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Old 13th April 2010, 10:16   #1
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Default Are most of us living on the edge? time to plan up things for the future.

I drive a 10 year old Lancer, the car does not give me problems the way we expect out of a 10 year old, I have done two oil changes in the last 1 year, i have repainted the entire car by spending close to 30 k, the issues now are, it needs an oil chage, suspension needs attention and the clutch might need attention as well, the engine is fine. so with all this issues i was thinking of an upgrade but with an extreamly low resale value of a lancer, i cannot think of an upgrade, however i might be able to downgrade to a hatchback. Thinking i might get 1.5 lac for my car and a swift would cost me 5.5 lacs i would have to take a 4 lac rupee loan for 5 years and the EMI would come up to ~8k/month, while thinking all this i came accross this thread.
http://www.team-bhp.com/forum/owning...rade-swap.html (ARTICLE: YOUR 5 year old car : Keep, Upgrade or Swap?)
and i meticulusly went through each page of it.
This is whan i came accross this post
Quote:
Originally Posted by phamilyman View Post
yeah,
I know a guy who just 25, got married, earns some 8-9L in bengaluru (IT), pays some 15k pm rent, lavishes cash in his house, wifey is a homemaker. He drives a NHC (own EMI) because nothing else will do for him. The only problem with him is that the word savings doesn't exist in his dictionary.
And i have a friend who is in the same kind of trouble and lost his job in Dec last year, he worked for a company for 5 years and his savings is nil. When i saw GTO's reply on the post above i felt that even i am unplanned,

Quote:
Originally Posted by GTO View Post
I don't want to go offtopic, but couldn't resist. Man, this guy is a serious nutjob.

6.xx lakhs : Income after tax
Less 1.8 lakh : Annual rent
Less 1.5 lakh : Minimum annual EMI on the NHC
Less 2.4 lakh : Averaged mimimum (@20k / month) annual household expense. Is 20K / month a safe figure for Bangalore?
Less 0.5 lakh : Incidental expenses
Less 0.75 lakh : Insurance premiums (car, health, life etc.)

Even an idiot can see that this guy is living in negative balance. And we haven't even accounted for holidays, shopping etc. etc. Ask him how many credit cards or loans he is carrying? Dude is sliding down...can you imagine the consequences if he loses his job?
I might have survived the recession but will i be able to survive a jobloss? Have i saved enough for the rainy day may be not? I want fellow members to come up with sugestions and ideas however small or lagre it maybe becasue the rich become rich by spending their money wisely.
I know discussing salaries in public forum might be a bad idea but this is what my friends situation is. He used to earn 30K a month, his wife earns 10k
These are his monthly expenses
5K house rent
8K EMI
10K misc house expenses
3k phone bills(both him and his wife)
3k kid's monthly expenses
5k monthly recreation

He has some credit cards as well, Now that he had lost his job, all the expenses are borne by his wife and folks.
Now i get little more than he gets and my wife earns 15k a month,
4k house rent
7k EMI
15K misc house expenses(including fuel)
1k Phone bills
5k monthly recreation

I do not have any credit cards and all my EMIs are getting over by march 2011. As per calculation i have about 20k which i can put in savings every month, i am not someone who prefers a lavish life style or who dines in posh places ever month or has a taste for expensive things, but still i feel i too live on the edge, and i am sure many of the members might benifit from such a thread. I am now 29 and i feel its time to have so future planing so that i get the maximum out of today while saving for tomorrow. I dont want to make saving a burden on me where i would be saving a lot and living a extreamly lean life. our current plan to do some saving is to buy some gold every month not for the whole 20k that we have as extra but say 5-10k/month. I do not want to get into instruments which involves huge market risks, like mutual funds etc but i dont mind getting into smaller risk smallar but assured returns schemes. Please pour in your suggestions.

Pramod

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Old 13th April 2010, 10:29   #2
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Yes, many people live on the edge. Its very good that they do so. By doing so they enable people like us to save more, right.
If all those living on the edge start buying vegetables from subzi mundi in the hot 40 degree midday heat, we will no longer be able to get the onions 15rs/kg, would we?
Or if they started to eat regularly at dhabas instead of swanky restaurants, again dhaba price will go up?
So thank them silently, and pray they get more and more lavish, so you and I can save more
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Old 13th April 2010, 10:43   #3
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Buying gold is not a great idea.

First of all

1. Gold is quite high as of now.
2. When you buy gold you would be charged making charges VAT etc.
3. There is no income tax rebate on it
4. When you sell it back jweller may deduct some amount from it.

I would suggest you invest according to your risk profile.

This is how I would split 20 K

1. Put some in assured returns low risk eg. FD, RD: 5K
2. Put some in high return high risk instrument. say MF : 10 K (Try putting part of this in ELSS, as it would save tax as well)
3. Keep some liquid cash in some bank account. 5K

If over the time you accumulate close to 50 K in bank for liquid expenditures. You can increase the saving in other instruments.

This is assuming that you don't have any immediate cash requirement. Like planning a baby etc. Once you reach around 40-45 you may increase your exposure to low risks instrument. Again if you wish to do so and really need to do so.
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Old 13th April 2010, 10:49   #4
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Quote:
Originally Posted by tsk1979 View Post
Yes, many people live on the edge. Its very good that they do so. By doing so they enable people like us to save more, right.
If all those living on the edge start buying vegetables from subzi mundi in the hot 40 degree midday heat, we will no longer be able to get the onions 15rs/kg, would we?
Or if they started to eat regularly at dhabas instead of swanky restaurants, again dhaba price will go up?
So thank them silently, and pray they get more and more lavish, so you and I can save more
Lol! That post must have hit the OP hard....

@OP: I would suggest to try and prepay ur EMI's soon, and then set up a certain % of monthly income aside towards savings after the EMI's are done with. Break that up into smaller investments of various risk factors (FD's, PPF, ULIP, Mutual funds, etc.) so as to diversify ur portfolio to maximise returns. Mark this % as a long term growth investment (7+ yrs of expected growth). Assume another % of ur income as virtual EMI and save it towards an expense that you might foresee in the near future, like perhaps, buying a new car (in ur case). Mark that as short term, perhaps for 2-3 years. Keep a 3rd % for your immediate requirement, like monthly expenses, occasional indulgences/presents/gifts, monthly getaways, etc.

This will most definitely help in saving enough and more for those rainy days and you'll still be able to enjoy ur life. Remember, its not just the savings/investment plan that helps, its the monetary discipline that helps even more.

Prajwal
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Old 13th April 2010, 10:50   #5
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Pramod - putting few of my thoughts as these talks are endless debates. Try to strike a balance in life for enjoyment & saving. If you save a lot & enjoy less, then at some point you'll feel like there's no point in earning. Likewise, if you spend all that you earn then one day you may have to sit & stare the wall.

So understand the needs, segregate the balance between what is essential, required & luxury & spend the money accordingly.

Edit - A little of philosophy, ignore if you don't like
There's nothing called security or secured income in life; an income is an income no matter from where it comes from, be it rent or salary or business; and no income is permanent or is easily obtained. Always have a plan-B or plan-C (for income or work) in place apart from the regular income. Though it takes time for this, one should remain patience in life. Have a good commitment/debt in life such as commitment to save, debt for business; avoid loan as much as possible. Always remember, having lot of money can help you buy things to make you happy, but the same happiness can also be attained even without money, only if you're willing to spend time.

If you can keep things to very simple in life, then there're absolutely no room for troubles.

Last edited by aargee : 13th April 2010 at 10:59.
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Old 13th April 2010, 10:51   #6
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If you are an IT guy, Its time to ask your company about that overseas (so called onsite) assignment .. Sure fire way to save money
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Old 13th April 2010, 10:51   #7
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Mantra of any investment planning - Diversify!

Before you start investing, build up a contingency fund sufficient enough to cover your expenses for at least six months (add ALL expenses including rent, EMI etc). This should be liquid - as in easy to withdraw. Bank FD is a good choice.

First and foremost, come out of your inhibitions and prejudices against the stock market. I am not saying not investing in stocks is wrong or foolish, but the reason for not investing should not be lack of knowledge. Just by spending 30 mins every day, I am sure within a few weeks you will be able to learn enough to make an educated decision.

Don't shun stock market related investment instruments completely. Depending on your risk appetite, you can allocate different proportions to various avenues. Decide the proportion of debt (low risk) and equity. Once you do this, break it down further. Debt could be bank FD, post office schemes, debt mutual funds etc. You can also include gold here. Equity can be mutual fund, ELSS or stock market.

If you decide to invest in equity, the best place to start off would be a diversified mutual fund. Set up a SIP (systematic investment plan) which would regularly invest a small amount for a long term. Do not worry about short term swings and stay invested.

Subscribe to Outlook Money. It is a great personal finance magazine for beginners. (Disclaimer : I am no way related to OM. I am merely a happy subscriber). Read valueresearchonline.com and moneycontrol.com - two excellent sources of information.

In a nutshell: Arm yourself with enough information. It is neither too hard to come by nor too difficult to digest. Do not go by word of mouth, don't blindly follow an advice, don't be prejudiced against equity and most of all, don't put all your eggs in the same basket. All the best

Last edited by bullinb : 13th April 2010 at 10:55.
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Old 13th April 2010, 11:00   #8
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This is definitely going to be great learning thread for people like who have just started out in life.

At present I'm not doing much apart from just investing LIC policies and ELSS. Plan to start investing a little towards stocks too.

An investment advisor once told me, that I should have atleast 75% of CTC as liquid savings. My expression was just a state of shock, as of today I'm not even at 20%. Anyways, Rome was not built in a day. Threads like these will definitely help people like me build our own Rome's sooner!
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Old 13th April 2010, 11:02   #9
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Saving is important. Saving with a long term prespective is even more important. You are young and getting a job at your age is easier then somebody in the age group of 40+. So do not think short term. These are the best days of your life and you will go thru many ups and a few down easily. It is when things get slow with age - getting new jobs, mental alertness and physical fitness, when you need a safety net.

My advice is FD's are OK, will get worse as interest goes down.
Stock is too much of a risk. But if you can identify good sectors/companies ITC, Hero Honda, Reliance etc. then you should pick up some shares on a long term basis and not for daily trading. They give you great dividents on a regular basis.

The best would be SIP's (Systematic Investment Plans). Many companies have them. Here a fixed amount (say Rs.2000/-) will be invested by the company on your behalf. Depending on the type of SIP you buy. This is fixed saving and should be looked at for least 5 yr+ window.

Get a good Investment guy and he will advice you.
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Old 13th April 2010, 11:02   #10
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Quote:
Originally Posted by bullinb View Post
Bank FD is a good choice.
Oh!!! how do you say so?

Quote:
Originally Posted by bullinb View Post
Just by spending 30 mins every day, I am sure within a few weeks you will be able to learn enough to make an educated decision.

Debt could be bank FD, post office schemes, debt mutual funds etc.
help me understand this.

PS - This is going to be the hot thread of the day & I'm sure this is going to run into pages

Last edited by aargee : 13th April 2010 at 11:03.
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Old 13th April 2010, 11:19   #11
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First things first. Have very less liabilities. Home loan EMI (25K pm) and Car EMI (10K pm) for an average guy with 6-7 Lakhs annual package is living on the edge.

As of now, my only liability is a home loan EMI (7.5K pm, got it when the rates were dirt cheap and now they have appreciated 4 fold). So market awareness helps.

I have 2 used cars which are spanking and bought entirely as a cash deal.

I also have a considerable stack of cash in the bank/with parents in case of an emergency (health/miscelleneous).

Trying to go bling bling due to peer/relatives pressure is plain suicidal. I was under the same pressure but some sane decision making and not caving in to pressure has helped me long term.

If you have good spare cash go in for land purchase. This is my next target. Mint mint mint later.

Having said all the above, any one who has a family (wife,kids) would not like living on the edge, if someone does it, it is plain suicidal. The problem/risk magnifies if there is just one bread winner. Peace of mind anyone ?

There have been incidents in India as well as in other countries where people have committed suicide and taken entire families with them to the other world because of pressure of not being to keep up with liabilities. The key here is to have a morsel which can fit in the mouth easily.

Last edited by prince_pervez : 13th April 2010 at 11:20.
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Old 13th April 2010, 11:20   #12
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Quote:
Originally Posted by aargee View Post
Oh!!! how do you say so?
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.

Quote:
Originally Posted by aargee View Post
help me understand this.
Like I said before, there is no dearth of information. Spend some time every day, read articles about personal finance, analyze your needs, discuss with your friends who are knowledgeable. Trust me, you will not repent the time and effort you put in. After all, it is YOUR hard earned money.
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Old 13th April 2010, 11:26   #13
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Rule # 1 - Plan to strictly 'save' atleast 20% of your monthly take-home income. More is better, but no less. You should plan your expenses (rent/outings/shopping/conveyance etc.) in accordance with the above. Provident fund, house EMIs etc do not count in this 20%.

Rule # 2 - Like someone said earlier, you need to have 6 months worth of your complete monthly expenses in liquid cash/bank savings. This would also include all your insurance payouts etc if applicable.

Rule # 3 - Get insurance - life & health both.
If you cannot afford a whole life plan, atleast get term life insurance. Good coverage for a fixed period - no returns.
Family 'health insurance' is also a must in these days, with ever rising medical costs. Even if your employer is providing you medical cover, get one from outside also. Prefer a policy which covers the whole family or atleast a couple into one joint policy.

To add to this, if you purchase a house, on installment EMIs, ADD the value of the loan amount to your life insurance coverage. It is a very small amount to pay compared to the cost of your house but in any eventuality, your family is financially protected from the burden.

Like everything in life, the earlier you plan for this - the better and cheaper will it be for you.

Rule # 3 - Diversify your savings equally in bank FD / precious metals / equity.
If you have scope to save outside of PF / ELSS, it is always a good idea to look for SIPs, unless you are a pro in the stock market.
DO NOT run after friendly guidances, rumours in the market to make a quick buck. You may earn a fortune but history shows that people lose twice as much with this approach. Also, look at equity as a long term investment option only. Dont think of this as a magic box to double your money in 6 months. Look atleast 2 yrs +.
The key to investing in equity is 'invest in a company' and not in 'a stock'. Know the company you are putting your money into and make sure you believe in it. And stay invested.

Rule # 4 - Avoid credit as much as possible. It is a good idea to carry and maintain a credit card. Comes handy in emergencies. But avoid using it all the time just for the lure of 'points' or paying at the end of the month. It is much much easier to 'swipe a card' than paying hard cash - for the exact same amount. Do not carry forward credit. Pay out the full outstanding, every month. Avoid late payments. The late payment and interest charges may come to you as a shock.

Rule # 5 - Be smart and selective in your expenses.
Not a bad idea to wear 'branded stuff' all the time, but look out for the time when you have good SALE going on for your brand. A 2000+ rupee shirt or a 2500+ rupee branded trouser just does not make sense for regular wear, even if it had gold buttons.
Same goes for movies - the morning show at your multiplex goes for like 30% of the value of the prime time show !

to be contd ..
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Old 13th April 2010, 11:27   #14
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Thanks a lot for the reply guys, My only aprehension was if i get into anykind of systematic investment like an RD or chitfund, what happens if the source of income stops, this fear had kept me away from investing and yes i have been enjoying living on the edge ever since i starte earning . As an update i have just brought a SBI form for starting an account. The earlier problem was they need 2 ID proofs wife has only one. Wife would get her frist sal any day this month. i have about 10k (i know its too less) in my account now. i see i can manage the month with 5 k here as all the expenses are bourne from my sal, this month was no different. so i am expecting to put 5k in the new account tomorrow itself and deposit my wifes sal completly into it the moment she gets it.

The banker gave me an option to convert it into RD or maybe an FD for an year where i get full liquidity. Here ignorance and lack of knowledge was the killer for me. I know rome was not built in a day and its usually the starting trouble which gets me very lazy. Luckily i do not have any immediate expenses coming up and i can procastinate certain things.

@Aargee, its that difficult balance between luxuary and necesity with i am unable to strike in my 5+ years of working. Yes you are right evermont i feel upset and i feel there is no point earning, and yest at the end of every month i also stare at the wall .

What i have is this false sense of security that there is some money in my account which will not last for long. I cannot do away without that security and still i need money which would be difficult to take, so i thought gold will give me that security that i have some investement and yet i would think twice before liquidating it. But again i do not want to get into investments where my money would be locked for a certain amount of time.

bullinb, let me admit i dont have the guts to put money in the stock market, you may call it my ignorance but it is true. i paid 30k tax this year and that too after my company cut my pay by 15% and i had a lot of flexible benifit plans i had enroled for. On a second thought i could have completely saved this money if i had invested a lac some where, but i didnt.

Guys i feel its not late for many of us to start planing, today i have everything i need at my house, my loans are just 11 months away from completion no liabilities, 100% outpatient and inpatient medical coverage from by employer, no cards, no ageing parents to support, yet not able to save money is a serious deciplinary concern.

I hope things will fall into place, thanks for the support guys, keep the sugestions flowing.

Pramod
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Old 13th April 2010, 11:53   #15
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The SIP plan of some sort will "force" u into disciplining yourself in a way. Besides, the monthly amount is hardly much.... about 3K-4K only and is a good way to start. Open an RD account and keep putting in another 3K into it. These are small amounts I know, but in 3-4 months time, u'll begin to appreciate what good change monetary discipline can bring about.

Start from here....
1. Open an RD account
2. Keep putting in money (5K) into it and lookout for a goal amount, say 30K.
3. Once 30K is reached, make an FD and forget about it (contingency fund)
4. Once another 10K is reached, open an SIP plan and look to invest about 2K each month (mutual fund); you'll have enough to pay for 5 months from the RD account anyway.
5. By now, ur EMI's should've gotten over, put in the same money into the RD account.
6. Now add 2 more SIP plans into the portfolio (long term and short term) and target at paying about 100K each year for 1 long and 1 short term investment plans. Insurance and Growth plans would be good to look into.

In about a year's time, u'd have 1 FD, 1 ULIP plan and 1 long term growth and 1 short term growth plans. Build up on this. Add a couple of more FD's, perhaps one more insurance fund, perhaps u could start a PPF account also that'll build up in time for your retirement. You'll have more than enough to enjoy ur monthly indulgences inspite of all this! Make sure u put all the SIP payments as ECS payments, then u won't have a choice but to be disciplined!

This is how I started my savings plan and I am glad at my current progress so far.

Prajwal

Last edited by Technocrat : 13th April 2010 at 12:03. Reason: Please avoid quoting an entire long post especially if its on the same page, thanks
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