Jumpy Retirement or Bumpy Retirement

We like to think that, when we retire, we’ll have time to do all those activities that are on our “wish list.” We’ll travel, spend time with friends and family, explore new opportunities that will enhance our lives and expand our sense of possibilities. But to have the retirement life we desire, we should retire our worries first and need to start planning now.

There could be various worries depending upon the life stage, liabilities, incomes, lifestyles etc. but it is important to pen down the ones which you feel are concerning like:

1                    will I have enough money to live throughout my retirement

2                    what would happen  if I outlive my savings or assets

3                    what would happen in contingency or major hospitalization

4                    who will inherit my estate

5                    what if I would need long term care

Somewhere along the road to retirement, it is a good idea to look your “map.” Will your ride be smooth or filled with potholes? How far off is retirement day, and do you have sufficient financial resources to last the journey? Regardless of your current location along this road, it is important to recognize that the financial “bags” you have packed may only take you so far.

Many people in their prime earning years do not save enough for retirement. One advantage of being relatively young when you start saving for retirement is that you can potentially save more due to your longer planning horizon. The more you accumulate before retirement, the less you may need to worry about working during retirement to maintain your desired lifestyle. For these reasons, it is important to spend time now developing a strategy—or “road map”—for retirement.

1        what age you want to retire

2        How much income you will need post retirement to live life of your lifestyle

3        what is the corpus you would require for having desired income

4        Determine resources for your retirement needs

5        Clear all your liabilities & debts before you retire

6        Plan a buffer for a life beyond life expectancy

7        Have adequate risk management

8        Make provision for a contingency even if you have a insurance

9        Make a will and update it regularly

10    Keep your partner informed about all your assets & liabilities

Retirement may seem a long way down the road, especially when you have immediate and pressing family concerns. However, the younger you are when you begin planning and taking advantage of your saving opportunities, the better prepared you may be for retirement. Why not pause now to review your long-term strategies? When you reach retirement, you may be glad you took to the time to navigate any detours or potholes on the road to your financial future.

Before making a Portfolio

Saving for the future is very important for every person. Every sane man slowly makes the investment portfolio of the different options of investment - stocks, gold, mutual funds, etc. are included. 

But before we jump on any investment instrument we should ask our self a million dollar question. I.e. why should I invest?

The answer to this simple question before coming to where to invest will make investment experience very different. Whenever we invest we forego our current needs or want to have a better and comfortable future. So it becomes important to choose an instrument which can deliver better real return otherwise investing become just savings.

The first step in the process is making a personal financial plan. Making a financial plan is like preparing an itinerary before starting your journey. It can make your journey less stressful, more fun and more successful. Financial planning starts with setting goals. After all you need to know where you want to go before you can decide how to get there. Your goals can be categorized as short term, medium term and long term.

The second step is to get a realistic picture of where you are now financially. Write everything like what you owe, what you own, your monthly expenses and income. This will help you to understand your current scenario better. Even if its not a pretty picture now, that’s OK.

Third step is to understand the potholes and evaluate what if scenario? Like stock market down turns, recessions, losing job, paying for illness, permanent disability, death. You may not be able to avoid these potholes but you can minimize their financial impact.

Fourth step is to clarify, evaluate and prioritize your goals. Your goals likely will require money so you should try and know how much money for the goal is needed in ideal circumstances. Smart investing means investing with specific purpose.

Fifth step is allocating investments to appropriate goals, keeping in mind the timeframes, taxation and risk tolerances. Here comes choosing instruments like equity, gold, real estate, bonds, deposits, art, commodity, currency etc. keep the portfolio diversified and cost efficient.

Here are some tips to make smart investments.

1                      understand the difference between saving and investing

2                     put your financial house in order first

3                     clarify your goals

4                     don’t just chase the highest returns

5                     understand your own risk tolerance

6                     hold realistic returns expectations from market

7                     follow a detailed written plan

8                     allocate investments according to goals and needs

9                     diversify your investments

10                  don’t try to time the market just stay in the market

11                   start investing early, invest regularly and automatically      

12                   pay attention to investment expenses

13                   consider taxes and inflation for real returns

14                   rebalance your portfolio regularly

15                   monitor and revise your investment plan

Shield Your Finance from Disaster

  

Catastrophic events, ranging from natural disasters to terrorist attacks, have clearly demonstrated that the homes and livelihoods in which families have invested over many years can be wiped out in a matter of hours. Once displaced, many victims of disasters struggle to get back on their feet financially. While there is little you can do to prevent a disaster from striking, there are steps you can take to protect yourself and your family from financial ruin should you be forced to evacuate your home in an emergency.

Here are some strategies you can use to prepare financially for potential disasters:

Store important documents in an “evacuation box.” Collect and make copies of all your key financial and personal documents, including passports and birth certificates, wills, property deeds, insurance policies, mortgage records, car titles, and MF and bond certificates. Make copies of the front and back of all credit cards and driver licenses. Then make a list of all your account and credit card numbers, as well as a written and photographic inventory of all your valuables. You should also prepare an envelope with enough cash or travelers checks to last your family about three days.

All essential documents should be stored in a bank safe-deposit box located some distance from your home or in an airtight, waterproof, and fireproof safe or container that can be easily taken with you in an emergency evacuation. Inform family members or trusted friends of the location of the box in case you are not able to retrieve it yourself.

Make sure you have access to cash. Avoid tying up all of your assets in real estate or investments that cannot be tapped without incurring significant Loss/penalties. Maintaining funds equal to three to six months’ income in a savings or money market account should be among your top financial planning priorities. You may also want to have on hand several credit cards with high available balances or arrange in advance a line of credit that could be used in an emergency.

Purchase necessary insurance coverage and review your policies regularly. Many people who have lost their homes to disasters find their insurance policies do not cover the cost of rebuilding. If you have householder insurance, review your policy annually to ensure it reflects the actual replacement cost of your home and its contents. This is especially important if your home has risen significantly in value or if you have made improvements to the property. Be aware that your policy may not cover damage due to specific causes, such as flooding.

In addition to householder insurance, you should consider disability coverage to protect yourself and your family in case you are injured in a disaster and unable to work for a period of time. You should also make sure that your life insurance coverage is sufficient to meet the needs of your family. Keep in mind that it may be possible to withdraw some or all of the cash value from a life insurance policy, if necessary.

Your individual circumstances will ultimately determine what steps you should take to protect yourself and your family from a possible disaster. Remember, disasters strike with little or no warning—the time to prepare is now.

What sort of problems can “Too Much Real Estate” cause?

Well, today most people are in kind of race to acquire property and leveraging their future income although Lot of planners have already talked about risks of improper asset allocation and excess leveraging’s but real estate is still a darling asset for investors.

Such affection towards real estate is largely attributed towards fast run up in land prices over last few years & People have started feeling that real estate is an investment which gives high risk free return. (Really wonders if they remember the principle of economics!)

 Some of the most common financial problems investors might face with “owning too much real estate.” And by owning, I also mean in the process of owning are High construction costs, delayed projects, high maintenance costs, and huge supply levels to name a few. But low liquidity and high interest rates are what could keep them up at night. Housing liquidity is used to describe how easy it would be for you to quickly sell your home at an “acceptable” price. The lower the liquidity, the harder it would be to get rid of your house in an “emergency” situation (job transfer, budget constraints, etc).

  

Higher outflow in case of Increased interest rates: The maximum amount of monthly income that should be dedicated to Housing EMI  is 25%. It is quite possible that if EMI ranges up to 30-35% of income will still be alright. But if 40% of household income goes to pay mortgage, then it could be a really big trouble. This isn’t always the case, but it is often the case.

No Tax benefit: when the market cycle turns downward then most of the projects gets delayed due to short of funds or builder interests as a result higher cost, severe liquidity issue and The worst part could be you will not even get tax break till possession of the property while you may have to make your time linked payment.

Improper Asset Allocation : Most buyers have no clue about how much real estate do they need in their portfolio? What should be the right product mix? The answer will determine whether or not they are in a “healthy” situation. Increased EMI can force many borrowers to liquidate their other saving to repay some amount of loan which will expose them to improper portfolio diversification. Any deterioration in economy, job or income scenario can force them towards distress sale of property or missing some of their important financial goals.

Increased Cost of maintenance: Maintenance charges, electricity bills, property Taxes, Wealth tax could be some additional expenses on your pocket if property is handed over and the more one spend on housing, then less he can spend on…everything else! This means that most likely you can’t save money, can’t pay off debt, and can’t go on vacation. Having a high housing cost percentage leaves very little room for error. You MUST turn to your budget and evaluate “what if” scenario.

Whether you should buy or not, you need to know where you stand. What is the objective to buy this property? The solution very well may be that you sell your existing property. This is a terribly tough decision, but it could save the rest of your financial life.

Good Credit: Teach Your Children Well

Many parents teach their children the ABCs at a very young age, but do they teach them the ABCs of good credit early enough in life? In some cases, probably not.

At certain points in life, everyone will have to deal with banks, loans, credit and finances. You may have learned your lessons through the “school of hard knocks,” and with your insight and experience, you may be able to help your children steer clear of some of the headaches you have encountered.

The three C’s of good credit

It is essential to teach your children the importance of capacity, collateral and character. When issuing a loan, a bank may consider how the applicant measures in each category.

Capacity poses the question: “What financial resources do you have to pay back the loan?” As the creditor, the bank most likely will ask, “How long have you held your job? How much do you earn? How many dependents do you have, and do you pay child support?”

Collateral concerns what the applicant will use to secure the loan. For example, a creditor may want to know if your child owns a car or has any personal savings that can be used as a pledge against the loan. When your child pledges an asset as collateral, he or she is promising to use the asset for repayment if, for any reason, he or she is unable to pay the balance of the loan. Personal loans generally do not require collateral, but come at a higher interest rate.

Character is what a creditor will use to determine the reliability of a loan applicant. The creditor may consider such points as how long an applicant has owned a car or home, or whether the applicant pays his or her rent and other loans or bills on time.

Establishing a good credit record

It is often difficult for a young person to establish good credit, because they have no previous track record of paying bills or making loan payments. Lacking a credit history makes securing a first loan difficult, and yet, without that first loan your child can’t establish a good credit record. As a parent, you can help your child take the first step toward attaining credit by helping them  open a checking and/or savings account. A creditor will look at such accounts as an ability to manage money.

Another step on the road to good credit would be for you to co-sign a loan application for your young adult child. As a co-signer, you are agreeing to pay back the loan in the event that your child fails to do so. Therefore, communication and trust between you and your child is paramount to ensure payment will be made by your child.

Maintaining a good credit record

There is only one way to keep a good credit record: Pay everything off on time! Make sure your children are aware of how much they owe at all times. In addition, try to have your children avoid owing more than can be paid back. Advise your children not to dig holes so deep they won’t be able to climb back out.

If you take the time to teach your children these basic concepts, they will have a solid foundation to help them avoid the pitfalls that many young people face when they begin to build their credit foundation.

Going to a gynaecologist for treatment of angina pain??

What would happen if you land up to a gynecologist for a treatment of Angina Pain? I know this could be laughing statement for many but people in rural India still doing the same.

Very valid argument in favour of this action is both are Doctors and qualified in medicine practice so they can definitely handle the patient but the question is about their expertise. So is a case with money management or the financial health.

Investors often do self-diagnosis and self-medication when it comes to their financial health or they approach vendors (so called agent, distributors) to have prescription for the financial ailment. Is it not similar to approaching a chemist or druggist for health problem?

The role is different yet important of all the professionals in this whole financial or health management. Financial Planners writes a Financial Plan after analysing your financial health, Agents or Distributors provides you the products suggested by the planner, wealth manager or portfolio manager manages your money to increase the ROI, Chartered Accountants helps you to minimise your taxation legitimately with guidance to various tax laws and procedures.

All these and other similar looking professional designations are quite different in their nature of job and hence the title of this posts too. Thus, I am jotting a few of the closest ones and differentiating between them in following paragraphs for better understanding of our audience:

Insurance agents are individuals licensed by IRDA to sell life and health and/ or property and casualty insurance products. Many financial planners are also licensed to sell or give advice on insurance products. Other financial planners might identify insurance needs for a client, but turn them to a licensed insurance agent for recommendations about which existing insurance products best meet the client’s needs. Independent insurance brokers sell products for two or more insurance companies, Individual insurance agents represent only one.

Portfolio managers typically design a portfolio for clients (or work with a design developed by a financial planner) comprising individual securities, bonds, real estate or other financial assets and investments, and manage the portfolio on a discretionary basis, usually for a fee that is a small percentage of the value of the assets under management or sharing the profits after a hurdle rate.

Distributor is a company or individual that sells mutual funds units on behalf of the Asset management Company. A third-party distributor receives a portion of the loads (or sales fees) that the mutual funds charge unit holders or distributor charges fees for their services.

Chartered Accountants provide trustworthy information about financial records. This might involve them in financial reporting, taxation, auditing, forensic accounting, corporate finance, business recovery and insolvency, or accounting systems and processes. Generally, they play a strategic role by providing professional advice on taxation and legality.

Stock Broker is a regulated professional broker who buys and sells shares and other securities through stock exchanges or Agency Only Firms on behalf of investors. A broker may be employed by a brokerage firm.

Certified Financial planner is a practicing professional who helps people deal with various personal financial issues through proper planning, which includes but is not limited to these major areas: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).

The work engaged in by this professional is commonly known as personal financial planning. In carrying out the planning function, he is guided by the financial planning process to create a financial plan; a detailed strategy tailored to a client's specific situation, for meeting a client's specific goals. The key defining aspect of what the financial planner does is that he considers all questions, information and advice as it impacts and is impacted by the entire financial and life situation of the client.

Will glittering gold glitter more??

Over last six years Indian women’s have their laughs and points proved of their investment decisions in gold (though they bought jewellery) Good part is husband is not complaining either this time. In a country where women love yellow metal more than anything now has got a reason to buy more but poor husbands are in dilemma.

The questions come to mind is “Will gold continue to glitter”

 Around the world, investors prefer to buy gold, especially during these days of tough economy. Although there was a temporary dip in the price of gold in 2008 due to recession, demand for gold has been steadily increasing. Is this a unique phenomenon of the United States dollar, or is it an international phenomenon since it involves the major currencies of the world?

Asian countries which are growing in economy invest in gold more than the westerners. India and China are growing as big consumers of gold market. Demand for gold is increasing in India by leaps and bounds. Statistics say that the Indians buy about 25% of the world’s gold, purchasing approximately 800 tons of gold every year, mostly for jewellery.

For Indians and most other Asian people, Gold has been the symbol of power, strength, wealth, warmth, happiness, love, hope, optimism, intelligence, justice, balance, perfection, summer, harvest and fertility.

Important reasons why people go for gold investment and what factors contribute to it’s rising prices:

1.      Gold behaves more like an international currency than a commodity

The primary reason for gold investment is that gold behaves more like a currency than a commodity. Commodity prices change horribly in correlation with crisis in society. But change in gold price is low in correlation with other commodities.

2.      Impact of Inflation:

During inflation when the value of the currency decreases, the price of gold shoots upwards. The actual rate of inflation can differ significantly from inflationary expectations. However, the movement of gold is related to both these figures equally. So, even if the figures do not show marked increase in inflation, expectations can cause gold to stay up.

It is expected that the inflation seen in India and China will offset the deflation in the United States. Deflation means federal interest rates will remain low and this will again contribute to the growth of gold prices. This means that as long as the dollar stays weak, gold will continue to peak in 2011.

3.      Gold as a deciding factor

When the price of gold moves upward in multiple currencies, including dollar, investors worldwide have to take resort in gold since they find yellow metal as a better way to hedge their economic futures against a decline in the purchasing power of their own currencies.

4.      Demand for saving

People go for gold as a means of saving or investment whenever there is an economic crisis. Like any other commodity the price goes up when there is greater demand. So also when there is a great demand as well as speculation for gold automatically its price goes up. But the difference with gold is that unlike most other commodities saving and disposal plays a larger role in affecting its demand and price than its consumption.

5.      Constant Turmoil in US and European Markets and natural calamities like Tsunami in Japan

Political and economic events in the world play an important role in the rise in gold prices in global markets, as happened in the Asian markets and early in this century, when gold prices rose by more than 25% compared to last year.

6.      Rise in demand of gold due to ETFs

Gold ETFs have come into play in recent times which are giving gold buying power in the hands of common masses. Anybody with a DMAT account can easily buy gold in as less as Rs.500 in form of gold certificates. This helps people in buying gold with low amounts too and be able to accumulate gold in their portfolio without any upper limits.

7.      The high cost of gold mining and the lack of large mines in recent years have also led to rise in gold prices.

Circumstances in Which Gold Prices May Crash

Over the course of history, rapid rises in the prices of commodities have eventually crashed just as suddenly. Ten years is seen as a good run and many anxiously look for signs that the gold bubble is about to burst. To a certain extent, the hype created about gold is responsible for the steep price increase. Hence, the moment the hype dies down, prices will also fall. The 'safe-haven' appeal of gold is also fast decreasing in the wake of the weakness it displayed in times of recent turmoil.

The dollar will not stay weak forever and as soon as it strengthens, gold prices will move inversely.

Thus, it would be a safe bet to say that it’s best to balance one’s investments in various asset classes with maximum cap of 10-15% in gold (including jewellery).

Conclusion:

One should stick to his asset allocation and rebalance his portfolio in the wake of upsurge in Gold prices. We suggest investment in Gold through ETF/ E-gold as per needs and financial plan.

Financial Strategies with Life Stages

On your way to developing and maintaining good financial health, you are determined to accumulate emergency funds for a rainy day. A good financial plan often begins with saving three to six months’ worth of income, and progresses into developing the capacity to meet your personal financial goals in the short term, as well as the long term.

A solid financial plan can play a big role in building financial security for you and your loved ones. And yet, are you regularly reviewing your finances? Doing so becomes particularly important whenever you reach a new life stage. New additions in your life such as a spouse, homeownership or the birth of a child make reviewing your financial plans a necessity. You may need to give your finances extra consideration upon reaching the following milestones:

First job. When you obtain your first “real” job you may be presented with employer-sponsored retirement savings plans. It is never too soon to begin saving for retirement, and taking advantage of your employer’s retirement savings plan as soon as possible will give your account the maximum amount of time and potential to grow. The combined effects of time and compound interest are powerful, and the sooner you start, the better. Try to contribute enough to your fund to take full advantage of any employer-provided matching contributions.

Also, learn about the insurance provided by your employer’s benefits plan including health, life and disability insurance. If your employer’s plan offers insufficient coverage, or if a plan is not offered at all, consider obtaining coverage independently. If you change jobs, pay attention to the benefits. Benefits will often vary greatly from employer to employer, and changes in insurance coverage and retirement options must be factored into your personal financial plan. For example, funds in your retirement plans might need to be rolled over as you continue to save.

Marriage. Weddings are special occasions that become cherished memories long after the bouquet has been tossed and the rice has been thrown. They are also events that bring about financial changes. After getting married, you may consider opening a shared bank account, owning property jointly, as well as sharing  medical insurance. You may also want to begin saving toward the purchase of your first home and start preparing to raise a family.

Obtaining and/or updating life insurance plans to reflect a name change, if applicable, as well as including your spouse as your beneficiary will help to ensure that financial goals will continue to be met. Review retirement plans and goals to establish a savings plan that aims to fulfill your retirement needs. Getting married will also most likely affect your tax situation. Think about the most effective tax strategies that will help with annual filings, as well as your long-term goals.

New home. Buying a first home is a happy event. Now, the money you may have spent on rent will build equity in a place that you own. Whether you are a first-time homeowner, or are looking to refinance, research the various mortgage types available to find the one that best suits your needs. In addition, you will have to find a homeowners insurance policy that will suit your coverage needs. This is also a good time to review life insurance policies to assure that mortgage obligations will remain covered.

Children. With the added joy and responsibility of a child comes the need for extra financial security. Update your medical plans to include the child. In addition, review your life insurance policy to ensure you have adequate coverage amounts, and include the child on the beneficiary list.

For an infant, college or university is 18 years away, yet the sooner the family starts saving, the better. An education fund that has many years to earn interest and contributions is ideal. Children may also change your estate plan. Writing or reviewing your will becomes especially important to make sure the child will be provided for and suitable guardians will be named.

Starting your own business. If you leave your old job to start your own business, you will have to assume responsibility for previously employer-sponsored benefits. It is important to maintain retirement, medical and life insurance plans as you continue building financial security.

Retirement. Now is the time to enjoy the fruits of your labor. You may be considering relocating to a cooler climate, and are anticipating all of the adventures you will have there. However, your funds will still require attention as you continue to manage your money. Remember to maintain adequate health care coverage, and know your long-term care options. Proper planning can help protect your hard-earned assets from being spent on potential medical expenses.

Perhaps one of the most comforting feelings in life is knowing that you are financially secure and are prepared for whatever may happen. Through annual checkups, you can assess financial goals, provide for your loved ones and build for the future. As you approach each new life stage, you will find that additional consideration and planning are well worth the effort.

whichever life stage you reach, a financial discipline is of utmost importance and a written financial plan can make a lot of difference to your life.

Staying Out of Debt Trap

Sound debt management is a practice that is always “in style,” whether economic times are good or bad. Effectively managing your debt prepares you to weather tough economic times, as well as to capitalize on a healthier economy. Here are some tips to help you get out, and stay out, of debt

·        Cancel all credit cards except one, and pay the balance off monthly. If you don’t have them, you can’t use them. By limiting yourself to one credit card, you prevent yourself from maxing out several cards.

·        Use a debit card instead of a credit card. A debit card offers all the convenience of a credit card, without adding to your indebtedness. The cost of a purchase is immediately deducted from your bank account. Since you can’t buy something unless you have the funds to cover it, using a debit card can help you live within your means.

·        Avoid using credit for items that depreciate or have no income-producing potential. Buying on credit for items such as clothing, dining out, groceries and vacations may cost you more in the long run. These goods don’t grow in value, and may end up costing you even more if you don’t pay off your account each month and finance charges are added to the balance.

·        Limit monthly installment payments to 10 percent of income. Credit may derail your budget if it exceeds amounts that you can repay. A good, general rule of thumb is to limit payments on monthly installment debt (excluding a home loan) to 10 percent of income.

·        Comparison-shop for the lowest interest rate. Even a small difference in interest rates can make a big difference in the total interest you will pay over time.

·        Set aside a cash reserve. A cash reserve can actually help you pay down your debts. Each time an emergency arises you won’t need to borrow additional funds ¾ you can use your savings to handle the crisis.

·        Be cautious about using your savings to pay off debts. Although it sounds reasonable to use low-interest savings to pay off high-interest debt, delaying a savings program will cause you to lose the benefit of months or years of compound interest. A better approach may be to continue to pay down your debt in regular monthly installments, take on no new debt, and retain your current savings.

·        Beware of debt consolidation loans. You can’t borrow your way out of debt. Debt consolidation loans reduce your total monthly payment by spreading your debt over a longer term, but you will end up paying more interest in the long run.

·        Use credit wisely. Not all credit is bad. Wise uses of credit are those that help you prepare for the future by purchasing assets that appreciate, or by contributing to savings vehicles that produce an economic gain or a return that exceeds the interest rate on the credit.

One of the chief causes of financial failure is credit abuse. Easy, accessible credit may tempt many people to “buy now and pay later.” Credit card purchases that offer instant gratification with “no money down” will sink any ship if you lose track of spending. Reining in excessive spending habits may be difficult, but a little fiscal discipline can help you clear your decks of debt and prepare for smooth sailing into a sound financial future.