[ghodlur]

Originally Posted by ramki067

I'm married for an year now and first started investing around 3 years back(i'm in my earlier 30s now ) and did so only to save on tax! with an LIC Jeevan Anand for 19 years of 5K/month. Other than that i have purchased a site in city outskirts and i've started to pay EMI of 8k/month form this month for 7 years. Health insurance is done by my company and i haven't done anything to myself and have no plans of changing the company in near future years. What do you intelligent people suggest me? Have i done enough savings or is there anything other do i need to do now?Thanks,Ramki

Originally Posted by carboy

My personal opinion is that one shouldn't mix investment & insurance.
Investment should be kept separate from Insurance.
i.e. if you need insurance buy a term life policy rather than a whole life or endowment policy - your premiums will be much cheaper.

+1 to that, never mix Insurance and investments
Ideal way to go would be
1) Take a term Insurance policy, premium would be low as compared to ULIP's
2) Take a good Medical insurance for family and for parents even if you have an insurance from company. If parents are within 60 years of age, do take it now after which the premiums become too costly.
3) Invest in 5 star rated MF's for aggressive growth (if you are in early 30's) in SIP's and keep investing atleast for 10 yrs and review at periodic intervals.
4) If you are opne to high risk, do invest in blue chip stocks in Stock market but in small amounts with a specific target. Once reached exit, don't wait for more.

If at all surplus funds, keep them invested in PPF, PO RD's etc . Do have a target for your investments and keep tracking them regularly. Keep writing on this forum for more advise/options.

[silversteed]

How worthy are the investments in PPF? Recently I read an article in ET that PPF is going to be "EET" instead of "EEE" - the final amount that you get at the time of maturity will be taxed. So doesn't that defeat the purpose of tax-gain?

Because I have some liquid cash a part of which I would like to invest in something other than insurance/ULIP - I already have both.

[huntrz]

Originally Posted by carboy

The bank needs to pay interest to C & E as well.
Also, there is no guarantee C & E will deposit their money in the same bank. Quite frankly, this is a meaningless example.

I can also give such examples.
- A deposits Rs. 100 in the Bank
- Bank invests Rs. 100 in a MF.
- Some other person sells Rs. 100 worth of MF at the same time.
- They also invest Rs. 100 in the same bank & the bank buys MF again
& this goes on.

Please apply a little common sense. This is an example and the XYZ bank represents the banking system as a whole and A,B,C represent the various individuals(as in taxation) as a whole.

Calculate the profit in pairs- between B and C bank earns(9-4.5= 4.5)
Between D and E bank earns (8.1-4.05=4.05)

The example you gave is correct except you cannot make examples about bank investing in any thing and everything. Banks don't invest deposits in MFs and other risky instruments the invest in debt instruments.

This is 'the' economic principle on which any bank functions.
How Banks Make Money :: Creating Money Out of Thin Air :: See How Money is Made, a YES! Magazine infographic

http://www.dallasfed.org/educate/everyday/ev9.html
Quoting
"How Banks Create Money
Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank once again holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times."

[carboy]

Originally Posted by huntrz

Please apply a little common sense. This is an example and the XYZ bank represents the banking system as a whole and A,B,C represent the various individuals(as in taxation) as a whole.

I think you need to go back and read the posts I was replying to.

Originally Posted by huntrz

Calculate the profit in pairs- between B and C bank earns(9-4.5= 4.5)
Between D and E bank earns (8.1-4.05=4.05)

The post I was replying to didn't calculate profits in pairs.
As per the post, banks can make a lot of money, by lending the same
Rs. 100 to multiple people & hence it's more profitable for the bank to
do that, rather than invest the deposit in an instrument which gives
a 15% return.

Originally Posted by huntrz

Banks don't invest deposits in MFs and other risky instruments the invest in debt instruments.

That was my point. Equity MFs have risks associated with them.

[DCEite]

Originally Posted by silversteed

How worthy are the investments in PPF? Recently I read an article in ET that PPF is going to be "EET" instead of "EEE" - the final amount that you get at the time of maturity will be taxed. So doesn't that defeat the purpose of tax-gain?

Because I have some liquid cash a part of which I would like to invest in something other than insurance/ULIP - I already have both.

The latest DTC draft clearly states that PPF and EPF will enjoy EEE status. The article you read must be obsolete.

[jp2u]

First of all thanks to pramodkumar who started this amazing thread for us to gather information and share knowledge.

Now let me introduce my self, I have been pondering over this thread for a few days and it is really sad, I have never done anything to save for my future.
The below is a long story cut short.
I started my career with Rs1,500 of salary, initial stages in life was very cool, I had only one reason in life, that is to spend. Years went on, as my salary also grew by changing jobs. Now we come to year 2007 I am earning 30k with 24k going in for my loan’s I took. Still I was not worried, as I still had 6k to blow. My house was run in my fathers money who earns a government salary. Now that year 2010 came in my life with lots of changes. This year I got engaged and the only thought in my mind was I did not even have single paisa as savings apart from the Company PF account. My parents again came in to my rescue with 2Lakhs to my wedding. The month April I got married, I got in to family man image for the first time in life. And now the amount 6k balance from my salary was not enough to run the family, as dad is retired now.

Cause of my loans:
Year 2007 took a wooping 3.5L personal Loan for 3 years tenure which is due for close this December – EMI is 13,007.
Same year got another PL for 1 lakh for personal unwanted expense EMI 4,500.
Year 2008 got a bike for dad in EMI with monthly EMI of 1100 due for get over in another 18months
Year 2010 – Got a personal loan for 61,000 for my wedding expense. EMI 1744
Credit card balance – Rs48,000 – Monthly Minimum Due is Rs2,500

Now given the picture of finance recklessness, I give you my current situation.
No Savings till date, due to my reckless spending
My salary remains the same due to the IT downrun, (gods grace I did’nt lose my job)

Now that my PL of 1 Lakh is over and my 13k Emi is due to get over by Dec 2010. I am planning now to close my credit card and start saving enough money for future.

Still am confused on how to start a new leaf in my life from 2011.
My only Decision till now is, I will never ever take a Loan in my life (my luck my DAD has a own house and am the only son )

Please advice on how to correct my mistakes.
Exactly from Jan 2011, I will have 13k to wisely invest or save.

Things i Learned.
Never take a Personal Loan. Try saving for the money well in advance
Never take a Credit Card. Try to buy with the money you have in hand.
If possible generate a secondary income. I have recently started to do freelance work apart from my regular job
Never Take life for granted.

[aargee]

@JP2U - Thanks for sharing your experience, which I trust is going to add value for people who're experiencing much more difficulties than you do. Here're some of my thought, (read it thoughts) & not my advices , as I believe, I myself need lot of advices...

Originally Posted by jp2u

Still am confused on how to start a new leaf in my life from 2011.

See the order of priority is to close all the debts as soon as possible. Once you clear of all the debts, you can easily match your expense with your earnings & still save some money. This is called wealthy stage. Once you're in wealthy stage, you start savings, investments & move to next stage - getting out of rat race, if you want to.

So the priority is to close the loan that you're paying the most, 13K right? Once you do that, try to close off that CC loan ASAP because its at highest ROI (IIRC, it should be more than 25%). After this you'll be relieved a bit, but do not rest. Start saving in bank RD because you'll need the money sooner than you think. If you go for PORD, the term is 5 years; strike a balance between long term, short term, investment & insurance as how much of percentage needs to be going in. If you can come up with the EMI & closure dates, we can work out something constructively with all of us here.

Originally Posted by jp2u

My only Decision till now is, I will never ever take a Loan in my life

Wrong; take a personal loan only on life or death situation, all other purchases can be postponed.

Originally Posted by jp2u

Please advice on how to correct my mistakes.
Exactly from Jan 2011, I will have 13k to wisely invest or save.

I would suggest start short term savings for 1-2 years with the objective of closing each of the outstanding loans (through FD or reliable chits). Clear off all the loans ASAP, then balance between investments & savings. Do not forget to insure yourself.

Originally Posted by jp2u

Never take a Personal Loan.

Let me give an example; during the year 2003/04, people used to get PL's left & right for 7.5% & a nominal processing fee which used to be 0.5%. Net interest would be 8%. Few friends of mine loaned out 1-2 Lakhs & invested in stock market, gained the same 1-2 Lakhs. After which they never bothered about the stocks. What I intent to say is, keep an eye on the interest rate & the economy. Sometimes you do get good deals & hence make use of them. Like you, I too made fun of my friends on those who borrowed, but I never knew at that time, I was laughing at myself. I lost a golden opportunity. I'm not justifying this is a good thing, but an example to state how a PL can be used constructively.

Originally Posted by jp2u

Never take a Credit Card. Try to buy with the money you have in hand.

Wrong; have a credit card, but buy things with it for the cash that you can pay off in full. This means, if I need to buy a TV for 40K, have 40K, but buy in CC & pay off the 40K next month completely.

Use the CC which gives surcharge waivers (means you don't lose anything), but pay off the entire amount in the next bill.

Watch out the billing cycle & try to postpone the purchases just after the purchase cycle, so as to reap maximum benefits.

Use the CC accumulation points constructively.

Originally Posted by jp2u

If possible generate a secondary income. I have recently started to do freelance work apart from my regular job

Right

Originally Posted by jp2u

Never Take life for granted.

Most important fact; keep learning & learning & keep watching around as what's going on.

[silversteed]

Originally Posted by jp2u

...I have been pondering over this thread for a few days and it is really sad, I have never done anything to save for my future.

It's never too late. Now you have realized your mistakes and have decided to correct yourself, follow the sound advice you get in here. Count yourself lucky to have so many people to interact with and get enlightened.

Things i Learned.
Never take a Personal Loan. Try saving for the money well in advance

Not just personal loan, any loan for that matter. For me, it was my education loan - I never let my parents start repaying it, because I wanted to be on my own. Unfortunately, the waiting period after my course got over till i joined for work, saw the floating interest rates going north.

Never take a Credit Card. Try to buy with the money you have in hand.

Never take a credit card IF you can't keep track of your cash flow both in and out. BUT, use one if you can. It helps. At least that's what I've learnt.

Never Take life for granted.

+1

Originally Posted by DCEite

The latest DTC draft clearly states that PPF and EPF will enjoy EEE status. The article you read must be obsolete.

Thanks. Maybe it was obsolete. Will confirm

EDIT:
@aargee,
Thanks for your post. Guess we posted at around the same time.

[StarVegabond]

Originally Posted by jp2u

Never Take life for granted.

I have been silently reading this thread all these days, i even posted couple of times, I thought of posting some work i do about sensitising my young colleagues in my circle of influence about the career, finances, growth etc but always resisted doing so on this public forum, thought already so many "experts" practicing out there and my theory would not be that interesting.

eventually this learning of yours gave me enough courage to post these two slides which i had made some 4-5 years ago, when i looked at my own life and that of my daughter's future.

A typical graph of revenue/income over the age in a life cycle of a job or career oriented human being.

A reasonably talented and resourceful person expereinces 3-4 peaks in his career or earning life, some exceptional people even manage 5-6 peaks based on how well they adapt over the time. The lesser mortels even do not manage to scale the peaks or they taper off after the first or second peaks. Understanding what makes the next peak happen is nothing but career or financial planning.

This basically talks about various phase of human and what is important for him/her and what decisions he/she need to make.


A person who is aware of this lifecycle can plan his future in a better way than the people who are not aware.

Anticipating, planning, being prepared as well as disciplined execution are key to avoid shocks or so called downturns to the extent possible. I am not saying here that planning is the holy grail, but planning can help in minimizing the negative impact and would keep on ready for the opportunity when it knocks.

all the best to you in your planning.
BTW some of your conclusions are not entirely right. There is no "Never" word in life. There is CAN DO, WILL DO and SURVIVAL of the FITTEST.

[ampere]

@Star,

I sincerely take a bow! Never seen this so succintly put!
Enjoyed and thrilled to read it to the core!


Will recommend it to every friend I know!

[roamingrao]

Star, IMO, your post is the most important peak in this thread ! - A million minds could lean towards savings and balancing in life here onwards !
I generally do not use smilies , but here,

[jp2u]

@ aargee and silversteed Thanks for the advice

Here goes my current standings.

Monthly EMI 13007 -- Ends This December 2010
Monthly EMI 1744 -- Ends 2014
Monhlt EMI 1100 -- Ends 2012
Credit Card -- 48K

So as of Jan 2011 I will be effectively having 13k to invest, but what i think is to close the CC balance with this money. What you guys think. I think for closing this CC itself will take me 3 months with 10k everymonth.

Once i close this CC balance. i will have to invest in some thing as rightly pointed by aargee

Hopefully 2011 becomes a good year ahead

[aargee]

Originally Posted by jp2u

Monthly EMI 13007 -- Ends This December 2010
Monthly EMI 1744 -- Ends 2014
Monhlt EMI 1100 -- Ends 2012
Credit Card -- 48K

The suggestions could differ & we can come up with each idea depending on how best one views the situation.

With the 13K EMI ending soon, which is good sign. So an additional of 4 months, say by May 2011, you can close off the 48K outstanding on CC. With that your income is raised by 13007+2500 right? Raising the income or rather controlling your expense is one of the first step that you need to be doing.

So your income by May 2011 will be increased by 15500.

Now enquire or calculate on both the loans 1744 & 1100 to see if the principle outstanding + foreclosure charges will be less than the interest you're paying. What I mean is...

For example, say the principle outstanding for the 61K loan is 58K & the foreclosure charges is Rs 3000 & the interest that you'll be paying up to 2014 will be 37820. So I only see you're saving a huge money here. However if its the other way, for the EMI 1100, say, the principle outstanding is 8K & the foreclosure charges is 500, however in 18 months you'll be paying the interest as 500 or 600 in 18 months (example only), then its better to continue a normal course on that loan.

However, with 15.5K, try to save as much as possible with the only intention to close that 61K loan which will increase your income by Rs 1744. Here're some of the options that I can think on...
1. Open up some SIP for Rs 1000 (optional)
2. Open a RD with bank or reliable chit fund for a monthly sum of 9K. Fund from this will be primarily used for closing the loan
3. Open a PORD for Rs 2K per month for 5 years
4. Open another RD with a bank for a year or so for Rs 1500
5. Keep the Rs 2000 with yourself every month; try not to spend as much as possible from this reserve.

After an year, point 4 will serve as emergency cash for you. If you wish, you can contribute to raise this emergency reserve or keep it as such. If you stop contributing for that fund, add up for buying assets such as Gold or start planning for some reliable chit funds.

Originally Posted by jp2u

What you guys think. I think for closing this CC itself will take me 3 months with 10k everymonth.

Right

Originally Posted by jp2u

Hopefully 2011 becomes a good year ahead

Yes, I'm sure & its already looking bright for you

@StarVegaBond - Why such a hesitant? We're all your fans & we read anything of yours with great enthusiasm. But I'll take some more time to understand the graph stuff.

Edit - Question to Star - What's this peak? You mean raising the income or getting some lumpsump?
IMO, the path to growth is earning, saving, having a second income, investing to attain financial freedom. However, not many people succeed in this style because of improper plans or execution. Anyway, this is just my thought.

Originally Posted by silversteed

EDIT:
@aargee,
Thanks for your post. Guess we posted at around the same time

Thanks to you too

[rrahul_2778]

Star, your comments are so well put, completely agree with everything you put up there.

Originally Posted by roamingrao

Star, IMO, your post is the most important peak in this thread ! - A million minds could lean towards savings and balancing in life here onwards !

+1

[StarVegabond]

Originally Posted by aargee

What's this peak? You mean raising the income or getting some lumpsump?

Good question ! Let me share my thoughts on this.

Peak is a moment in life when one is at his/her best at that given time/phase, more over he is recognised as the best by people around him.

When you look at Income as a parameter, it is when your income is at the max for the given job or your skills or your quality/quantity of work. some non income examples are getting one's degree, getting the first job, getting the first promotion, marriage, birth of the first child, becoming "manager" for the first time, becoming HOD of your department, becoming a CEO, becoming the chairman, getting nobel prize or Bharat Ratna etc etc.

You can apply "peaking" concept to every aspect of life viz. fitness, health, feel good, sport, physical work, creative ability, etc etc.
e.g. Mr. So & So peaked his cricketing career during 1982 when India won the world cup and Mr. So & So was judged as man of the tournament.

Peak is a milestone after which the person is likely to degrade w.r.t his desired outcomes (e..g income, performance, physical fitness etc), if he does not think differently and adapt.

Saving is only possible if there is a Income. if there is no income there is no saving. Hence for a successful financial planning, one has to look at

1. how to keep on enhancing the income
2. how to save so that it can be used for future needs.
3. how to use your saving to generate additional income streams.

just now my wife (actually !! ) forwarded me a SMS which reads like below

A successful husband is one who earns more money than his wife can possibly spend. A successful wife is the one who can find such a man

so financial planning is better when one applies this logic of success to both earning and saving.

Plan your carrer such that your income keeps increasing (by periodic and more often peaking), Manage (or save) your income in such a way that you don't have to worry about the future

Most often for economically middle class or lower middle class Indians, education decides their career and revenue levels. Better the education, better are the prospects. So the role of the parents in shaping the child till he is 22 years of age is extreemly critical. Role of oneself from the age of 13 onwards to understand this and work with the parents to reach the desired state is more critical.

Education (what i say here) is not referring to the conventional engineering, doctor, architech, CA etc etc, but it is about "peaking" of the child's natural abilities in his chosen field, which can increase his potential and performance in his life