The Orange Paper » Saving Money

5 Simple Tips to Educate Your Children to Save Money

Austin — Sun, 17 May 2009 06:25:39 +0000

A lot of kids and teenagers nowadays do not recognize the cost of earning and spending money. They are not oriented that investing is necessary even if they are still pretty young or students. As parents, we play a critical responsibility in this subject, especially in today’s global climate, the importance of this cannot be stressed more.

You must be able to tutor your kids on how to save money. They ought to be able to understand the idea of money and investment as early as childhood. This will prepare them to be trained true money management, as they grow up.

Here are 5 very simple yet effective tips on how you can teach your children how to save money for 2009 and beyond starting today:

1. Significance of Money

Your children should be skilled of the significance of money. Once your children have learned how to calculate and count, that is the ideal time for you coach them the true meaning of currency. You should be dependable and clarify to them in simple ways and do this regularly so that they are able to remember what you trained them.

2. Importance of Saving Money

Always teach them the importance of saving money. Make them appreciate its importance and how it will influence their lives. It is important that you consider questions from them about this subject and you should be able to answer them with wise words of wisdom.

3. Pocket Money

When giving them their pocket money. You must give them their allowances in denominations. That way you encourage to keep a certain bill for the future. You can inspire them to do this by telling them that the money can be saved and they can buy their materialistic wants such as iPods, fashionable clothes and games consoles once they have saved money to afford them.

4. Earning Money

You can also teach them to work for money. This can begin from the comfort of your own home. You can pay them small allowances towards household chores such as cleaning their rooms, taking the garbage out or even helping out with the washing up of dishes. This simple yet effective method of earning money will make appreciate how it takes effort to gain money in the first place, and hence should be spent wisely.

5. Give them a piggy bank

You can give them small piggy banks to encourage save money and wait until it fills up. You can also open children and teen bank accounts for them and let them save away some money from their allowances. Which will keep them motivated and see there small financial wealth accumulate. Bank accounts normally have very competitive and attractive interest rates specifically for young children and teen saver bank accounts.

The subject of money and financial intelligence is not something that is learned by children in just one single session. Instead you should be patient in teaching them and linking the value of money in all of their daily activities. Children will learn easier when you are patient and consistent in mentoring and encouraging them in this endeavor.

Source: Waseem Mirza

This is a post from: The Orange Paper ~ A blog about Personal Finance, Indian Stock Market, Financial Planning, Investing, Wealth Building, Taxes and more.

Click Here to receive email notification for FREE whenever new content is published.

Google launches TipJar money-saving advice site

Austin — Fri, 13 Mar 2009 17:03:16 +0000

Google has created TipJar, a new website where people can share money-saving advice and vote on how useful they find the information. Advice is divided in to several categories, including at home, at work, travel, shopping and family.

So far, more than 4,879 people have submitted 3,730 tips. Users have cast more than 54,230 votes about the usefulness of tips. The voting system means that the most useful tips will get greater prominence on the site.

Among some of the tips shared so far this one is what I personally believe in (and follow too):

“Master the thirty day rule. Whenever you’re considering making an unnecessary purchase, wait thirty days and then ask yourself if you still want that item,” shared by The Simple Dollar.

TipJar is an example of generating ideas through “crowdsourcing”, said Google.

“Google believes that people working together can help one another through even the most difficult times, tapping collective minds to find answers on how to make small changes that save the pennies,” said a spokesman. “We’d like to put these beliefs in to practice. So go ahead: Take a tip. Share a tip. We’ll all be a little bit richer for it.”

Public Provident Fund In RED

Austin — Sat, 08 Nov 2008 19:26:29 +0000

The PPF is one of the best indicators of household savings trends. It is also the most robust long-term savings instrument in the economy with a 15-year tenure; its ease of liquidity, unlike term insurance plans, makes it a favorite with the middle class.

However it isn’t only mutual funds and non-banking financial companies that are facing redemption pressure. The government-run Public Provident Fund (PPF)—the single-largest fixed-income scheme in the country—has also suddenly registered a spurt in withdrawals. PPF deposits have shrunk by over Rs 6,700 crore in September alone. Contrast this with the deposit inflow of Rs 5,072.39 crore for the first five months of this fiscal.

Power of compounding

Austin — Mon, 22 Sep 2008 18:04:47 +0000

photo by orangeacid

Investment experts keep advising us to “invest for the long term,” mainly so that we may benefit from the power of compounding.

Take an individual who decides to invest Rs. 50,000 for 20 years. Assume that he earns a constant return of 8% per year. In the first five years, the Rs. 50,000 invested grows to Rs. 73,466. (see table) This means, he gains Rs. 23,466 in absolute terms in the first five years.

compounding

Year	Value of the investment at the beginning of the year (Rs)	Value of the investment at the end of the year (Rs)
1	50,000	54,000
5	68,024	73,466
6	73,466	79,344
10	99,950	1,07,946
11	1,07,946	1,16,582
15	1,46,860	1,58,608
16	1,58,608	1,71,297
19	1,99,801	2,15,785
20	2,15,785	2,33,048

From the sixth to the tenth year, he earns Rs.34,880, almost 50% more than what he did in the first five years. From the eleventh to the fifteenth year, he earns Rs. 50,662 and between the sixteenth and the twentieth years he earns Rs. 73,439.

The point is simple. Over longer time frames, the impact of compounding in absolute terms only gets more visible. And that is why investment experts say what they say.

Now, how does an investor implement such a strategy? A simple way of going about it is by opening a Public Provident Fund (PPF) account, which can be opened at a post office or any of the branches of State Bank of India. It pays an interest of 8% per annum. One can invest any amount between Rs. 500 and Rs. 70,000 in the account every year. The investment typically matures in 15-16 years and can thereafter be extended indefinitely in chunks of 5 years at a time.

The other strategy that can be applied is investing in tax-saving fixed deposits. An investment of a maximum of Rs. 1,00,000 can be made in such deposits. The tenure of the deposit varies from a minimum of 5 years to a maximum of 10 years. Currently, banks are offering rates of as high as 9% on these deposits. However, after 10 years, the individual will have to look at investing again in these deposits or look at some other mode of investing.

What if I gave you 100,000 bucks?

Austin — Sat, 30 Aug 2008 15:53:16 +0000

photo by pshutterbug

Imagine if you had Rs 100,000 and had the full freedom to decide where to park (invest) it — where would you put it? Rewind — last quarter of 2007, no doubt it would’ve been the stock market calling your money. But hey, considering the bearish sentiments in the stock market today you’ve got to carefully evaluate your investment decisions.

Here’s how you could look at investing the amount:

CASH IS KING

With the inflation rate at 12.40% (approx as on Aug 28, 2008) you’re gonna have higher outflows in your monthly home budget. Make sure you have about 3-6 months of your living expenses set aside in either:

(1) A savings account that’s linked to a fixed deposit. This ensures you enjoy a slightly high rate of interest (as compared to a normal savings account) along with the liquidity of a Savings Account. And hey, you don’t even pay any penalty to access your funds which otherwise is the case when you access your funds in a normal Fixed Deposit account.

(2) A fixed maturity plan (FMP) of short durations — where the tenure ranges from 1 month to 5 years. They aim to generate returns that are indicated at the time of the launch of the scheme. FMPs are closed-ended, debt-based funds with fixed dates of maturity. An FMP will give you a higher return than the savings bank account, and usually offer better returns after adjustment for tax (indexation benefit) thus making FMPs an attractive investment avenue compared to fixed deposits (FDs).

PAY OFF YOUR LOANS

This is a simple no-brainer! Interest rates are going up through the roof, EMI/tenure has increased on several occasions in the last few years. If you’ve got some extra cash, pay off as much of your loan as possible. Wait, you’ve got credit card debts or personal loans? If yes, first pay off those. They are more expensive loans when compared to your home loan. Hopefully, after paying off your credit card outstanding and/or personal loans if you’re still left with some money, then look at paying off your home loan.

EXCHANGE TRADED FUND (ETF)

You could invest in some good blue-chip stocks. However, if you don’t want to take the risk of picking the wrong stocks you could invest this money in an exchange traded fund (ETF). An ETF invests in stocks in the exact proportion as the index it mirrors. If the Nifty grows 15% annually in the next 5 years, so will your money.

INVEST IN MUTUAL FUNDS

The roller coaster ride in the stock market where nowadays 300-700 points up or down are seen easily gives you goose bumps. Well, you could look at debt-based mutual funds. You’ll get a consistent, but low returns when compared to equity based mutual funds.

Key To Financial Freedom: Save Money

Austin — Mon, 25 Feb 2008 09:30:35 +0000

Saving Money is the key to financial freedom. Unfortunately, talk about savings and most people’s eyes start to glaze over. Inside many people simply feel that life is for living now, not for sometime never in the future and anyway they already contribute to a retirement fund.

This is a big mistake and many people make it; believing that savings are only about retirement. Retirement planning is important but it is not the only or the most important reason for saving.

The benefits of saving are often hard to value when it all seems so far away in the future. Here is the reality – people with savings have choices. Not having savings often leads to debt spending. Debtors are owned by their creditors, chained to their jobs to obtain money to cover debts. If they fail, they know they face a world of financial pain and money worries.

For those with savings, there are no such financial worries, just choices and that is what financial freedom really is. It is the ability to make choices unrestricted by financial constraints.

Saving is as much about living fully now as it is about future financial security. Living free of debt and with savings is a financial state that enables you to live life to its fullest potential. It is the key to financial freedom and prosperity.

Even now I can hear people complaining that it is all very well talking about savings but in the real world it’s a struggle to make ends meet and saving money is just not realistic.

Let me tell you now – anyone who truly desires to live this way without debt and with savings to fall back on, can. It is a simple life choice. The amount of income you have is not important; research has shown that the ability to save bears no relation to disposable income. Equal results can be obtained across all income brackets – which means that you can do it – if you want to.

Simple changes in behavior and spending habits can reap huge savings, often accompanied by an improved life-style. It is amazing how simply taking the time to re-examine and adjust your life patterns can not only result in big financial savings but also wonderful life improvements.

The ultimate goal of this process is to stop living in debt – no more credit card debt, no debt of any kind other than maybe a mortgage. To achieve this you need to leave behind the “buy now, pay later” ethos and replace it with a philosophy of only spending what you can afford on things you really want and need. Making financial choices that prioritize your financial well-being over short-term gratification is part of the positive process of change needed by all who choose this road to financial success.

Savings can be divided up into three basic types:

Long-term retirement saving, this is usually a one-way street into something like a retirement fund where there are tax perks and penalties for early withdrawal.

Short-term savings are to cover anticipated expenditure such as insurances, house maintenance, mortgage payments etc. Predict and budget for these in your personal budget.

Medium-term uncommitted saving is sometimes referred to as a “Freedom Account”. This is money saved that is accessible within 3 months. Use this for unexpected contingencies and to give you the freedom to dip into the fund to pursue life goals. This is your contingency money against disaster and your ticket to your dreams.

Remember, there is no point in saving if you have debt (exclude your mortgage), pay off your debt, keep paying down debt and don’t stop paying off debt until there is no more debt and then start building your savings.