Monthly Archives: November 2017

Get Lean and Mean With Money

There’s a lot to be gained from adopting the lean philosophy in your personal, professional and financial life, if you want to be successful with your own goals. Let’s look at some of the ways to accomplish this.You can get lean with your time by becoming more productive at work, getting the most out of your commuting time, using technology to improve your output, and making the right choices when spending your time to generate an income.You can also utilise another important resource — your money — more efficiently. In theory, money is not in limited supply like time which is finite, but you still have to ensure that you make the best use of your funds to get the most optimal return.

Operate an efficient money production line

Imagine that your life was like an assembly line at a manufacturing company. Just like the person in charge of production, you would want to ensure that none of the raw materials were wasted and that you got as much finished product as possible out of your machinery time and employee effort.Let’s review the Japanese words for inefficiencies — muda means idleness or wastage of resources when trying to complete a task; mura is the unequal or unbalanced use of different resources; while muri means the excessive or unreasonable use of a resource which could put it at risk.In order to get the most out of the money you earn or have on hand to further your goals, you need to eliminate these types of inefficiencies. Your aim, like that of a profitable corporation, is to utilise your financial resources in ways that will allow you to get an optimal return on your money.

Don’t squander your money resources

One of the areas you may need to address is the wasteful use of money in your current spending. Do you try to find the best shopping deals to cut back on your grocery bills? Do you conserve on your usage of utilities such as light, water and petrol to get the most while spending the least?Do you habitually use credit cards or payroll loans to finance consumer purchases? The interest you pay on debt actually represents money that has been inefficiently expended; you could have channeled those funds into productive use instead of making the financial institutions richer.Another area of inefficiency is when you have money that sits idly in a non-interest bearing account, or funds that are not generating as much return for you as possible. You can get better interest rates on your money by simply switching from a savings account into a fixed deposit.

Try to maintain your money balance

You also need to determine if there is an imbalance or unevenness in your use of money. Are you putting too much of your resources into some areas while ignoring other important ones? Preparing a detailed budget will help you to see where you may be inefficient with your allocation of funds.

Choose the Right Bank For A Fixed Deposit Investment

It provides a steady interest stream and can be a lot safer than equity investments or mutual funds. However, when choosing the financial institution in which to make the deposit, carefully consider some important factors.

Choosing the Right Bank or Organisation

You can safely open an FD account with any PSU or large private sector bank. You can also open an FD account. Many corporates also invite fixed deposits at attractive interest rates, to raise funds for operations.However, don’t decide where to invest based solely on the rate of interest offered on your deposit. It is one of the important considerations, but there are other details you need to look at.

Security

Public and private sector banks operate under the control and supervision of the Reserve Bank of India. They have to comply with the rules and regulations of the RBI, and cannot default on payments.However, if you opt for a corporate FD, they’re not regulated by the RBI, and you undertake a substantial amount of risk. Corporate FD might offer higher interest rates, but the safety of your money depends on the company’s financial stability.

Fees and Charges

If you decide to close an FD before the maturity period, your bank may levy a penalty of up to 1% interest on the amount. That is if the bank offers 7% interest on your deposit, and you withdraw the amount before time, you will only realise 6% interest on the deposit up to the date of withdrawal.

Interest Earnings and Tax

If the total interest you earn on your FD is above Rs.10,000 per annum, it will be taxed. Calculate the tax you have to pay on the interest earnings and subtract it from the total annual interest earned to see if the FD is a worthwhile investment.

Compounded Interest

If you have other sources of income, choose to reinvest your interest on the FD, to earn more. The next interest calculation will be on your principal along with the interest from the previous FD. Use a fixed deposit interest calculator facility to arrive at terms that fit your needs

Tax Exemption

Fixed deposits of up to Rs.1 lakh are exempted from taxation under Section 80C. However, the deposit term has to be for 5 years and you cannot withdraw the money before term. Consider the drawbacks of this and invest only if you are looking for ways to save on income tax.

Corporate Fixed Deposits

Corporate fixed deposit schemes are created to enable the company to raise funds at a lower rate of interest. To attract investors, the corporates offer high-interest rates. However, carefully consider the company in which you invest your money. Many companies take this route when banks and lending institutions reject them. However, not all corporate FDs are dubious. Credit rating agencies like CRISIL review these companies and provide ratings to serve as a guide to potential investors. Choose a company that has, at least, an AA rating or above. When you are looking for a financial organisation to open an FD, consider all the above points before you make a decision. It is a safe investment option, but your investment may not yield high returns. For that, you may need to augment your fixed deposits with investments in other schemes like SIPs and mutual funds.

Find Mass Money

The truth is that this is very possible. It is referred to as “mass money” or “unclaimed property”. It can be anything such as checks, savings, contents of a safety deposit box, refunds of utility bills, insurance policies, stocks, bonds, just to mention a few.
How is it possible to have such money without knowing about it? The answer is simple. People always move to a new home but during the hectic process of doing so, one forgets to give the new address making it difficult or even impossible to be notified . Whenever you can not be reached in order to collect the money sent to you, that money remains unclaimed until the rightful owner files a claim. So, in order to find some if any “mass money” just follow a few simple steps with the use of the internet.

STEP 1

In the search bar write “mass money” or “unclaimed property” and the state you live in at present. A search box will appear on the screen. Fill in your name, spell it as it appears on official documents, ID cards, passports, driving license etc. and your address.

STEP 2

Follow the directions on the screen to submit your claim. Fill in all the required information.

STEP 3

Attach all the necessary documents in order to prove you are the rightful owner of what is being claimed and send. This can be done online or you can have all the papers printed and send the forms by mail to the specified address.

It is advisable to repeat STEP 1 and STEP 2 for every state you have ever lived in or stayed temporarily. You can even go back and extend your search for a deceased member of your family. The progress of your claim can be followed up, as it may take about a couple of months for completion. The documents which are usually required are: proof of address, a copy of birth or marriage certificate, utility bills, tax records or other legal papers, depending on the case.

There is usually no cost but if there is one you do not need to pay until you are notified that you are the rightful owner of the claim. Furthermore, it is important to remember to collect the money within the stated time. Otherwise, it may end up unclaimed again and you will have to repeat the whole procedure.

Having nothing to lose but only to gain, it is worth the effort to claim any mass money or unclaimed property that belongs to you!

Measure Risk Will Affect the Success

When financial advisors (stock brokers at the time) would ask (that’s assuming they did ask and not simply check a box) it was a multiple choice with options such as conservative to moderate to aggressive with maybe a couple of options in between. Back at the turn of the century, the industry added a little more emphasis especially as the population aged on articulating the five or eight multiple choice answers to gauge and to make recommendations based on the client’s comfort level of risk.

Nothing epitomizes this financial planning term than the advent of Target Funds. One core belief is all that is ever saved for something big is that the older you get the less risk you should take. Seems reasonable, but some very bad things happen within the uncertain cloud of reasonableness. However, there is some wisdom in not treading in bumpy waters when you have less time to recover from market corrections. So, what could go wrong with that logic?

Target Funds have their place in retirement plans and 529 plans. An easy access to a hands-off professionally managed account whose embedded promise is to lower the volatility of the portfolio by rebalancing into a higher concentration of fixed income assets while the equities move towards blue chip and dividend oriented stocks. Increasingly safer asset management may prove to be more detrimental to the objective rotating away from loss and straight into a disparaging risk v. reward ratio. Considering the high cost of management embedded in these types of assets, there is no wonder why those institutions love them so much.

Think about this way. As your portfolio gets closer to target date, the less active management is involved in your portfolio. Simply stated there are less costs involved in number and quality of staff, ongoing research and trading fees for the fund which translates to higher profitability for company all the while you are exchanging advisor fees for lower volatility. Bottom line, your net rate of return you receive on the risks you are taking with your portfolio is not in your best interest. But to be fair, we must measure how much do the advisor fees impact the rate of return and we also must measure quantitative amount of risk inherent in every investment.

As a true steward of your money, there is one foundational principle that cannot be disputed, yet it is never discussed. It’s not mandated by the government agencies, compliance officers or financial planning, yet this principle almost always is an integral part of investing. Many companies and financial planning software programs start the process of measuring risk in a portfolio as it compares to the stated tolerance level. With linear statistics, these retirement tools create an ambiguous rating or number system that is supposed to tell you if your portfolio is within or outside of your risk tolerance. This is primitive at best and dangerous at its worst. How the industry measures risk and the process they go about it is backwards and if not understood and corrected, there are going to be a lot of depleting portfolios the next time we have even the slightest market correction.