7 Inspiring Quotes that can get you Out of Debt

Maintaining a good lifestyle and buying fashion accessories and expensive gadgets does not hurt anyone. In fact, it should not. However, using your credit card to pay for those expenses may hurt you in the long run. Well, using credit card is not bad at all, if you maintain a good financial discipline and pay off all your debts without hurting your credit score. However, as Warren Buffett has said, “Chains of habit are too light to be felt until they are too heavy to be broken.” It is indeed difficult to get out of debt, if you are in the habit of borrowing to fulfill your personal desires. This is the reason why personal debt has risen dramatically over the past few years. However, all debt is not bad. Buying your first home with the loan is not bad because you are building asset/wealth, which gives you equity over the period of time. In fact, in business terms such kind of debt is termed as leverage where your returns are higher than the interest you have to pay on your loan. On the other hand, loan for personal consumption such as enjoying vacations is not leverage, it is a debt trap. Here is what some of the great minds have to say about debt.

“Bad Debt is sacrificing your future day needs for your present day desires” –Suze Orman

“You can’t be in debt and win. It doesn’t work” –Dave Ramsey

“Rather go to bed without dinner than to rise in debt”—Benjamin Franklin

“Bad debt is debt that makes you poorer” —Robert Kiyosaki

“Never Spend your Money before you have it” —Thomas Jefferson

“I do not like debt and do not like to invest in companies that have too much debt”—Warren Buffett

“Small debts are like small shot; they are rattling on every side, and can scarcely be escaped without a wound.”—Samuel Johnson

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.

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My 3 Favorite Finance Experts

Well, there is definitely a lot of buzz around personal finance and investing and there are so many experts coming up with new strategies to save you money and help you get financial independence. Nonetheless, there are 3 experts that have been my favorite and when it comes to giving real advice, they know the ground realities and their personal failure has taught them many lessons worth sharing.

Suze Orman

Suze Orman is one of the internationally acclaimed personal financial gurus. She had worked as financial advisor for Merrill Lynch. Whether it is founding her own financial group called Suze Orman Financial Group or launching her own TV show, Suze Orman has forged her own path. She talks from head and offers a practical advice sometimes not easy to follow. Her biggest claim to fame is her expertise in dealing with money related issues using old-school thoughts and traditional methods. While her methods are conservative, yet she is a reigning queen in the field of personal finance due to simple money saving mantras and downright advice. She has written several books on financial management and she also rites a financial advice column for “O” Magazine. I often visit her blog at http://www.suzeorman.com/resource-center/ to get some real advice.

Dave Ramsey

Dave Ramsey is an expert in the field of finance and real estate. Like Suze, Dave started his own investment group and very soon he tasted the failure and this personal failure motivated him to be financially free. He soon started helping other people with financial problems and his personal experience had helped Dave Ramsey to come up with money saving lessons. Ramsey is the creator of Financial Peace University, which is known for biblical teachings on finance and money. He has his own radio show and has written many New York Times Best Selling books.  Dave’s claim to fame is his simple lessons on money and strong focus on encouraging people to live debt free.  It is a joy to read Dave’s blog at http://www.daveramsey.com/blog/

Robert T. Kiyosaki

Robert Kiyosaki is famous for his contemporary approach to finance literacy. His claim to fame is the “Rich Dad Poor Dad” a book that made Robert Kiyosaki, an internationally acclaimed finance expert. He is an advocate of finance literacy for kids and believes that just like other subjects; financial literacy should be taught in schools. Robert Kiyosaki is not only an investor but also a successful entrepreneur who owns many businesses. He reveals his money making and money investing secrets in his blog at http://www.richdad.com/resources/rich-dad-financial-education-blog

While the above list is based on my personal choice and opinion and  if you have some experts who have influenced everyone in a big way, please share in the comments section.

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

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.

My Top 10 Favorite Quotes on Financial Wisdom

I have always believed that your life is the sum total of what you have read so far, because what you read is reflected in your thinking and action. It is my personal belief that a few words of wisdom or daily quotes by successful people go a long way in inspiring to change your habits and forge the new and better ones. Here are my top 10 favorite quotes (from great minds) on financial wisdom.

  1.  “Beware of little expenses. A small leak will sink a great ship.” —Benjamin Franklin.
  2. “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” — Suze Orman.
  3. “Wealth consists not in having great possessions, but in having few wants.”—Epictetus.
  4. “The only way to permanently change the temperature in the room is to reset the thermostat. In the same way, the only way to change your level of financial success ‘permanently’ is to reset your financial thermostat. But it is your choice whether you choose to change.”—T. Harv Eker.
  5. “Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.”—Benjamin Franklin.
  6.  “I believe that through knowledge and discipline, financial peace is possible for all of us.—Dave Ramsey.
  7.  “All money is a matter of belief.”—Adam Smith.
  8.  “Sweat equity is the most valuable equity there is. Know your business and industry better than anyone else in the world. Love what you do or don’t do it.”—Mark Cuban.
  9.  “The German root word for “debt” is the same as for “guilt.” —Dave Ramsey.
  10.    “Money is usually attracted, not pursued.”Jim Rohn.

Financial Lessons from Aesop’s Fable: The Ant and the Grasshopper

Are you an ant or a grasshopper? Well, you all might have read this famous Aesop fable about “the ant and the grasshopper.” This fable has moral implications for people of all ages and these virtues come in handy for financial planning as well. So, if you are managing your finances, you better be an ant and start planning today to create the financial future you desire. Don’t be sorry later like the grasshopper in the fable. It is not the case, that you are not working hard to save, but you need to act at the right time and make some important decisions when opportunity knocks. When you are in thirties, you seem to care less about financial planning because you think you still have some more time to think about financial planning. This is the biggest mistake people make. So, here are a few tips for financial planning.

Assess your Life Stage

Whether you are in your late twenties or early thirties, saving even a small amount can be a game-changing decision later. Whether your aim is to retire happily or you are planning to send your children to Ivy League school, it is important to assess your current and future needs on a regular basis.  Therefore, financial planning and saving is as much important for a young professional as it is for a Gen-Xer (Generation X). It is just that the needs of these different generations are different, but the goal is same and that is to achieve financial freedom.

Magic Figure

Everyone seems to be asking this “how much is too much?” when it comes to savings.  According to financial experts and economists, you need to literally force yourself to save enough to meet your financial goals at every stage of your life. Most experts suggest a magic number of 10% of pre-tax income, which will end your financial woes. However, if you cannot make a huge change, start with 5% and slowly add up to 10% or more. So, no saving is small so long as you are getting into a discipline of saving.

Automate your Investments

Saving money to meet your current and future needs is not enough, you need to invest that amount in order to build wealth.  In his book titled “Automatic Millionaire”, David Bach suggested pre-established or automatic plans are the number one wealth building strategy. Whether it is 401k or 529 savings plan, set up an automatic investment plan, so that you can control that urge to splurge and start building wealth.

3 Mistakes to Avoid in Personal Finance

The combination of loss aversion with mindless choosing implies that if an option is designated as the “default,” it will attract a large market share. Default options thus act as powerful nudges.”– Richard Thaler

Most of us want to avoid making financial mistakes when it comes to investing. Yet, we behave irrationally at times and commit some serious mistakes that cost us a huge financial loss. Interestingly, we don’t want to make such mistakes to begin with especially while taking some economic decisions. However, we are governed by our behavior which is different from Econs, who are perfectly rational fictional creatures and who tend to make economically wise choices. The term Econs was coined by behavioral economist Richard Thaler in his book “Nudge: Improving Decisions about Health, Wealth, and Happiness.” While it is not easy to become a financially literate robot, we can avoid making some mistakes. If you want to make wise financial choices, you must avoid making these three mistakes.

Present Bias

Most of the motivational speakers talk about living in present moment.  But, some people take this too literally and spend their entire money on making their present moment beautiful, without thinking about what the future will look like. Of course, it is good to stop worrying about your future, but it is not good to spend your entire funds on meeting your present day wants that you end up having nothing for future. In other words, one should not make such decisions that in future it is difficult to justify those actions and decisions.  Present bias is not always about instant gratification, it is making wrong decisions based on the present moment. For instance, after the financial crisis of 2008, many investors lost trust in real estate investing.  The decision to move the future investment based on your current market is what is termed as irrational by economists. So, avoid present bias as much as possible, because future is still a mystery and can be way different from your present moment.

Endowment Effect

This kind of bias or anomaly is very common in a real estate market. If the owner has a property up for sale, he or she will value it so high that buyer will not be interested, which may cause the owner to reduce the prices eventually.  The reason for such a high value in the first place is not the actual valuation of the property, but it is difficult for the seller to let go of that property. At this point, the seller is biased with the endowment effect which is also known as the status quo bias. Another example of such type of bias is when your favorite stock, which was once the darling of Wall Street, has surged and you want to hold on to that investment in the hope of avoiding losses. Well, this habit needs to change in order to get the money out of that sunken stock and be useful.

Optimism Bias

It is good to be optimistic and to think positive about life situation, but at times we tend to be over-optimistic and this tendency results into huge financial losses.  Suppose the property rates are going down, will it help to be optimistic and think positively? You got to secure your investments so that your future can be truly positive. You need to face the situation and cut your losses before it is too late.

The median person still thought that their prices were going to go up. That’s the definition of a bubble.”– Richard Thaler

Three Tips for Smart Shopping

If you thought that you are a smart shopper because you are good at predicting the money you will spend for shopping, you will be surprised with what researchers have to say. Researchers believe that people are bad at predicting how much money they will spend or save. Johanna Peetz and Roger Buehler conducted a research in 2009 and found that people were bad at predicting how much they are going to spend next week. They tested this with a group of Canadian undergraduates were asked how much they are going to spend next week. Some of those students thought that they are prudent and will spend less and their targeted amount was less whereas when they actually went for shopping they ended up spending way higher than the targeted amount. For instance, one student said she will spend $94, whereas she actually spent $122 and this was her best estimate after knowing that a week before she had spent $126. So, what is the reason behind this wrong calculation, the reason is simple we don’t truly know ourselves and our spending habits and this is the reason why we promise and make new year’s resolutions that we will save money but we don’t know that where and why do we spend.  It may also be the case that we are overconfident about our thrifty behavior and we can’t see the leaks. Therefore, it is important to be aware of our own behavior whether it is our spending behavior or general self-awareness.  Here are some tips and tricks that will help you stick to your targeted spending.

Stressed vs. Desserts

Desserts are stressed written backwards and hence desserts are antidote to stress. When you eat some desserts or comfort food, you seem happy. I am not talking about eating comfort food here. There is a strong connection between impulse shopping and stress. When you are under stress, your brain needs to release what I call happy chemicals to bring you back on track and either deserts or impulse shopping can release those happy chemicals instantly. Therefore, never shop when you are stressed because you are going to spend more than you can because your brain is going to release those happy chemicals while you are shopping. In other words, you will be conned by your own brain, if you go shopping while in stress.

Eat before you Shop

Now, again this is related to eating, but actually we are talking smart shopping and saving money. In a research study conducted by Gilbert and Wilson (2000) it was found that hungry shoppers spend more money than the shoppers who stuffed themselves before shopping. The reason is very simple, when you are hungry you will see a pack of fancy snack which will stuff you immediately and in that you might not pay attention to the price, calories and other stuff. Again, your brain will draw your attention to the fact that you are hungry.

Leave Children at Home

Indeed, it is rewarding that you have your sweet time when you are shopping alone I mean without little ones. But, the biggest reward is savings. It is a no-brainer that kids are sometimes demanding and you add more stuff which you did not want to. Moreover, when children are around, it is difficult to spend a long time comparing products and making smart choices because you are busy taking their (children’s) hands off the items on the aisle. So, the best way is to shop when you have free time or your kids are on a play date.