Behavioral Finance – Make Smarter Financial Decisions

Hemant Beniwal
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4
Behavioral Finance – Make Smarter Financial Decisions

There are 3 stages to master any sport. It starts with training, practice & then comes the match or the tournament.

Training is always boring compared to matches. Training is boring because it involves learning basics which are quite dull but we all know that it’s an important part. But do we really give time to learn them? Md. Ali said, “I train so that I can dance well in the boxing ring.” Let’s talk about the investment you make… all of us run to earn money but do you give time to learn about it, before taking a decision. Think!!

Behavioral Finance – Make Smarter Financial Decisions

Read: WHY do we make financial mistakes

The second stage is practice. When you play with friends or colleagues without any pressure of losing, you play really well – nice shots sometimes and you even feel that you are in the wrong profession as you were made to be a sportsperson!

Finally, when you enter a tournament, you suddenly notice that you are not getting a single shot right – you wonder where those skills have vanished for which your friends cheered during the practice sessions? You were so good at nets because there was no pressure, but now there is a pressure of winning and you know – everyone is watching you. Losing a point means a lot now. You become a lot more cautious with your strokes and it shows.

Can we compare it with the investment scene? You start with learning the basics of investing, then you make strategies sitting outside the markets & finally you dare to invest some real money. In investments 90% of people actually get their learning lessons during matches – they think they can learn the things while playing the tournament directly. Definitely yes, but still basics are required and essential. “It’s always good to learn from others’ experience – it’s cheap”.

What is Behavioral Finance?

Behavioral finance combines an understanding of behavioral & psychological with the financial decision-making process. Financial planning involves a very essential element which is called decision making. We come across people who are either overconfident about their ability to decide or they lack the courage to admit that they make bad decisions too. It is the personality which is responsible for this state of mind. In fact, we all have seen a bit of life, its ups & downs, happiness & grief, which leaves scratches over our subconscious. So, next time when we have to make a decision in life these subconscious events surface and become the behavior about that situation.

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Finance Behavioral  – Classifying Investor

By observation, we have seen the financial behavior of investors can be broadly classified in 4 segments. There can be other classifications as well, but these behavior aspects try to cover all types of investors.

Prospect thinkers: Here the investor is always thinking about the consequences. He overlooks the present returns and is more concerned of future returns. He assumes uncertainty and risk and forgets the merit of an investment decision. Suppose you tell such an investor that the product has a 20 % chance of losing money but 80% chances to give you 12% returns- he will assume the product to be very risky and would ask for a product with 100% capital protection or worse he would not invest at all. A prospective investor would even suspect the people, who make them aware of the risk involved.

Regret avoiders: These investors do not wish to regret, so they do not make a decision. They would not sell a stock, even if they have achieved their desired result. They often find it easier to follow a group when it comes to buying or selling a favorite stock. They tend to defer selling a stock which has gone down or buying a stock which has gone up without any major changes in fundamentals.

Finance Behavioral

Must Read – Common Financial Planning Mistakes

Recent followers: These investors are carried away by present scenarios. They think the price at which they are getting is right. Too much time and effort are given to the recent figures, analysis, trends and the historical and fundamental facts are ignored. Normally, this also happens when an investor is new to a particular product and does not have access to past information.

Over & Under Reactors: Here the investor either is overconfident or under self-evaluation. An overconfident investor exaggerates his talent and forgets other factors which he cannot control. The irony is more confident a person, the more the chance that he would be overconfident as well. Few people are pessimists too. They try to avoid decisions and even to the extent of not meeting the people who can assist them to make good financial decisions.

And due to these traits, we see the following mistakes happening:

  1. Foreseeing losses, which may not happen
  2. You believe that to be successful in investing you need to have big-time knowledge.
  3. You tend to invest without knowing the horizon of investment.
  4. You only try to see or read the information which confirms your action. Counter-views are ignored.
  5. You do not think that small and timely decisions now will help you achieve your goals comfortably.

How to know that your are improving your financial behavior

Behavior finance is not too hard to learn. Start by becoming humble. Make sure you avoid the costly leveraging and your portfolio is diversified. Minimize short-term bets and trading. Be patient and don’t aim to get rich in a minute. Follow stocks and not the price. Do not just keep watching and noting the price of an investment. Also, develop a system which filters information regarding your system. Try minimizing the noise. Do not talk about your investments to everyone in the town. Instead, if you are not sure of your decisions get a trusted partner who has expertise in that area. Admit and learn from mistakes – but learn the right lessons and don’t get obsessed about initial success. Also, sell your mistakes and move on but be careful about not panicking and selling at the bottom.

Remember investment is about a worry-free life. You will not get another life to enjoy. So it is better to make the best out it by correcting our behavior towards investments.

Download & read the full Behavioral Finance Guide from here

– this will change your response to the investment world.

Saving TIPs- Top 9 Best Ways to Save Money in India

Hemant Beniwal
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3
Saving TIPs- Top 9 Best Ways to Save Money in India

Life will be a smoother ride if you are good with money. Financial skills like saving, investing, and managing risk help you achieve your goals.

You can continuously improve your financial life by taking small but effective steps.Saving TIPs- Top 9 Best Ways to Save Money in India

Must Read – Aligning Investing with Life Goals

How to Save Money in India? 

Discover these top Nine little ways to make a positive difference in your financial life –

1) Record Your Costs 

The primary step to begin saving cash is to determine how much you spend. Track all your costs- that indicates every coffee, house product, and also money tip. When you have your information, organize the numbers by classifications, such as gas, grocery stores, and home loans, as well as total each amount. Utilize your bank card as well as bank declarations to see to it you’re precise- and do not fail to remember any kind of.

Why – Monitoring your expenses throughout the month holds you liable for your funds in a few essential means.

2) Regular Contributions That Increase Over A Period of Time

The quote, “A stitch in time saves nine” is very apt for personal finance. We cannot grow our wealth overnight. Invest some part of the income you receive regularly. Each time your income increases, increase the investment amount proportionately or even higher.

Why – Over a period of time, you would have built a good corpus and you will not be tempted to spend more than necessary.

How to save Money in India

Check – How you benefit from long term orientation in Life and in Investing?

3) Follow the 50-30-20 rule

The 50-30-20 rule is a guideline on how to allocate your income into different categories. As per the rule, spend 50% of the income on necessities. Allocate a minimum of 20% to savings and investments and set aside 30% for wants.

Why – You are compelled to bring a balance between obligations, goals, and splurges.

4) Plan Major Purchases

It is better to plan major purchases such as a TV or a car. Do not go to the mall or go online, the moment you decide to buy something expensive. Evaluate if you need it and if you can afford it. Check different options before selecting the most suitable product. Think of the planned purchase that gives you value for money.

Top 9 Smart Ways to Save Money in India Click to Tweet

Why – You will avoid unnecessary splurges that might put a strain on your finances. If you plan to buy using a credit card and end up missing installment payments, you will avoid unnecessary interest payments and mental agony

5) Limit Online Shopping

Online shopping brings all the beautiful things to our home and our little screens. Most of us are enticed to browse and shop much more than what we plan for. Stay away from online shopping websites. Do not go to your device when you are getting bored or are upset or want some entertainment as you may be swayed to shop.

Why – We end up spending too much money. We fall for many marketing gimmicks and buy many things that we do not require. When we invest the amount saved, we will feel good about ourselves!

   Read This – How to make money with Credit Cards.

6) Look For Ways To Increase Your Income

Are you a software developer or a teacher? There are many companies and startups that require personnel on a short-term basis.

For example, some companies might want to build a mobile Internet presence.  Online learning platforms require people to help them with course material.  You can check out freelancing opportunities that require your skills. You will gain experience and also earn money. On the other hand, you can convert your hobbies or talents to income sources.

Why – You earn more money. You increase your knowledge and improve your skills. You have a backup in case of untoward circumstances. You might transform the secondary source of income into a successful business venture.

best way to save money in india

Must Check- How Healthy Is Your Mutual Fund Portfolio?

7) Invest In Yourself

Your best investment is “You”. Invest in enhancing your knowledge, your skills, and your financial quotient. Spend money on self-care, self-confidence, and contentment.

Enroll in courses related to your work so that you are more knowledgeable, are up to date with skills required in that area. You should take up courses for skills specific to your job, skills that will allow you to take more responsibility, and soft skills.

Educate yourself on other aspects that are not related to work. You will become a better person and also be of more value.

Personal finance is not very difficult. Read books, listen to podcasts and engage with a financial advisor. You will be in control of your finances. Spend on things that you like so that you will have fun and be inspired and motivated in life.

Why – You will advance in your career. You will be more creative. You will have self-confidence and be a charge of your finances.

Check –Money Vs Job Satisfaction?

8) Invest in Preventive Healthcare

Health is wealth in the truest sense. If you are not healthy, you have doctor bills and hospital bills. You cannot enjoy yourself with friends and family. You will be stressed and anxious all the time.

It is, therefore, better to invest in healthcare.

It means taking time out for good meals, rest and rejuvenation, and exercise. Obtain a suitable medical insurance policy to cover you and your near and dear ones for unexpected health-related expenses.

Go for routine health checkups (Youvraj’s message for you)and take out time to eat balanced meals and maintain your fitness.

Why – If you are healthy, you will be happy. You will have the strength to work harder. Moreover, healthcare is expensive. Without a health insurance policy, a serious illness, accident or hospitalization can cripple your finances. Apart from the physical and mental inconvenience, you will also be in financial turmoil.

9)  Hire a Financial Planner

Hiring a financial planner is a small change that in the long term can add immense value to your financial life.

Why – You decide for yourself.

Top 9 Best Ways to Save Money in India
Top 9 Best Ways to Save Money in India

 

If you are looking for a Comprehensive, Competent & Complied (SEBI Registered) Financial Planner – you can check this.

Most of these rules are straightforward and solid. Ensure you manage your personal finance effectively to reach your financial goals and have a stable financial life. Now you know much better about the best way to save money in India. If you know any way how to save money in India? You can add them to the comments section.

A Complete Guide to How Should You Plan for your Child Future Plan

Hemant Beniwal
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131
A Complete Guide to How Should You Plan for your Child Future Plan

The birth of a child is one of the most important events in one’s life – other than the celebration; it brings maturity and responsibility to the parents. It also brings seriousness regarding our financial life and if we talk about the priority of goals, sometimes Child Future Plan is even a shade above retirement planning.

How Should You Plan for your Child Future Plan

There has been a paradigm shift in the thought process of people and generally, they don’t make any distinction between sons and daughters. Socially their thinking may have changed but financially they still belong to that old school that is happy with buying insurance policies or some bonds in name of the children. Few new-age parents have started buying child Unit Linked Insurance Plans (ULIPs) rather than money-back policies. But is it actually a smart strategy? The simple answer is NO. Emotional sales take place where investors take decisions based on their emotions. Parents are attracted by emotional pitches like “Bunty’s fees” and they end up buying expensive products.

Check – Understand how to plan for kids future

How Should You Plan for your Child Future Plan – before birth

So what’s the solution? It’s always prudent to enter into a situation well prepared and in a planned manner which is going to affect your financial Life. In fact, planning for a child’s future and managing the finances should start much before a child is born. Have a proper plan (please read this as planning because people think a plan means a product) for the children’s future. You can do the following few things as soon as you get married:

  1. Buy a health insurance policy with maternity benefits: Nowadays there are many health insurance policies which have maternity benefits as a special feature. Expenses at hospitals and regular checkups are mounting day-by-day and this feature will help in reducing the burden on finances. If you are employed you can check whether this feature is there in the employer-provided policy.
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  1. Start a baby fund by regularly setting aside an amount every month to manage the expenses related to vaccinations and other medical check-ups. This amount has to be increased by an appropriate amount if both parents are working and after the child’s birth, the wife is planning to quit the job or remain on leave even after maternity leave is over.
  1. Start hunting for bargain deals on baby equipment. Buying the best car seat, stroller, etc. for the child’s safety and comfort. Paying the full price is often a waste of money. Babies quickly outgrow many of these items. It is advisable to start checking with friends and acquaintances and stores that sell used goods; your baby will never know the difference. And this, in turn, will save you a lot of money.

A Complete Guide to How Should You Plan for your Child Future Plan

  1. You should have a thorough understanding of your finances. You should not enter into this responsibility if you are burdened with debt. Your EMI should not be more than 10-20% of your income at this stage since your expenses are going to increase soon.

Now let’s come to a second stage, and you will find that raising a child is not a child’s play. Though childcare is expensive for infants, even when your child is old enough to go to school then apart from school fees, you will have after-school care, extracurricular activities, summer camps, etc. Well, to manage these expenses it is advisable to make it a part of current cash flow so that you do not overspend on other expenses. This is high time to start planning for long-term goals and start saving for a child’s higher education and marriage expenses.

Read – ICICI Prudential Smart Kid Plan

Child Future Plan – long term goals

Then you become gender-biased. What?? But you said, “There has been a paradigm shift in the thought process of people and generally they don’t make any difference between son and daughter.” Still, there are some societal concerns which many people don’t want to overlook. For e.g. spending heavily on a daughter’s marriage. You may compromise on the son’s marriage but for the daughter’s marriage, no parent wants to cut corners. So this becomes one of the major goals in life. Concerns about helping the son settle down, gifting the daughters-in-law on some regular occasions and festivals, and taking care of the children (even after marriage) are concerns for most of the parents these days. So, this increases the importance of financial planning. Nowadays, people are not only concerned about savings but also the distribution aspect. Savings are important but your planning should be tax-efficient also.

Must-Read – Retirement Planning Vs Child Future Planning

Looking at mounting inflation if you keep on delaying the savings part then you could be in a major mess later. Looking at some societal obligations which in turn affect the personal goals achievement we hereby suggest some tips which can be helpful in achieving the goals comfortably in your own way.

1.) Open Public Provident Fund (PPF) account: The moment the child receives the first monetary gift, open a PPF account in his/her name. Do ensure that whatever child receives it should be used only for his/her benefit. This will in turn ease your pressure of saving.

2.) Start saving with a proper asset allocation: You should be clear on the money value of your goals before starting any saving. The goal value should be inflation-adjusted. Try to use only those instruments which provide tax-free returns like PPF and equity (through mutual funds). If the returns are taxable then the return amount will be added back to the parent’s income and taxed as per the slab in which the parent is in.

3.) Buy gold: Not because gold prices are going to move higher but to make it part of your overall asset allocation. If you are one of those who is having big dreams regarding your daughter’s marriage – you will need gold.

 4.) Education: You can compromise on savings for your son’s education as one can comfortably get an education loan whenever or if required. But for the daughter’s education, you should save adequately as you may not want your daughter to keep on paying the education loan EMIs even after marriage.

5.) Get Insured: Never purchase insurance in the name of your child. Understand the importance and purpose of insurance. It is to be purchased to manage the risk prevalent in one’s life-death, health problems, accidents. If you want your goals to be met comfortably then proper insurance planning is inevitable. Also what is important is sum assured and not the number of policies.

6.) Do proper retirement planning: If you want your children to be really happy in their life then you should do your retirement planning properly. No parent wants his/her daughter to remain worried about them after getting married. Even in the case of the son there are chances that after getting into professional life or after marriage, he may not be able to support the parents properly and if at that time you become dependent on him then it will create unnecessary pressure in your and his mind.

7.) Give gifts through Trust: From the point of view of proper tax planning and safety of investments for the benefit of married daughter, father can create a private trust in the name of daughter. It helps in practical handling of the married daughter’s funds. If a direct gift is made to the daughter, all the investments normally are in the name of the daughter who takes them with her to her father-in-law’s house after marriage. If by chance there is a financial crisis in her husband’s family, she could be persuaded to part with the investments standing in her name for the sake of her husband’s family. In such a case, it may also happen that she may not be able to replenish the same for considerable time. Therefore to save the funds or wealth of the married daughter from being sold away under the pressure of husband or in-laws, it is advisable to have a trust for the married daughter. If investments for the benefit of married daughter stand in the name of trustees of the trust it is not possible for anyone to ask the trustees to part with the investments just to meet personal or business obligations of the family.

Read – 10 Lessons to teach your kids about money

8.) Trust for major son: Creating trust for the major son has its own practical advantage particularly while he is studying or is not fully settled in life. In this way the funds can be protected from being frittered away if the son were to have the funds in his name only. Thus where the son operates a bank account and makes investments of funds belonging to him particularly when he is studying, there is the risk of his misusing the funds or recklessly spending the funds or wasting them. This abuse of funds can be prevented by having a private trust for his benefit. In this case, a bank account can be operated by the trustees which may include the parents of the son as well. If you want to save money for your son’s future business planning, then you can do the same by transferring money to this trust.

9.) Do proper estate planning: If you are really concerned about your children’s future and want to reduce their hardships, then proper estate planning is vital. You should write a proper and tax-efficient Will which helps in the proper distribution of wealth among your children. You can create different tax files by not allocating the assets directly to the children but to his Hindu Undivided Family (HUF), grandson/granddaughter. You can also create a Trust through your Will. This is the most important exercise which you should do at the moment your child is born. You can write in the Will as to how your insurance proceeds and other assets are to be utilized/distributed in case of your demise before the achievement of planned goals.

Planning is bringing the future into the present so that you can do something about it now. Someone rightly said, “A good plan today is better than a perfect plan tomorrow”. So do not delay and prepare a plan today.

Have you planned for your children’s future? Would you like to add a few more practical points to the above post?

Most 6 Steps of Financial Planning Process

Hemant Beniwal
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16
Most 6 Steps of Financial Planning Process

Financial Planning & Financial Planner is a misused term in India. Anyone who inherits a post office or life insurance business from his father attains the title of being a Financial Planner. In absence of any regulation or anyone with shallow financial knowledge can call himself or herself a financial planner. The 80-90% of people in this fraternity will carry business cards with designations like “Financial Planner” or “Authorized Financial Advisor” without knowing its actual meaning. This creates confusion in minds of clients.

Must Check- Everyone Should Know What is Financial Planning?

That’s the reason, the CFP Board recommends standard Financial Planning Process to be followed by their CFP Professionals. So every time you visit the website of true planner you will find a similar 6 Step Financial Planning Process on his website. But here also you will find even fake planners are using these processes without knowing the actual facts.

So make sure your financial planner follows these 6 steps financial planning process.

The Financial Planning Process consists of the following 6 steps:

1. The initial interaction and establishment of the Financial Planner & Client Relationship.

  • The Planner will explain the entire process. He will document the services to be provided to you and define both his and your responsibilities.
  • The Planner will also disclose his remuneration and will tell how he will be paid and by whom.
  • The Planner will also elaborate if he has any restrictions on his ability to give unbiased advice or if he has any conflicts of interests.
  • You and the Planner should agree on how long the professional relationship should last and how decisions will be made.
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2. Data Gathering & Goal Finalization

  • The  Planner will ask for information about your financial situation. This will be your assessing your present financial condition.
  • Based on the data provided, the Planner will assist you in defining your personal and financial goals, understand your time frame for results and discuss your risk profile.
  • The Planner should gather all the necessary documents before giving you the advice you need.

Also, Read- How to Setting SMART Financial Goals

3. Analyzing and evaluating your current financial status.

  • This part is about the strategy. The Planner should analyze your information to assess your current situation and determine what you must do to meet your goals.
  • Depending on what services you may have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments, or tax strategies.

Financial Planning Process

Financial Planning Process

Must Read –TOP 10 Thumb Rules For Financial Planning

4. Developing and Presenting Financial Plan.

  • This is the step when the financial plan comes into being.
  • The Planner should offer Financial Planning recommendations that address your goals, based on the information provided by you.
  • The Planner should go over the recommendations with you to help you understand them so that you make informed decisions.
  • The Planner should also listen to your concerns and revise the plan.

5. Implementing the Recommendations of the plan.

  • You and the Planner should agree on how the recommendations will be carried out.
  • The Planner may carry out the recommendations or just advice, coordinating the whole process with you and other professionals.

6. Reviewing & Monitoring the Financial Planning recommendations.

  • You and the Planner should agree on who will monitor your progress towards your goals.
  • If the Planner is in charge of the process, he should report to you personally to review your situation and adjust the recommendations, if needed, as your life changes.

A true Financial Planner will be a process man and not a transaction machine. He will always explain the merits and demerits of all steps that are undertaken in Financial Planning. A faker will jump to products and make you buy one. So next time when you reach out to someone or someone reaches you as a financial planner – ask him about his process. Let him speak whatever he wants to say – you just compare is on the right track.

Would you like to share your experience with your planner or advisor?

What is Insurance – Is insurance an investment or an expense?

Hemant Beniwal
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166
What is Insurance – Is insurance an investment or an expense?

What is InsuranceWhat is Insurance & why we need Insurance is normally misunderstood by Indians? Most of the time, when we ask any investor about his investment portfolio, he/she invariably land up saying that we have investments in some sort of insurances policy in LIC, ULIPs, Endowment Policy, Money Back Policy etc. In fact, over the last 50 years or so, LIC has taught Indians everything other than insurance. We all understand insurance as Tax Saving Instrument, Investment Tool but do we understand Insurance as Insurance. You must be surprised by our sentence, but that is the hardcore fact of life.

What is Insurance?

It is a contract between the insured and the insurance company whereby the insured financial risk is covered by the insurance company. The risk can be of your vehicle, property, legal, etc. So effectively, you pass on the risk to the insurances company and they charge you a nominal sum of money for taking that risk which is called  Insurance Premium.

What is Insurance - Is insurance an investment or an expense_

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Why Insurance?

It is said that Rama, Krishna, Bhishma, and Buddha, knew the time when they would leave this world. To put simply, each of them come to live with their disciples with a mission or set of responsibility to fulfill. Does any one of us know when something will go wrong with us and whether that time our responsibilities to fulfill? Does any one of us know when something will go wrong with us and whether that time our responsibilities would be over or not? We all know that in life unexpected is always expected. Our life is full of uncertainties with a lot of goals, short-term goals, long term goals, known goals – unknown goals. We are all born with some responsibilities to fulfill…..but we do not know how much time we will get to fulfill those responsibilities.

What if anything goes wrong with us, who will provide financial security to the family. Who will fulfill all the dreams that you would have thought for? This is where it can help you. Insurances are one of the greatest inventions in the field of personal financial products. But it becomes fatal to financial life and costly once you end purchasing the wrong insurance solution.

Read- Best investment options for senior citizens India

What Happens in Real Life?

The answer to this lies in 2 questions “why did I buy this insurance” and “what product I bought”. Typically you buy insurances products as investments and not insurance. That is why we say that Indians have actually not understood insurances in the right sense. First of all, less than 5% of the Indians have a policy, and add to this, out of those who are insured, the average life insurances cover is less than Rs. 90000/-.

We all understand insurance as an investment and land up buying EXPENSIVE Product. We all buy Endowment Money Back. ULIPs etc. Now when you buy an expensive product, you will actually be the loser, and the manufacturer and the middlemen will be the winner. Is it not? All one needs is to have a simple Term Insurance Policy/ Term Life Insurance Plan.

Mixing Insurance & Investment

Why Insurance

Check – What is Mutual Fund?

Mixing insurance and investment is something we should totally avoid. When your insurance agent chase you, does he sell you insurance products? Or does he offer you investment opportunities and tax-saving schemes? In 99 of the 100 cases, agents don’t sell pure insurance. The insurance agents are driven by the first-year commission that they get and they are hardly bothered whether or not it is really right for you or not. In fact, that is the reason, why most of the investors we meet, say that they don’t see their agents after the first premium. They make a heavy commission by selling the product. Now we don’t have to explain that the commission that they make is actually deducted out of your investment and it could be as high as 70% of your premium.

Insurance is an Expense

Burj KhalifaLet’s try to answer the question through an analogy. Do you know that the world’s tallest building Burj Khalifa at Dubai, which is 828 meters high and has a foundation of 320 meters below the earth level made out of concrete and stainless steel. This means that to see a masterpiece you need to invest in its foundation. And we all know the foundation has no visibility but it is a major part of the cost. So any expense which gives a foothold and acts as security towards unforeseen circumstances is worth spending.

Similarly is life insurance. We all must buy simple insurance even before we start thinking of investing for the future. Understanding insurances as an investment or mixing insurance & investment is not a wise decision.

Please Add Your Comment: Share your views about What is Insurance? Your comments will help us to write better in the future.

Investing for your Daughter in Sukanya Samriddhi Yojana (SSY)

Hemant Beniwal
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78
Investing for your Daughter in Sukanya Samriddhi Yojana (SSY)

The launch of the Sukanya Samriddhi Yojana account (सुकन्या समृद्धि योजना ) was part of the ‘Beti Bachao Beti Pada’ campaign launched by the government. It is a Small Savings Special deposit Scheme for the girl child. It’s not just other schemes to provide social benefits but a good long-term debt investment. It is designed in a way to support her higher education and/or marriage.

Investing for your Daughter in Sukanya Samriddhi Yojana (SSY)

Must Check – Child Future Plan – Complete Guide

Key features of Sukanya Samriddhi Yojana Account

Definition · The Sukanya Samriddhi account is a savings account that can be opened in the name of a girl child from the time she is born till she becomes 10 years old. It can be opened in a post office or public sector bank like SBI, Bank of Baroda, ICICI, etc.
Deposit Rules · Sukanya samridhi yojna account can be opened with a minimum amount of Rs. 250 and a maximum of Rs. 1,50,000 in a financial year. One can deposit money for 15 years from the date of account opening. Deposits in multiples of hundred can be made in form of cash, cheque or demand draft by guardians or parents.
Interest Rate · For the financial year, 2021-22, the interest rate is set at 7.6% p.a. (TAX-FREE) It will be decided every year. Interest will be compounded annually.
Other Benefits and Features · 50% of the fund can be withdrawn prematurely if the need arises after the girl turns 18.

If the girl shifts to a different place in India, the account can be transferred

·  The account will mature after 21 years from the date of opening the account. The account can be continued till the girl’s marriage if some formalities are completed.

·  Under section 80C, one can get a tax benefit on deposit in this account up to a sum of Rs. 1,50,000.

·  When the girl becomes 10 years old, she can operate the account on her own. But deposits can be made only by the guardian or parents.

· Premature closure of Sukanya Samridhi yojna account is possible in case of the girl’s death. The amount with interest will be paid to the guardian/parent of the child.

 

Drawbacks of Sukanya Samriddhi Scheme

  • A penalty of Rs. 50 per year is charged if one fails to deposit in a year.
  • One family can open only 2 accounts even if there are more than 2 girls in the family unless there are more than 2 births at 1 time in which case, accounts for all the girl children born at the same time can be opened.
  • The interest rate will be determined every year in sukanya samridhi account. Currently, it is tax-free.
  • Interest rates can fluctuate.
Investing for your Daughter in Sukanya Samriddhi Yojana (SSY) Click to Tweet

* Please check complete details before opening the account.

Benefits of Investing in Sukanya Samriddhi Yojana

Check –Retirement Planning Vs Child Future Planning

Sukanya Samridhi Yojana – from planning perspective

  1. First look at your asset allocation & then decide the amount that you would like to contribute
  2. If you know your long term goals – this scheme is much better than your FDs, RDs & other post office schemes
  3. If you are the one who invests in insurance child future plans – discontinue all that (get in touch with your agent/advisor) & add that amount here
  4. Start small & depending on cashflow & goals increase the amount in future
  5. Interest rates may come down in the future but you should not be worried about that – government will at least try to match inflation numbers on a yearly basis
  6. Only one account per Girl Child is allowed (max 2 girl child in the family)
  7. Illiquidity is both a plus & minus in Sukanya Samridhi – depends how you have planned your finances
  8. If we assume the average rate of interest that you will get in this account is 7.6% – then an investment of Rs 1 Lakh per year for 15 years (total investment 15 Lakh) can turn Rs 43,95,380.96 in 21 Years (assuming no withdrawal before that)

Download Sukanya Samridhi Yojna account – Download application form

You can also download the SSY New Account Application Form from the following sources:

  • RBI Website
  • The India Post Website
  • Individual websites of public sector banks ( SBI, ICICI, PNB, BoB, etc)

Documentation required to open Sukanya Samriddhi Account

  1. Birth certificate of the girl
  2. Address proof
  3. Photo identity proof of the girl
  4. Photo identity proof of the parent/legal guardian

Should I invest in Sukanya Samriddhi Yojana?

Considering the woeful state of the girl child, the Sukanya Samriddhi Account is a good start to give her financial independence. It will not give returns like the equity market or mutual funds, but it is a less risky investment avenue. The current interest rate is also good. It may or may not be enough to save only in this scheme for marriage and education considering inflation but can be a part of one’s portfolio. It can be part of the debt investments. I haven’t opened the account yet but may be doing it in near future. (will prefer dealing with the nearest banks rather than post office)

Have you invested in Sukanya Samriddhi Yojana Account. Let us know your thoughts on this account. Must share this with your friends…

10 Best Ways of Managing Personal Finance

Hemant Beniwal
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15
10 Best Ways of Managing Personal Finance

What is common between End of December and April 1st?  Very Simple! It’s the starting of New Year either Calendar Year or Financial Year. So what we all do at the starting of New Year. We Take Resolutions. Is it not.

10 Best Ways of Managing Personal Finance

Resolution is typically to improve ourselves, promise to leave either bad habits or promise to start a Good one. So you all agree with this or not? But we all make resolutions on January 1st; we really do not take resolutions on April 1st.  Should we not really think to make New Financial Year a better year than the last year? Yes…. A new financial year waits for all of us and now the challenge is to make this year better than the last one in terms of Financial Health.

Confused? You must be thinking can managing personal finance be healthy? Or let us put it this way that is there something “unhealthy finances”. Yes! People have Unhealthy Financial Habits and there is plenty of it. But before we explain, can we ask something:

  • Did you miss any payment deadlines of your say electricity, mobile or a credit card and pay extra charges?
  • Did you deposit cash in another bank account as you had given a cheque from another bank account by mistake?
  • Did you miss the tax proof submission date of your organization and then when you missed you thought “you are an honest Indian, as you are paying the tax?”
  • Did you purchase the LCD from your salary and told the wife to manage the household from her petty savings?

10 Best Tips for Managing Personal Finance

The questions can be as many but all these refer to what we call being “Financially Unhealthy”. So, here we are going to suggest to you the how-to manage personal finance this year:

10 best ways of managing Personal Finance Click to Tweet

1. Analyze your financial relationships

Why do you have multiple financial relationships for similar products?  Close the bank accounts that you do not need. Transfer the stocks in one Demat and close the non-required ones. Discard multiple credit cards to make life easier.

Must  Check – What is an Emergency Fund & how to create it?

2. Use the Envelope System

Set up an “envelope system” to help you track where your money goes. Label each envelope with a specific spending category such as housing, food, transportation, clothing, entertainment, personal care, etc. At the beginning of each month, put the money have budgeted into the appropriate envelopes. When payments are due, withdraw from the envelope.

Personal Financial Management

3. Buy the appropriate life insurance

Peace of mind is the first thing in Financial Life. Buy appropriate insurance. Take the help of a Financial Planner to calculate your retirement.  Also if you have investment-linked insurance, find out whether would it be better to exit from it, make it paid up or surrender it.

4. Buy Health Insurance

This would save you and your near ones from the Hospital blues. We suggest that along with your wife and kid, buy Health Insurance for your again parents also and save your income-tax as well. We think this is one of the best ways to tell parents that we care.

5. Start saving and make sure your savings are equal to investments

If you are in your twenties open a Systematic Investment Plan (SIP) with a mutual fund and open a PPF account. If you are in your thirties, Start a SIP for Retirement Planning. All these schemes have different features and tax benefits/ implications. Consult Financial Planner before investing.

Read: 10 investment mistakes to avoid

6. Retire Expensive Debt

Debt is part of life, but you need to manage it. Always retire the expensive debt whenever you have spare money. Even don’t mind taking a loan with less interest to pay off the loan with higher interest.

Personal Finance

7. Start using Technology

Get registered for E-Statements and E- payment. Use auto- debit systems either through bank account directly or through credit card. Let utility bills be paid online.

8. Keep a record

This year keep all records in proper form. Scan all important documents for eg your insurance policies, tax certificates, etc. File all your investments with income-tax benefits in a separate file and others in separate files.

Must Check – Are You Holding Too Much Cash

9. Control Spending habits

This year promise that you won’t deviate from your Budget. No matter how much or how little you’re paid, you’ll never get ahead if you spend more than you earn. Often it’s easier to spend less than it is to earn more and little cost-cutting effort in a number of areas can result in big savings. It doesn’t always have to involve making big sacrifices.

10. Don’t shy from seeking help from expert

A Financial Planner can act as a personal (financial) fitness trainer. Don’t feel shy to ask questions about your financial needs and solving the financial agony.

In the end……let us pray that all our readers remain Financially Healthy and Prosper in this New Year.

Now you know managing personal finance? would you like to share your Financial Resolution? Add them to the comments.

Holding Cash – Are You Holding Too Much cash?

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0
Holding Cash – Are You Holding Too Much cash?

Is it even possible to hold too much cash?

Suppose you are in your 40s, earning upwards of 30-lakh per annum, lead a healthy lifestyle, have your own home, and manage your finances well. You happen to have a decent financial portfolio of mutual funds and stocks for retirement, kids’ education and marriage, and an emergency fund.

Your family is adequately covered by life, health, and property insurance. And you happen to have 8 to 10 lakhs in your savings bank accounts, just in case. The picture seems perfect and all rosy.

But wait, there is just one thing that is put of place in this near-perfect picture. And you guessed it right – you are holding too much cash in your accounts.

Holding Cash – Are You Holding Too Much cash?

Check- Saving for Retirement

But is it even possible to hold too much cash?

Isn’t cash IS the King?

And when you don’t have great avenues of investments, shouldn’t you sit tight on cash?

Yes, Yes, and Yes.

The notions that cash is king and sitting on cash and doing nothing are thumb rules, that have to be read in the context of another thumb rule:

Too much of anything is injurious to health!

Why Cash piles up?

There are multiple reasons – both acts of commission and mostly omission or inaction on our part – that result in the cash piling up. Some of them are:

  • The recent sale proceeds of a property are not yet invested in another property or specified bonds.
  • Received bonus or incentive.
  • Got lucky on some deal and made a huge profit.
  • Received a gift from parents or parents-in-law.
  • Maturity amount of a moneyback insurance plan.
  • Sold shares and mutual funds to book profits as markets zoom.

The current scenario of uncertainty has altered the perspective of many people and they are keeping cash to invest later in ‘safe’ fixed income instruments. But the problem with this approach is that you are relying on too many external factors that you cannot anticipate, predict, and control.

Holding Cash – Are You Holding Too Much of It? Click to Tweet

Cash and your portfolio

Sitting on cash may be a blessing as well as a curse for the health of your financial portfolio. The correct answer would depend on many factors:

  • Mode of cash holdings.
  • Size of the emergency fund and alternate sources of cash.
  • Reason(s) for holding cash.
  • How far away is your short-term goal.
  • The quality of your medium- to the long-term portfolio.

The problem of holding too much cash mostly comes because far too many investors have no clue how much is their monthly expenditure and how much are their annual expenses. They cannot make budgets and plan ahead for the next few weeks, let alone months or years. And they don’t have the faintest of ideas about inflation, interest rates, and opportunity costs.

Such investors, generally, take impulsive decisions and when they burn their fingers, find solace in cash!

7 Justified Reasons to Hold Cash

Read- How To Earn Money From Credit Card in India?

7 Justified Reasons to Hold Cash!

  1. Psychological Safety Net

This one is tricky as this is the amount of cash that will help you sleep better at night. As every person has a different mindset, this value also changes.

  1. Emergency Funds

Nevertheless, you should have liquid assets to cover three months of regular expenses (husband-wife both earning), and at most twelve months (retired). Therefore, for a family with monthly expenses of Rs. 50,000/month, you must hold between Rs 1.5-lakhs and Rs 6-lakhs in cash or liquid assets.

  1. Protection Against Liabilities

If you and your family are protected, financially, against major setbacks like health emergencies, or the sudden demise of the earner, your cash requirements may come down significantly.

  1. Work profile and Income Volatility

People working in sectors like real estate, cyclical commodities, etc. require more cash holdings to tide over long lean seasons compared to steady sectors like baking or FMCG. Professionals, small business owners, and people working in high-risk environments require more cash and equivalents.

  1. Number of income Streams

For families solely dependent on a single income stream, more cash holdings are required. But if your family income comes from multiple streams – like a working couple, a small side business, rental income, etc. – then your cash requirements may reduce significantly.

  1. Big Ticket Spends

If you are planning for a big spend in the coming few months – higher education, marriage, purchasing real estate, etc. then it is better to have good reserves in cash and equivalents and protect the capital.

  1. Opportunistic Funds

With sufficient cash-in-hand, you can ‘time’ the market – like the market crash of March 2020 presented exactly such an opportunity. But this must be accompanied by a strategy to liquidate your holdings as markets become expensive. (be frank lot of people hold cash for this reason and most are not able to utilize funds when there’s blood on the street)

Check – Personal Finance Lessons from the Olympics

How Much Hold Cash is enough?

The filtered wisdom of decades of financial planning with all classes and types of clients suggests having cash holdings sufficient to meet your short-term requirements, that do not interfere with your long-term goals.

Just like insurance is a necessary expenditure, that you never wish to recoup, holding cash with negative returns also falls in the same category. That is why contemplating the just “right” amount of cash is extremely personal.

How to Hold cash?

Of your cash holdings, you can further carve out multiple buckets based on the liquidity of the asset – cash-in-pocket being the most liquid and others less so.

To help you make the decision based on sound reasons, we recommend a laddered or buckets-based approach:

  • Define requirement buckets based on the urgency of the situations from a few hours to a few weeks, and so on.
  • Identify Are You Holding Too Much Cash? would be needed for each of them – always consider a little worse than the average scenario.
  • Find the right instruments that give you the comfort of the liquidity within the said window, with the safety of capital.
  • Invest adequate cash in each bucket and move the balance funds up the ladder in the next bucket.
  • Review and rebalance every six months.

The following diagram demonstrates the laddered approach.

How Much Hold Cash is enough
Figure 1: The long-term here is actually short-term in the overall financial planning. It is called long-term from the “cash-holdings” perspective.(Overdraft facility is not an investment, but this ladder would have been incomplete without it.)

Flexi/Sweep-in Savings accounts

Suited for: Immediate Liquidity

Returns: Low  to moderate

Risks: No capital risk, but inflation risk

Cash-in-hand and savings accounts can meet your urgent needs within a few minutes to a few hours.

Most banks today offer an automatic sweep-in facility where your excess bank balance, above a threshold, is automatically converted into a short-duration FD for higher returns. If you make a withdrawal of an amount more than the threshold, the requisite amount is automatically transferred to your savings account with accrued interest.

Check – 8 Most Important Mutual Fund Questions

Overdraft facility

Suited for: Immediate Liquidity

Returns: Negative

Risks: None

If your bank offers you an overdraft facility, then avail of it. You will be charged only for the amount and period (in days) for which you actually took an overdraft and made a withdrawal. It can help you keep the cash balance at a minimum and earn superior returns.

Liquid funds

Suited for: Liquidity in 6-72 hours

Returns: Savings < Liquid Funds < long-term FDs

Risks: Interest-rate risk and credit risk

Liquid funds invest in overnight money markets and very short-term debt instruments maturing under 30 days. Their returns are better than the savings account but equal to less than the fixed deposits. These funds help you make your money work for you every day and capital is also relatively safe.

Short-term Debt Funds

Suited for: Liquidity in 2-12 weeks

Returns: Equivalent to or better than short-term FDs

Risks: Low-interest rate risk, but higher credit risk

Once your cash, Flexi account, and liquid funds buckets are full, you must choose short-term debt funds that hold the paper with 1-3 years maturity. This allows them to generate better and stable risk-adjusted returns They are also not much affected by changes in interest rates.

Fixed Maturity Plans

Suited for: 3-12 months

Returns: Moderate and steady

Risks: Low interest-rate risks, higher credit risk.

As the FMPs are closed-ended funds, with fixed investment and redemption dates, and invest in high-quality bonds of similar duration to hold them till maturity. The returns are steady and pre-defined, just like bank FDs, and can give moderate or slightly better returns than an FD.

Medium-term FD

Suited for: 6-24 months

Returns: Moderate and steady

Risks: Low interest-rate risks, low credit risk.

Medium- and short-term bank fixed deposits can offer the best security against capital/credit risk with moderate returns. If they are not used until their maturity, it is better to roll them over for a similar period.

Long-term FDs

Suited for: 18-36 months

Returns: Moderate and steady

Risks: Low interest-rate risks, low credit risk.

Long-term fixed deposits – with banks as well as highly rated corporates (like housing finance companies) – offer protection and returns that are equivalent to inflation. In real terms, you will earn zero to positive returns.

Excess Funds for Long-Term Investing

Holding cash in different forms can help you reduce the negative returns from the all-cash strategy. It can also expose you to a more systematic way of managing funds and reviewing needs in a more objective manner.

Once all your short-term buckets are full, you can use any leftover cash to add value to your long-term portfolio of equity and long-term debt (like PPF). You can also use the liquid funds to temporarily park extra funds and systematically transfer from them to an equity fund.

In case if you would like to talk about your Goals & Financial Fitness – Let’s have a Call

Please share in the comment section. What percentage of your financial assets are in cash or liquid instruments and why?

10 Thumb Rules For Financial Planning – Everyone Should Know

Hemant Beniwal
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82
10 Thumb Rules For Financial Planning – Everyone Should Know

In life people want shortcuts – I think that’s the reason rules of thumb find someplace in one life. These thumb rules for financial planningare very basic & not at all full-proof as the requirements of 2 different people can never be the same. They can just give you some idea but important financial decisions should not be taken on basis of these. Editor of The Journal of Financial Planning (US), once noted that “Rules of thumb are for people who want to decide things without thinking about them.” But still, it will be unfair to suggest ignoring all of them.

10 Thumb Rules For Financial Planning - Everyone Should Know

Read – Benefits of Financial Planning

10 Thumb Rules For Financial Planning

1. What should be my asset allocation or how much equity should I have?

This is the most common rule of thumb which is used in the investment world. The rule says Equity percentage in your portfolio should be equal to 100 minus your age or in other words, debt should be equal to your age. For eg if you are 30 you should have 30% of your investments in debt & 70% (100 – your age) in equity. This doesn’t take care of risk appetite, risk tolerance, or how far your goals are.

2. How much emergency funds I should have?

Emergency Fund helps people in case of a sudden loss of income, medical emergency, etc. The Thumb rules say one should have an emergency fund equal to 3 to 6 months of monthly expenses. You can keep it at 3 months if you are a government servant but in the case of a private job or profession, you should keep it on the higher side of the range. Make sure you don’t use this amount for day-to-day needs/wants. For a retired person, an emergency fund should be equal to 1 year of expense.

Must Read – What is finance planning

Retirement Rules of thumb

3. How much money will I need in retirement or how much corpus I should build?

You should have 20 times your income saved for retirement and plan to replace 80 percent of pre-retirement income. But here retirement means retirement at age of 60 & life expectancy of 80 – and a conservative lifestyle. But now things have changed & you would have dream/planned a lot of things for retirement.

Top 10 Financial Planning Rules of Thumb Click to Tweet

4. How much do I need to invest every month to achieve my retirement goal?

“Indians are great savers” sorry “Indians were great savers”. The new generation is in some different mood they would like to enjoy the present & have no idea about future. If you have just started to work & would like to have a very simple lifestyle & retirement at age of 60 you can do it with saving (read investing) 10% of your income. If you are planning for an early retirement start with 20% savings. Another rule says if you are in your early 30s Save 10% for basics, 15% for comfort, 20% to escape. If you are late by decade add 5% more in each category.

Watch This Video for 5 Steps of Financial Planning –

Insurance Rules of Thumb

5. How much insurance should I have?

Here insurance means insurance. The rule says one should have a sum assured of 8-10 times of his yearly income. I think this rule is far from perfect but still can be used as starting point. This does not take care of any of your goals, liabilities & even complete expenses. Some modified version of this rule says that if you are in your early 30s insurance should be 12-15 times your annual income & if you are in your 50s take 6-8 times.

Check –Financial Planning Infographics

Loan/Liability/Home Rules of Thumb

6. How big should be my House?

The value of a house should be equal to 2-3 times your family’s annual income. So if you & your spouse are earning a total of Rs 20 lakh – you should buy a house in a Range of Rs 40-60 Lakh.

financial planning rules

7. Maximum EMI that I can have?

Ideally, 0 will be the best answer but a few of the big assets like homes require some loan to buy them. Experts agree that your EMIs should not be more than 36% of Gross Monthly Income at any point of time. It should be even lesser when you are close to your retirement. If you want to talk about home loan EMI, it should not be greater than 28% of your gross income. Now TENURE of loan is missing here – for tenure read No. 6 & 8 rules of thumb.

Must Check – Are You Holding Too Much Cash

8. Rules of thumb for buying a car

This is one of the biggest purchases after your home. And this is a depreciating asset – today morning you purchase a car for Rs 10 lakh & by the evening it will be worth Rs 8-9 Lakh. After 5 years it will not be even of half-value but still, you keep buying cars regularly – buy at 10, sell at 4 & lose 6. (repeat the cycle) There are few rules that you can follow:

  • The value of a car should not be more than 50% of the annual income of the owner.
  • Purchase a used car or buy a new & use it for 10 years.
  • While buying a car with a loan stick to Rule 20/4/10 – Minimum 20% down payment, loan tenure not more than 4 years & EMI should not be higher than 10% of your income.

Rate of return Rules of Thumb

9. In how many years my amount will double?

It’s a very simple & most common rule – if you divide 72 by rate of return you will get the number of years in which your money will double. For Eg. If you expect a rate of return of 12% your money will double in 6 years (72/12=6) & what about if the rate of return is 8% – 72/8=9 years. This can also be used in reverse order at what rate your money will double in 5 years – 72/5=14.4%

Rules similar to rule 72:

Rule of 114 & 144

These can help you in how many years your money will be triple (114) or quadruple (144) at some rate of returns.

Rule of 70

You know it or not but inflation is your biggest enemy – the rule of 70 will tell you in how many years the value of money will behalf. You just need to divide 70 with the rate of inflation so if the rate of inflation is 7% – 70/7=10 years. So in 10 years, your Rs 100 note will be worth Rs 50.

Must Read-What is the Average Financial Planning fees In India?

10. Rule 10/5/3

This is a US rule of thumb which says in long term you can get 10% return from equity, 5% return from bonds (let’s say FDs) & 3% from the t-bills (liquid funds – these returns are more or less close to the range of inflation). Indian economy is growing at some different pace & even inflation numbers are different. Can we safely say if inflation is 6% (t-bill rates) we can get 8% from the fixed deposits & 12% from the equity or in other words – in long term equities will deliver twice the return of inflation? Try combining Rule of 72 with this rule – you will get some amazing numbers.

Sometimes Rules of thumb will give you a false sense of security or wrong guidance – so take them with a pinch of salt.

This article also got published in Financial Chronicle – Thumb Rules for Smart Financial Planning

If you heard of some other rules of thumb related to money/finance – must share. Also, share your personal views/experience on any of the above rules.

How To Make Money With a Credit Card in India?

Hemant Beniwal
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41
How To Make Money With a Credit Card in India?

NO!! I am not a credit card salesman pestering people with free lifetime cards or enticing them with special gifts to buy more cards, and send them down a debt spiral, while I mint my commissions on way to the bank!
I’m just another common man who swipes his card day-in and day-out, at the groceries, at the petrol stations, at the supermarkets, and nudges around to pay the bills!
Over a period, I’ve developed some habits (or incorporate parlance “Best Practices”) with my credit cards usage, which have not only helped me avoid the debt spiral; but also make money out of it!! Read on to know-how!

How To Make Money With a Credit Card in India_

Check- Silly ways to use Credit Cards

1. Avoid paying interest on your Credit Cards!

The first step towards How to make money with a Credit Card? is to avoid paying interest on your credits!
Too many cooks spoil the broth!
Too many cards spoil your growth!!
Have a strict limit on the number of credit cards you have; and your overall credit limit.
Your overall credit limit (inclusive of all cards) should not overshoot your monthly income; else, you will have trouble paying your next credit bill.

2. Avoid cash and debit card transactions to the maximum

The next time you buy a mobile phone or the monthly grocery at the store, avoid paying by cash, pay by credit card instead.
First, it helps in avoiding black money to a teenee-tiny extent. Secondly, and more importantly, your money stays in your account until you make the credit card payment (not for debit cards though).
This gives you extra interest in your savings account balance. Sounds petty?! Not really!! Let me explain…
The recent RBI ruling on savings account interest rate has the following key takeaways:

How To Earn Money From Credit Card in India? Click to Tweet
  • RBI has deregulated the savings account interest rates; so, competition is heating up among the banks to increase the rates further (One bank has already raised the rate to 6 %!!!)
  • The savings account interest rate is currently 4%
  • The rate would be calculated at the end of each day, instead of the lowest balance of a month earlier (most of our account balances are low by the end of the month 🙁 )

Therefore, if I buy, say an iPhone for, Rs.30,000 on October 1 using my credit card, my credit statement would be generated by the end of the month.
So, these 30K bucks stay in my account, until I make the payment at the end of the month. At say 4% interest rate, this works out to close to Rs.100/- per month (@4%, each Rs.10, 000 earns an interest of Rs.1.01 EACH DAY!!!)
So, that’s extra money as interest from your purchase!!
Note: Before swiping, make sure the vendor doesn’t charge any service charges; most don’t, but it’s always safer to confirm.
While using for fuel, go for banks that have tie-ups with your credit card company so that you don’t have to pay surcharges.

Also Read: Must have features in Credit Card

3. Delay paying your credit card bill until the last few days

This is the next vital step make money from credit cards – pay the bills at the RIGHT time!! Earlier, I used to settle my credit card bills soon after I make a purchase. But, as I realized how much I can earn with additional interest, I delay my payments until the last days. If my due date is the 15th of a month, I don’t pay until the 13th or 14th; so that I can earn savings account interest during the grace period as well. With net banking and mobile banking, payments are cleared in seconds, so there is no worry of cheques not clearing on time or national holidays!!

make money from credit cards

4. Negotiate to increase your credit payment cycle

By now you would have realized that the longer the grace period, the more you can delay the payments; and more the interest you can accrue. So, negotiate with your bank and try to increase the grace period. Recently, I upgraded to a higher-end card, and my grace period shot up by 10 days. Now, my half-yearly interest credits are growing more and more!!

Must Check –Top 10 Credit Score Myths that need to die

5. Reward Points

Of course, there is always the delight of earning reward points for your purchase, and en-cashing them for exciting gifts!!

6. DISCIPLINE IS MANDATORY

The final step towards make money from credit cards? A disciplined approach is of vital importance while using credit cards. Make sure, you set reminders on your handsets so that you don’t miss the payment dates! Better to pay your bills a couple of days before the due date, than rue missing the date and pay interests. Don’t be penny-wise, pound-foolish!!

And always keep a check on your spending. Having a credit card is no license to go on a shopping spree. The wealthiest are not those who earn more; but who spend less. Plan your monthly budget, and strive to stick to it. Avoid impulsive shopping – when you go shopping, do not buy anything beyond what you have planned for. Also, inculcating a savings habit would give great returns in the long run. Try these tips and your credit card will soon be making earning extra money from credit cards!
Happy Swiping!!

This is a guest post by Arun K Krishnan – an IT Consultant, working with a multinational consulting company from Chennai. He’s an avid follower of TFL and wanted to share his financial tips for the benefit of other readers. The views expressed herein are the author’s personal views.

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