Vijaibabu's Blog - Personal Finance Guide for Financial Freedom

Starting early would ensure that your salaried clients are able to build a sizeable nest egg for their retirement. Unlike self-employed individuals or entrepreneurs who have the flexibility of deciding their retirement on their own, salaried individuals need to plan their retirement more diligently. The first step in retirement planning is identifying the corpus required for retirement. Advisors say that least 10% of annual income should be set aside to build a nest egg for retirement. If the income keeps increasing, it is advisable to increase savings as your clients may desire to maintain the same lifestyle during retirement. Financial advisors suggest that one should ideally plan their retirement in their 30s. Starting early would ensure that your clients are able to build a sizeable retirement kitty. “Retirement planning is not a priority for many. They are more focused on meeting their short term goals like buying house, car, foreign tour, etc. Salaried individuals s

Debt Mutual funds invest in fixed-income instruments like bonds, but that doesn't mean they are immune to ups and downs. Debt funds are a type of mutual funds that generate returns by investing in bonds or deposits of various kinds. This means that they lend money and earn interest on it. The interest that they earn determines the basis for the returns that they generate for investors. A bond is like a certificate of deposit that is issued by the borrower to the lender. Even individual investors do something similar when they do something as simple as make a fixed deposit in a bank. When you make an FD with a bank, you are basically lending money to the bank. One, they are able to invest in many types of bonds that are not available to individuals. For example, the Government of India issues bonds. It is in fact, by far the largest borrower (and thus bond-issuer) in the country. Individuals cannot buy government bonds. Bonds are also issued by many large and medium sized

1) Re-balance the Portfolio The most important step is re-balancing of the portfolio. You may have started the year with a 60% allocation to equities, 30% to debt and 10% to gold. But, equities shot up 30-40% in 2014-15, while debt went up by 9% and gold fell by 5%. So your portfolio is now 65% in equities, 26% in debt and 9.5% in gold. To return to the allocation preferred by you, sell some of your equity investments and invest the proceeds in debt and gold. It is a fact that investors who periodically rebalance their portfolios get the best returns 2) Review Progress of Goals Along with rebalancing, you also need to review your financial goals. If some investments have not done as well as estimated, there would be a shortfall in the target amount set for that goal. You need to make additional investments to cover that gap. In some cases, the target itself may have moved up. For instance, if the surge in the dollar has pushed up the cost of your child's foreign education, yo

i. Avoid unnecessary debt   Carrying large credit card balances and other consumption debts is a sign that our lifestyle exceeds our income. Such consumption borrowings come with very high interest and they hurt one’s financial wellness. Unlike a home loan which creates an asset i.e. real estate property, the interest paid on consumer debts is totally forfeited. Getting rid of high interest consumption's debts, at the earliest possible, is the first step towards being financially self-sustainable. Once free, keep off them as much as possible. ii. Pay yourself first   Saving could be viewed as the practice of paying oneself first. Traditionally savings applied to whatever is left of income after the long list of expenses. However to be financially independent that equation needs to be turned around – Expenses = Income – Savings!  We ought to decide how much is to be saved and then limit our spending to what remains. The habit of paying yourself first will go a lo

Saving for retirement has a very long-term investment horizon and equity-based assets are an excellent choice. As a long-term savings project, accumulating savings for retirement is no different from any other long-term savings. However, if you talk to conventional financial advisors, you will probably discover that this is a contrarian view. For some reason, there is a school of thought that believes that because one should not take risks with one's retirement savings, one should not invest them in equity. The logic is that older people are not earning any more so they can't afford to take any risks. The value of their money must never decline, even if it grows slowly. Once you accept this logic, then the only type of investments that are acceptable are those that offer guaranteed fixed-income returns. Curiously enough, this view extends not just to investments that actual retirees make, but also to investments that even younger savers make for retirement. These experts

It takes less effort, less time, less experience and less specialized knowledge to get good returns from equity mutual funds than it does from directly trading in equities. There are several benefits of investing through mutual funds instead of directly investing in stocks. Mutual funds combine the savings of a large number of investors and manage it as a single pool of money . So, instead of investors worrying about which stock or bond to invest in, professional fund managers do the job. Equities are complex and stocks you can buy come in a bewildering array of sectors, industries, size, financial structure, promoter track record, competitive scenarios and a lot more. When you invest in a fund from a good fund house, there is a full-fledged research department to keep tabs on all this; and there's an experienced full-time fund manager who has years --often decades -- of track record of making equity investments . Moreover, his track record is publicly known and thoroughly ana

It may seem like a problem you'd love to have: Getting a huge windfall and not knowing what to do with it. Frankly, it could be anything – a Diwali bonus, an inheritance, an insurance settlement, the sale of a home or business, or even winning a lottery. What you should not do is squander it all on a reckless spending spree. Here are a few ways you can handle that bonus wisely.  1) Start an emergency fund Use this money to start, or supplement, an emergency fund. In life, you should expect the unexpected – job loss, sudden medical expenses, unforeseen emergencies. Having a reserve for a rainy day is a very good idea. Without an emergency fund, you are more vulnerable to sudden life changes.  Most financial planners recommend setting aside 4 - 6 months' worth of living expenses in an emergency fund . If you take the liberal view of living expenses when deciding how much to stash away, your emergency kitty likely will last a little longer. 2) Clear expensive debt