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Handle Sudden Wealth

If you have never managed a large sum of money before, it is much easier than you might think to squander your newfound wealth. Before you go on a spending spree or stuff the entire amount into your mattress, it’s crucial to pause and instead prepare a comprehensive plan to handle your new financial reality. Taking a calm and measured approach can help you to avoid common pitfalls and to make the most of your resources in the long run.

Traps To Avoid

HBO’s new football comedy “Ballers” focuses on Spenser Strasmore, a former NFL player turned financial adviser, and the pro athletes he advises. While the show incorporates all the heightened drama you would expect, the struggles with financial stability it depicts are all too real. And it isn’t only football players who run this risk. There is a long list of lottery winners who burned through large winnings in a few years, and 70 percent of affluent families lose their wealth by the second generation, according to the Williams Group wealth consultancy. Conspicuous consumption is the default answer, and sometimes spending unwisely is indeed the culprit. But while it is easy to judge football players who buy huge mansions and young adults with outsize tastes for designer shoes and the latest Apple gadgets, the reality is that people suddenly handling much more money than they are used to can easily fall into the trap of believing their newfound wealth will never run out, no matter what they do.

Making A Plan

So if planning is the best way to avoid the pitfalls of sudden wealth, where should you begin?

First, you should assemble a team of professionals. One of these should be a fee-based Certified Financial Planner (TM) who is transparent about his or her compensation. This helps to ensure your adviser’s interests are aligned with yours. You may also want to consider a separate accountant or tax expert and a wealth manager, depending on what services and expertise your adviser offers. An estate planning attorney will also be helpful.

Once you are satisfied with your advisers, the next step will be to determine whether your windfall has tax implications. While an inheritance or life insurance proceeds are not typically taxable, an exercise of stock options, the sale of appreciated stock and a lottery payout are all taxable events. Your accountant will be able to tell you whether you owe taxes, and if so, how much your total tax bill will be and when it will be due.

After setting aside the portion to cover taxes, a logical next step is to consider your debt. In most situations, it will make sense to pay off any outstanding “bad” debt right away. What makes debt bad? Generally, it is when you use debt to buy something that immediately decreases in value.

Qualify Leads And Prospects

If you are not selling the product or service to the correct lead, you will end up wasting a lot of money, time, energy and resources. So what you should do to qualify leads and prospects? How will you know whether a prospect is fit for your offer? Will the lead ultimately lead to a sales opportunity?

You should invest your money and time only after qualifying someone. Only then you should start selling the service or product to the prospect.

If you are not quite experienced you will jump at the given opportunity without properly studying the prospect. What happens here is you are trying to selling something on an assumption without the proper background check. It may or may not culminate in sales. Only mindless salespeople will do this kind of marketing and they will end up losing their energy and time chasing wrong leads.

Instead of talking all the time, try to listen to your prospect. Then you will understand whether he/she is a qualified prospect. If you listen to them your chances of selling will be much higher.

Spend time on qualified prospects, and you’ll achieve significantly more costly deals.

Even if you get a qualified lead you must put in a lot of effort to make him/her your customer. You must know all about your valuable prospect or else you will miss an opportunity to sell your product or service to them.

If you end up selling a product to a wrong customer or to people who should not have bought your product, it is not just bad for the customer but bad for you and your company.

To find a quality lead you must know how to evaluate a prospect. For instance, you must know what their drawbacks are. How have they evaluated your solution? What type of an organisation they belong to? These details are essential to personalise your pitch for your prospects.

Know their pain points and also about their organization and personality. If a salesman is not able to close a deal it shows that he did not know all the important details about his prospect and hence he did not properly qualify as lead.

Ask as many questions as possible to your customer and gather the correct information. There are certain qualifying questions which every salesman should be aware of. We list out the most important ones.

Customer profile

A prospect should match your ideal customer profile. How big is the company? What industry are they in? Where are they located?

Needs

You must know your customer’s needs to qualify the prospect. And you should know how to fulfil their requirements and requests. You should have an idea what result they are aspiring for, and how the result is going to impact their company or team.

Decision making process

You should also know how they make decisions and how many people are involved in the decision-making process. Are they impulsive buyers or do they take time to buy products?

For instance, some companies take almost a year to purchase products. But if you have a sales target to achieve in the next four months then they are not your qualified prospects.

Competition

It is said that you should keep your friends close and enemies closer. So you should know about your competitors. You must know whether the lead has worked with any of your competitors and also what are the decisive factors on which they will base their decision on.

If you are informed of these things, you will be able to easily find out whether he/she is a qualified prospect or not.

Manage Your Money

To be able to effectively manage your money, you have to cultivate some attitudes; the more you translate these attitudes to habits, the better you are with your money. Fortunately, you do not need to be an accountant or have any financial knowledge to be a good manager of your money. You can develop effective money management habits by taking the following simple steps.

1. Set up a budget and most importantly, stick to it. The rule is to spend less than you earn. Having a budget helps you track your spending, i.e. you know what you spend money on, on a daily basis. You may be amazed that those little amounts you spend on certain routine adds up. One good way of tracking your spending is to open a bank account.

2. Understand the flow of your income: Know what you earn from your job or your business. Know your true income. If you are a salary earner, your true income is your earning minus compulsory deductions such as tax, pensions and other statutory deductions required to be taken out at source by your employer. If you are a business man, place yourself on a salary and discipline yourself by living within the salary as though you are an employee by following the rules highlighted above. This is what accountants refer to as net income. Budget on your net income. You cannot manage your financial resources properly if you do not have a clear idea of what those resources are.

3. Actively manage your bank account. Some people do not pay attention to what goes on with their bank accounts. Keep a record of all additions to your bank account and all that you have withdrawn from it either directly from the bank, checks or the electronic channels like ATM machine and POS terminals. At the end of the month, make sure that what you have in your account tallies with what you expect to have based on your calculation. Where you are not able to explain any differences in the number, contact your bank immediately for an explanation.

4. Start saving: You have a budget; you track your spending and you are probably spending less than you earn; now it is time to begin to save. You should have a savings account and once you received your monthly salary or earn income from your business, put away a portion of it in the savings account. An easy way to save is to give a standing order to your bank to transfer a certain amount of money to a named savings account once your salary account is credited.

5. Invest: By investing part of your savings, you are actually getting your money to work for you. Set aside a portion of the money in your savings account for investment on a regular basis. There are many options available to you to start investing such as stocks and mutual funds. For a beginner, mutual funds are a safe and easy way to begin investing.

Handle Your Finances After Marriage

It is important that you make any significant financial decisions jointly as a couple to avoid creating financial frustration and aggravation in your marriage. The first thing you should do with your spouse is to establish a joint budget. To do this you will need to be completely honest with your spouse about your income, debts, assets, and credit history. The easiest way to create a joint budget is to itemize your monthly income and all your debts. This information should include all your monthly bills from your rent or mortgage, auto loans, student loans, installment loans, and credit card balances. Both of your individual financial plans have just become one joint plan, so it is important to know exactly what both you and your spouse spend your money on. Whether you decide to share in the bill paying responsibilities or to entrust one spouse, both parties should be aware and able to find out what the household income is being spent on. When creating your new joint budget, you will find that there are many areas that you will be able to save money. Most households can save quite a bit of money by combining insurance, utilities, consolidating debts, and eating at home more often. Your joint budget will help you cut down on your monthly expenses and allow you to save money. Once you’ve decided on your new budget, it would be in your best interest to put aside any savings that you have towards an emergency fund for future unforeseen events or possibly save the excess money towards the down payment on a house. You could also use any excess funds in your joint budget to pay down debt. The best place to start would be high interest credit cards, installment loans, or student loans. Paying off debt will improve your overall financial picture in the future.

Most financial advisors state married couples should have enough savings in an emergency fund to cover three and six months of expenses. Also, all the assets that each of you have should be discussed, these include: checking accounts, savings accounts, 401(k)s, stocks or bonds, or other valuable assets. It is important to discuss not only your current financial situation, but also your personal goals with your spouse, such as: homeownership, eliminating debt, vacations, and even retirement.

It would also be in your best interest to pull and review your credit reports at least annually for both you and your spouse. The three main credit reporting agencies have set up a website where you can obtain a free copy of your credit report annually.

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.

Manage Your Financial Problems

If you are young and buying your first home, it can be a critical time in your life. Nonetheless, it’s also extremely exciting to imagine that you are setting off to own your property interestingly. This is really the American Dream at work! Chances are, your mortgage payment will be more expensive than whatever rent you were paying before you were a homeowner. You might be stressed over how to budget after you close on the house, yet you will catch on speedier than you might suspect. If you couldn’t manage the cost of the house, the bank wouldn’t have given you the loan, so motivate prepared to crunch some numbers and appreciate the first year living in your new abode.

Pay Attention to Your Lending Officer

Prior to your loan is even endorsed, you’re lending officer should sit down with you at the bank and give you a snappy once-over of the numbers. If they don’t, you should ask them to do as such, or discover a lending officer that will; it’s absolutely OK to shop around for lenders, especially in this economy. When you meet with your lending officer, don’t be reluctant to ask questions and/or take notes. When you lock to your interest rate, they will let you know precisely what your mortgage payment will be, and if you choose to keep your taxes and homeowner’s insurance in escrow, they will calculate that in, as well.

Set a New Budget

Ideally, if you’ve purchased a house, you have officially set some sort of budget for your living expenses pre-homeownership. If you have, it should be generally easy to set a new budget that accounts for your increased living expenses. Just module the number from the bank for your regularly scheduled payments and make adjustments as necessary. You will need to remove some things; that is almost inevitable. In any case, ensure it is something you can live with.

Communicate with Your Partner or Roommate

If you are buying this house with your spouse or partner, or if you are having someone move in and pay rent, make sure to communicate expectations and concerns transparently. This can represent the deciding moment a partnership when it comes time to pay all that money at closing. When you figure out what everybody owes, ensure you tell everybody upfront. If you are having a renter live with you, it’s not a bad idea to draw up a lease arrangement and have a lawyer look at it. That can save you a great deal of inconvenience down the road.

Learn to Cook

Cooking your own foods can be significantly inexpensive than eating out each night. When you cook, you often have lots of leftovers which you can eat the following night or for lunch the following day. It would be such a shame to waste your new, awesome kitchen in your new house, so if you don’t definitely know how to cook some simple meals, now is a great time to learn how.

Increase Your Investment Portfolio Efficiency to Outperform

Mutual Funds, ETFs or SMAs all have one debilitating feature, with the amount of money deposited into each of these bundled products, it is impossible for efficiency. Pop quiz: when considering a group of ten stocks, is it better to have most of them make a substantial rate of return while some of them lose proportionately or to have each stock either make zero or a nominal rate of return. Historically speaking, bundling equities in a product like a mutual fund, would result in 6 positions with positive returns, 1 relatively flat while the rest fall into negative territory.

For example, Portfolio 1 on the plus side had 3 stocks that garnered 15%, two at 10% another at 5%. To finish off the portfolio, each stock had 0%, -5%, -10% and then -15%. I’m sure if you paid any attention to the stocks in your mutual fund, you would be pretty happy seeing those types of returns and unfortunately, many of you do. Now Portfolio 2, our high efficiency model, would have returns that brought returns of two stocks that had 10% return, 8 stocks at 5% and the last one at zero. Not very exciting, so what’s the difference. Believe it or not, Portfolio 1 has a 4% average rate of return while Portfolio 2 boasts 5.5%. It may not seem much, but over a 10 year time horizon, that 1.5% increase compounded would realize a 13.3% additional return.

Retirement accounts, 401k plans are notorious for producing adequate returns, essentially because they are so inefficient. It’s no wonder why increasingly more employers are allowing “in-service withdrawals” for employees who want to manage their own investments without incurring all the embedded costs and mediocre returns from their employer’s retirement contribution plan. There is also a growing trend for smaller companies to administer “open architecture” retirement plans where the control of investing is completely up to the participant.

Efficiency has become very prevalent in recent years, from increasing the gas mileage on a car to tax credits for installing the right windows and furnace. Corporations and families alike are looking for ways be leaner, to work more productively. We are all in search of ways where we can get out a lot with putting in a little. So why hasn’t the way we manage our assets followed suit? Ease of use, convenience and simplifying are benefits extoled by the money managers who create the euphoria of investing in cookie cutter, bundled products. As investors, where do we go from here?

Let’s look at how a collection of stocks ought to be put together. We know that there is a level of risk needed to produce gain. How much risk versus how much reward is an important lagging measurement used to quantify this adverse relationship. There have been many money managers who would tell you that the number of stocks to reduce risk should be large. I’m sure you have heard that mutual funds are ‘safer’ than individual stocks. Well, that just is not the case. We proved that with our portfolio comparison. We can though, mathematically prove that the actual number of individual stocks needed to bring the risk/return ratio in-line is 13.