Managing money wisely

• Inflation, taxes, government policies, geo-political situations and economic cycles affect all investments. 
• The day you part with your money, you have taken a risk. Bigger the risk the greater scope for higher returns.
• Holding cash is worst form of investment, which depreciates with time in an inflationary economy like India.
• Understanding risk and managing prudently helps protect wealth and generate higher returns. Saving at the beginning of career alone is not enough. What you do with savings that will help staying ahead is more important.
• Bank fixed deposits are fairly safer but its interest rates falls short of inflation rate.
• Debt mutual funds that invest in bonds for short-term goals returns increase as bank FD interest rates fall. The average returns of such funds over a period of five years are around 12-17%. While FD interest is taxable, debt mutual funds held for three years or longer, you can adjust your gains against inflation, with indexation. Any capital loss can also be offset against capital gains on other investments, like shares or properties sold. 
• Debt is not a bad thing, if used correctly. While education or home loans are good debts, credit card debt or a personal loan, to buy something you could live without, is a bad debt.
• Staying debt free is important because debts carry much higher interest burden than what you earn on your investments. As retirement approaches one must become completely debt free to have peaceful retired life.
• Stocks carries considerable risk although liquidity is good. Hence invest that much money which you can afford to lose. Stock or commodities trading, while returns could be high, risks are also higher if traded without research & strategy.
• It is always good to buy blue chip stocks when the markets are down, at a time when nobody is buying and everybody's selling, for long term holding. Investing in long-term equity mutual funds (MFs) is an option. The risk is higher if your holding them is for few weeks or months.
• Overall, the Indian stock markets have returned a good 10-11% compounded annually over a 10-year period, despite the ups and downs.
• Opting for a systematic investment plan (SIP) where you invest a fixed amount of money every month regardless of market fluctuations suits for investing salary surplus amounts.
• The basic principle of investing is to reduce your risk as you get older. A common thumb rule is that individuals should hold a percentage of stocks equal to their age in bonds, government debt and other safe assets and rest in equities. For a 30-year-old, 30% of the portfolio should be in bonds, government debt and other safe assets and rest 70% in equities.
• If you are in your 20s, 30s or even 40s and have years before you retire then "take some risks and opt for more volatile investment that will potentially give you more returns in the long term". However, if you are retiring in the next few years, depending on your circumstances, invest in a conservative manner.
• Always look at big-ticket expenses (child's education or marriage, retirement) that you could incur over the years. Keep aside money for contingencies and have a plan for a fixed monthly income after retirement (through pension, post office or mutual funds monthly income plans, senior citizen savings schemes, FDs and bonds). Not everything will go as per plans, but planning is imperative.
• Insurance is a premium for someone to pay your family a big sum of money, if you die. That premium is just a cost. For peace of mind, it is important to take insurance that covers health, disability, accident, life and property, you should only buy the cover you really need. The life insurance cover's simple thumb rule is to multiply monthly expenses by 300. You may not need life insurance if no one is dependent on you.
• Remember insurance payments are not investments. Insurance is good. Investment is good. Combined into a single product, they make you poorer.
• Real estate, with low risk over long term, is great investment usually with very high returns but with very poor liquidity. Therefore invest into real estate that much money which you may never need it. 
• Investing in rentable properties is a good idea to get some monthly income.
• Spread the Risk. Research carefully and diversify your investments, placing pre-decided amounts in different asset classes: equity, mutual funds, bonds, FDs and property. Rebalancing and realigning your portfolio at definite intervals, according to your goals and risk appetite, is a good idea.
• Invest in tax saving instruments like PPF, ELSS etc for minimizing tax outgo.
• Spend wisely. Overspending is a bad habit. Before you buy anything ask yourself: Am I buying this because I want it or do I really need it? Can I live without it? And, can I really afford it?
  Remember the words of Warren Buffett: "If you buy things you don't need, soon you will have to sell things you need."
• As lifespans lengthen, the need for money between the ages 70 and 85 increases because of medical expenses, medical insurance premium etc increases. At this age, people need house help and insurance doesn't cover everything. The costs involved in maintaining an older person, who is not fit, is much higher than the expenses of an average person.
• Beware of credit cards which are good, if used judiciously. Otherwise small print terms and service charges are bound to make you poorer, in case of reckless spending using card.

Whatever you decide to invest in, do it regularly. Do not watch your investment too often. Do not speculate. Stay invested for the long term. Your money will not only be safe, it will grow many times over. 

Neither a borrower nor a lender be,

for loan often loses both itself and friend ... Polonius

Financial freedom for fortitude

You should be grateful, if you were fortunate to start out in families that instilled integrity, prudence, and hard work. If not, then it's still within your power to cultivate those qualities now. That will create conditions for your own financial success and also benefit everyone around you. The personal and financial decisions that will pay off in the long run require sacrificing a little today. Patience helps you live with the reality that true rewards usually require some short-term discomfort.

Your choice of career is one of the most important decisions you'll ever make. You need to love your work if you want to be great and prosper from it. Competence in technology is a first-class ticket to building wealth. Look for mentors and other professional relationships that complement your skills and personality. Be open to wisdom when it's offered. 

It is difficult to define financial freedom as it differs from person to person. Financial freedom is more about your attitude towards money rather than about the amount of money you have. It is also about being debt free and having sufficient money to lead comfortable life. It is like having income flow is higher than expenses and with sufficient reserves to back you up in case of any eventuality.

Money provides a sense of security only. Money is only a means not an end. Money as an end will lead to unethical practices. Unless you live on less than you make, it won't put you any closer to financial freedom. If you develop expensive tastes in houses, cars etc, and need to look as affluent as your neighbors & peers, you could wind up worse off financially, no matter how much you make. You can start by simply tracking your expenses, saving and budgeting. Identify the few areas where money spent truly pays off in better quality of life for your core interests. Spend there, and cut back everywhere else. 

Find a mentor to help you become a confident investor. Start small and carefully, but do start. Abide by bedrock investing principles: diversification, patience, simplicity, low expenses. Buy mutual funds or exchange-traded funds (ETFs), rather than individual stocks. Investing individual securities requires time and expertise to choose and then monitoring. Don’t hold investments you don’t understand. Choose a bond allocation between 20%-80%. If you’re 40, you’d have 40% in bonds; if you’re 60, you’d have 60% in bonds. Hold as few positions, in as few accounts, as possible. The general rule is that no more than 20 percent of total investment in company stocks. Track your net worth and your overall portfolio return each year, so you know what direction you're going, and why. 

Once your career and finances are on track, you can explore more entrepreneurial paths for wealth building by owning a small business or real estate. These can leverage your time and money, getting you to financial independence years earlier. They can be fun and rewarding too! With financial freedom you will be able to concentrate on creative pursuits. 

Some tips for Financial Freedom:

• Develop a positive attitude towards money.
• Minimize spending and maximize savings.
• Generate multiple sources of income.
• Don’t save until you clear your debts.
• Go for cost cutting wherever it is possible. 
• Buy in cash not on credit, as credit purchases dent your reserves.
• Be good at accounting and budgeting. 
• Work hard and work smart as well. 
• Make sure that your money rotates and make money. 
• Diversify the risk. 

Make sure to take life one day at a time. The goal is financial independence but don't obsess on it. Don’t sacrifice the present for the future; it won’t turn out as planned anyway. Make time for your loved ones and meaningful activities. As great as it is to achieve financial freedom and retire early, you don't want to arrive there having missed out on life along the way. Financial freedom is fortitude!

“Lack of money is the root of all evil.” - George Bernard Shaw

“Earn all you can, save all you can, give all you can.” - Charles Wesley

“Money isn't everything, but it's a long way ahead of 

what comes next.” - Edmund Stockdale