easily result in a saving of about 30K annually. People may think i am kanjoos but when you are the breadwinner in a family of 6, every paisa counts.
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Old 13th April 2010, 12:58   #23
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Quote:
Originally Posted by aargee View Post
I'll put this foremost question to everyone, including Pramodh. How many of you have reduced your monthly expenses? I firmly believe that by doing so, you can actually start saving a lot. I'm just curious to understand if I was the only person to undergo the pain on reducing the expenses or are there several people along with me? I don't intend to say that I stopped eating out, I stopped going to cinema hall etc; what I intend is my monthly expense was Rs X, now I've brought it down to Rs X-Y & that Y is a considerable number.
Although I have not able to reduce the monthly expenses, I have been able to keep it in control. In fact every year the monthly expenses have been increasing taking into account the inflation however the other misc expenses such as movies, frequent eatings outside, lavish expenses on clothes etc have significantly reduced. Instead the saved money these days is going for the various premiums such as life, car, home, medical etc. Earlier I used to have a spreadsheet to track the expenses but these days its difficult to maintain. My simple philosophy is out of 100% take home allocate 40% to monthly expenses, 20% savings (compulsary), 20% EMI on loans, 20% contigency funds. I try to allocate the Annual bonus or any other income to Insurance premium, other major expenses such as travel, festival expenses etc. It sometimes becomes too much taxing to keep a track of expenses and many a times have to juggle between the funds. Finally end up waiting for the annual increments to take care of any shortfalls and the story repeats again.
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Old 13th April 2010, 13:03   #24
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Quote:
Originally Posted by prajwalkashyap View Post
As a ball park estimate, if a person takes a home loan for a 20lakh home, he/she ends up paying almost 10 lakh only on the interest if the payment is only as specified by the bank over a 15-20 year period. And the bank takes all the interest payments first, then only start the principal amount. This almost ends up with 7-8 years of EMI towards the interest itself. If one pays up a large amount towards the principal (typically, once a year), then the interest components computes to much lesser, but that's not too common.
Thanks for elaborating. Also, the way I look at it is: Even if you think of pre-paying the loan in the future, the bank would have already pocketed some of the interest for the period beyond the pre-payment date!! This is because the very concept of EMI implies all your interest payments are front loaded and principle payments are back loaded - Banks are a bit like casino when it comes to EMI, the bank always wins

Last edited by spadival : 13th April 2010 at 13:08.
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Old 13th April 2010, 13:12   #25
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Originally Posted by spadival View Post
Thanks for elaborating. Also, the way I look at it is: Even if you think of pre-paying the loan in the future, the bank would have already pocketed the some of interest for the period beyond the pre-payment date!! This is because the very concept of EMI implies all your interest payments are front loaded and principle payments are back loaded - Banks are a bit like casino when it comes to EMI, the bank always wins
Totally agree on that. My point of view has always been that if a home is on a loan, then its not an investment, its a liability. A home can be considered as an investment only if the total money paid to the bank is lower than the current running real estate market rate of that home.

My goal is to buy a home in a total cash deal and live in rented houses till then. That'll still work out cheaper than paying the interest on the loan amount. Even better is to rent from a relative/friend, that way, the relative/friend benefits and so do I.

Prajwal
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Old 13th April 2010, 13:43   #26
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Quote:
Originally Posted by aargee View Post
I'll put this foremost question to everyone, including Pramodh. How many of you have reduced your monthly expenses? I firmly believe that by doing so, you can actually start saving a lot. I'm just curious to understand if I was the only person to undergo the pain on reducing the expenses or are there several people along with me? I don't intend to say that I stopped eating out, I stopped going to cinema hall etc; what I intend is my monthly expense was Rs X, now I've brought it down to Rs X-Y & that Y is a considerable number.
I am following it like Rule 1. Following are the things that I started since few months:

1. Strict budget of 300-500 for outside food. No pizza for 6 months at least (Helps me on financial as well as on heath front). I am not big fan of "really awesome" hotels. I go to one of the nearest "descent" hotels in my area and buy lunch for me n my wife for 150/- max for Punjabi food. The same costs 400/- in the hotel next to this.

2. No branded stuff unless really really required. I am fine with a 200 Tee instead of getting 500 Tee. Anyways I am not going to use the 500 quality Tee for ages. Same with few other branded things - Jeans, Shirts etc. No show off for me.

3. I generally buy cloths whenever there is a sale going on and if the price is really a steal. I normally avoid buy 1 and get 1 free. Rather I take 30-40% discount on one that I buy. I am ok with 1 instead of paying for 2 (Such schemes prices are not so cheap).

4. Whenever I want to buy something which is not required or which "I want than I need", I delay the purchase. If I really want to get it, I get it using my stocks profit. One of the e.g. Recently I got 3M sun films for my car (which is VFM to me), using the profit I got on stocks. I have alloted such rolling principle with me. All such expenses are taken care without touching monthly income.

These are just small things which makes a big difference. I like to enjoy life and I really buy what I like BUT when I have money and when I dont have to touch my monthly take home. I am still in learning phase but I am sure I will improve as time goes on.

Last edited by neoonwheels : 13th April 2010 at 13:46.
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Old 13th April 2010, 13:58   #27
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Couple of things i learned from my grand dad & dad .

a) Saving a bit of salary is must even if it is small amount
b) start saving at early age to under stand the the power of compounding .
c) Try to differentiate
between need & want ,will save a lot .
d) Any income apart from salary like bonus,LTA, PF from ex company,Variable bonus invest in short term plan with provision to invest towards a bigger goal like down payment for home / car / holiday /renovation / kids education etc.
f) Learn to live within a budget even if we draw good salary. to draw the budget track all your expense for 3 months and you will realize that atleast 10-15% of expenses could have been avoided.
g) Use of credit effectively , plan purchase to maximise credit days , will save a bit due to new Rbi policy of saving a/c's.
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Old 13th April 2010, 14:08   #28
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Originally Posted by ghodlur View Post
It sometimes becomes too much taxing to keep a track of expenses and many a times have to juggle between the funds. Finally end up waiting for the annual increments to take care of any shortfalls and the story repeats again.
- You just made my job easier; this is exactly what I wanted to convey. When the income raises the expense also raises due to increase in life style. Instead, avoid it & I'm sure there will be better control on money management.

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Originally Posted by neoonwheels View Post
I am following it like Rule 1. Following are the things that I started since few months:
These are all controls imposed upon self; trust me this only helps to save marginally. Big savings comes only with commitments.

Quote:
Originally Posted by rm_arjuna View Post
f) Learn to live within a budget even if we draw good salary. to draw the budget track all your expense for 3 months and you will realize that atleast 10-15% of expenses could have been avoided.
g) Use of credit effectively , plan purchase to maximise credit days , will save a bit due to new Rbi policy of saving a/c's.
Point "F" is to be etched in Gold & I followed "G" relegiously for couple of years to understand how much I need to start saving

Last edited by aargee : 13th April 2010 at 14:10.
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Old 13th April 2010, 14:11   #29
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If you have some lumpsum amount with you, I would recommend Post Office MIS (Monthly Income Scheme) with a RD.
For an individual it is upto 3 lac and for joint holding its upto 6 lac. Interest @ 8% p.a payable monthly, maturity period is long for 6 years. You have the option to auto credit the monthly interest amount to a RD account which in itself will have its interest.
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Old 13th April 2010, 14:32   #30
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Quote:
Originally Posted by aargee View Post
I'll put this foremost question to everyone, including Pramodh. How many of you have reduced your monthly expenses? I firmly believe that by doing so, you can actually start saving a lot. I'm just curious to understand if I was the only person to undergo the pain on reducing the expenses or are there several people along with me? I don't intend to say that I stopped eating out, I stopped going to cinema hall etc; what I intend is my monthly expense was Rs X, now I've brought it down to Rs X-Y & that Y is a considerable number.
Aargee, i have relocated from Hyderabad to kerala in the middle of a month, my bank account was completely drained when i did so, the next month i got sal for only half a month, my wife was not working and i had to pay EMIs as well, so let me give you a rough calculation my sal was say 20k, EMI was 10k Rent 4 K, phone +petrol was 2k still i was able to manage my self with the remaining 4k. The point is there is no decipline in our lives(most or rather some of us ) today, we will modify our life styles automatically according to what we earn, For us Short term is a day and longterm is a month, a year sounds like 10 years and 10 sounds like 100, so we end up living a life which is not at all lavish but also not lean.

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Originally Posted by abdriver2000 View Post
That's a good thought!

Speaking from my own example, I try to purchase monthly groceries from Big Bazaar. This gives me a 1-2% savings. I pay the bill using a SBI card which gives a further 2% cashback.

For electronics, I try to replace only when it is broke and not because it is outdated. That too, I pay using 0% EMI options wherever available.

I prefer riding a bike to work and keep the car for family outings only.

Me and my better half usually buy clothes during off season sales.

All of the above easily result in a saving of about 30K annually. People may think i am kanjoos but when you are the breadwinner in a family of 6, every paisa counts.
30k annualy is a great amount i paid that much tax with a lot of flexible benifits and 15% sal cuts, i would have been extreamly happy if i was you.

Quote:
Originally Posted by ghodlur View Post
Although I have not able to reduce the monthly expenses, I have been able to keep it in control. In fact every year the monthly expenses have been increasing taking into account the inflation however the other misc expenses such as movies, frequent eatings outside, lavish expenses on clothes etc have significantly reduced. Instead the saved money these days is going for the various premiums such as life, car, home, medical etc. Earlier I used to have a spreadsheet to track the expenses but these days its difficult to maintain. My simple philosophy is out of 100% take home allocate 40% to monthly expenses, 20% savings (compulsary), 20% EMI on loans, 20% contigency funds. I try to allocate the Annual bonus or any other income to Insurance premium, other major expenses such as travel, festival expenses etc. It sometimes becomes too much taxing to keep a track of expenses and many a times have to juggle between the funds. Finally end up waiting for the annual increments to take care of any shortfalls and the story repeats again.
This is what i also say, let me tell you my salary had gone up 30% from hyderabad to kerala, My house rent had come down by 2.5k a month, my fuel bills have come down by 2k a month. Monthly grocery bills have come down by 2k everymonth after we shifted from hyderabad. The last movie we went for was my name is khan which was almost 2 months from today. But still where is the savings?

Today i was having a discussion with a friend who had saved some amount that he can easily afford a 30 lac property without any liability, his 10 years of earnings were sufficient to cataput him to this amount of savings so on an average 3 lacs per annum, Though i dont ask his salary but i am sure it will not be 15 lacs so that 3 lac is just 20%. Without knowing all this i just asked him how many months can he sustain himself without and income, his answer was couple of years . I am not sure if any other guy working for an IT company would have such an answer.


Pramod

Last edited by pramodkumar : 13th April 2010 at 14:34.
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