3 Things to Know about Time Value of Money

“Time flies over us, but leaves its shadow behind.”Nathaniel Hawthorne

Well, it is true that time flies and indeed it does very fast. Sometimes, you feel that a year passes by and you did not take a look into your finances and you get surprised that you have fallen into a debt trap.   In the same manner, your investment also grows very fast, if you are open to stocks and bonds. Well, if you don’t get positive feelings from the stock market, CD (Certificate of Deposit) rates are not bad either considering they pose minimal risk. In any case, the value of your money increases with time. This is time value for money. It is clearly a zero sum game where the person who saves and invests stand to benefit from it and the person who borrows hurt his or her financial position badly. Whether you are borrowing or you are investing, the time value of money plays a key role in your finance. So, why not understand a little more about time value of money.  Here is how time value of money can be useful.

Future Value of Money

If you invest your money in stocks or bonds or even CD rather than spending on your current consumption, you have not only saved your money from depreciating but also increased the future value of your money. Of course, you need to choose the best option by taking opportunity cost into account. For instance, you have ten thousand dollars and instead of starting an online business, you invested in stocks of an established business. The opportunity cost here is too high, because investing in your own business can multiply your income and offer more return in future than investing in an already established business. Regardless of the choice of investment, the returns are always higher than not investing.

Decrease in Value of Money

Well, if you think that keeping your money at home and letting the time work its magic will make you rich, you are wrong. Money sitting in your safe does not grow because a dollar today will not be worth a dollar a year from now and clearly whatever you are able to afford today is going to be very expensive. Of course, you need to account for inflation because with inflation increasing, your purchasing power decreases. Let your money work for you instead of making it idle.

Borrowing Money Hurts

While time value of money works in your favor as far as investments are concerned. When it comes to borrowing money, the time value works against you. Well, if you borrow a dollar today for your personal consumption, you will have to definitely pay more than a dollar. So, the bank is enjoying the fruits of time value of money. So, why let others take advantage of this important financial secret. Start controlling your borrowings by making a list of absolutely essential items and striking out what is not needed. This way, you can boost your financial health.

How did it get so late so soon? Its night before its afternoon. December is here before its June. My goodness how the time has flown. How did it get so late so soon?”—Dr. Seuss

3 Tips to Maximize your Returns on 529 Savings Plan

It is that time of the year again, when your children are going back to school and you are busy dreaming about their bright future. Well, when it comes to a bright future, college education plays an extremely important role. Now, that college education has become expensive, it is about time for every parent to invest in a 529 savings plan. For more information on 529 savins plan, read my previous post “Benefits of Investing in a 529 College Savings Plan”To get the maximum returns out of your 529 savings plan, follow these tips

Choose the Direct sold plan

Well, you may be tempted to choose an advisor sold plan because you feel that you will receive an expert advice and your investments will be safe.  Here is the caveat. You are paying a hefty fee for the advisor sold plan. Direct sold plan is less expensive and in exchange you need to do a little bit of research on whether your state plan is a good option or not.  Websites like savingforcollege.com, nerdwallet.com, collegesavings.org offer side by side comparison of 529 plans of different state. So, you don’t have to really reinvent the wheel. Take some cues from these sites and go with the best plan.

Review your Financial Goals

It is always advisable to review your financial goals and see if you have saved enough for your child’s education. The best time to do is twice a year and that is why many direct sold plans allow you to change the allocation and the amount of savings twice a year. So, you can set a calendar and review the returns on investments in 529 Plan and again it is a good idea to compare the plans of other states as well. If by the end of the year, you feel that your state is not offering enough returns, you may opt for a different state and transfer the savings to a new state plan (you may have to lose the state tax exemption though). On the other hand, if your state plan is doing really well and you think that you have saved enough money to cover the educational cost, you can either scale down or continue to save more so that you have sufficient balance which can later be used by your children.

Involve your Children

Well, it is always good to talk to your children about their education and their plans related to higher education. You might want to send your child to MIT or Stanford Business School, but your child is somewhat interested in liberal arts and your state university offers wonderful opportunities for liberal arts. So, it is a waste to make an investment in out of state plan, when you can buy your own state’s 529 plans and may get tax exemption as well. It is always good to be realistic about your child’s education and let her choose the career she wants.

“Every child is gifted, some just open their packages sooner than others.”—Michael Carr.

3 Tips to Manage your Credit Card

Well, using credit card may sound like entering into a debt trap, but if you are smart with your money, you can actually use your credit card to your own advantage. In fact, your credit card can be an important tool to establish your credit worthiness over a period of time, which in turn may help you to get loan for your business or for your home or for that matter any time you need to borrow a large sum of money. However, it is important to manage your credit card wisely; otherwise you may find yourself in a debt trap. Here are 3 tips that can help you get the most out of your credit card.

Borrow Wisely

When it comes to choosing a credit card, it is always good to shop around for the best credit card that offers lower APR (Annual Percentage Rate). Remember, interest rate and APR is not the same. In fact, they are two different terms. The application might mention the interest rate of 3%, which looks attractive but you need to read the fine print to get the APR which includes the interest rate and the annual fee. While banks may charge you anything from 12% to 20% in APR, credit unions are consumer-friendly and offer credit cards with an APR from 9.9% to 18%. Credit-unions are non-profit and are committed to help their members. However, if your credit score is not so good, you may be turned down by the credit union. So, you may need to shop around different banks and weigh in your options and choose the card with lowest APR. If you already have a credit card with a higher APR, it is never too late to negotiate with your bank for a lower APR.

Plan your Budget

Ok, you have got a credit card and you can easily swipe the card for your grocery shopping or for buying new clothes. Why do you need to budget? Well, for starters credit card debt is a debt after all and it is not free money. So, it is important that you shop responsibly. In order to do so, you need to have a plan in the form of a budget. Secondly, it is advisable not to use credit card for small purchases such as grocery, utility bills or any other recurring purchases. Use the credit card for making big ticket purchases like a MacBook or purchasing airline tickets (if you have to travel), which you cannot pay upfront . In fact, this way you can make that big purchase without hurting monthly budget and you can make a small monthly payment as well.

Pay your Balance on time

If you are a good customer who pays the credit card balance on time and in full, you get rewarded with a good credit score. This good credit score may come in handy when you are buying your first home or may be a second one. So, for big life events or for big loans, you need to maintain your credit worthiness and therefore, you need to pay your credit card balance on time. Getting a lower interest rate for your first home is like freeing up extra cash and adding another stream of income. So, a little bit of discipline now, gets you free cash in future.

3 Tips to Save More on Back to School Shopping

Well, I was busy lately for packing back to school supplies for my children. I have always been frugal with my shopping and I love to make lists and cross-check every single item and scrutinize last year’s supplies to strike some items off the list. However, there are three important lessons I learnt this year and I want to share with everyone.

Take Advantage of Tax-Free Days

Last week, I visited JCPenney for clothes shopping (I had accumulated coupons). I was surprised when I read about tax-free days. Indeed, I saved a lot on top of the coupon discounts. So, always be aware of  tax free days in your area and take advantage of tax-free shopping. You may check with your local stores about tax-free days in your state and also it is not just for one day but for the entire weekend. So, it is a great idea to spend some time to research about this great money saver.

Don’t Forget Wholesale Clubs

If you thought that only Walmart and Target has the best shopping deals, think twice. Wholesale clubs like Costco offer the best deals on stuff like Kleenex, Art and Craft kits, Composition books etc. It pays to buy even the pens, erasers and binders if you have more than 2 school age children, because you can share the bulk pack among your children. You may also want to split the items with your friends who have children same age as yours. Wholesale clubs are also great for buying printer cartridges, paper and even printers. If you or your spouse is using printer regularly, this is the best time to stock up paper and cartridges or you may want to change your printer as well.

Never Stick to One Store

There is a golden rule of investing, never put all your eggs in one basket. For shopping, there is a golden rule, never buy from the same store. You can be loyal to your brand, but try switching the stores. Of course, many stores claim that they do have price match guarantee, but it is wise to compare before rather than calling customer service and resolving issues. The best thing is to install price comparison apps like “The Find.” It is available for iPad and Android devices. So, you can look up the prices of the products not only in stores near you, but also the online prices as well. So, if you want to order Texas Instrument Graphing Calculator, which is by the way over $100 in Walmart and Amazon is available in Staples at a discounted price.  So, it saves a lot of money to do a little bit of research.


Time Diversification: Key to success in Investing

Diversification has been considered a key to success in investing world. “Don’t put all your eggs in one basket” is the brilliant advice which has been used as a thumb rule by many successful investors. Rightly so, one can reduce the risk by expanding the portfolio and by adding more financial instruments rather than sticking to one type. The most successful investors recommend diversifying the stock portfolio and the main reason behind this advice is the volatility of the stocks, which increases the risk for many investors. By diversifying, one can protect the investments against volatilities. However, most of us have never heard of time diversification, which is equally important when it comes to success in investing. Here is how an investor can use time diversification.

Stay Longer in the Game

Time diversification refers to keeping your portfolio for a little longer and thinking a broader time horizon than the short term vision. Many investors are not able to make gains because of their short-sightedness and their tendency to act quickly. Any news related to a particular stock going southwards prompts these impatient investors to sell their stocks and look for a better one.  When it comes to investing in mutual funds, most of the people tend to be enamored by the latest performance of a mutual fund. Rather than looking at the consistency, most of the newbie investors rely on the recent news and information and the result is entering or exiting a fund at the wrong time. Now, this is not the way you can win the game. In his book, Behavioral Finance and Wealth Management: How to Build Optimal Portfolios, Michael M. Pompian suggests “holding on the volatile investments such as stocks and long term bonds for a longer period of time can soften the effects of such fluctuations” and “if an investor cannot remain in a volatile investment for a longer period of time, he or she should avoid that investment.”

Do not switch between Different Stocks

Many investors keep switching between mutual funds in order to earn higher returns and this reduces the overall return because the fees for switching are too high. The main advantage of time diversification is that your investments are spread across various time cycles that are needed to earn an optimum return on your investments. Rather than acting quickly on the basis of latest news, it is important to wait and see the investment cycle and get maximum returns. In other words, you need to stick to a set of stocks for longer period in order to increase the odds of winning.

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant”—Warren Buffett

3 Books every Investor Should Read

There is a lot of buzz around investment and everyone wants to know the right stocks to buy. Considering the volatility of stock market, many people are skeptical and look for the advice rather than trusting their own intelligence. Honestly, there is a lot of advice out there, but it is difficult to get a friendly advice from those people who have vested interest. So, why not turn to a friend and as they say a good book is like a good friend. So, I turned to not just one but three good friends to get the best of the investment advice.

Common Stocks and Uncommon Profits by Philip A. Fisher

This is a classic book on investment advice written by Philip A. Fisher, who was touted as a growth investor, investing in companies with above-average growth regardless of the price. This book epitomizes the investment strategy of Philip A Fisher, a very successful investor. He suggests a 15-point prescription to improve your financial health. The book is a must read for all those people who want to make money from stocks and feel that they do not know enough.  Here are 3 important questions to ask before buying a stock.

  1. Does the company have products or services with sufficient market potential and chances of increased sales? (In other words, companies like Amazon and Netflix that have market potential)
  2. Is the company committed to develop new products or services to increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited? (Companies like Apple fall under this category).
  3. How effective are the company’s research and development efforts in relation to its size? (Google is the perfect example).

The Little Book of Common Sense Investing by John C. Bogle

John C. Bogle, the founder of Vanguard Mutual Fund, gives a common sense advice to all the newbie investors.  His investment strategy which is focused on low cost index funds as opposed to the actively managed mutual funds is summarized in the entire book with the help of examples and parables. The book is an ocean of investment ideas, but here are three pearls that can be picked

  1. Index funds eliminate the risks of individual stocks, market sectors and manager selection. Only stock market risks remain.
  2. Investing in equities is a winner’s game. However, after deducting the cost of investing (brokerage, portfolio transaction costs, investment management fees etc.) beating the stock market is a loser’s game.
  3. Don’t do something. Just stand there. The higher the investment activity, higher the costs and taxes and lesser the net returns. So, just stick to the best picks.

The Intelligent Investor by Benjamin Graham

Benjamin Graham is considered father of value investing, where the focus is on looking at the intrinsic value of the company and buying stocks at the lower price than the basic price and this helps an investor to get higher returns. Benjamin Graham developed the core principles of investing by utilizing his experience and intelligence in the area of value investing. This book is special for another reason because Warren Buffett, the successful investor, is the student of Benjamin Graham. Here are three takeaways of this book.

  1. A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in actual business and its underlying value does not depend on its share price.
  2. The market is a pendulum that forever swings between unsustainable optimism (making stocks very expensive) and unjustified pessimism (making stocks very cheap). An intelligent investor is a realist who sells to optimists while buying from pessimists.
  3. The future value of every investment is a function of its present price. The higher the price you pay, the lower your returns will be.


Benjamin Franklin’s Top 10 Quotes on Financial Independence

Independence Day has passed and there is no better time to realize the importance of financial independence which is like a distant dream to many of us. Financial independence is not just about hoarding enough wealth so that you do not have to work and just relax; it is more about living your dream and achieving your goals. Many people are stuck in jobs they do not like. Many people dream to be entrepreneurs, but they do not dare to take risks. It is the time to reinvent ourselves. It is the perfect time to remember one of the founding fathers of America (Benjamin Franklin), who played a crucial role in the declaration of independence.  Although Benjamin Franklin was remembered as statesman, but his financial wisdom was unparalleled. In fact, a $100 bill reminds us of his abilities to manage money. So, this is the perfect time to remember the famous quotes of Benjamin Franklin on achieving financial independence. There are many quotes, but these are my 10 favorite quotes that I love to practice most often.

  • Those who would give up essential liberty to purchase a temporary safety deserve neither safety nor liberty.
  • An investment in knowledge pays the best interest
  • Beware of little expenses. A small leak will sink a great ship.
  • By failing to prepare, you are preparing to fail.
  • The only thing that is more expensive than education is ignorance
  • To succeed, jump as quickly at opportunities as you do at conclusions.
  • There are two ways of being happy: We must either diminish our wants or augment our means – either may do – the result is the same and it is for each man to decide for himself and to do that which happens to be easier.

  • Being ignorant is not so much a shame, as being unwilling to learn
  • One today is worth two tomorrows.
  • If time be of all things the most precious, wasting time must be the greatest prodigality.

I invite readers to add their favorite quotes on managing money.


My 3 favorite books on Personal Finance

I have always believed that reading great books shape your thoughts. I enjoy reading all kinds of books and especially ones that have important lessons in personal finance. Below are my three favorite books on money, personal finance and savings.

1. It’s Not What You’ve Got: Lessons for Kids on Money and Abundance by Dr. Wayne Dyer

Dr. Wayne Dyer, a well-known motivational speaker has written several books on positive thinking and self-actualization for us grown-ups. He has also targeted young audience with “It’s Not What You’ve Got: Lessons for Kids on Money and Abundance.”  As a parent, I want my children to learn the importance of financial discipline. Needless to say, before sharing this knowledge with my children, I read it and enjoyed thoroughly. This book is more for adults than for children and indeed a best gift you can give to your children. A must read for anyone who wants to find meaning in money and here are my three takeaways from this book.

  •  I only spend money that I have (I will not use my credit card for buying shoes, clothes etc.).
  •  I will always be proud of money that I earn (I will not keep a tab on others’ earnings).
  • Every job I do is important (I will work harder and get luckier).

2. Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not by Robert Kiyosaki
This is another great book on personal finance and growing your wealth. Robert Kiyosaki is an investor, entrepreneur, financial commentator and an advocate of financial literacy. The advice given in this book breaks the conventional thinking patterns we have been exposed to for years. A must read for someone who wants to attain financial freedom. Here are my three takeaways from this book.

  • All of you were given two great gifts: your mind and your time. It is up to you to do what you please with both. (Use your time on increasing your net worth).
  • Whenever you feel ‘short’ or in ‘need’ of something, give what you want first and it will come back in buckets (Give value to receive value).
  • Just know that it is fear that keeps most people working at a job. The fear of not paying their bills. The fear of being fired. The fear of not having enough money. the fear of starting over (Follow your heart and passion and do not worry about money).

3. The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey

Dave Ramsey, one of my favorite authors has unlocked a secret code for financial fitness in his classic book “The Total Money Makeover: A Proven Plan for Financial Fitness.” This book condenses the financial wisdom of Dave Ramsey in easy to follow steps and makeover plan to get rid of debt by recognizing some of the myths about money. This is a great read. Here are my three takeaways from the book.

  • We live in a cause and effect world. What you sow, you will reap. (It is indeed true not only with our financial habits but all the habits we embrace in our life.)
  • When times are booming, you can do dumb things with money, get sloppy and take huge risks without realizing it. (It is important to save money and invest your savings even when you are on top of the game.)
  • Winning at money is 80 percent behavior and 20 percent head knowledge. (For attaining financial freedom, you don’t need to have the knowledge of all the tools, but by taking few right steps, you can save a lot).

Top 3 reasons to Invest in Mutual Funds

For beginners, the world of investing is mesmerizing and yet intimidating.  If you are looking to create wealth in short period of time, equity is the best asset class and you need to invest in the stock market. However, it is important to get some experience in the investing world before you are ready to dabble in the stock investment.  If you are new to investing and still want to make some small gains, the best option for you is mutual funds.  There are different kinds of funds available according to the life stage and investment horizon a person is looking at. There are money market funds and investment grade funds for risk takers. Then, there are tax-exempt funds and balanced funds for people who are targeting retirement in a few years.  So, it totally depends on your life situation. Here are three reasons for investing in mutual funds.

Low Risk

Many people consider mutual funds as conservative and low risk products.  However, they are not very conservative, yet they reduce the risk to a large extent.  If you have a low risk appetite and rightly so because you are investing for the first time, it is important to shift the burden and instead of investing in stocks, where the risk is too high to low risk products such as index funds such as Vanguard index funds.

Asset Allocation

You know, the number one thing that one needs to learn in investment 101 is asset allocation and rebalancing. It is not easy to master these skills, it comes with experience but you need time to do that. It requires discipline as well. If you are time impoverished or lack the financial knowledge, it is better to invest in a mutual fund, where you get an expert support in asset allocation. There are several funds like Vanguard, PIMCO etc. that are considered best and allocate and rebalance your assets to maximize your returns.


Diversification is another important part of the success of financial investors. In fact, diversification is the key to combat the volatility of the market. The mutual funds invest your money in different asset classes and within the same asset class, they diversify across different sectors. This helps to give you a risk adjusted returns. A new principle in investing is “don’t keep all the eggs in one basket.”

However, at the end of the day, it is the quality of your investment that matters. There are some fund houses that may not be reliable. So, the good thing to start with is big names like Vanguard small cap and mid cap funds. These funds are doing well for past few years.