Category Archives: Personal Finance

28/06/2008
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Personal Finance, Stock Market

Entering Stock Market?

For all the techies who are interested in entering Stock Market.

Following are my suggestions.
Before entering stock market, try to play games which simulate Stock market. This will be a very good platform to learn. I am sure you will have a good time playing the game and also learn a lot from it. I always felt that it is better to start any learning process by playing as a game, it provides so much fun and also it helps us in learning the concepts. I started the wrong way, before getting thorough information about Stock market, I jumped into it and incurred losses. This was because I was not prepared for it. I was in a hurry to make money in Stock Market. I realized it is not as easy as it seemed to me once. I learnt the hard way.

To play simulated stock market, I suggest you to play at http://moneybhai.moneycontrol.com/. This is quite interesting, I am sure you will learn many concepts of investing over here. I personally like this site. This replicates the BSE and NSE.

Baby Steps towards investing in Stock Market!!

As everyone I was scared to get into the Stock Market. All that my dad said was, don’t get into stock market and lose your money. My friends said be careful buddy, it is a bad world out there. My first step towards the stock market was very important to me. I overcame the fear and was careful.

I would advice a newbie to make sure that he has the following qualities before he/she gets into stock market. One is fear and other is greed. Both are the most common qualities I came across in the Stock market. I was scared and was greedy. Hence you can’t just claim that you dont have these qualities. I had to struggle and lose money to realize that I had these qualities. Be prepared before you make your move.

The first step would be definitely overcoming the fear of losing money. When we start learning to drive our bicycle we fall. I am sure there is not a single soul on earth who has not fallen once while learning to drive bicycle (Are you an exception eh??). This is true with Stock market also. While learning we may or may not mistakes. I feel stock market works on Randomness. There is no theory which can guarantee you 100% returns on your investments. I was following nearly 8 news channels before investing on stocks and got to know that all 8 news channels are just waste. My opinion is Common sense and good judging capacity should be more than enough to make money in the Stock market. My first suggestion don’t bother about zillion things to buy a share. It is not worth it. It simply does not work that way. I am no financial expert but I too have tasted the success and failure in the stock market.

Next step would be not to be GREEDY.. I know everyone who is reading will be now thinking I don’t fall into that category and hence I need not worry about it. Whoever thought so right at this moment, am sure you are very greedy.. Take my word. I was of the opinion that I am not at all greedy. When I entered Stock market, I planned and all that, but my greed overpowered all my emotions and my thinking. I realized I am greedy. To realize this I lost money. Try it and then you will think I am right. I am sure that most of them will think I am just bluffing around, but what I said is Truth!

Now plan your investment strategy. I have a very clear path to investment strategy. My intension is I should get minimum of double the interest rate that bank pays on savings account (assumption bank pays 10% PA) i.e. atleast 20% returns on the investment. And for heaven sake don’t invest for tax reasons. If that is your intension, please don’t invest in stocks. Since you don’t get any tax breaks (I am sure everyone knows that!!). I hate when people invest for the purpose of saving tax. I feel that is not a good idea at all. I know most of us do that, but honestly I don’t think it is a good strategy. I know it is very hard to plan up the investment strategy. I would suggest you to start it, plan first for short term strategy. I define Short term to be anywhere between a month to six months (1 – 6). It is just for our convenience. Have a plan in short.

Next Step, when to exit? I always feel that investing in stock market is more or less like a game. ( I love playing too much, I love the risk and the stakes that Stock market offers. I know I can’t keep playing the game all day and night. So I have to stop playing some time. ) Why I suggest this is cause it is not a good idea to keep invested your money in Stock market. Since we have planned to enter the stock market, we should also plan to exit it. I generally exit after my purpose is achieved i.e. I get 20 % returns on my investment as per my strategy.

I am sure that you guys are very scared to lose money since that is what you have heard from your colleagues and neighbors and well wishers. I say you will make money so don’t be scared. Make your move. Have a positive attitude towards life. You never know what happens in the world of Stock Market, it is just Random. No one can predict exactly what will happen tomorrow. Cause if he is so sure of the behavior of the market I bet he would have invested crores to make 100’s of crores.

So please make an attempt to invest and don’t be scared.

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26/06/2008
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Personal Finance

Trust yourself for your Financial Future

I had a word with one of my friend and he was trusting some one for his Financial Future. This is not his case alone. Most of us do the same. Is it worth doing it? Ever thought about it?

If we don’t learn to manage our own hard earned money, someone will manage it rather honestly mismanage it. Some of these people may be ill-intentioned, like unscrupulous commission-based financial planners who keep calling us for some financial products every now and then. Others may be well-meaning, but may not know what they’re doing, like our parents, If they are not up to date with the financial instruments they can’t guide us in the proper direction and I don’t blame them. I prefer guys like us to take care of our financial future. We should guide them as well since the times have changed and their principles might hold good but definitely not their financial instruments.

Instead of all these things, it is better we start realizing our needs and start equipping ourselves with what we have to learn. In order to take charge try to learn something new everyday regarding personal finance. Once you equip yourself with Personal Finance knowledge try to take care of the situation and ensure that you don’t let anyone else control your Financial Future. It is your money and it should work hard for you.

Your first step should be, learning how to make money work for you and you should not work hard for money.

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25/06/2008
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Personal Finance

Shares are Riskier??

Most of them feel that Shares are Riskier. They convinced me also that it is most riskier than any other financial instruments. Till I traded, I was also under the same impression. After trading I have realized that Shares are not that riskier as people told me.

Shares are just another financial instrument which people use to increase their income. It is the trader who makes the shares riskier and shares itself is not that risky. Generally a trader takes daredevil risks where as an investor takes calculated risks.

People are very confused in share market (I was one of them!!). They don’t know whether to be a Trader or Investor. If they want to be a Trader they are not sure how to trade, when to trade, how to trade and so on… If they want to be a Investor they are not sure how long to invest, in what they should invest, when to take out money and all that.. Its a scary confused world of people who don’t know what to do with their money and lose out. There are other bunch of people who know exactly what to do and they make money. It is up to you to choose which side you want to stand.

Before even dreaming of making money in stock market. Decide your position. Whether you want to be a trader or investor and after that decide on how much you want to make and when you plan to quit the stock market. If you are greedy I am sure you will lose. Don’t be greedy, decide the things and then start your game.

Stock market is a game, first learn the rules and then decide your game play and then play the game..

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23/06/2008
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Personal Finance

What is a Bank? How does it function?

Bank functions on the trust and belief that the customers have on them. (Not many knew this, were you one of them?? I was!!!).

All that we do is we deposit our hard earned money in bank trusting them that they will respect our cheques and will return us our money when we want. We have a sense of security with the banks that the money is safe with them rather than with us. This is not the only reason for keeping the money with the banks. They provide us the opportunity to access the money at our ease (ATM) and also they provide many facilities. But the most important thing is Banks provide us Interest for the amount that we have deposited. Banks do provide the convenience for us to do loads of things with the money which we would not be able to do if we had kept the money with ourselves without trusting the banks.

From webster’s dictionary, Bank means “an establishment for the custody, loan, exchange, or issue of money, for the extension of credit, and for facilitating the transmission of funds”. The main purpose of Bank is to loan out the money to public in order to facilitate their spendings. When money is deposited by an individual that money goes to a pool of money where others also have deposited and the account of the individual is credited with the money so that when he gives the cheque it will be honored or he can withdraw money whenever he needs it. Interest will be provided to the amount that the individual has deposited.

What Bank does is, for every Rs.100 it has got through deposits it can lend Rs.90 and it should keep Rs.10 as reserve. This reserve amount is decided by the Central bank of the nation i.e. RBI for India. RBI governs all the banks in India. Banks provide lesser interest to the amount deposited than the interest it charges for the loan. The interest that is provided to the amount deposited varies depending on the type of account and how long the money is with the bank. Generally for savings account it is around 7 – 9% depending on the tenure and the various loans that it provides customer are Home loans, education loans, vehicle loans and so on. The interest for each of this also varies. Since the bank has Rs.100 has deposits, RBI also gives money to Banks and charges them interest. Generally it is up to 9 times the bank gets money from RBI. So RBI gives bank Rs.900 if the bank has Rs. 100 and all that bank has to do is just keep Rs.10 as reserve and lend out Rs.990. Bank loans the money out to general public and gets it back and returns the money back to RBI making some profits.

How does Bank make money? Banks are also a type of business. They make money on the interest they charge on loans because that interest is higher than the interest they pay on depositor’s accounts. The interest rate a bank charges its borrowers depends on both the number of people who want to borrow and the amount of money the bank has available to lend. Loaning money is also inherently risky. A bank never really knows if it’ll get that money back. Therefore, the riskier the loan the higher the interest rate the bank charges. While paying interest may not seem to be a great financial move in some respects, it really is a small price to pay for using someone else’s money.

Bottom line is : Banks just work on TRUST and nothing else. RBI and Depositor’s trust bank and provide their money. Bank in turn trusts its customers and expects them to pay back the amount that it has lent. If someone defaults in the middle the whole setup goes for a mess. If someone has a account in the bank that means he is trust worthy.

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21/06/2008
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Personal Finance

Taxes

Many would be eager not to pay taxes to the government and save up. It is a good thought to do so but have you ever thought in these lines?

1. Why does government always give tax break when we are in debt and that too long term debt such as home loans and why not for personal loans?
2. Why does government give tax break for investing in mutual funds and not for shares?
3. Why does government give tax break for Insurance?
4. Why is tax deducted at source (for Salaried People)?
and ….

These are some of the questions that keep ringing me.. I don’t have any answers for these but all that I can understand is, the taxes are made by the Rich people to ensure that middle class people pay the taxes and they can manage to save up the taxes legally. Government ensures that they try to take out every penny from the people in order to provide facilities to the people. I don’t know how far this is true but the intension is this only.

What is meant by Tax Deducted at source?
That means Before you lay your hands on your hard earned money, government takes its share and provides you the left over. 🙂
Salaried class always gets the Tax Deducted at Source, in short TDS. Whereas the Business class always enjoys the money and at the year end pay the Tax to the government. Honestly Business class is a best way to earn and save up rather than the Salaried class.

Consider this situation: I am a Salaried employee and I need to organise a party for my friends. I need to do that with after tax money (Government takes its share). If I am a Business man and I want to throw a party then I would do that with the money which is not taxed and later I would write it off as a Business meeting expenditure. There are various options for Business man to avoid tax where as the Salaried class is not so blessed.

I can sense many loop holes for a business man. This draws me to a conclusion that Tax rules are made by the Rich and they have made sure to pay less and in turn burden the salaried class.

Many of us are bothered about taxes and we try to minimize the taxes as much as possible. I want to make few things clear.

1. Don’t invest your hard earned money to reduce your taxes.
2. Investment and Taxes should be two different things.
3. Make sure that you learn the basic tax rules that are required.
4. There are lot of loop-holes in the Taxes provided by the government for the good reasons, try to use them and ensure you don’t pay more in taxes.

There are various components in our pay slip such as Basic, H.R.A, and so on. Try learning what each one means and how it is taxed and learn means to minimize the tax as much as possible.

Just for an example:
For H.R.A:
If you are living in your own house and still you want compensation for House Rent Allowance then this is what you should do.

Pay your Parents or Grand Parents an amount every month as Rent. This is not illegal. By this way you will get your tax benefit and also if your parent’s income is less even they wont be taxed. To be on the safer side you pay the rent to a non-working parent in your family.

There are various loop-holes that is present. I don’t know many. I shall update you guys whenever I get these kind of information.

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