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Chapter 8: Investing Money
The best way to double your money is not to fold it and put it in your
pocket. It is to invest it
A lot of advice abounds on what you should do to invest your money wisely. But if you understand what you should NOT do with your money, you may be safer by far! Note the following 7 tips carefully.
Don't take excessively long term loans. The interest costs of a 40 year mortgage or a 7 year automobile loan will far outweigh the benefits and the value of the asset will reduce to zilch.
Don't invest in something you cannot figure out. Get an accountant to explain the fine print of the investment. If it doesn't make sense, trust your gut instinct and stay away. Ponzi schemes, pyramid rackets and fraudulent fund managers will plunder your savings before you can even say Madoff!
Don't pay an accountant more than he is worth. Is the value of the advice proportional to his high costs? Check on his credentials before shelling out hefty fees. Can't someone else do an equally competent job?
Don't invest all your money in your company shares. That's like putting your eggs in one basket. If the market hiccups and your business fails, your savings go down the drain. Keep that investment below 10 percent of your portfolio.
Never apply for more than one credit card. The craving for impulsive buying will worsen and burn a huge hole in your finances. Ensure that you repay that one card well before the last date to avoid unnecessary fines.
Don't liquidate your pension fund to finance your children's education. They can avail of loans. You won't be so lucky when you are past your retirement age. Keeping your 401K well funded allows for long-term growth. That's a thing you must be careful about.
Don't buy into investments that promise the sun. Give preference to funds that have performed well last year and give reasonable returns comparable to similar packages.
Chapter 9: Money Management Strategies
Here are some money management strategies that could turn your life in a better direction.
The moment we hear words like investment, portfolio and management many of us tend to think that this jargon is meant for the Wall Street kind of guys only.
Money management is often perceived as a boring and tedious task which concerns accountants and investment bankers more than us. But managing your own money is intensely connected to your own freedom in life. The day you look at money matters from this point of view, it all becomes fun! Let us look at 5 simple money management strategies here:
Early retirement v/s late retirement: If you plan your finances with the target of retiring early, you will be more conscious about spending and saving. This can be highly motivating and you will definitely save faster and more in a year as compared to going along to a normal retirement age.
Small income v/s Large income: A small income worker who saves diligently will end up saving more than a high-income worker who spends wildly. So don't fret that you aren't earning enough. Budget your expenses shrewdly, without a compromise on the quality of your life.
Smart worker v/s simple worker: A smart, intelligent employee will often be overconfident in his ability to go on drawing high salaries indefinitely, while a simpler worker knows his limitations and works within them. The 'intelligent' investor often gets entangled in complicated schemes that don't always yield gold, but the simple man stays on the straight and narrow path to sure gains.
Credit v/s Cash: Ensure that you pay your credit card bills in time. Falling into a chronic debt trap is the worst pitfall for your money management. For that matter pay all your bills in time, be they utility or grocery bills. Fines for delay and hidden charges will pop up and eat away at your savings.
Ant v/s Grasshopper : Setting up a careful budget and sticking to it can pay rich dividends. Also ensure that an emergency fund is gradually built up to tackle the lemons that life may throw at you. Frugal living does not mean stingy, miserable living. Budget is enough fun in your life too. Yesterday's extravagant living is passe. The new money management is fueled by 'green' attitudes and a responsible, enriched lifestyle.
Chapter 10: Money Management for the Future
Managing money is essential not just for the present, but also for the future. It is actually the future that you have to really think about.
Some day in the not so far future, you will look back at the present moment and wish you had been shrewder in your money management. Instead of looking back in anger, look forward with hope today and spruce up your money management for the future.
Foresight - Foresee your needs and provide for them. Your child's education, your family's health, a new house - everything has to be well planned for.
Health Insurance - This is a vital need today. Every member of the family must be covered by a suitable health scheme. Life insurance also provides stability for next of kin in the case of an unforeseen calamity.
Retirement Fund - If you plan to retire early from your present career, keep aside an appropriate amount toward this goal. You will be driven to save more and faster toward an early retirement, with the satisfaction of doing something more exciting with your savings.
Tax Exemptions - They can motivate you towards savings and investments that you would not normally provide for. Avoid placing all your eggs in one basket. Diversify your investments. Spreading your funds this way protects you from wild fluctuations in any one sector.
Emergency Fund - In the present recession, it is even more important to build up an Emergency Fund to cover living costs for 3 to
6 months. It is also wise to develop an alternate small business or part time career to fall back on, in the case of an impending layoff.
Savina Account - Strike a balance between preserving money for the future and having money to spend and pay bills in the present. Keep 10 percent of your money in a savings account for quick liquidity.
Don't be Swindled - Steer clear of fraudulent investment schemes. Learn how to detect them coming from a mile away and just pay no heed to them. One small impulsive decision can make you slide right down the savings ladder that you have climbed so diligently!