Posts Tagged personal finance

Get Started for Retirement Planning

Retirement planning is about setting aside money, investing or saving money to obtain a steady income at retirement. Everyone has to retire at some point after their working lives. Hence, you should consider retirement planning. The following are the reasons which convince that retirement planning is essential.

  • Increasing life expectancy
  • Rising inflation
  • Increasing medical costs
  • Rising standard of living

So, start planning for retirement as early as possible, so that you can prepare for your golden years. It enables you to retain financial independence. As the average number of employment years has not been increasing, then how can you depend on someone after your retirement. Even after your employment, you can live the way you like and you can enjoy the same lifestyle which you are used to live before. This can be attained by right planning.

The path to secure retirement is by your regular saving or investing. Get a habit of monthly savings by purchasing products like Systematic Investment Plans introduced by mutual funds, regular premium life insurance policies and recurring deposits offered by banks. Saving or investing early gives more power of compounding your investments. Moreover be sure to make tax-saving investments and avoid the investments that promise impractical returns. This systematical investments lead to a tension free healthy retirement life.

In case if you are currently not in a position to set apart the funds required to invest, then start with whatever is at your disposal. Life insurance pension plans offer huge tax benefits. So, select the right retirement age and get started on retirement planning, which will help you meet your post-retirement requirements. Early retirement planning can help you reduce your financial burden and stress incurred during the post retirement years and help you plan for a healthy and financially secured post retirement life.

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Know About Benefits of Retirement Plan

Retirement plan is about saving money for the future, i.e for life after retirement. These plans are defined in tax terms by the IRS code and are regulated under Employee Retirement Income Security Act, in U.S.A. If you are an employee, company must take care of your retirement, or if you are engaged in a business, then you must take care of your future as businesses are volatile and can change at any moment.

Retirement plans are of two types, defined benefit plan and defined contribution plan. A defined benefit plan comprises or gives a specified monthly benefit at retirement. The benefit in defined benefit plan is determined by the employee’s salary, number of years of employment, age at retirement, number of years of service, etc.

The retirement income mainly depends on the years of service to a particular organization. The longer the time you are associated with the organization, the more you get your monthly income at retirement. There are many methods used to calculate the defined benefit plan, however, the result is a fixed monthly income that the employer is committed to pay the retiree for the rest of his life.
Defined contribution plan does not ensure specific amount after retirement. In this plan, the employer or the employee contribute to the employees individual account. These contributions are generally invested on behalf of the employee in the employee’s account. The employee will ultimately receive the balance, and the value of contribution depends on the changes in the value of the investments.

A Simplified Employee Pension plan (SEP) allows employees to make contributions on a tax-favored basis, when employee owns or sets up an individual retirement accounts (IRAs). Thus many plans contribute to the benefit of the employees after retirement.

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Common Mistakes While Doing Risk Mitigation in Personal Finance

A cover that reduces either the probability or consequence of threat to the financial safeguard of a person- that may ensue in the event of exigencies such as the demise of the individual in a road accident etc. is referred to as ‘risk mitigation’. The rising cost of healthcare has made it necessary for every individual to cover himself/herself and his/her family from financial instability that may arise in case of hospitalization. Considering today’s lifestyle, every individual is exposed to various hazards such as road accidents, injuries, illness etc. while traveling to work place or back home.

Also, the impact of inflation is not taken into account by individuals. Inflation has a debilitating effect on your income- eroding your wealth over time. Today most people do not take care to mitigate the risk inherent in their investments/savings as well as in insurance cover. They, thus commit grievous mistake by taking an ill-advised decision with their hard earned money- the key aspect of their future survival. In this article, we look into some of the mistakes, people often commit with regard to their money in not considering the importance of insurance and investments in their life.

Mistake #1: Inadequate or No Medical Insurance Cover
Despite you are aware of the need of insurance, you tend to ignore it to cover yourself and your family against the risk of unfavorable aspects, thinking that you cannot afford because of the prohibitory premiums. This kind of mindset will not benefit you, if you pay large amount in the future for a mishap instead of paying small premiums today. In such a case the key earner of the family should feel responsible to protect his dependents (family members) by considering taking a good medical insurance cover. This helps you to reduce/eliminate the risk and danger of getting into financial ruin.

Mistake #2: Not Saving For Things Other Than Monthly Expenses
Today, a vast majority of the people in India, don’t have any emergency fund to help them, if situation demands. People just ignore to save for things other than monthly expenses. This happens because of want of planning about an emergency fund and habit of regular savings. If you have a habit of saving money for the things other than monthly expenses, you can earn a profitable return on your savings for vehicle down payment, house purchase, marriage, computer etc.

Mistake #3: Avoiding Term Insurance – Focusing On Money Back Policies
There are term policies which provide only insurance cover till the end of policy term. There are ULIPs, Money back and endowment policies in market that provide insurance cover along with the returns at the end of the policy period. Most people find the second option better and the insurance agent would also tell you the same, but indeed, that is not the case. Term insurance for a fraction of the cost of a money back policy can provide lot more insurance.

When you don’t have much income and have dependents whose financial needs are dependent on your income, you must take a term insurance policy on yourself for 7 times of your annual income. So, in case of your survival or death, you and your family would be at benefit if you opt for pure term policy.

Mistake #4: Ignoring the Impact of Inflation
Inflation grinds to halt all your financial progress and the value of your investments. There are many people who simply buy sub-optimal financial instruments without calculating the risk with proper guidance or research. Many seem going overboard in high risk investments resulting low or no profits in long-term. Always proper research about the performance of the asset class or the financial instrument is required duly considering the impact of inflation. Else, you may end up getting negative returns on your investments.

Mistake #5: Delaying Investment – Ignoring Retirement Planning
A small investment today will make a big amount in future. If we have the benefit of safe deposits with power of compounding, then what is the need for delaying investment? Many people seem to think that they need to consider retirement planning only after getting the age of 50. In fact, retirement planning carried out at early age will give huge rewards. If you do not make investment decision now, you may not get the opportunity of earning a substantial surplus in future.

Mistake #6: No Proper Accident Insurance
Lastly, the accidental insurance, probably the cheapest of all types of insurance, is ignored by many people. The cost of the policy ranges from Rs.500 to Rs.900 for a large insured amount of Rs.10 lakhs. Many salaried individuals do not understand the importance of accident policy. Think practically for a moment: can’t you keep a side Rs.900 per year for an unexpected adverse incident? You can do this by deploying your bonus/surplus from your annual income. A casual attitude towards sudden disaster in your life will put your family members in a vulnerable situation. Get insurance to protect your dependents.

Thus, in order to ensure that your family lives a healthy lifestyle, get adequate insurance and pray that you get no diseases or met accidents. Also, a small investment at early age will take you to better financial situation. So, overcome your mistakes by doing risk mitigation in your personal finance.
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Treasury Inflation Protected Securities Mutual-fund

Treasury Inflation Protected Securities(TIPS) are a type of bonds and notes issued by the U.S Treasury. TIPS are unique due to their interest and principle payments are arranged to the rate of inflation as measured by Consumer Price Index. So TIPS offer explicit inflation protection not provided by the other nominal bonds.

There are some characteristics of TIPS:

  • Maturities available with 5,10, 20 years.
  • Bond’s principals increases or decreases with the rate of the consumer price Index-based.
  • Payments of interest are a fixed percentage applied to an decreasing or increasing principal.
  • Original principal or the adjusted principal whichever is greater, is paid to the investor upon maturity

Examples of Treasury Inflation Protected Security:
TIPS are very different from conventional bond. Coupon payments are made a conventional fixed rate coupon bond on the par amount. They return a par amount at maturity date of the bond. Not so with TIPS.


Saving Vs Checking Account

Saving and checking accounts have different characteristics that make them suitable for different uses. All saving and checking accounts have specific terms that are explained and established by the banks that offer them.

Checking account features:
Generally checking account don’t pay interest. In case bank offers interest on a special type of checking account then rate of interest much smaller than saving account. In checking account you can create unlimited withdrawls, you can use of debit card and you can get the ability to pay with personal checks.

Saving account features:
You can earn interest on the funds in this account, this is the primary feature of the saving account, For that bank uses the funds in saving account to give loans customers and conduct other businesses. It requires a minimum balance in these account to ensure that bank has sufficient funds at its disposal and it allows number of with-drawls per statement cycle.

If the account falls below the minimum balance then some saving accounts charge a fee.
Checking account usually don’t charge this penalty you write checks for extra money than account’s balance.

Saving account takes more time to transfer the money than checking account. You can transfer the money from checking account by the next business day but it will take up to 5 days from saving account.

Here there are several types of saving and checking accounts. There are 2 common type of checking account are express checking and joint checking.

There are 2 common types of saving account are high-yield saving account and passbook accounts.


How to Clear Credit Card Debts

Many Americans today are struggling with persistent heavy burden of credit card debt. According to the Federal Reserve, the outstanding consumer debt was $2.55 trillion, in March 2009 in America. Revolving debt, which mainly consists credit card debt stood at $945.9 billion. This can be the result of bad spending habits or poor money management of many people. If you are one among them, by the time you understand your mistakes, you will be deeply get indebted to credit card companies.

Debt accumulates and increases through interests and penalties when a consumer does not pay or even if he pays minimum amount. To clear this never ending debt, you need to act smartly by understanding the issues involved and by taking the help of a specialist counselor.

Understand minimum payment issues
Every time you receive your monthly credit card bill, your creditor mentions the total outstanding amount as well as the ‘minimum amount’ you can pay. Most of the people pay minimum amount to stop collection agents harassing them for payments. But this is where people do big mistake. The minimum payment includes interest rates, other fees and only a very small fraction of the balance amount. This means you are paying only interest and other fees.

So, if you pay only the minimum amount, you will be paying much more than you owe to the credit card company. Apart from paying more, it will take a very long period of time to make the complete payment, which becomes unbearable.

Late fee and over due interests
You will probably get sucked more in this credit card issue if you pay your bill in time or have missed a payment. Generally most people suffer paying minimum payment because it includes all the fees that they have incurred such as fine for late payments, missed payments, or exceeding the limit of the credit. They will add up every month until you pay them completely. As this happens month after month, you will find yourself in defaulters list and remember the collection agencies will start harassing you.

When brought down to this situation, most of the individuals often look to bankruptcy as the only option left. They think that it is the easy way to get out of debt. They will be unaware of the terrible consequences of filing bankruptcy.

Take specialist counselor’s advice
If you are in this hopeless situation, making minimum payments and unable to get out of the debts, approach a credit counselor. A credit counselor helps you get out of this awful situation.

He will provide options like lowering the interest rate and a loan to consolidate the loan. Lowering the interest rate would increase the productivity of your monthly payments and a debt consolidate loan can clear the debt over a defined period of time and at a rate you can afford.

Always remember, the credit card company benefits when you simply pay your minimum payments month after month. It’s never late to come out of this situation but it is better to come out as early as possible.

Suggested Reading:
What Is A Personal Loan?
Types of Insurance for Small Businesses
Types of Mutual Funds
Soaring Crude Inventories in US Send Oil Prices Down
Some US Banks May Loose Their Market Share in Next Year
Who Is Not Enjoying Their Christmas?

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