Today, I am going to reveal a secret trick that will help you to increase your monthly investments by some margin. This trick is more of a psychological shift in the way you think about money, emergencies and how much should you invest.
However, this is applicable to only those who are already investing some money on a regular basis each month.
Let’s start …
You might be thinking that my secret is nothing but making your savings “automatic”. But no, it’s not the case. Making your investments “automatic” is just the first step, but there is something else that will take your savings to the next level.
Let’s get into it!
Here is how most people invest their money
They earn a salary
They spend money on their regular expenses (Rent, Grocery, Movies, travel)
Some money is left at the end of the month
and finally, a partial amount out of that is invested
Did you see that last line?
Only a “partial” amount is invested in the leftover savings at the end of the month is invested, not FULL.
Let’s dig deeper into this …
Take a sheet of paper (or open an excel sheet). Write down the total income you get in a month on the left-hand side, and on the right side, mention all kinds of expenses you have. Put Rent, Groceries, Maid expenses, Travelling, Eating out, movies and whatnot.
Now add up all the expenses and find the total expenses and deduct it from the total income you get each month. You will get your Monthly Surplus!. This is the amount you are left over each month and you should ideally invest this whole amount.
Below is a template which you can use for the calculation
What is your monthly surplus?
Will you start a Recurring deposit for that amount or start an SIP?
I guess the answer is NO.
As an example, if a person is earning Rs 1 lacs per month and their expenses are around Rs 60,000, their monthly surplus is Rs 40,000 per month.
But this person will probably invest only Rs 15,000-20,000 per month on a regular basis. They will keep the rest as “Margin of Safety” amount which they might need, because what if they suddenly need it?
The margin of safety is a simple concept, it’s just an “extra buffer” for “what if things go wrong” kind of situations.
This is called a traditional style of cash flow handling which is a very intuitive and natural way of thinking. We all do it and it feels right!
But there are some problems with this approach
But there is one big problem
While this traditional method looks very natural, there is one big issue with it. Here it is!
Once your investments are set, you feel a sudden excitement that now your investments are in shape, but because you have left a big margin of safety (the extra buffer), your expenses will automatically expand and eat away your margin of safety.
The mere availability of the buffer money will create various short term demands in your financial life and you will use that buffer each month.
Suddenly you will start ordering various things online (most of the time things which are not required), your eating outs will increase, upgrading your phone will appear within your budget, etc.
Supply creates its own Demand – Economics 101
The availability of money will create the demands in your expenses and almost all the time you will justify them. So from Rs 60,000 expenses, you will see that automatically it’s reaching Rs 80,000.
And after some time you will be used to Rs 80,000 per month expenses.
Just imagine, if the person had started a Rs 30,000 SIP and left just Rs 10,000 as a margin of safety? Can you see that here the person still has a margin of safety and invests 50% more amount each month?
What about Rs 35,000 SIP and just Rs 5,000 as a margin of safety?
Welcome to 10% margin Cash flow Management System
This is the crux of the system.
We all feel that we need to keep a big margin of safety because in our mind things will go wrong. And they will!
There is no doubt that things can go wrong in some months and some unexpected expenses can come up which can really disturb your regular investments and that’s why most of the people leave a big buffer between expenses and investments.
However, let’s deal with reality.
Most of the times these emergencies are not real emergencies and if we didn’t have enough margin of safety, we would have justified them as “not important” expenses!
Also, you should not depend on your monthly cash flows for emergencies and have a separate fund that can be touched in case a real surprise expense comes up. I call this new system as “10% margin Cash flow System”
10% margin Cash flow system
Here is how you design this cash flow system
Step 1: Write down all your expenses and make sure you put realistic numbers, neither less nor very big.
Step 2: Calculate 10% of your expenses and that’s your margin of safety. If your expenses are Rs 40,000 per month, then your margin of safety is Rs 4,000
Step 3: This margin of safety amount is the only extra money you will keep with you each month apart from your expenses, and even this money should be auto invested in a liquid fund, which can be redeemed on a short term notice of 24 hours.
Step 4: Make sure that before you start your actual investments on a monthly basis, you create enough emergency funds which can be 3X of the size of your monthly expense. Any sudden surprise expenses which are outside of your regular expenses list will be taken care of from this emergency fund and not your monthly surplus.
Step 5: Set up your investments in an automatic mode (like SIP in a mutual fund, or a recurring deposit or a combination of both) for all the money left other than regular expenses and 10% MOS (margin of safety)
Here is how it looks like
Taking the same example of Rs 1 lac income, the guy has Rs 60,000 expenses in total. His margin of safety is Rs 6,000. Rest amount left is Rs 34,000
For the first month, he puts this full 34,000 in a liquid fund. If any additional money is left from the 6,000 MOS then he puts that in an emergency fund, else he can spend it. For next 2 months, he puts 68,000 more in a liquid fund and his total liquid fund amount is around Rs 1 lacs +
Now, this guy will set up his SIP of Rs 34,000 per month.
Now imagine what happens in 4th month
In 4th month, here is how it looks like
Rs 34,000 SIP is executed and the money gets invested (make sure the SIP date is in the start of the month)
Rs 60,000 is the regular expenses
If there is any need of extra spending, then Rs 6,000 extra is already there (most of the months should be like this)
If for some reason, some surprise expenses come up, you redeem that much money from liquid fund and use it.
Repeat!
Can you see how the whole game changes here?
I hope you got the whole idea of this new model now.
You can always withdraw the money if a real emergency arises
I tried this concept on one of my friends last year. I asked my friend if he will be able to do any SIP?
He said “NO”.
His expenses were almost equal to his income. However, I said that he should start a small Rs 5,000 SIP. He said that he will not be able to because he is not left with any money at the end of the month.
My simple solution was – “Withdraw the money in a month if you really need it”
His SIP ran for the next 12 months
He finally started his SIP with a lot of reluctance and the SIP ran for 12 months straight ! with 1-2 withdrawals in between. However, my friend was proved wrong.
The mere unavailability of money made sure that he had to fit his expenses into this “visible income”.
So don’t worry and dare to start a bigger SIP then you can handle, in the worst case, you can always STOP it, you can always redeem some money back if you need it. But in my experience in most cases, people are able to handle bigger investments each month compared to what they imagine.
Let us know if you liked this article and if you are going to implement this new model of investing?
Do you really think this unconventional way of cash flow management can bring different in your financial life?
Are you one of those investors who are still away from mutual funds investments because you do not have enough understanding about it or have a lot so myths about them?
Every day we get constant inquiries from several of our readers who want to invest in mutual funds and often they have myths, which make us wonder about those myths.
So in this post, I have listed down 33 various myths related to mutual funds and SIP in general. So if you are totally new to mutual funds, reading this article start to end will make you fully knowledgeable about mutual funds.
So let’s start…
Myth #1 – SIP is the name of an investment product
A lot of people think that “SIP” is the name of some investment products other than mutual funds. So they say – “I want to invest in SIP”. However, SIP means a systematic investment plan, which just means a way to regularly invest only in mutual funds. In this, a pre-fixed amount is automatically deducted from your account and gets invest in mutual funds on a pre-defined date.
For example, if you are doing an SIP of Rs 5,000 in ICICI Pru Discovery mutual fund on the 10th of every month, then on the 10th of each month, Rs 5,000 will get deducted from your bank account and will get invested automatically.
Myth #2 – I can’t stop SIP in between once I start it
Another myth that stops investors from entering mutual funds is that they think starting SIP for X yrs, is a commitment they can’t break in between and they will face some penalty if they stop their investments.
A lot of people do not want to give any PROMISE of regular payment. However, the truth is that once you start the SIP, you can anytime stop the SIP in between. So don’t worry while starting the SIP for the next 5, 10 or 30 yrs. The day you want to stop it, it can be stopped with just one notification!
Myth #3 – All the money from ELSS can be withdrawn after 3 yrs if one is doing SIP
One of the biggest myths of investors is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs, they can withdraw all their money. However, that is not true. Each investment in ELSS is locked for 36 months from the date of investments. This means that the first SIP which goes in March 2017, will be free of lock-in only in April 2020.
The same is the case with the installment which goes in Apr 2017 (will be free in May 2020)
Myth #4 – Lower NAV is cheaper than higher NAV
Most of the mutual fund’s investors think that a smaller NAV mutual fund is a better deal compared to a higher NAV mutual fund. While this may be sometimes true in case of stocks because a Rs 10 stock has the potential to grow faster than a stock with Rs 10000 stock value.
But in case of mutual funds, NAV has no significance. It’s ZERO!
Because your mutual fund’s appreciation has everything to do with the appreciation in NAV value in percentage terms and not an absolute value. I mean if you invest Rs 10 lacs in a fund with NAV of Rs 10, and if the mutual fund performs great and in the next 5 yrs it doubles in value, then the NAV will rise to Rs 20 and your fund value will rise to Rs 20 lacs.
However, if the NAV was Rs 10,000 per unit, still the effect would be the same for you. The NAV would have increased to Rs 20,000 and your value would have increased to Rs 20 lacs. No difference as such.
So stop thinking that a fund is better (especially NFO’s) just because its NAV is lower.
Myth #5 – Dividend in mutual funds is better than Growth option
Dividends are not extra!, The NAV comes down by that margin after the dividend is paid, on top of it, if the fund is not an equity fund, a dividend distribution tax is first paid by AMC, which lowers the return of the investor. However, in the case of growth option, the money remains in the fund itself.
For example, imagine a fund XYZ with NAV of Rs 100 and a dividend declaration of Rs 10
Now in case of dividend option, Rs 10 will be paid to investors and NAV will come down to Rs 90.
However in the case of the Growth option, nothing is paid to the investor, but the NAV is Rs 100.
Myth #6 – Mutual funds means Stock Market
One of the most common myths is that mutual funds are highly risky because they invest in stocks. However, this is half true. Only equity mutual funds invest in stocks and are risky (in fact volatile is the right word, not risky)
There are other categories of mutual funds called debt mutual funds, which do not invest in equities. They invest in bonds, govt securities, and other secured investments. While debt funds have their own risks and even their returns are not 100% stable, still, debt funds are highly stable when it comes to returns and often provide better tax-adjusted returns then most of the bank fixed deposits.
Myth #7 – You have to invest big amounts in mutual funds
Many small investors stay away from mutual funds and stick to recurring deposits and other products because they think that mutual funds are for big investors and one has to invest big money in it. However, you can start a monthly investment of even Rs 1,000 per month in most of the funds. If you want to invest on the onetime basis, the limit is Rs 5,000.
So someone who is just earning Rs 10,000 per month and wanted to invest 10% of his income, can also start mutual funds SIP.
Myth #8 – Mutual funds are always for long term
Mutual funds are marketing as long term investments most of the time. However, it’s not always the case. There are mutual funds called liquid mutual funds and even short term debt funds which can be used for short term investment horizon like 6 months or 2 yrs.
This article from Economic times talks about some of these funds
Only in case of equity mutual funds, it’s suggested that one should invest from a long term perspective to reap the maximum benefits.
Myth #9 – Mutual funds offer guaranteed returns
No, Not always.
Actually never!
Mutual funds never offer a guaranteed return like a fixed deposit. This is one reason why many investors who are totally in love with “assurity” shy away from investing in mutual funds.
Various categories of mutual funds offer various return range. An equity mutual funds can offer return anywhere from -50% to 100% return in a year (just a high level estimate). Whereas a debt fund can also deliver a return ranging from 5% to 15%. And a liquid fund will mostly give a return in range of 6-8%
So the returns are not guaranteed, but highly probably within a range depending on its category.
Also note that as the investment horizon shifts from 1 yr to 10-20 yrs, the probability of getting a stable return within a range increases.
Myth #10 – I will lose my money if the mutual fund’s company goes bankrupt
This is common thinking, but not true
Mutual funds are highly secured in terms of structure. The way it’s designed and regulated by SEBI, it’s almost impossible for investors to lose money due to a scam or AMC going bankrupt. Your mutual fund’s units does not lie with AMC (it just takes the decision of buying and selling). Units and all the money lies with the custodian and highly secure.
Myth #11 – Past returns in mutual funds indicate future returns
Not correct.
While past returns can surely tell you that the fund did very well in the past and there is some probability due to legacy that it will perform well. But it’s not written on stone.
How the fund will perform in future is totally a function of what decisions fund manager takes in future. HDFC Top 200 is a classic example, where the fund who ruled the mutual fund world is now not one of the top 10 funds.
Another example is the SBI Maxgain tax saver which was one of the best ELSS funds some years back but is now replaced by many others.
Here is a study by Yahoo Finance on this topic with respect to funds in the US, which tells that around 92% of top performers do not remain top performers after two years.
Myth #12 – More mutual funds means Diversification
Diversification is an abused word, at least in mutual funds.
Just because you invest in more mutual funds does not always mean that you have achieved diversification. The reason is simple. A mutual fund invests in close to 50-100 stocks. So when you invest in an equity mutual fund, your money is already well diversified across sectors, types of companies, etc.
When you add another mutual fund, most of the stocks might be the same and also in the same proportion, giving you very little extra diversification. When you add 3rd fund and 4th fund, almost no diversification happens. Below is the portfolio of one mutual fund and you can see how much they have diversified already.
This is one reason why it’s of no use to invest in 10-20 mutual funds of the same category. 2-4 funds of a similar category are the maximum one should invest into. You should add more SIP amount or lump sum in the same fund once you have chosen 2-4 funds.
Myth #13 – I need Demat account to invest in mutual funds
No, it was never the case.
A lot of people think that unless they have a Demat Account, they can’t invest in mutual funds. You can invest in mutual funds from your Demat provider also, but it’s not mandatory.
So when you invest from ICICIDirect or HDFC Securities, you are actually investing via a Demat account and the units you get sit in your Demat account.
So if you want to invest in mutual funds, you can invest directly from the fund house or through an advisor.
Myth #14 – I can start SIP and forget it for long term
A lot of investors think that once they have started a SIP investment or even lump sum investment they can just sit back and relax for next 10-20 yrs. This is not suggested.
Mutual funds need constant review every year. So you should at least keep an eye on your fund performance. Do not overdo it and start looking at weekly and monthly returns, but do that in 1-2 yrs.
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Myth #15 – You can’t save tax under 80C in mutual funds
Many people who regularly save income tax through PPF or life insurance policies, do not know that even mutual funds have 80C benefits. ELSS or Equity linked saving scheme is the category of mutual funds which gives you 80C benefits up to Rs 1.5 lacs.
Myth #16 – SIP can be done only on a monthly basis
No, An SIP can be done even on a weekly or quarterly basis. While monthly SIP is the most suitable for all (we all get monthly income), but at times if you want to invest on a quarterly basis or weekly basis, even that can be done.
However, note that it depends on a mutual fund if it gives you the facility of weekly/quarterly SIP or not. Most of them do, but at times, some mutual funds might choose to not have that option.
Myth #17 – Mutual funds investments are complicated
While investing in mutual funds is definitely as simple as creating a fixed deposit. But it’s not too complicated. You need to do one-time documentation to start with and once it’s done, After that you can buy/redeem mutual funds online.
One place where you might feel complication is while choosing the funds out of the big pool, but with your own research or with guidance from someone else (like Jagoinvestor), you can get a set of mutual funds to invest in.
Here is a good mutual funds tutorial for beginners by Deepak Shenoy
Myth #18 – I can’t add more lump sum amount in my fund where I do SIP
A lot of investors feel that if they have started a SIP in a fund XYZ, then they can’t add additional money in the same fund under the same folio. It is not true.
When you invest in a fund (either SIP or one time), you get a folio number. This is like an account number. You can anytime add any amount of fund to the same folio. So if you are doing a SIP of Rs 10,000 in Birla Balanced Advantage fund, and now if you want to add another Rs 1,00,000 suddenly, you can do that.
Myth #19 – You need documentation every time you want to invest in mutual funds
Again a big myth.
Once you are done with the first time documentation, after that every time you want to invest and redeem or switch, you can do it online. The documentation comes into picture only when you want to do changes like your email id, phone or address etc.
Myth #20 – Mutual Funds are not for retired investors
This is entirely false.
There are various kind of mutual funds which are suitable for retirement needs. You can invest your hard-earned money in debt funds and keep them secure while it’s growing at a decent return. One can choose an option for a monthly dividend and get an income.
One can also SWP from a fund, and withdraw a fixed amount each month. One can invest in debt-oriented mutual funds, which can have some equity component for some return kick!.
We have helped many clients to plan for their parent’s retirement money deployment.
Myth #21 – I can’t invest in mutual funds because I need high liquidity
Again a myth.
Mutual funds are highly liquid and you can get your money ranging from instant redemption to 3-4 days depending on the fund type. If you want very high liquidity, then you can invest money in liquid funds, from where you can redeem in 24 hours.
Myth #22 – Mutual funds are not that famous among investors
This may be news to many, but the Mutual Fund’s industry will overtake Deposits in Banks very soon (maybe a decade). Right now at the time of writing this article, the money in India mutual funds was around 18 lacs crore, It has doubled in the last 4 yrs, and set to grow very fast in the next decade.
In the US, mutual funds are already several times bigger than Fixed deposits and it’s going to happen in India too over the long term. So if you still think that mutual funds are some alien concept, then you are wrong. It’s very popular now in India and one of the standard investments products.
Myth #23 – Mutual fund redemption needs the permission of a broker or advisor
Your broker or advisor has no control over your mutual funds. You can do redemption on your own by either installing the app of the fund house or through the portal where you have access to.
In the worst case, you can anytime go to the fund house office or CAMS/KARVY office and apply for redemption. This does not need any approval from anyone.
Myth #24 – I can’t skip an SIP payment once started
A lot of people are worried about what will happen if they skip the SIP in a particular month when they are low on funds?
If your bank account does not have sufficient money for a month, then on the SIP date the SIP will not get processed, but from next month it will go fine again. Mutual funds company does not charge any fine or penalty for this, but your bank can levy a small charge for this like Rs 200/300.
I think it’s good, because that way you will be disciplined enough to make sure that your SIP’s go on time, but also does not hurt you too badly in case of emergency
Myth #25 – I should stop my SIP when markets are down
Unless you are an expert in understanding markets and how they will behave (which I think no one knows), it does not make a lot of sense to time your SIP’s. Just let them run in all kinds of markets and focus on your long term goals.
Most of the investors make this mistake that they stop their SIP’s when markets tank. In fact, this is the best time when you should accumulate more Mutual funds units in your portfolio so that when markets are up, you will reap the benefits.
Myth #26 – TDS is applicable when mutual funds are sold and redeemed
Mutual funds are not like Fixed Deposits or Recurring Deposits.
When you sell your mutual funds, there is no TDS which is deducted. You get the full amount in your bank account and then you need to figure out the tax amount and pay it later.
However there is no exception to this. In the case of NRIs, if they redeem their debt funds, then TDS is applicable.
Myth #27 – My money will be locked in mutual funds like other products
Many investors think that in mutual funds their money is locked for a specific period. in case of mutual funds, most of the funds are open-ended funds, which means that you can invest any time and redeem anytime.
There is no lock-in except in ELSS funds (which comes under 80C) and close-ended funds (which specifically tell you the duration for lock-in)
Myth #28 – SIP should not be started when stock markets are very high
Yes, this is actually not a myth, but truth.
But only if you know that stock markets are high. If you are very sure you can figure that out then Yes, it’s better to wait for markets to tank down, and then start SIP. But 95% of the people don’t have time and energy and even expertise to read these signals.
So that’s the reason, why you should not think much when you are starting the SIP. Start your SIP’s irrespective of market conditions. And when markets do down, it’s time to increase your SIP amount
Myth #29 – SIP is always better than Lump sum investments
None of them are better than the other.
SIP’s will outperform the onetime investments in certain conditions and vice versa. SIP’s, however, are more suitable for a common man as it’s a monthly commitment and averages the risk of market volatility.
Here is a good discussion on SIP vs Lumpsum Investments by Monika Halan and Vivek Law in a show called Smart Money
Myth #30 – I can’t switch from one mutual fund to another fund
Many people do not know that it’s possible to move from one fund to another fund across the same fund house. You don’t need to sell the fund, get the money in your account and then again invest in another fund of the same fund house.
So if you have a mutual fund from Birla AMC, you can switch it to another Birla fund without redemption.
Myth #31 – Mutual funds of bigger and trusted brands are always better
Do you know that LIC also has mutual funds business?
However, LIC mutual funds are one of the worst-performing funds across the whole MF industry. LIC mutual funds is not same as LIC insurance.
In the same way, SBI mutual funds should not be confused with SBI bank. A lot of first-time investors in mutual funds investors want to go with trusted brands like LIC, SBI, or HDFC.
Not that mutual funds is a different business, and you need asset management expertise. A small fund house like Motilal Oswal or even Quantum or PPFAS has high-quality funds and should be explored.
Myth #32 – I can’t partially withdraw from mutual funds
Yes, you can. Mutual funds can be redeemed in parts. You just have to choose the number of units you want to redeem or the amount you want to redeem (it will calculate the units required). So that way, it’s a great product. Because in case of deposits it’s either the full amount or none (which is one positive thing also)
Myth #33 – Only humans can invest in mutual funds
Even companies and partnerships can invest in mutual funds. It’s not limited to just humans. So if you are a business owner, you can also go for your business KYC, and then start invest in mutual funds. If you have money lying in current accounts, you can park your excess money in liquid or debt funds and redeem them anytime you want with a single click.
Let us know if you have any more myths or queries related to mutual funds or SIP.
Are you ready to invest in mutual funds?
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Here is the real-life story of Umesh, who is one of our long time readers. He agreed to share his life story on how he turned from a successful CA to an Entrepreneur. I am sure it will be an inspiring read for other readers and we all can take some learning’s from his story.
Over to Umesh …
I have been a follower of Jagoinvestor.com for the last few weeks. One post from Manish regarding how he quit his job with Yahoo was catchy and I responded back to him stating that I was happy for him as his story pushed me down the not so distant memory lane of my pursuit to being self-employed.
He has been kind enough to let me share the same with you readers and I hope I can add some value to the time that you will spend in reading the same.
And here it goes
I am a CA with over 25 years of experience. As a child, I had been brought up in the company of CA’s and when I had ceased to be an infant, my father – who is also a CA – joined Air India.
And thanks to his position in the national carrier, from my childhood days, I enjoyed traveling by air, in style and comfort of Maharaja Class… The jumbos of Air India really fascinated me as a child and with each passing year, my interest in them kept on growing. So much so that I decided mentally to become a pilot of one of those 747s.
But I did not become a Pilot
Man’s wish can only progress towards reality when God concurs. In my case, God gifted me with powerful eyes and a nice pair specs and so my dream of becoming an airline pilot is still a dream.
I scored a distinction in SSC and had an alternate desire to become an Aeronautical Engineer – but the burdensome presence of Maths prevented me from opting for that even though I was getting admission. And then, like thousands of others, I joined Commerce and in due course of time the CA blood prevailed over everything else.
I ended up becoming a CA but airplanes and airlines were still part of my hobbies. Even during CA preparations, I used to read airline magazines!
I sent my resume to Singapore Airlines!
So much was the craving that the first CV that I sent was to Singapore Airlines! Knowing very well that it is unlikely that I will get a call. I was not interested in going in for CA practice as I found Taxation and Statutory Audit really taxing. I wanted to do something different – so in that pursuit, I started looking out for a good job or an assignment that I can manage on my own.
I struggled for several months and then my corporate life made a good and healthy beginning. And within a year and a half, I was able to finally enter the airline world on merit and Jet Airways became my third employer and the first in the airline industry. It was a dream come true for me and I simply liked the job.
I never felt that I was working, as airlines and airplanes were my passion and my work was though related to accounting was off-beat when compared to the typical book-keeping type.
I learned a lot in that company and ended up heading its Revenue Accounting unit as a GM at a very young age in comparison to those who were holding that position at the time with decades of experience. I progressed from there and moved on to head the function for 2 other airlines – one in India and one overseas.
I enjoyed the work even with Work Pressure!
Throughout my tenure in the airlines, I was positive and enjoyed the work though the work pressure was enormous, timelines extremely stringent as airlines being in the service industry have to work 24 X 7.
My wife and son and parents have seen me sometimes on the following calendar day but thanks to my passion, I always felt at home.
The best phase of my life was when I was overseas and working for an airline – the work environment was considered to be the toughest within the industry. However, my base was solid and passion too played its role very well and I felt that it was a lot easier than what was perceived.
It was a good exposure in dealing with people from different cultures, countries, and backgrounds. The flow was smooth – but my son was disappointed with the quality of education there and after due pondering, I chose to give his education priority over my professional satisfaction and we returned to India for good.
How I became an Entrepreneur?
By then, I had completed 2 decades in the industry and in my core specialization as well and I decided to do something different and become independent from the clutches of the employers. I had many tempting offers from the industry within India and overseas but I preferred to go the independent way.
My family was with me and backed me solidly – I was in that age frame where if my entrepreneurial attempts fail, I would still have the opportunity to get back with humility to the corporate world. Initially, the going was tough and at times making me wonder if I had taken the right decision.
However, my wife was with and behind me like a rock and I remained committed to getting the first assignment before the bank account reaches alarmingly low.
I got my first assignment
Patience and eternal trust in god always pays and I got my first independent assignment overseas. And all in the house were happy and I was thankful to God for showering his blessings. It lasted for a few months – it was a unique experience as I was the boss of myself and had only the mirror to report to in relation to my work.
It was a great feeling and I still remember the moment when I sent out the first set of FEMA documentation to my bankers to get the inward remittance. Thereafter I have been able to keep the entrepreneurial spirit going with one assignment at a time – though I can manage more than one, I chose to work on my newer passion towards stock markets.
Since the past year, I have again been an active student of stock market and am learning by the day and have been helping a few make money by putting my knowledge to test.
I had my first stint as a trader for 2 years which was full of ups and downs and I had to take a sabbatical from the markets as I got an overseas assignment with my sleep hours slot was the active market hours slot in India.
Once I was back, I invested a significant amount in getting trained by the best in India and have since been working very hard to make this as my next profession – where I do not have to source business as the opportunities come knocking on the doors as long as I ensure that I have capital to take advantage of the opportunities.
From Automobiles to Stock Market!
So in my career so far, I moved from automobiles to IT to airlines to BPOs to TMCs to stock markets – I have learned a lot from the markets – about stocks and related matters and about myself as well.
My ride thus far may seem like an uneventful and seamless but I went through quite a few rough patches and I always remembered the saying – If it were not for the rocks, the stream would have no song and also – Ships are safer in the harbor but they are not meant for the purpose.
In comparison to the present times, my salary was not that high especially after the 9/11 attacks in the US which changed the game altogether. Airlines turned out to be a good place for its vendors and not its employees.
16 habits which helped me become successful
However, I am thankful to some of my habits which helped me reach where I am today.
Few of these are
I always ensured that I am able to pay off any dues immediately on my salary getting credited. Even if the amount was not due, I used to clear it to have surplus identified.
I started investing in Mutual Funds – in NFOs with Dividend Payout Options. Such investments were made on a monthly basis and where there was no NFO in a month, I used to add to my holdings.
I started a couple of SIPs and these ran for 3-5 years one of them was with Dividend Payout Option and one was the Growth Option – this ensured that when the market was up, the value of my investments would also be up.
My father cultivated in me the habit of making sure that I keep making investments in the PPF account that he had opened in my name and then I opened for my wife and son as well and kept depositing whatever possible.
Intermittently, I kept creating FDs – in companies – when the rate used to be 12-15% and in banks and worked hard not to prematurely break them.
I invested in some shares [this was an unprofitable investment though] thanks to the friendly relative sub-broker who was so sure about the scrips recommended by him. I am still an “investor” in those carrying on a burdensome 5% of its original value!
In the last 7-8 years of my corporate life, I started contributing VPF – additional sums as Voluntary Contributions to PF
I had a car loan and 2 home loans – with hard bargaining, I could get a car loan at Zero Interest over a one year period and that helped me save close to 20-22% of the on-road price.
With my above habits and 2 home loan EMIs, I was now having the real pressure to ensure that I do not end up breaking any of my FDs.
Any increase in pay due to revision or change of job was used to either create FDs for home loan EMIs or to part pre-pay the loan.
Sometimes, MFs used to pay handsome dividends and after retaining some for consumption, I used whatever little was left to make ad-hoc loan payments.
Whenever I made an out of turn loan payment, I opted to cut the duration of the loan and not the EMI amount
In the last couple of years of my corporate life, thanks to good revisions in pay, I increased EMI amounts as well which further accelerated the cut in loan term – obviously, the lending banks did not like me as their disciplined customer!
Before I went on my overseas job, I chose to withdraw PF balance and much to the surprise of all, I made a significant part payment of the loans. I am sure many would have wondered if I was in my senses as PF is usually seen as the last resort for a person to touch – to be encashed only when one is retired from the services.
Using up PF for a loan made a happy dent in the loan duration but the end was still far away – but I was feeling a bit relieved.
Out of my final settlement from my last job, I cleared all the home loan dues and began my journey as an Independent Consultant with no hanging commitments.
The above may sound like a well-written script but the journey through these was tough, challenging and at times tense. There are still many who wonder why I am not working with one of the airlines and encashing my experience and knowledge.
I tell them that I am now used to not listening to anyone but my boss in the mirror and he is a tough guy and would not release me.
Should every salaried person become an Entrepreneur?
I have, in the last few years, counseled many regarding several matters, including why one should ultimately work as self-employed – this in no way undermines those who are in service.
Due credit also goes to some of the airlines/entities in India and overseas with whom I was/am associated as they helped me reach the state of Independence. Only those who are born entrepreneurs with no financial burden can start as a self-employed.
People like me and possibly many of you have to toil hard before even thinking of being on our own. Carefully note that since I am on my own, my insurance [car, health, critical illness, travel, term plan, etc.], welfare, administration, travel, infrastructure, capital expenditure, communication and possibly a few more are all on to myself.
Life as self-employed is not rosy!
So, please do not think that life as a self-employed is rosy. I strongly believe in the adage – ”The grass is greener on the other side.”
We have to learn to look at things from a neutral perspective and learn to remain humble, utmost patient and irrevocable trust in God and in our abilities to do the right things.
When we are looking at our future, we need to keep several things in mind – it is not possible to write about all these now, but suffice to say that such decisions have to be thought through and situations 10-15 years from now should also be considered before concluding on a decision.
My story is nicely covered by this picture which reflects the dream, the then reality and the present:
I hope my journey and my way of doing things gives the readers some idea about how easy / difficult it is to be self-employed and also financially disciplined. Whether or not you end up being self-employed, please be financially disciplined as money is required by all and the times are going to be tougher as we move along the path of this beautiful life.
Stay Blessed and financially safe!
Warm regards,
Umesh
Conclusion from Jagoinvestor
I think it was a fantastic life sharing and there were many lessons which can give you a great insight into decision making. It’s always a great thing to read someone else story, you get lots of inspiration and see how other people handled some situation. You get an idea of how things look like on the other side, you read about their struggles, achievements and eventually add the learning’s in your life.
I thank Mr. Umesh for this contribution and wish him the best of luck!
If you feel that you can also contribute to this blog (it can be an article, life sharing, valuable info), just get in touch with me using this form
Yesterday I went to watch a movie late night at Amanora town center in Pune. I and my wife had our dinner at a small Italian restaurant and the food there was quite good.
When it was time to pay the bill, I went to the counter and paid the bill. When I got the bill in my hand, I realized that there is a problem. They had charged me a “service tax”. However, the main issue was that there was no service tax number mentioned on the bill.
Charging Service Tax without Service tax number is Illegal
Yes, you heard it right.
The Bill copy did not have any service tax number mentioned on it, but the restaurant had put a service tax charge on the bill. This is Illegal and can’t be done. Hence I told the staff that I can’t pay that service tax unless they give me the service tax number.
The staff, as usual, was ignorant about this and told me that I should talk to “owner” and tried to give me his number. However I told them, it’s not what I will deal with and I will not leave unless they give me service tax number because they are illegally charging service tax.
Finally, after 5 minutes, the staff told me that the Owner is not reachable and they will give me a service tax number later. But I refused to budge and demanded them to pay me service tax amount back and not repeat this, as its illegal.
Finally, they had to refund me back and I took the money. Here is what another CA has to say about this on Quora
I realized that not more than 1 out of 1000 people know this rule, and this needs to be spread among people. Many restaurants are misusing the fact that now people know that service tax is an unavoidable tax and has to be paid, however many do not know the rules and conditions under which any business can charge it. Even Service charge is now an optional thing and you decline to pay it.
Note that many restaurants will tell you that they have applied for the service tax number and are awaiting it, but this is mostly a trick to fool you and to save themselves out of the situation and embarrassment. However even in that case, it’s not right, and you should demand to see the proof for that.
The service tax number is mandatory to charge Service Tax
As per service tax rules, service tax can be charged only if you applied and got your service tax number. This service tax number has to be written on the invoice copy. Without that, you cannot charge service tax from your customers.
In the case of restaurants, the service tax has to be charged only on 40% of the FOOD bill and beverages. So if you eat for Rs 1,000 (food + beverages), then only 6% on the total bill is to be charged, which will be Rs 1060.
Here is a sample of a correct bill that mentions the service tax number on the bill itself.
How to verify whether the service tax number is valid or fake?
Few people ask me, how to verify that the service tax number mentioned on the bill is not fake? Because the hotel guy can just randomly put some number, which looks like the service tax number.
The simple solution is to check the name of the person/company under whose name the service tax number is registered. It just take 1 min to verify that.
Step 2: Enter the 15 digit Service tax code (also called Assessee code)
Step 3: Enter the captcha
Once you do this, the page will show you the
Non Bailable Offence under sec 89 of service tax
If service tax is charged without a service tax number, then how will it be paid to the government? Because you need the service tax number to pay the tax to govt. Sec 89 of finance Act tells that incase an offense is done like this, then the person can be jailed for up to 1 yrs (and up to 2-3 yrs in case the amount involved is above Rs 50 lacs).
Below is a snapshot is taken from Taxguru website which writes about tax-related topics.
Do you need to pay a service tax if you don’t sit in AC?
This is very interesting.
One of the biggest questions people raise is that if a restaurant has AC in one part, but not in other parts and if you are seating in a non-AC section and dined, still do you have to pay the service tax?
Or imagine is AC was not working at that time, even then will you be charged the service tax?
The answer to that is YES.
Sorry, but the service tax rules clearly state that. The service tax rules simply say that if the establishment (the hotel or restaurant) has the facility of air conditioning or central air-heating in any part of the establishment, then they have to charge the service tax in their bill.
It does not matter if you got the benefit of the AC at the time of eating. All that matters is that they have AC anywhere on the premises.
This itself is enough for a restaurant to charge the service tax. However, if an establishment is divided into two parts with the two different names and entities, then the non-ac part can’t charge the service tax (where the service was given), even if the food was prepared in the AC part. Here are the exact wordings from the service tax notification on this issue
3 things to remember when you visit a restaurant next time
When you visit the restaurant next time, make sure you keep in mind the following 3 points.
Check if service tax number is mentioned on the bill or not, if they are charging service tax on the bill
Make sure the service tax is charged @6% on the food + non-alcoholic bill and 15% on the alcoholic charges
Make sure there is AC in the restaurant if you are charged service tax.
Spread this Information
There are thousands of restaurants that might be charging service tax illegally without having a service tax number and millions of customers on a daily basis are paying that as they are not aware of the exact rule. This is practiced by many restaurants, small hotels, and many other businesses.
So spread and share this article as much as you can so that more and more people can know about this. Also, share your experience with this.
Do you know that every person is entitled to 1 free credit report and score each year from each of the credit bureaus in India? There is 4 credit bureau in India which are CIBIL, Experian, Equifax and Highmark.
As per RBI guidelines, now each of them have to provide one free report each year. For those of you who do not know, a credit report is a document that has all your past loan repayment history and a score that tells a lender if you should be given any loan or not.
So each lender checks these reports and scores as part of their loan approval process. It’s very important for investors to keep track of their credit scores from time to time.
Step by Step Process to Check FREE Score online
So today I am going to share the process of getting the free report and score online from each CIBIL Transunion, Experian, Equifax, and Highmark credit bureau. I have personally checked my own score + report from each credit bureau and I will teach you the step by step process of how you can do it too. The whole process is online and you do not have to fill any form by hand or send any documents anywhere.
Note that your credit report will be available only if you have taken some kind of loan or credit card. So if you do not have any kind of loan, you will most probably not have it, unless someone has misused your documents and applied for some loan.
So let’s start with CIBIL first.
How to check the FREE CIBIL report and Score?
In order to check your free CIBIL Transunion report and score, you need to follow below steps –
Enter your current details like Identity Details, Contact details etc and continue to step 2
Confirm your email on next page, and then go to your email to click on a link inside for email verification
On the page, enter your voucher number and move ahead
You will then be asked for some verification questions related to your debt.
Once you answer them correctly, you will be taken to your free report
How to Check FREE Equifax Credit Report and Score?
Here are the steps to check your free Equifax report and score
Download the Equifax India mobile app (android or iOS)
Register your email and get temporary PIN number
Enter a temporary PIN and reset a new PIN and then log in to the App
Enter your Name, Phone, Date of Birth and Adhaar Card
An OTP will come to your phone number which is linked to adhaar card
After OTP verification, your KYC check will be complete
On the app, click on the link “Credit Report”
On the page, click on the link “Request Free Credit Report”
Enter all your details and then click on Submit
Now your “Knowledge-based Assessment” will be in the pending stage.
After 24 hours, your knowledge-based assessment will get generated.
Click on the app, and click on the link which says “Knowledge-based assessment”
Give correct answers to the questions asked, after which your credit report will be in the “Initiated” stage
After 24-48 hours, you will get an email with the free credit report as an attachment
Download the attachment and have a look at your report and score.
You can also login to the app and check your report there
For those, who do not have mobile linked with adhaar, they can send their KYC documents along with a filled form to Equifax customer care, and on verification, they will get their free report in 48 hours
How to Check FREE Highmark Credit Report and Score?
Here are the steps to check your free Highmark credit report
Go to https://cir.crifhighmark.com
Register as a new user and set your new password
Activate your account by clicking on the link inside the email
Again login and choose an option to get a free report on the top of the page
Enter all your details and click submit
You will get a notification that inquiry was successful and now wait for the email
After a few hours, you will get an authentication email
Click on the link and verify some of the information asked on the page
On successful verification, you will get an email with PDF attachment after 48 hours
Open you free Highmark report and check it
I hope the above videos must have given a good clarity on what needs to be done to check your report online, totally free of cost.
Why you should check your report every year?
A credit report is fast becoming a very integral part of the credit system in India from the last few years (it’s already is). It’s highly recommended to have a clean record and a fairly good credit score if you don’t want to get rejected for your future loan applications.
Now with one free report from every credit bureau, everyone should check theirs from each company and make sure that all the credit remakes and details like name, age, score, and other details are correct. If you find any problems, immediately raise a dispute with the lender and the credit bureau and start fixing it.
PRO Tip – Subscribe to each report with the gap of 90 days
Don’t subscribe all 4 reports at the same time. Time them one per quarter so you can monitor your credit report for any frauds frequently instead of once every year.
So the point is that if you divide your free reports checks every 90 days, you will be able to find out if there were any frauds happening throughout the whole year. However, if you just apply for all the reports in a single month, then you will be able to apply them only next year.
Let me know if you face any issues while checking your free report
Do you take all your decisions based on facts or emotions? Be it personal or financial life, it’s a well-known fact that 95% of our decision are based on emotions.
Today we are going to look at various kinds of behavioral biases in the area of money and in general. For this, I got in touch with Mr. Siddhartha K Garg who is an expert on this topic.
We had an hour-long conversation on various things and how investors make mistakes in their financial life because of various emotions. You can listen to a 1-hour long audio podcast below. Just make sure you listen to the full conversation as there are various points discussed.
If you do not want to listen to the audio podcast, you can go through the summary point of our talk below.
What are biases?
Simply put our brains give more attention to something but less attention to something else, despite there being no actual inherent reason to make such a distinction.
And hence it is a bias – that is making a distinction without any reason. A simplest example which you yourself can notice right now – how many positive stories from today’s news do you remember v how many negative stories? I am certain many more negative stories than positive ones.
This is because our brains are hardwired to pay more attention to negative stores than positive ones as the negative ones are more likely to harm us. Or why that pollution in Delhi only becomes an issue every winter, but not so much in summers. Because we are biased to give more attention to an issue when it is right in front of us as opposed to something in the future (this is called proximity bias and we will shortly discuss it).
Now, apart from small purchases like everyday items, these biases can wreak havoc on your long term wealth if you don’t take steps to check them! Want to know more? Let’s read on and think which ones of the following have you already fallen prey to?
Bias #1 – Anchoring effect
Definition – Rather than explaining what this bias is, allow me to illustrate how it originated – once a shopkeeper was trying to sell a mixer grinder and was having a very hard time trying to do so. He had priced it at 25US$ and was aggressively marketing it, yet the customers just wouldn’t buy it.
But one day suddenly his sales started shooting up. Perplexed as to what is the cause of this upward selling, he went to the aisle where the mixer-grinder was stocked and noticed that a shop employee had put another similar company mixer-grinder next to it and accidentally put a tag of $100 US on this 2nd model, despite there being barely any difference in the 2 models.
What the shopkeeper noticed was that the customers would anchor the price at the heaviest figure and then judge the models based on such price and not go into the features etc of the models at the display. As a result no one even touched the 100$ mixer-grinder but the sales of the 25$ shot up.
Example – Another similar example would be that of a famous café in Italy, that apart from the usual coffee and food items in the menu also have available for purchase a Vespa! (one of those hipster scooters) Now they obviously don’t expect anyone to buy it, but just by seeing that price tag of 800 Euros on the menu card makes the 30 Euro coffee seem not that expensive.
Solution – Now that you know about this bias, you will automatically notice yourself gravitating towards such an item, whose actual value is not worth the price or maybe you just don’t need it. Point being – decide on the purchase on the cost of the item relative to its own quality and your need and not to some item thrown in the menu to throw you off track
Bias #2 – Sunk-Cost Fallacy
Definition – Divestiture aversion or in simple we are averse to letting anything go which we already possess. In more common terms this is when we throw good money after bad.
Example – keep sticking with some stock despite consistent under-performance because we think it may improve
Solution – cut your losses – yes, a little bit of loss is better than huge loss and what you get back can be re-invested and earn to counter the loss made
Bias #3 – Confirmation Bias
Definition – we look for sources of information that confirm our beliefs rather than oppose our beliefs
Example – people who have a right-wing philosophy prefer Facebook pages that cater to that view or with left-wing philosophy will only follow pages that talk about their beliefs. Or in investment parlance – those who believe that FD is safest and surest will try and avoid news outlets or people who say that you must have equity exposure also.
Solution – get a mix of information sources and don’t just limit to one side. Hear everyone and have contrast exposure to all investment strategies.
Bias #4 – Halo effect
Definition – Halo is the golden circle you see above the heads of angels. Like in Tom and Jerry, whenever one died they showed the character in white robes in heaven with a golden circle above their head.
So in this bias, we get a halo above our head after we do something good (like not over-spending throughout the week or doing a financial review of all your insurances and investment on a weekend), that now you think that you are good boy and can get away with a little bit of unexpected spending.
Example – Sometimes people work out a lot in a gym and think that now they deserve it and come home and order Dominoes. Similarly, people can do in financial life, like for example after spending a weekend going through your finances, documents and portfolio status people think that they have done all the right financial habits that they go and splurge in the mall on Sunday evening.
Solution – notice that this is a common behavioral trap when you see yourself falling for it, back off and stick to your investment or budgetary plans.
Bias #5 – Bandwagon Effect
Definition – in simple words it is the herd mentality
Example – in your office everyone decides to invest in gold because the market is low and do so you. Or your relatives and uncles decide that life insurance is the best way to save tax, you also decide to follow. When clearly they are the wrong choice. One person example – in the SCBA (Supreme Court Bar Association) there is a tie-up with a particular company’s life insurance. And I see many people just buying that insurance because most of the other lawyers are also buying it. Now I am not saying that this particular company’s offering is bad but only saying that just because everyone else is purchasing it, makes it the right option. One should always purchase, not blindly following the herd, but after carefully analyzing the options.
Solution – Don’t just follow the crowd but analyze what are your requirements and then what are the best solutions based on your investment need. If you are a young salaried person then invest in equity and if about to retire and obviously can’t carry many risks then look for safer options – maybe debt funds. But don’t just follow the crowd and invest based on your requirements and financial situation.
Bias #6 – Proximity bias
Definition – we give more importance to things in our current than in the future.
Example – The study of people under F-MRI shows that for future they viewed themselves with the same regard as a stranger. In fact, doctors in the US, show the pictures of people on a computer screen that if they don’t exercise or take their medicine then in the future they will look so and so and this caused more compliance to the diet plan.
Solution – it might not seem important now but your future will be present soon. Days are long but years are short – so, start saving for retirement from the very first cheque and start your SIPs early to take advantage of cumulative interest.
Bias #7 – Recency Bias + Negativity bias
Definition – we pay more attention to negative and recent things
Example – stock market crashed – as opposed to a long string of bull runs or that many companies did farewell and decide to go for FD and not invest in mutual funds
Solution – Stick to a chosen investment strategy based on goals and not let blips change your mind
Bias #8 – Status Quo Bias
Definition – that we prefer to let things stay as they are and not rock the boat – it’s going fine then why shake things up
Example – simples would be not analyzing your portfolio – it’s going fine. Why apply mind and let it be
Solution – No! Get over the laziness and devote some good time like Sunday afternoon after lunch one hour once a month without phone calls or emails or any distractions and get things done.
Bias #9 – Information Overload and attention deficit
Definition – you are overloaded with information and you just get paralyzed. You stop taking any actions because you are over-analyzing things and not able to arrive at decision.
Example – let’s say you want to decide which mutual fund to invest in and get bombarded with options and decide that let’s just get the simple FD done. In fact, a study from the US shows that a company offered its mutual funds to invest in on the company’s expense. With 3 options, 75% of people selected a fund. But with 10 mutual funds options, the purchase rate dropped down to 25%.
Solution – get basic research done and then keep cutting out irrelevant information, get the main data and then decide with the help of an expert – hired or a family or friend. But just because lots of work doesn’t mean you should not do it at all.
Bias #10 – Snowflake fallacy
Definition – if you see snowflake under the microscope the you see that each snowflake is unique and so do we, think that we are special in the universe and that we know what we are doing is right or that our problem is unique and no solution to it out there, as result don’t look for the solution
Example – We think we know it all and can conquer the stock market. Stop – if you are an average person who wants full-time work in the field you are better with mutual funds. Which is basically a collection of stocks picked by experts.
Solution – remember that you are not unique and get your major decisions reviewed by someone knowledgeable in the field and don’t just ignore the basic rules of investment.
Main example – Even Sir Isaac Newton was not able to beat the stock market! In the 1720s had lost about 3 million US$ (in today’s term) when he tried to play the market on the stock of a company called “South Sea Company”.
Bias #11 – Lifestyle inflation
Definition – This is also called the “Hedonistic adaptation” – it basically means that once your salary etc starts increasing, subconsciously your spending also starts to increase. You won’t even notice it. And hedonism means the philosophy of seeking pleasure and when your salary increases you adapt your lifestyle for more pleasure, hence causing the hedonistic adaptation.
Example – You have a nice 50 inch LED. Your salary increases and you start thinking why not a 60 inch LED TV. Then after some time, you decide why not a 4k LED. Then you decide why not an Android enabled LED. Now even with the 50 inches LED you were fine. But slowly and creepingly there was inflation in your lifestyle. And to afford the same TV on EMI, you have to work more, the same time you could have just spent with your family enjoying the latest movies on the 50 inch LED! The problem that I am highlighting here is that I am not at all saying that don’t buy more as your income increases. Obviously, with more income, you would want more things but don’t go overboard and stick to your needs. And make sure that as your income increases so do your savings for retirement etc also increase because otherwise with more income and also more expenditure your savings rate will remain the same and maybe, if you don’t notice, it might even decline – as you save less even though are earning more!
Solution – be wary of your purchases. Keep strict logs and budget your discretionary spending. If you start going overboard then you know that you have become a victim of lifestyle inflation. In fact, a US study showed that people would be happiest at the income of 75,000 USD income and after that particular level of income, the happiness level remained the same and it meant only more stuff in the house.
Few general solutions to deal with biases
Accept and acknowledge that you are not perfect and can make mistakes – Remember – that you are human and our minds are not in as much control as we think we are. Accept that our mind works in ways that we can’t even imagine and not all decisions are “rational” decisions. This acknowledgment and acceptance is important because then you will know that yes I can make mistakes and I must setup safeguards so that I do not commit these mistakes.
Never buy major items on the spur of the moment
Never make any investment decision when (a) sleepy, (b) hungry and (c) irritated
Sleep over it! – Economists call this as a cool-off period – so you had the requirements with you and you got the various pitches. Now just take all the data and the pitches to your home, go through them once and just forget about it for one day. In a day or two automatically your brain will tell you which one to choose.
Write it down and be accountable! – When going purchasing – be it a TV, or in the market for an equity mutual fund or new health insurance for greater coverage because you want separate insurance for your old parents away from your family floater policy – WRITE DOWN your requirements and your budget and give them to your partner/spouse/friend. And if you exceed or breach the budget then again write it down again and tell your partner/wife/friend to question such a breach. This will make you accountable for the decision you took. In fact, keep looking at your written note (paper, Google keep, iPhone notes whatever) when doing the purchasing so that any aggressive sales pitch doesn’t throw you off your goal.
We hope you liked this audio podcast and the article. Please share your personal experiences around this topic? Which bias do you feel you have gone through? Share in the comments section.
(This piece is authored by Siddhartha K Garg who is an Advocate in the Supreme Court of India and a former Junior Research Scholar in the Law and Economics Department of University of California, Berkeley. He also runs an NGO Angel Trust for Animal Care in Delhi and can be reached at [email protected])
Think for a moment that you have 3 yrs worth of your salary in your bank account.
How does it feel?
So if you earn Rs 10 lacs a year, you have Rs 30 lacs lying in your savings (other than real estate). If you earn 20 lacs per annum, its 60 lacs!
But in real life, most people do not take enough effort to save more money. It’s on their wish list to “start saving from next month”, but the motivations soon fizzles out. Most of the people are so busy and stuck with various problems in life that with each day, saving money for the future remains a distant dream for many.
Are you one of them?
Life has various dynamics.
Many people are stuck in a bad job, while some people are in a bad marriage which is draining all their energy and time. Some people are running around to arrange for a house down payment, while some are wondering if they should have a second kid or not!
Life keeps throwing so many things at us, that we forget where we are headed towards and we are not able to see how our actions today will shape our future.
We keep dealing with the NOW, only to realize many years later that our FUTURE is almost there waving at us. And then suddenly we realize that we have so much to catch up in life. More health, More money and more happiness!
We start our jobs in our 20’s, then settle by the end of the ’30s, move to next level in our lives while we are in our 40’s and then in this journey we realize we are approaching our 50’s and if we have not done a good job of saving enough money then we PANIC !
And we tell ourselves – “Oops .. I could have handled my life in a better way, if only …”
As per an HSBC report, around 47% of the Indians have not yet started saving for their retirement or have stopped it after starting.
6 reasons why you should save money and create wealth
Today I want to do a deep conversation regarding saving money. I know you might feel, is there a lot of it to talk about that?
Today I want to make sure that this is the last article, to get serious regarding saving & investing more money in your life (I will refer to “saving and investing” as “saving” in this article henceforth).
Almost all people feel that “saving money” is only related to securing your future. The equation for them is
Save money = Lead a better life tomorrow
But there is more to it!
[su_table responsive=”yes” alternate=”no”]
Reason #1
To secure your future
Reason #2
To do what you love in life
Reason #3
To spend and live a better lifestyle
Reason #4
To be financially independent
Reason #5
Peace of mind
Reason #6
To pass your wealth to next generation
[/su_table]
There are various other angles you need to think about, and that’s what I want to discuss today. So read this article with all our eyes open!
Reason #1 – To secure your future
Let’s start with the most basic and core objective of saving money. You save money to accumulate the money and use it for your future requirements.
Let me give you a surprise – “One day, your salary will stop coming in your bank account”
There will come a time when you will be left with 40 more years of your life and there won’t be a regular salary coming into your account like it happens today. You need to create a big enough corpus, which helps you to lead a life you desire for the next few decades till you die.
You should not be worried about “death” in today’s world, It should be “living enough”.
Some people think they can avoid creating their wealth because their kids will take care of them. However, it’s up to you to decide if that’s the right approach towards life or not.
Savings and Investing definition by a 9 yrs old girl
Long back, Subra had asked a 9 yrs old kid to read a book on money and summarize what she learned about “saving and investing” and she gave a very crisp understanding about it. Please appreciate the simplicity of the girl’s thoughts.
Saving: Saving money is very important. We should save money because if one day suddenly we need money we will have it with us. If we just keep on spending all the money that we get and one day we need money we will not know what to do. I am also saving all my pocket money because I might need it in the future. I have kept it in a bank account and I get interested in that every year.
Investing: Investing makes our money grow. Just as a plant grows from a seed to a plant. When we keep our money in a savings bank we get interested but if we will invest our money in fixed deposits, shares, mutual funds, public provident funds, etc. our money will grow from a small amount to a big amount faster. Real money takes more time to grow whereas a plant grows within weeks.
Start saving some money for future
If you can’t manage to save enough money, at least start saving some money starting next month TODAY. Let me share with you some numbers on this. If a 30 yrs old person invests Rs 10,000 per month for the next 30 yrs consistently, then @12% average return over the long term, a total of approx Rs 4.4 crore can be accumulated.
I know a lot of people who can surely start with Rs 10,000 per month investment. Don’t worry if you can’t do that much?
What about Rs 5,000? Rs 2,000 ?
Anything is a good start! , upgrade later – but at least START.
Our team at Jagoinvestor helps our readers to start their SIP in mutual funds and track their goals on an ongoing basis. If you are interested to start your wealth creation journey with us, just leave your details here and a mentor from Jagoinvestor team will reach out to you in the next 24 hours
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Reason #2 – To do what you love in life
Do you love what you do?
No, I am not talking about pursuing your passion for living or doing a full-time job in the area which you love. All I am saying is do you have enough time and money to do things you love for a few hours each week? Something which you truly want to do other than your regular job work?
Do you love traveling to new places, but you are stuck because the EMI needs to be paid first?
Do you love photography, but those costly lenses seem to be out of your budget?
Do you want to socialize more by throwing a party for your friends, but worried about how you will afford to do it?
Are you afraid to tell your boss that you want to go on a month-long road trip, with your best friend which was planned years back?
Want to go on a weekend trip with your friends, but oops. it’s out of the budget!
It’s going to be very tough to achieve all the points mentioned above if your bank balance is very low. Less money means less power with you!
While you cannot afford a lot of things, you can’t also arrange for a lot of time to do all these things, because you can’t make some tough decisions because you are so dependent on monthly paychecks.
You need two things!
You need money or time to pursue your hobbies and both of these will come only when you focus on creating wealth.
I understand that you will not be able to achieve all these things right now, but If you don’t start your wealth creation right now, you will NEVER be able to achieve the above. Enough wealth in your kitty gives you that power to do things you love.
If you are so much dependent on your monthly paychecks, it’s going to be very suffocating going forward. A lot of wonderful people are dying slowly inside because they have no wealth created.
Reason #3 – To spend and live a better lifestyle
A lot of things in life do not require money. A great nap, a conversation with a good friend, a simple meal with your loved ones.
But then there are things in life which require money.
Yes, I am talking about those materialistic things.
A better Car
A better house
Dining in a great restaurant
Partying with your friends
Buying that gadget
Going on that trip
Redesigning your house
That Ladakh road Trip
That DSLR Camera
Travelling to exotic places with your family
You will spend money on various experiences and possessions, only if you have the money in the first place (not always, but most of the times), and you be able to do it only if you have money saved at your end at the first place.
Your lifestyle will improve only if you have created enough money.
While you can always take a personal loan and upgrade your car or go on that vacation and earn all the facebook likes, I am not talking that!
I am talking about, the real upgrade in your lifestyle which does not increase your EMI or stress level and does not compromise your cash flows to a big extent.
It’s easy to upgrade your life from a bike to a car and a rented apartment to the first house, but then beyond that’s it’s not as simple as it was earlier. It takes a good amount of money and dedication because we get stuck with EMI’s and mid-level crisis in our 30’s
So see, what are your aspirations for yourself and your family? What kind of life are you looking forward to in the coming times? Is your wealth enough to lead you there? Are you doing enough for that?
Reason #4 – To be financially independent
Don’t confuse financial independence with retirement.
Retirement happens “when you don’t work anymore”
Financial Independence happens “when you don’t work for money anymore..”
While retirement is linked to age (which is generally around 60), financial independence is a function of wealth and not your age. Financial independence can happen even at the age of 35 (My best friend at age 32 is already financially independent)
Where do you stand in your financial independence?
Financial Independence is often referred to as financial freedom. Nandish likes to describe as “A situation where your passive income equals your desired lifestyle expenses”
For a normal investor, financial independence can happen only when you start your wealth creation journey well at the start of your life and are disciplined enough not to disturb it for a long time.
Do you always want to keep doing the same job you are doing? And wait desperately for that “salary credited” SMS at the end of the month? How dependent are you on that monthly inflow in your bank account? How will your life look like if that SMS that does not arrive (I mean the money) for the next 6 months?
Millions of people go to their jobs in the morning with different moods depending on the day. They are happiest on Friday and very sad on Sunday night. You need to seriously start investing for the goal of financial independence if this is the case with you.
You need to also reduce your dependence on your active income (salary) as you move from age 25/30 to age 45/50. You should have created enough wealth in the first 10-15 yrs of your life that some part of your expenses can be met by passive income your wealth can generate if things go wrong.
I am not saying that you should create wealth and then start the passive income right away, but you need to create that situation for yourself. It will bring peace of mind (which I am going to talk in detail next)
Reason #5 – Peace of mind
Not have enough money brings a lot of stress. If you need peace of mind, you need enough wealth on your side which can comfort you!
You will keep worrying about the future now and then and every small financial problem will give you goosebump and force you to think about your scary future.
Imagine a guy who is around 45 yrs of age, and has not to create any significant wealth to show. By this time, he should have ideally created a corpus of 1 crore, but he has just 2 lacs in an FD which might get broken if some financial emergency happens!
This is bound to cause a lot of stress.
Various thoughts will cross the mind …
How will I meet my financial goals?
What if I lose my job?
What if I suddenly need a lot of money?
What if I am not able to give my kids all the things they want?
A respectable amount of money saved at your end might not end your worries, but it will surely bring some peace of mind and lower the stress. You know you are not in that bad shape and have arrived somewhere in the middle at least.
We surveyed with as many as 2,440 investors and we found out that 40% of the investors in our survey reported that the money matters have taken away their peace of mind.
As a general rule of thumb, If you have worked for X yrs in your life, you should at least have X/2 years worth of basic expenses saved at your end. This I think is the minimum one should aim for.
Our team at Jagoinvestor helps our readers to start their SIP in mutual funds and track their goals on an ongoing basis. If you are interested to start your wealth creation journey with us, just leave your details here and a mentor from Jagoinvestor team will reach out to you in the next 24 hours
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Reason #6 – To pass your wealth to the next generation
A lot of families struggle for money generation after generations. The grandfather worked for money all their life, then father and then the son is also doing the same.
Many people who struggle financially set a goal in life that their kids should not face the same. They want to teach them money lessons and make them responsible, but also want to leave them a house and some wealth which makes their start a little easier in life.
Is that the right approach?
It’s a debatable topic if that’s the right thing do to or not. Many people believe that they should not handover anything to kids and let them create their own life out of what they have learned. Let them see the struggles and only then they will appreciate what they earn in life.
While that’s the correct approach for many people. I am sure we have many others who will not agree with that thought process in the same way.
Anyways, coming to the point, if you create wealth in your life, you can leave some part of it for your kids so that they can pursue things they truly wanted to do and not work just for money to bring food on the table.
A lot of wonderful people are never able to do things in life which they truly want to do. They are not able to live their own life fully because of the money matters. You need to check for yourself, if passing wealth to your next generation is part of your plan or not?
What will happen if you don’t save enough money for future?
So to summarize this article, there is a great possibility that one or more things mentioned below will happen to you if you do not get serious about saving money in your life going forward.
You will have hard time maintaining a good standard of living
You will depend too much on others (your kids maybe) for money
You will be spending a lot of time worrying about the future and how will your life end
You will be too dependent on your active income and will be forced to keep working even when you don’t like it
It will be hard for you to focus on things you love to do because you don’t have enough money or time
You will find it tough to lead a better life compared to current lifestyle
Final words
If you have still not crossed the age of 45, You still have a good chance to create a respectable corpus by the time you retire, even though you have lost a lot of time for compounding. Our team can help you in getting your financial planning done if you are interested to do leave your details for a small chat!
Just make sure you do not reach your pre-retirement age of 50+ without doing anything because that’s the zone where it’s going to be very tough creating any sizable corpus.
This is a guest post which is already published on Ravi Karandeekar’s blog, which is an excellent blog when it comes to real estate (more related to Pune). Ravi discusses various projects and his experience meeting with Builders and various stories of real estate frauds etc.
A few days back, I read a real-life story of a female IT engineer in Pune and she shared various aspects of her life in detail, which I thought should be read by more and more people and I took permission from Mr. Ravi, if I can republish his article on this blog, which he agreed to and I am thankful to him.
Here is a great write up below.
—
Hi Ravi,
I regularly follow your blog and I like your sarcastic style of writing. I have read several of your articles where you have highlighted the importance of living a quality life versus living a life under pressure to own a house as soon as possible at any cost in huge debt.
I think in life we have to make certain choices where we cannot achieve what others can because our circumstances are different. Mine is another such case.
I am an IT engineer and a daughter and a wife.
I am the only child of my parents so their entire responsibility is on me.
My parents are simple middle-class people who worked hard, saved every penny so that they can give me a comfortable life and a good education.
They sacrificed nearly every personal need of theirs so that I can go to a convent school, become an engineer and have a happy childhood with all worldly comforts. Beautiful clothes, birthday gifts, toys, ice creams, picnics. Everything was for me and only me.
We lived in the heart of the city
Until I graduated we lived in the heart of Pune city in our very old ancestral rented home. They did not even buy a new flat within the city limits although they could have afforded it.
If they had bought that flat they would have had to cut out almost all the comforts from my life and quality education.
So they bought a cheap apartment on the outskirts in a pathetic locality (just as a backup) while we continued to live in our ancestral home.
That 1.5 lakh difference mattered to them. And they made a choice – Me
When I graduated eight years back we had to move out of our ancestral home.
Our backup apartment is on the 3rd floor with no lift and my mother has health issues because of which she cannot climb those 3 sets of stairs.
So eight years back, at the age of 22, I had to think about our future accommodation.
My starting salary at that time was 24K and the rent was 7.5k. My father retired around the same time with a government pension. There was not enough money to buy a new flat in the city.
I had 2 Options
So there were two options.
Option 1: Save that 7.5k of rent for my future life and let my parents stay on the 3rd floor in a sad locality.
If I save the rent money I may even be able to buy a home inside the city in 7-8 years.
Or in that money, I can have a lavish wedding.
Whatever!
My mother’s diabetes had impaired her health and climbing stairs would have been extremely difficult. She compromised saying “I won’t get out of the house much so I don’t have to climb the stairs”. From age 55 she would have been trapped in a house for months like a caged animal.
My father too was old. The neighbors were not nice. Water supply problems were there. Medical facilities, our relatives and all the other things that we were used to would have been unreachable for us.
Parents were ready (as always) to live that life as of course they don’t want their daughter to spend 7.5k every month. Our scrupulous traditional middle-class parents will never touch their daughter’s money!
Option 2: Spend the rent money, I will have fewer savings and let my parents live a decent life.
All their life they sacrificed and adjusted. Don’t they deserve a good life at least during their last years?
Importance of TIME in life! YOLO!! (You only live once)
My parents are not going to have these last (healthy) years again!! Soon they will cross mid-sixties after which they will be too old to even get out of the house.
This is the time window (55 to 65 years) when I can give them the lifestyle they deserve as the proud parents of a highly qualified daughter. So I take the decision and rent out an apartment (against my parent’s wishes).
Our backup apartment stays locked.
Eight years have passed and option 2 has worked out really really well!
How?
We live in a beautiful spot in Kothrud surrounded by greenery and beautiful bungalows.
My mother goes for walks every day since we live on the ground floor. She enjoys going to the market and being able to live a normal life.
My father is thrilled as there is a katta nearby where all the retired members like him meet in the evening.
All our relatives live nearby. We live in a 30-year-old 1 BHK and the floor tiles belong to the 70s era. But the people here are so friendly we live like one big family.
I can get a flat on rent in a high rise in a cosmopolitan atmosphere in Baner or Wakad (where I would be very happy btw ).
But here we are surrounded by Marathi families like ours. There is an excellent hospital nearby. The convenience, homeliness and the safety of the neighborhood are important to me. The society does not have amenities like swimming pool, club house but my home is filled with happiness.
My Priorities
Years passed, I got promotions and salary increased. I was easily getting a home loan. 1 BHK was a piece of cake and 2 BHK was also possible.
But turns out not buying a flat was very wise. There were many things that had to be handled first. We planned our monthly budget well, saved most of my salary, spent smartly and also had a little bit of fun.
Four years back my mother had a heart attack. Several hospitalizations and a bypass surgery set me back by around 8 lakhs.
But that was easily managed. I was never tense about money and my parents were relieved that we don’t have to borrow from anyone.
I had managed my finances so well that I gifted my mother a pair of gold earrings 2 months after the surgery for a speedy recovery!
I am happy too!. I was able to save for my own wedding. Since our wedding expenses were well within our reach we were able to enjoy it completely.
I have also been able to fulfill some of my dreams. I am passionate about travelling and I have been to my dream destinations Himachal Pradesh, Kerala, Dubai and New York.
In these eight years, I have lived a fulfilling life. Dining out in fine restaurants, going shopping in malls are some of the things we never thought we would do.
Parents/Family suffering because of loan
My folks are happy that I am able to have fun and don’t have to scrimp and save like a person in debt. I do not frown like a debt-ridden son when some unexpected expense turns up. I have seen the scenes from movies\tv serials where the son reproaches his parents when any expense comes up as he has a big loan and says “Baba atta Kasa Shakya ahe! Tumhala Kalat nahi ka loan ahe” (English meaning is – “Dad, How is it possible right now, dont you know there is a loan”). Way to go, son!
This is what you give your parents in return for their entire life spent on you!!. Unbelievably, I have seen this scene in real life also in many homes!!!. These guys have a 2 BHK and a Sedan worth 10 lakhs but they will frown upon if their parents\wife have to have something basic.
There was a time when my parents made a choice between me and their dream home. When I grew up I made a similar choice. It’s okay if I don’t have my own flat at the age of 26 like IT engineers do.
I will have it when I am 35 or 40 years old. But these 10 years of my life were important to me.
Spending on top-notch medical treatment, living comfortably, travelling around the world, saving for my wedding, supporting my husband was my top priorities.
All the while I am saving money aside for my dream house too. I am halfway there, slowly and steadily I will get there. You must work out a plan that suits your circumstances and lives happily because you only live once.
Regards,
—
2 Tough Question for all readers
Do girls take the decision of buying a house in a more sensible way compared to guys?
Do males face more life issues when it comes to “home ownership”?
Disclaimer: This is a personal story and views by 1 person depending on her life, her experience, and her circumstances. Let’s not judge male/females by this one article alone.
Please share your perspective about this article and what do you feel about the issue? How is a male life different then a female when it comes to buying a flat considering how our society has shaped up to date.
I would like to hear your views and stories in the comments section.
Today I am going to share 17 amazing tips you can use to book cheap flight tickets in India. Many of the tips I will be sharing would be already known to many people, but some tips might be new or unexplored by many.
While you might not get very big discounts using these tips, still you will be able to benefit some margin.
Make sure you read all the tips mentioned below, as some people might feel that they already know most of them so it makes no sense to look at all. I myself got to know 2-3 new things while writing this article.
#1 – Use the special debit and credit card offers
I personally never give a lot of thought to this tip earlier. I mostly used the coupons and codes mentioned on the social media or coupon sites, but there are various special offers designed especially for the debit card and credit cardholders only.
For example, if you have Kotak bank card, you should search for “Kotak offers flight tickets” on Google and you will surely get some page on the Kotak website or flight booking websites which will give you some special codes for getting additional discount.
When I went to that page on Yatra, it shows me various offers.
If you look at the offers above, you can see that ICICI bank offer for yatra website is there with code YTICICI17, but it’s only applicable for the flight before 31st Mar and the airfare should be minimum Rs 3,500.
So I found a flight from Kolkata to Ahmedabad for 15th March and applied the coupon code and it showed me Rs 500 instant discount (It was a real discount, not cashback)
So whatever is your bank name, just search for “bank name + flight discounts code” and you will surely get some offer page.
You may also want to explore the special credit cards which are launched in association with the airlines (like The Jet Airways American Express card) which earns you JPMiles or frequent flyer miles.
#2 – Use the wallet cash to get a further discount
I think goibibo started this and became hugely successful due to this factor. It’s one of the most trusted ways to get further discounts on flights/hotels and other bookings.
All the websites like MakeMyTrip, Goibibo, yatra have this concept of virtual wallets and you get some cash backs in this wallet which can be partially used while making the payments.
Goibibo calls it as goCash, Yatra has eCash and Makemytrip simply calls it as Wallet money. I have been an extensive user of Goibibo and no matter how great other websites offers were, after applying goCash, I always got the best price at Goibibo.
However now I get some great offers at MakeMyTrip compared to Goibibo (maybe because they are now merged).
This virtual cashback can also be used for booking hotels and you keep getting this virtual cash with most of your booking. You can also get Rs 3,000 worth of goCash by downloading goibibo App from this link
My teammate Kunal uses ixigo app, and the best part about it is that they offer the cashback directly into citrus account which can also be taken back in your bank account, so it’s a real cashback in that sense.
#3 – Book within 30-90 days in advance
Expedia did a very interesting study and found out that on an average the lowest flight tickets sold was 57 days in advance. They studied various domestic flights prices and saw the trend and found out that booking a flight very early is not always the best option. There is enough time left to fill the seats so airlines are not desperate to grab more and more customers at cheap prices.
As per their study, the prices were moderate in the start, and kept on declining and somewhere around 50-60 days before the departure date, the prices started rising and then shot up during the last 2-3 weeks.
They found out that the average ticket price was $496, while the cheapest one was at $401 and that was sold around 57 days in advance.
Now, this is not a study based in India and things are different here. Also, we know that this is just the average of 100’s of data, the conclusion here is that you should neither buy the airlines tickets very early like 5-6 months (not applicable for international flights) nor too late. Ideally, if you buy it in the window of 30-90 days in advance, you should always great a very good deal.
However, this is not true for festival times and some destinations which see a rush in some particular season. Here a small infographic on this topic.
#4 – Take flights at odd hours
If you are ok travelling very late at night, then you can get a low price on flights. But this might not work when you are travelling with family or when you need to reach your destination at a particular time (like for some meeting or a seminar etc)
However, people travelling solo who do not have a fixed time to reach can explore this option.
I travel from Pune to Ahmedabad many times a year and I like to take late-night flights as they are comfortable for me and I also don’t have to face traffic 🙂 and mostly they are very cheap. Check the snapshot below
I think the simple reason for this might be that many people do not want to reach their destinations by 1 or 2 in night and hence avoid flights at night, which means there is less demand for flights at night.
But you will not get a cheap flight if you are booking it at the last minute.
#5 – Try flexible dates
If you do not have rigid plans, you can surely look at dates which are either 1 or 2 days earlier or later than your planned date. Often, you will find out that many times you might get a cheaper option on a different date very close to your planned date.
A quick way to find this out is to the first search for your flight for the date you have planned for, and then when you try to edit the date, it will show you the calendar with the prices for various dates.
Above you can see how the flight ticket for Pune to Delhi for 10th Mar shows the price as Rs 4930, but the price just 3 days before that and 2 days later is Rs 2402, which is almost 50% less.
According to many international studies on airlines prices, it’s concluded that the cheapest dates to fly are Tuesday and Wednesday, as they are weekdays and the traffic is less. So keep that in mind while travelling.
#6 – Use mobile apps for booking
If you are still using the web browser for booking fights, you are missing some awesome offers provided by various websites. From time to time websites offers some discount codes (not cash back) which will reduce your fights prices by around 5-10% at least.
I recently booked a flight from Pune to Dehradun on MakeMyTrip mobile app and used a coupon code FLTAGAIN which reduced the flight price by Rs 800. This coupon was only valid for mobile app and only for those who got the offer on email.
It surely compensated for all the convenience charges and the travel insurance charges. Here is the snapshot of the offer taken from my mobile
Here are the benefits you generally get when you book your flights from mobile apps
Airlines mobile apps also provide good discount on meals booking
#7 – Make payments by Wallets
Do you know that you can get some additional cashback when you pay from wallets like Mobikwik, paytm, freecharge, payumoney?
Yes, that’s true.
Below is an example of free charge offering 10% cashback on the base fare of jet airways flights. If you book the flight on the app or website of jet airways and make the payment using the free charge wallet, you will get the cashback provided all the terms and conditions are met.
Almost all kind of wallet companies have a dedicated page for these kinds of offers and it will share various deals for hotel booking, bus booking, flights etc..
Like Mobikwik has a dedicated offers page, and I can see that it shows a deal where you get Rs 200 cashback if you book a flight on MakeMyTrip. This is above and over the other discounts and cashback.
#8 – Book two single flights from different providers
If you want to go a little extra mile and are ready to spend your “valuable” time then you can also explore booking two single flights instead of a return flight or connecting flight and maximize the cashback and discounts.
So if you are planning to go from point A -> point B and also returning back, then instead of booking A-> B return flight form a single website, you can book A->B flight from one website (and use their cashback and discounts) and book B->A from another website (use their cashback and discount offers)
While this may not give you a better deal all the times, it’s a good idea to explore especially when you are booking tickets for a higher value or international flights.
Here is an example
Imagine if a website is giving a 10% discount on tickets above Rs 5,000, with a maximum cashback of Rs 500. So if you book your return flight and total charges would be Rs 10,000, but you will get the maximum discount of Rs 500 only.
Instead of that you can book a one-way flight from one website and get Rs 500 discount and the same way you can get Rs 500 discount for other flight on another website.
The only problem in this is that you will have to enter all your details two times instead of one and the same for making payments
#9 – Book directly from the airline’s website
If you are not getting any cashbacks or discounts on the intermediary websites like paytm, makemytrip, ixigo, Expedia, goibibo etc, then it’s a good idea to check the flight rates directly on the website of the airlines. Airlines pay some commission to the middleman websites and often the prices at the airlines are a little cheaper (not much, but a little).
So first you should filter and search for the appropriate flight best suited for your requirement and then note down the flight number and timing of the flight and then head over to the airline’s website and directly book the flight from there because you might end up saving few bucks there.
Why does this happen?
Because you will save on the convenience fees as the airline’s fees are lesser than what is charged by the intermediary websites.
To check this points, I searched for one way fare from Kolkata to Ahmedabad on 3rd Mar 2017 (around 3 pm) and I found out assuming no cashback and discounts are available, would the total amount payable (just before you make the payment) is lowest at the airline’s website?
I did flight comparison on Yatra.com, Makemytrip, Paytm and Indigo website and found out that the cheapest was indeed at the indigo website
#10 – Use incognito mode while “researching”
Most of the airlines now keep changing their flight ticket prices dynamically as per the demand and supply. This is called dynamic pricing.
So when you search for a particular flight on a particular day, and then keep researching about it for next 20-30 min, the airlines and the intermediary websites understand that there is a demand for a particular flight and if you spend too much time just researching, they know that your chances of buying a flight ticket are high now
And suddenly you will find that when you go to book the ticket, the prices go up dynamically ! . There are technical things like web cookies which track and remember what you are searching for, so as a precaution it helps if you use incognito mode while browsing.
Also, note that this might be more applicable when you are using the mobile apps for booking because the websites know who exactly is doing it (you register your email/phone in-app)
#11 – Use Student & Senior Citizen Discount if applicable
Some airlines allow students and senior citizens some basic discount on the base fare, it’s a small discount like 8-10%, but still saves you some money. If you are travelling with your children or parents, you might want to check if you can get some further discounts.
However, these discounts are applicable only on the airline’s websites. For example, Spicejet has an 8% discount on base fare for students. Here is a snapshot
Do read the terms and conditions for this student and senior citizen discount offers as they might not be applicable on some dates or routes.
#12 – Use hand-baggage-only fare tickets
If you are travelling solo and don’t have much luggage, choose the hand-baggage only option while choosing the flight. Airlines expenses increase if the flight is heavy and hence they give incentive to you if you carry less stuff
#13 – Check out for coupons and offers
Something which everyone can do is search for offers while booking for the flights. Almost all the times there are various websites which offer different types of discount or cashback for booking flights.
Sometimes you will find offers for booking both way flights, or for international flights and sometimes it’s based on the total ticket price (like “applicable only if tickets prices are above Rs 8,000”)
It never hurts to spend a few minutes to look at the offer pages of websites like Makemytrip, goibibo, Yatra, Cleartrip and other websites.
You can also try to search for flights coupons on various coupon websites. Make coupons website offer their own cashback to you additionally as they get some commission from the aggregator websites.
#14 – Put the alerts for price decline
Google Flights give you an option to track the prices of a particular flight and will email you from time to time when the prices change. So if you have a lot of time left and can wait for the booking, better wait and track the prices.
Just make sure that you should be clear when you will book the flights, else it might happen that you just keep prices to fall down and never book it and then pay a lot towards the end).
#15 – Subscribe to the Airfare Newsletter
Various airlines and intermediary sites keep sending various offers from time to time, you can subscribe to their newsletters if you don’t mind constant emails on offers. I will surely help someone who travels a lot.
#16 – Book now, Pay Later
Some websites like goibibo and Yatra have introduced options to book the flight without paying the money (it’s like blocking the seats). You can block it and pay it later after a few days.
So if you are not sure about your schedule or plans, just block the seats and pay when your plans are confirmed OR if you are not getting cheaper flights later:).
The cancellation and rescheduling charges are very high anyways.
#17 – Don’t be loyal to one website itself
If you are loyal to one website (intermediary) or an airline, then you might be missing some good offers from other websites. I know some people feel it’s not worthwhile to spend a lot of time trying to save few bucks, in which case it’s ok to be loyal, but otherwise, you can quickly surf 3-4 options and then choose the best option.
However … Here are the precautions
While I have talked about various things you can do to book the cheap flight tickets in India, there are a few points I want to make.
If you feel you are getting a good deal already, just try a bit to improve it and book it. Don’t get paranoid trying to bring the price down. While it’s great to get some discounts, you should check for yourself if it’s really worth your time.
If you like to eat every time you are on the plane (like me), it makes sense to prebook the meal, What you can get at Rs 300 in-flight without booking is available for Rs 250 or Rs 200 if you pre-book it. So if you are already clear that you will be eating, why not save that money.
If you are looking for cheap international flights, some of these points might not be applicable, but still, you should try most of these as it would be great to save money because of high prices for international flights to US and European countries.
Make sure you consider the full cost going from point A -> B. If you choose a cheaper ticket which has a 6 hours overlay in a city in between, please understand that you will also spend on food, lounge or some entertainment etc. It should not happen that to save Rs 200, you have spent Rs 500 in between. People don’t consider these points while searching for the cheap tickets
Also, consider your time worthwhile finding low-cost tickets. If your time is highly valuable and you can spend 2 hours in something valuable like writing a book, or solving some important thing worth something, then don’t waste your energy and time waiting for the connecting flight just because you are saving few hundred rupees
In the end, you want some more information on this topic, you can look at this infographic which will give you some more understanding about how airlines work and where they spend etc.
Let me know if I missed some points or some trick?
Today we will discuss why you need to stop investing in bank fixed deposits.
I know you are a bit shocked by this statement, but my only attempt is to give you some understanding of why banks fixed deposits are not the best financial products in these times for your long term wealth creation. There are other better alternatives today if your focus is assurity of returns, near inflation returns and convenience of investing
You can either read the article or just watch this 10 min video below where I have share why you should avoid investing in fixed deposits.
Why we create Fixed Deposits?
Since our childhood, I think most of us have only heard about Fixed deposits and PPF as investment products. We saw our parents talking about fixed deposits all the time. They broke “FD” when they needed sudden money.
And FD’s become were like the default financial product for most of us and when we started earning, we just created fixed deposits because that’s all we knew about.
On top of it, the fixed deposits come with assured returns of 7-8% (though the FD rates are going down and down these days). Also, almost all the banks offer the online fixed deposits creation (not breaking it) and that fact also adds to our love to creating fixed deposits whenever we need to park our money for some months/years
But, now there is a great alternative for fixed deposits called Debt Mutual Funds. This article will focus more on fixed deposits disadvantage and we will touch upon debt mutual funds to some level, but this is not a deep tutorial on debt funds
a) High Tax on FD – Fixed Deposits do not have any special taxation benefits. If you are into a 30% tax bracket, you will have to pay the tax on the interest you earn in a year as per your tax slab.
So if you create a Rs 10 lacs FD and you earn Rs 80,000 in interest (@8%) then you pay Rs 24,000 as the tax if you fall in the highest tax bracket. That’s not the case with Debt mutual funds. While debt mutual funds are not tax-free, their taxation is much better compared to a fixed deposit.
The video below explains how fixed deposits taxation is different compared to debt mutual funds.
b) No real returns – While you get an 8% return on fixed deposits, it’s just artificial .. because, after inflation and taxes, you are just left with a negative real return of 1-2%. So while you Rs 100 become Rs 108 after a year, you are not able to purchase the same thing after a year because it would not cost Rs 100, but Rs 110 by now (On an average)
Now, let’s look at debt funds and what they are and how they compare with fixed deposits
What are Debt Mutual Funds?
There is a big myth among investors community that mutual funds always mean risky investments because they are linked with the stock market, however, it’s far from the truth.
Debt mutual funds are a good alternative to fixed deposits. Debt mutual funds are financial products offered by AMC’s which pool the money from investors and invest in highly secured instruments like govt bonds, certificate of deposits, and other highly secured bonds in which a single investor cant invest on its own.
As an example, here is a sample top holding of a “Birla Short term fund” as per their factsheet
If you have done your mutual funds KYC, then investing and redeeming from debt mutual funds is online and very easy.
Debt funds also offer indexation benefits which means that you only pay tax when you redeem them unlike fixed deposits and you also pay tax on a lower rate (generally 20% after indexation). Below is a comparison by Economic times article on the taxation aspect of fixed deposits vs. a debt fund
When do Fixed Deposits make sense?
Fixed deposits can still be considered when you want to park your money for a short term period like 1 yr or 6 months and don’t want to go with mutual funds and also dont care about that extra 1-2% return. I think those investors who are trying to save money for the first time can look at fixed deposits or recurring deposits as open to start with.
SIP in Debt funds
If you are looking for an alternative of a recurring deposit, then SIP in debt mutual funds are the best option. The best part is that you can also top up your additional investments whenever you want unlike an RD in the bank.
Don’t use fixed deposits for long term wealth creation
While investing in a fixed deposit for a short term period is still ok, it’s strictly a no-no if you are investing for long term financial goals like retirement or children’s education or something. The positives of fixed deposits over long term are just a few compared to the negatives. Fixed deposits or recurring deposits are tools to just “save the money” and not wealth creation.
At best they can preserve your money purchasing power, but cant create big wealth for you (after adjusting for inflation and taxes)
So try learn more about debt funds, they are not at all that scary and much more easier to invest and maintain then you imagine. If you are looking to try out your debt mutual funds investments, our team can talk to you and help you save your money in debt mutual funds, Just fill up this form and we will call you
Let us know if you want to know anything about this topic ? Please post your comments and thoughts if any..
