9 Advantages of hiring a financial advisor

Did you know that the financial planning and advisory market is worth $59.2 billion in the US alone?

This is not surprising as more people are genuinely concerned about their financial future. However, many people still don’t realize the importance of hiring a financial advisor.

Handling financial matters can get complicated, especially as you approach important life decisions. It requires a unique set of expertise you can only get from a Certified Financial Planner.

But, it’s normal to be skeptical about hiring one. After all, why hire one when you are doing just fine, currently?

Here’s a list of some of the unbeatable benefits of hiring a financial advisor.

1. UNDENIABLE EXPERTISE
What do you do when you’re feeling unwell? Chances are, you drop everything and schedule an appointment with your doctor. That’s because you don’t have your doctor’s expertise.

The same should be the case in all matters relating to financial planning. Sure, there are many resources online detailing how to tackle planning by yourself. But most financial moves need an expert’s guidance.

Financial advisors, especially those who are Certified Financial Planners, have unique experience and understand how all of the financial pieces fit together. So they’re in a better position to advise you on financial decisions big and small.

2. REDUCED STRESS
Let’s face it; financial planning is not the easiest or most enjoyable task. Chances are, even thinking about it causes a slight headache.

Defining your financial goals is just the first step. Working to meet these goals can be challenging and stressful. There’s more to financial planning than saving money each month.

You have to deal with taxes, financial markets, and the law, all of which can be tasking. These are all things your financial advisor can tackle. So, hire one if you’re tired of having to do all these things on top of holding down a job.

3. IT’S A LEARNING EXPERIENCE
You’re bound to pick up vital skills when working with a professional advisor. Most advisors meet with their clients to discuss investment opportunities. A good financial planner offers a wide range of advice beyond your portfolio. That could include discussions around estate planning, insurance, social security, and more.

All you need to do is ask as many questions as possible during these meetings. Learn why they recommend specific opportunities for you and disregard others. Feel free to pick their brains about budgeting and any areas where you feel you could use more guidance.

4. IT ELIMINATES EMOTIONS FROM INVESTMENTS

Emotional reactions can be costly for an investor. It’s easy to get lost in the fear and greed evoked by the investment market.

You may be tempted to sell your stock in a particular company because you’ve heard some rumors. Or, you may want to sell your property because you’ve received a great offer. While these decisions may seem logical, your financial advisor may hold a different opinion.

Financial advisors make decisions after tremendous research. They are disciplined and will hold out for the best possible outcomes. They can also run through model scenarios to see how a decision today could potentially impact your future goals. That’s why you need a financial advisor to guide your every move.

5. PROMOTES COORDINATION

Hiring a financial advisor will prove invaluable because they’re good coordinators. Wealth management requires the effective coordination of various facets of your life.

A financial planner will work with other individuals in your life to promote your best interests. That’ll involve coordinating with your lawyers, estate planners, and business managers. By acting as “quarterback”, your financial advisor can be sure your financial plan is comprehensive and cohesive.

6. HELPS WITH DEBT CONTROL

Let’s face it; loans are a normal part of life. In fact, Gen X and baby boomers owe an average of $140,643 and $97,290, respectively.

But most people don’t know how to manage their debts. It’s not always as easy as making monthly payments. Sometimes, debt consolidation may be your best option to reduce costs.

That’s why it’s essential to consider hiring a financial advisor. Your advisor will develop a strategy that minimizes costs and maximizes your benefits. By getting your finances in order and a budget in place, it’ll also help ensure you make timely repayments to reduce loan-related fees.

This secures your financial future as it increases the chances of loan approvals. Lenders consider your past repayment history when deciding whether to approve your loans.

7. YOU ENJOY A CUSTOMIZED FINANCIAL STRATEGY

Contrary to popular belief, financial planning is not a one-size-fits-all process. Saving is just one piece of the financial planning puzzle.

Many factors determine the best approach for different individuals. Some of these include your financial goals, your timeline for these goals, and your income.

Sometimes, saving could be your best option, but other times, your answer may be investing. It’s up to your financial advisor to help you decide on the best approach depending on your needs. So, hire a financial advisor for a strategy that’ll help meet your financial goals.

8. HELPS CHOOSE THE BEST INVESTMENT OPPORTUNITIES

There are thousands of investment opportunities. But, only a few of these opportunities are the right fit for you.

Identifying the best opportunities for you is a complex and daunting task. It requires a lot of research and market knowledge. That’s where a financial advisor comes in.

After analyzing your financial goals and risk appetite, they’ll recommend investment opportunities that will help you reach your goals. They can help find the balance between risk and return on your investments. They can also act as a sounding board when new investment opportunities peak your interest.

Creating appropriately diverse portfolios requires a considerable amount of time and expertise. So, it’d be best if you were to hire a financial advisor to help you rather than go at it by yourself.

It’s even more meaningful for you to ensure your financial advisor is a fiduciary. [Insert link to the RIA difference page] This will give you peace of mind knowing that suggestions and guidance are based solely on your best interests and not on the what would be more lucrative for your advisor.

9. HELPS PREPARE FOR LIFE TRANSITIONS

You pass through various phases of life as you grow. Your finances play a crucial role in how comfortable you are in these phases. It’s vital to have your finances in order as you navigate through life.

A financial advisor will help you prepare for the expected transitions like retirement. They’ll also help prepare for the unexpected ones, like divorce. It’s their job to prepare your financies for unpredictable changes and plan accordingly.

GET VALUE BY HIRING A FINANCIAL ADVISOR

Have you decided to hire a financial advisor? The next step is finding the right professional.

A financial advisor will help with financial planning, investment decisions, and wealth management. An advisor who is a fiduciary will make sure all decisions are made in your best interest. It’s never too early or too late for professional financial planning.

Source: Mortonbrownfw

How To Retire In Your 40s Using The F.I.R.E. Method?

F.I.R.E stands for Financial Independence, Retire Early. It is a movement that challenges conventional methods of working until 65 years and practitioners of the F.I.R.E method hope to be able to quit their jobs in their early 40s or 30s to live the rest of their lives on small yet disciplined withdrawals made from their investments.

The F.I.R.E movement is becoming increasingly popular because millennials and Gen Z investors are questioning the current consumerism-led template. For example, they are critical about taking a home loan, buying a car, working 9 to 5 for the next 30 years to repay these loans, accumulating enough wealth to retire in our 50s or 60s, etc.

This blog will explain the F.I.R.E movement in detail and give you a step-by-step guide to retiring in your 40s using the F.I.R.E method.

F.I.R.E Movement: The Beginning

The concept of F.I.R.E was inspired by the book titled “Your Money Or Your Life” written by Vicki Robin and Joe Dominguez in 1992. For Robin and Dominguez, financial independence wasn’t just an idea but a way of life. It was an existence built around self-sufficiency, moderate consumption, and control over one’s time. And seeking greater satisfaction from life outside the nine to five rat race.

It took the world more than a decade for the concept to sink in, the F.I.R.E movement. But now, the F.I.R.E movement has many disciples who extol the virtues of this approach.

Take, for instance, Pete Adney. He retired from his job as a software engineer at the age of 30 by spending only a small percentage of his annual salary and consistently investing the remainder in stock market Index Funds. Some of you might have heard of Pete Adney, who uses the pseudonym Mr. Money Mustache. From his website, he gives practical advice and motivation to fellow mustachians to build a life for themselves that’s free from financial worries.

Today, the F.I.R.E community has expanded beyond software engineers, including writers, bloggers, YouTubers, travel enthusiasts, podcasters, etc.

Younger generations are putting up a case that the traditional views are outdated. They are advocating the creation of a new rule book that asks people to live their lives on their terms. F.I.R.E movement appeals to such people as it gives them the financial breathing room to work part-time, do something that they enjoy, convert a hobby into a business, spend time with the family, etc.

In essence, when they use the word retire, it’s not to say that they have stopped working. Instead, they have happily retired to something else that they absolutely love.

As you have learned the basics of the F.I.R.E method, let’s understand how to set up a F.I.R.E strategy to retire early.

F.I.R.E Method: Setting Up Your Strategy To Retire Early

• The core tenets of a F.I.R.E strategy are simple.

• Start by saving 50-70% of your income.

• Show economic discipline by living frugally.

• Invest your savings wisely with a low-cost Index Fund.

And that’s it. Save more, spend less, and invest wisely. These are the three bedrock principles of any F.I.R.E strategy. Now, before we get into each of these in greater detail, it’s important for a F.I.R.E enthusiast to first establish the math.

The Math Behind F.I.R.E Method

You can do it by asking two basic questions. One, how much income do you need to sustain your lifestyle in early retirement? Two, how soon do you want to retire?

The second question is probably the easier one. So let’s focus on the first one.

To answer how much income you need to sustain your lifestyle in early retirement, you need to find out how much you can spend on a monthly or yearly basis. A helpful and often used rule of thumb around this is the 4% rule.

Now, what’s the 4% rule? If you retire with a kitty of, say, Rs. 5 crores, as per the 4% rule, you can use up to Rs. 20 lakhs annually. Another way of doing this is to reverse the rule. So, 4% when inverted comes to 25 times. Thus, your retirement corpus needs to be 25 times the amount you withdraw in the first year.

For instance, say you need Rs.10 lakhs for expenses in the first year of retirement. Then, 25x of that comes to Rs. 2.5 crores. It is the corpus you must have before you retire. Now, the focus and calculations were done in the 1990s by using numerous assumptions that are very specific to the United States.

For instance, the 4% rule was built on the assumption that your investment portfolio would grow at an average of 7% per year. But then, some of the variables might not pan out now, like the fact that the 4% rule was built to work reliably for 30 years.

However, if you retire at the age of 40 or 45, your retirement journey is a lot longer. Also, the 4% might be a bit high in that particular case. Another issue with the 4% rule is that it doesn’t account for inflation. For a country like India, it’s much higher when compared to highly developed countries like the United States. But the good thing is that you can make your version of the 4% rule on an excel worksheet. If you make one, you surely want to add inflation to it.

The whole point of doing this is to get your retirement number right. Nonetheless, with math out of the way, let’s understand each step of the F.I.R.E strategy in detail.

F.I.R.E Method Step 1: Save 50 -70% Of Monthly Income

Save anywhere from 50-70% of your income every month. It is much higher than the standard 15-20% saving that most people do. Realistically, saving 50% of the income might not be possible for everyone with some essential expenditures. The expenses list includes rent, food, child’s education, home loans, etc. But the idea should be to get as close as possible.

In that context, what can really help is a boost in your income. It can be done in many ways like taking up a part-time job or some extra consultancy work, asking for a pay hike, changing jobs for a better salary, reskilling oneself, starting a side hustle, etc.

F.I.R.E Method Step 2: Spend Wisely

The second step under the F.I.R.E strategy is “Spend Wisely.” So you identify what is essential and what expenses can be tagged as discretionary.

F.I.R.E enthusiasts have a lot of helpful tips on managing expenses. It includes driving a used car, using public transportation if you live in the city, considering renting instead of buying a house, making your own meals, cutting restaurant expenses, avoiding credit card debt, using them for rewards, etc.

Another area worth considering here is the importance given to passive income by the F.I.R.E community. Now, passive income can be of many kinds like dividends from stocks, interests from fixed deposits, blog income, YouTube channel monetization, rental from properties, etc. And passive income is something that F.I.R.E members are continuously striving for.

In fact, several followers use something called the FI ratio or the financial independence ratio. It’s the proportion of one’s monthly passive income to one’s monthly expenses. For example, if you earn Rs. 2 lakh as passive income and your expenses are Rs. 1.5 lakhs, then you have a FI ratio of 133%.

Generally, anything over 100% indicates that some real good progress has been made towards financial independence.

F.I.R.E Method Step 3: Make Prudent Investments

The third and final step in the F.I.R.E movement is investments. Initially, the F.I.R.E principles require us to invest as much money as possible. Here, a savings account is not something that fits within our investment description.

The FIRE movement requires its followers to give their money the best chance of growing, especially in developed countries like the United States. They use a low-cost Index Fund or Exchange-traded Fund (ETF) to do that job effectively. The funds mentioned above are getting bigger by the month in India as well. You can use them more smartly to achieve higher than benchmark returns.

Conclusion

F.I.R.E practitioners say that their new lifestyle is deeply gratifying and pushes them to be creative and collaborative. But most people don’t like the idea that the F.I.R.E strategy requires them to sacrifice too much of their lifestyle. So, financial independence is not that easy to achieve through the F.I.R.E strategy. In fact, the F.I.R.E strategy may not be suitable for everyone.

Ask yourself how much sacrifice you can make. After all, it depends on your goals, disposable income, and what you’re prepared to give up to keep your savings rate high. With some of the techniques on keeping income high, expenses low, and investments right, we are sure there are enough bullets in your chamber that’ll allow you to take a good shot at F.I.R.E or at least some version of it.

Source: ETMoney

9 Steps To Achieve Financial Freedom

Different people interpret the term “financial freedom” in different ways. Some people interpret financial freedom as the freedom to buy what they want and when they want. For many, it could mean not worrying about how they will pay their bills or sudden expenses. For some people, it could simply mean becoming debt-free, while for others it could mean being rich enough to retire. While all these interpretations are somewhat correct, they are all half-baked answers.

In this blog, we will explain what financial freedom truly means. More importantly, we will also look at the 9 steps that can help you achieve it.

What Is Financial Freedom?
As ironic as it may sound, financial freedom is about control i.e. control over your own finances. So, one of the better ways to define financial freedom is to have enough residual income that allows you to live the life you want, without any worries about how you will pay your bills or manage a sudden expense.

In other words, financial freedom is not always about being rich and having a lot of money. Instead, it is more about having control over your financial present and your financial future. To give you the context, there are 8 different levels of financial freedom. These levels range from someone not having to live paycheck to paycheck to having more money than what a person will need in his lifetime.

One of the most interesting levels is the first level, where you are not living paycheck to paycheck. It is an interesting level because living under tight financial conditions need not be limited to the working poor. It can occur at all levels of income. Even a super-rich person might be earning and spending to the limits that he would be living under tight financial conditions. This is exactly why financial freedom is nothing but financial control.

Another noteworthy level is level 4 i.e. the freedom of time. It’s something many people aspire for. Freedom of time happens where your cash flows are sorted in a way that allows you to leave your job to follow your passion or spend more time with your family. But most importantly not going broke while doing so.

Level 5 is an interesting one and can be crudely expressed as the FIRE movement. FIRE is an abbreviation for Financial Independence, Retire Early, and is a lifestyle that is becoming popular in the West with people in their 20s and early 30s.

The concept of FIRE is around frugality with participants intentionally maximizing their savings rate by finding ways to increase their income or lowering their expenses. The idea is to save 50 to 75% of your income, which is then used to accumulate assets and helps in generating enough passive income to provide for retirement expenses.

You can pick your ideal level of financial freedom depending on your current situation and lifestyle. Your quest for financial freedom can be broken down into 9 essential steps. Some of these steps can be behaviors, tactical and strategic decisions. The more steps you can achieve, the faster shall be your journey on the path to financial freedom.

1. Understand Where You Are Presently
The first marker on the path to financial freedom starts with knowing where you are currently. This includes having a clear idea of how much debt you have, your accumulated savings, monthly expenses, your income, etc.

In other words, you need to know your personal financial statement with a fairly accurate knowledge of your income, expenses, assets, and liabilities. Once you have these numbers, you move to step 2 of your financial freedom journey which is writing your goals.

2. Pen Down Your Goals
Why do you need money? It could be to get rid of an education loan, trying to start a business, to travel, to plan weddings for your kids, for your retirement, and so on. As soon as you have enough money, these are the things that you want to fulfill.

Thus, money is simply a means to achieve your financial goals. But until you write down your goals, your money will be without a purpose and you will not know how to make the best use of it. So take a piece of paper and write down your top 5 goals that you would like to achieve over the next 1, 5, 10, and 20 years.

Also, ensure that while you are writing the goals, you are identifying SMART goals. It means goals that are specific, measurable, achievable, realistic and time-bound. For instance, a plan to accumulate Rs. 10 crore by 2050 to fund your retirement is an example of a SMART goal, because it is specific, measurable, achievable, realistic, and time-bound.

3. Track Your Spending
The next important step toward financial freedom is tracking your spending. You can do this in many ways like using a notebook or perhaps using an excel spreadsheet. You can also use the money tracker facility available on the ETMONEY app, which is an easy and effective way to track your spending. The app automatically tracks your expenses and categorizes them in terms of travel, shopping, eating out, etc.

This tracking of expenses is an important step towards financial freedom as it makes you more accountable. And also reveals many needless expenditures that you make merely on account of an impulse buy. If anything, an impulse buy is about losing control and works as an obstacle in your path to financial freedom.

Thus, it is important that you stay in control by religiously tracking your spending.

4. Pay Yourself First
“Pay Yourself First” means putting a specific amount of money in your savings or investment account before paying for anything else like bills, discretionary expenses, rent, etc.

This one act of paying yourself first has helped many people come closer to financial freedom. And the reason why this works is that it forces us to explore alternatives to limit your expenses.

For instance, if what remains as allowable expenses is not enough for you then you would be forced to take some additional action. This can be reducing your current expenses by making small tweaks in your lifestyle or can also mean picking up a side hustle in order to supplement your current income. Either way, by paying yourself first, you guarantee that you are always putting money aside to invest in yourself and your financial future.

5. Spend Less
Money saved is money earned. But it’s not an equal equation wherein Rs. 1 saved is Rs. 1 earned. Because when you invest that Rs. 1 rupee, you end up earning a lot more.

Now, spending less does not mean compromising on your existing lifestyle or living a barebones life. Financial freedom is more about smart spending which can be done in many creative ways. Some of the common techniques include learning to make delicious food at home thereby reducing your eating out expenses. Setting up auto-debits so that you don’t pay late fees on your credit cards.

The mere postponement of a non-essential item by a couple of days can go a long way in reducing impulse purchases, which then moves you closer to financial freedom.

6. Pay Off Your Debt
Paying off a big debt supports financial freedom in more ways than one. After all, you have more future cash flow to work with. Your credit rating is strong. And most importantly, closing a loan lifts a massive weight off your shoulders.

There are two main methods of paying off debt. The first one is the snowball method where you pay off the smallest debt first. So basically get one tick mark in your checklist and then move on to the bigger debts. And the second method of paying off debt is the avalanche approach where you first pay off the debt with the highest interest rate and then move to the lower ones.

Both these methods work efficiently and if you have a pile of debt, you need to decide what works best for you. But there is no hiding the fact that getting rid of debt is one of the most crucial factors to achieving financial freedom.

7. Always Keep Your Career Moving Forward
Increasing your income – while keeping the spending levels constant or in check – is one of the fastest ways to reach financial freedom. This requires you to continuously work on advancing your career or your business.

For instance, your career and therefore your income can go on the ascendency faster with you learning new and valuable skills and increasing your value to your employer. If you are self-employed, it means working on growth strategies to keep your business moving to the next level.

So if you have been leaving your career progress to chance, then probably now is a good time to take stock of how to accelerate the process. This in turn will increase your income levels and take you closer to financial freedom.

8. Create Additional Sources Of Income
For the majority of people who are serious about financial freedom, a 9 to 5 job may not be sufficient. In other words, you might need to look beyond a job for building income. In fact, some financial experts encourage people to discover as many as five streams of income. So if you have a 9 to 5 job, then congratulations – you have one stream of income. Now, you have to identify four more!

Additional income can come in 2 ways. The first approach is active income i.e you trade time for money. And the other approach to building an additional income is to do it passively, where you do the work once and money keeps coming in an automated manner.

If you take the first approach i.e. trade your time for money then you are limited by the hours in a day, which cannot go over 24 hours in any circumstance. However, active income is very quick to implement. And it can get you started in no time with side jobs like becoming a freelance writer, driving an Uber, designing logos on Fiverr.com, etc.

On the passive income front, the typical activities that generate money for you will include selling digital content like e-books and courses, becoming an affiliate marketer, investing in stocks, etc.

9. Invest
The ninth and most future-looking step to attaining financial freedom is investing.

The first move is to invest as much as you can and as early as possible, therefore allowing the power of compounding to assist you. Next, increase investments each year at a percentage higher than your increase in income.

Another key thing to do is achieve an asset allocation of 50-60% in equities as quickly as possible. As a thumb rule, keep a 60-40 allocation between equity and non-equity assets. But feel free to change that ratio depending on your risk tolerance.

The next actionable step is to set up your investments in an automated mode using SIPs and don’t worry about timing the market. And finally, review your portfolio once a year, and don’t forget to rebalance your portfolio.

Bottom Line

These nine steps listed in this blog have different degrees of complexity and you might see some tasks come very naturally to you while others might require a lot more work. For instance, a number of people find tracking expenses, spending less, and investing a lot easier than, say, creating an additional source of income.

The more steps you can achieve, the faster shall be your journey on the path to financial freedom. It is a decision that you will need to make on the basis of what works best for you.

Source: ETMoney

5 Financial Gifts To Give Your Loved Ones

Financial gifts are often not on our radar when it comes to gifting our loved ones. However, they go a long way in securing the future of those we love, helping them accomplish their life goals and hence make for an ideal gift. Until a decade ago, your options were limited, but today there are multiple choices for you to choose from to show how much you care for your near and dear ones.

Health Insurance
Given the current times, health insurance is an absolute must. It reduces out-of-pocket expenses and keeps a family’s savings intact amid a health contingency. There are other benefits too. A health insurance plan ensures that your loved ones can efficiently address other crucial commitments.

You can give an individual health plan or buy a family floater plan. The latter offers covers to all family members at a cost-effective price point. If you are in a metro where hospitalisation costs are high, it’s recommended to buy a health plan of INR 10 lakh.

Compare different policies and go for the one that best fits the requirement. If your loved one already possesses health insurance, you can gift a top-up plan. The benefits of a top-up plan kick in once the sum insured in the basic plan gets exhausted. Top-up plans are cheaper than regular health plans and widen the cushion net.

Health Insurance Taxation
Health insurance not only prevents out-of-pocket expenses but also lowers tax outgo. The table below highlights tax benefits offered by health plans under Section 80D:

Stocks
Investing in robust stocks for the long term can help generate inflation-beating returns and build a corpus for key goals such as children’s higher education, marriage, etc. While earlier gifting them was a tedious task, today it isn’t. Because of the introduction of electronic delivery instruction slips by the Central Depository Services (India) Limited (CDSL), you can easily present stocks.

Gifting stocks is also a prudent way to introduce your loved ones to invest in capital markets for long-term wealth creation. Many brokerage houses offer this facility, whereby you can easily gift stocks to your family members and friends. You can select the stocks and the quantity you want to give and transfer them with just a few taps.

If the recipient doesn’t have an account with the brokerage house, the same can be opened quickly before accepting the gift. Indian stock markets have several multi-baggers adding which to one’s portfolio can augment riches in the long run. Investing in these stocks can have a multiplier effect on wealth creation.

Stocks Taxation
Stocks are taxed based on their holding period and under the head ‘capital gains’, which are further classified into long-term capital gains (LTCG) and short-term capital gains (STCG). Equity shares sold within 12 months of purchase fall within the purview of STCG that is charged at a flat rate of 15%.

On the other hand, stocks sold after 12 months fall within the purview of LTCG. LTCG up to INR 1 lakh don’t attract any tax but gains beyond that are charged at 10%.

Life Insurance
The lynchpin of a financial plan, life insurance protects the financial interest of your loved ones. They also help accumulate funds for various short and long-term goals. You can gift a term plan that will ensure people close to you are not in a lurch in case of an untoward incident. A term life insurance policy offers a high life cover at an affordable premium.

You can also contemplate gifting an endowment plan or a unit-linked insurance plan (ULIP). Endowment plans offer death and maturity benefits. On the other hand, ULIPs serve the twin purposes of investment and insurance. In ULIPs, a part of the premium provides life cover while the other is invested in capital markets to earn returns.

Life Insurance Taxation
Just like health insurance, investment in life insurance also helps lower tax outgo. Premiums paid towards life insurance plans qualify for tax exemption under Section 80C of the Income Tax Act. Maturity benefits received are fully exempt under Section 10(10D).

Enroll in an Online Course
Knowledge is the shining armor in one’s knight for sustainable wealth building. It helps one make prudent choices and mitigates the threat of falling prey to mis-selling and making impulsive decisions. You can enroll your loved ones in online courses by financial institutions to understand several aspects of finance and investment.

Financial institutions, including brokerage houses and asset management companies, have come up with various online courses on personal finance and stock market investment that help decode the multiple aspects in a simple and lucid manner.

Participating in these courses go a long way in honing financial knowledge that can help your near and dear ones better plan their finances and investments to achieve financial goals.

Mutual Funds
Mutual funds have rapidly made their mark in the Indian financial landscape. They have witnessed increased participation from retail and institutional investors. Offering diversification, mutual funds help invest in different stocks in diverse segments.

Systematic investment plans (SIPs) are a prudent vehicle to invest in mutual funds as they imbibe disciplined savings habits and help stay invested across market cycles. While you can’t transfer mutual fund units from your account to another holder, unlike stocks, you can start a SIP for your minor child.

You can purchase units in your child’s name, and you can continue making payments until your child becomes major. Once your child turns into an adult, fresh KYC needs to be done, and your child can benefit from the investments made by you.

Mutual Fund Taxation
Mutual funds are taxed based on the type of fund and their holding period. Equity funds where the holding period is more than 1 year are subject to LTCG. If sold within a year of investment, the gains are subjected to STCG tax.

LTCG tax of 10% is applicable on gains beyond INR 1 lakh. On the other hand, STCG tax is charged at a flat rate of 15% if the fund is sold within one year of investment.

For debt funds, LTCG is applicable if the fund is held for three years or more. If sold after three years, LTCG tax of 20% is levied. On the other hand, if sold within three years, STCG tax is levied as per the applicable income tax slab.

Source: Forbes

Rich vs Wealthy: Which One Are You?

What’s the difference between the rich and the wealthy? Since both have enough money to cover their needs, your answer will likely be “Nothing.” However, ‘rich’ and ‘wealthy’ are far from synonymous in the personal finance world. This article will examine rich vs wealthy in detail, clearing any ambiguities you may have about these terms by providing some useful tips, insights, FAQs, and examples highlighting the difference between the rich and the wealthy.

What Is Considered Rich?
Being rich means having enough money or income to live a relatively comfortable life. According to many experts, the three factors that qualify one to be considered rich are:

Having a Lot of Income
You’re a rich person if you receive a high salary that allows you to live comfortably while being primarily sustained by your paychecks and bank account, which help you navigate your high cost of living and many expenses.

Spending a Lot of Money

Another feature that highlights the rich meaning is the ability to spend a lot of money. If you’re rich, you’ll likely have little qualms about spending freely on many things that others would think twice about.

Showing Off How Much Money You Have
Rich people typically live flashy lifestyles that show off their status to outsiders. Glamorous displays of cars, clothing, shoes and other possessions are telltale signs of a rich person.

However, if you’re a rich person, your money is only good for a finite amount of time. Although you’re in a fairly good financial position, true financial independence eludes you, as many rich people spend more than they earn and end up in debt quickly. Think of lottery winners as examples of the filthy rich meaning—they make a lot of cash that helps them afford flashier lifestyles, splurging on fast cars, clothes, designer perfumes, expensive shoes, and other material objects. However, they often go broke because sustaining their lifestyle is unfeasible in the long run.

What Does It Mean to Be Wealthy
Not all rich people are wealthy, but all wealthy people are rich. The difference between being wealthy vs rich is that wealthy individuals can control and manage their money, spending their time making investments to create a sustainable lifestyle. Consequently, they can enjoy their riches without a time limit due to their sustainability.

Spotting a Wealthy Person
A defining feature of the wealthy is that they rarely look the part. Individuals at the apex of financial freedom are typically not as flashy as the rich. They generally aren’t interested in impressing others with how much money they have or engaging in what is considered rich. Consequently, spotting the wealthy can be challenging, because you may pass them by every day without even realizing it.

How the Wealthy Gain Their Wealth
There are various factors that contribute to becoming wealthy:

Savings
Saving may seem like a very elementary step to wealth building, but it’s arguably the most important. Small sums regularly saved over time can eventually add up to immense wealth, so it’s no surprise that the wealthy are some of the biggest savers around. There are many ways to achieve financial freedom through saving, including opening some great IRA savings accounts.

Investing
The wealthy complement their excellent savings habit by putting their money to work through investing, a key aspect of the wealthy meaning. Consequently, they usually have assets like real estate, shares in the stock market, antiques, gold, and art. Investing allows the wealthy to amass even more money and increase their net worth. Therefore, the straightforward answer to the popularly Googled question “Is investing a great idea?” is a resounding yes.

Frugality
Being frugal is a mindset that makes, grows, and retains wealth. As such, the wealthy are often reluctant to lose their hard-earned money to unnecessary expenses.

It’s critical to note that the wealthy are also financially educated individuals who know all there is to learn about making and keeping money. This knowledge often confirms the difference between rich and wealthy.

Rich vs Wealthy: Differences
Although both being wealthy and rich means having enough money in your bank account to get by, it goes way beyond that. A rich person is usually someone with a huge salary or income stream. However, someone who makes way less may be in better financial health than a rich person if they invest and save aggressively.

Also, rich people will spend freely and use their income to fund lavish lifestyles, while wealthy individuals are more interested in saving and investing a huge chunk of their cash in profitable avenues like the top TaaS stocks to buy.

Another key difference between the wealthy and rich is that the wealthy maintain a middle-class lifestyle since they’re focused on building long-term wealth by generating assets. To simplify things, take a look at other key aspects of the difference between the rich and the wealthy:

• The rich engage in little to no financial planning, whereas the wealthy take notice of affordability and their spending habits, engaging in estate planning, budgeting, and tax strategies.

• Rich people have high expenses compared to income, while the wealthy have low expenses compared to income.

• Another key difference between the wealthy vs rich is that the rich have finite money that will soon run out, but the wealthy have sustainable money that will last.

• The rich usually store their money in cash and material assets, while the wealthy keep theirs in investments and long-term accounts. With a great Robo advisor’s assistance, you can start investing too, so keep this in mind.

• Rich people, mostly rely on a high salary or income, with no long-term investment plan. On the other hand, the wealthy have numerous revenue streams to reduce risk and diversify their income, so they don’t have to worry about pensions or 401K.

• The rich are obsessed with hoarding material items and upgrading their lifestyle frequently. However, buying assets is what is considered wealthy, even though the wealthy may also buy other things occasionally.

It’s preferable to be wealthy than rich. Wealth brings stability and financial security, offering you more time to spend as you please without having to stress about money, so the mental health benefits are enormous as well.

Net Worth
Furthermore, the concept of net worth is crucial in the wealthy vs rich conversation. The question of the possibility of retiring at 60 with $500k is often asked by ordinary individuals interested in net worth, or the value of your assets minus any liabilities you owe. Knowing about net worth is vital in the difference between rich and wealthy, while also offering a reference point to measure progress towards your wealth-building goals. As you continue earning, saving, and investing, your net worth will grow, but you’ll need to focus on saving more and spending less if your net worth is pretty low.

Why Rich People End up Indebted
As mentioned early on, being rich doesn’t necessarily mean having a high net worth or always having money—frequently spending significant amounts of cash on non-essential stuff also fits the rich definition. Rich people also often spend more than their income, getting into debt in no time. Therefore, even though you might be a rich person living in a fancy mansion or driving an expensive car and earning, say, $200,000 annually, if you spend $225,000 yearly in expenses, bankruptcy will come knocking on your door soon.

Is It Better to Be Rich or Wealthy?
Adequate savings, proper investing, frugality, and true financial freedom are what is considered wealthy in 2022. On the other hand, a huge income, excessive spending, extravagance, and possible debt are associated with just being rich. Therefore, it’s better to save, invest, and be frugal with your money to build wealth instead of being just rich.

Source: Review42

Goal-Based Investing: How Does It Help Create Wealth?

From our school days, we have been taught that goal setting is fundamental to our long-term success. After all, it is difficult to get to the desired destination without clearly defining the destination. But once you realize what is important to you, the goals set by you will help you remain determined to achieve them.

Like all other aspects of life, this applies to our finances as well. And this is where the concept of investing based on your financial goals or goal-based investing comes in.

In this blog, we will explain goal-based investing, how you can plan for financial goals, and how it helps in wealth creation.

What Is Goal-Based Investing?

We all have so many things we want to achieve in the future. This can be buying a car, a home, going for a trip, planning for a peaceful retirement, etc. So it is easy to feel overwhelmed and sometimes worry about how you will achieve all your goals.

This is where goal-based investing helps. Goal-based investing is all about identifying your financial goals, setting a timeline for each one of them, and investing for them regularly to be able to reach them. So essentially, you give all your dreams and financial goals a structure.

Benefits Of Goal-Based Investing

1. You Can Identify Accurate Amount To Fulfil Your Financial Goal

When you do goal-based investing, you will list down the goal you want to achieve, by when you want to achieve it, and the money you will need for it. And while you do it, you will consider the current cost of achieving that goal and increase in its price.

For instance, let’s assume you want to plan higher education for your child 10 years away. Currently, it costs Rs. 10 lakh. When you plan for it, you will calculate how much it will cost in the future after factoring in the inflation. So, assuming an average inflation rate of 8% in education, it will cost nearly Rs. 21.6 lakh in 10 years. Now you know how much money you will need for this goal

2. Financial Goals Help You Pick Right Investment Products

When you know the amount you will need for a goal and know the time you have to accumulate that corpus, you can effectively build your investment strategy. You can pick from asset classes like equity, debt, gold, etc., as per your investment horizon and financial goals.

For instance, if your short-term goals, like travel, kid’s school fees, etc., you want the money no matter what. So your focus will be on collecting that money and getting some growth on it. And hence you will go for Debt Funds or even Fixed Deposits.

On the other hand, for your medium-term goals (3-5 years away) like buying a car, you can have a mix of Equity and Debt. That’s because you have a slightly longer investment horizon, and if there is some interim volatility or a fall, you can live with it. So Hybrid Funds become the right product for you. And on end are long-term goals for which you can pick pure equity funds and focus only on growing your money.

3. Financial Goals Help You Rebalance Your Portfolio

When all investments are linked to financial goals, it helps you review and rebalance your portfolio at correct intervals. And also enables you to adopt the appropriate asset allocation strategy.

For instance, when you approach a long-term goal like retirement, you need to gradually reduce your allocation from Equity and increase allocation to fixed income products. This is the key to protecting your gains and making sure you will have the money at the time you need it.

4. Financial Goals Help You Avoid Debt Trap

If you do not clearly define your goals and not invest in them, the chances are that you will not have enough money when the time comes. In such a situation, you might be forced to take a loan. The loan will help you achieve the goal at that point. However, you can end up in a debt trap.

Therefore, it is essential to stay clear of taking loans as much as possible. Take the goal-based investing approach and you will never need to take a loan in desperation.

5. Financial Goals Help You Maintain Fiscal Discipline

Investing without goals is a less disciplined way of investing. Many investors who do not have a goal in mind eventually stop investing due to some distraction or random reason.

But if you have specific goals to achieve, you are more likely to stay the course. Because you know that you will never reach your goal if you stop your investments. This clarity on the cost of not investing can be a significant driver to continue investing.

So you are more likely to deal with adverse market movements in a better way if you follow goal-based investing. This is a massive advantage because keeping your emotions at bay is as important as picking the right investment products in investing.

Bottomline

Mapping out all your needs gives you a clear picture of your finances. Goal-based investing helps you answer important questions like how much to invest, where to invest, and when to start investing. Moreover, it also gives you a purpose to stay invested. And helps you fight your biggest enemy – Your impulsiveness.

Source: ETMoney