Reserves ! Savings

http://www.arthayantra.com/latest-blogs/item/379-three-out-of-four-indians-would-go-bankrupt.html
Three out of four indians would go bankrupt

Mr. Horace Mann said ‘There is nothing as costly as ignorance’. We follow an age old habit of ignoring the consequences of an emergency in our life. The practice of maintaining emergency fund is not in the highest priority list amongst the most of the professionals. ArthaYantra conducted a research on 2000+ working professionals across various cities of India covering various age demographics, some alarming results came out which expose the preparedness of these professionals to meet an emergency in their life. An emergency is the risk caused due to death/disability, risk of health or loss of job.

Entry Level Professionals

When it comes to preparedness for an emergency, Entry Level professional fared surprisingly low. As high as 85.6% of professionals do not have enough savings for emergencies or have inadequate liquid reserves.

The entry level professional are generally those who have less than 6 years of working experience, mostly single with less financial burden. But considering the future aspects, it is very important for them to start having adequate reserves.

Mid - Level Professionals

The midlevel professionals are categorized as young family with mortgages to pay and some immediate financial requirement. This category ideally should have a sufficient reserves as the cash requirement are short term and immediate. But they fall short when it comes to preparedness for emergencies. Research shows that 61.60% percent do not have proper surplus to meet any future contingencies.

Although the numbers as compared to the entry level professionals are slightly better, but looking at their future burden of responsibilities, they are the most vulnerable to such emergencies. It would be prudent for this group of professionals to proactively start building an emergency corpus to face any adverse situation in life.

Senior Level Professionals

When it comes to even higher level professional the picture doesn’t look good at all. Alarmingly, 70.83% of senior level professional do not have proper buffer for emergencies.

Consider middle age families with young kids in a situation where the sole breadwinner dies due to accident or loses the job or one of the family members get seriously ill. In such circumstances, they would be forced to either sell their assets like jewelry or even their homes. Personal loans, hand loans and credit cards start playing their role in addling on to their debts and hence disturbing their financial life completely.

Planning for future financial goals should never be done at the cost of ignorance of planning for an uncertain future event. One needs to make sure that the amount spent for securing such a risk is not treated as an unnecessary expense. Just like planning for retirement, planning for an uncertain job loss by setting aside a multiple of the monthly expenses is also very important. It would ensure the lifestyle remains unchanged even when the situation gets tough.

In personal finance there are three risks which are required to be covered.

Risk of death/disability

For a family where the earning member either dies or suffers disability which results in the loss of income, a proper insurance coverage against such situation would ensure adequate support to the dependents. The insurance coverage should only be in the form of a pure term plan or personal accident insurance policy.

Risk of health

With the change in lifestyle and increase in hospital expenses, one has to ensure that proper health insurance coverage is taken. This would cover the expenses in case of illness of any family member. Although there is coverage provided by the employer in some cases, this coverage is always not adequate. Hence one should not rely only on the coverage provided by the employer but also buy some coverage on their own to ensure the entire risk is adequately covered.

Risk of Job Loss/Major expenses

Planning for this kind of emergencies is the most ignored aspect of personal finance. Proper liquidity has to be maintained throughout so that any possibility of personal/hand loans and credit card usage is minimized. The ideal amount to be kept aside should be 3 to 6 months of monthly expenses.

Conclusion:

Before determining future financial aspirations, the savings for an emergency should be considered as the highest priority objective. Although there are other options that can be used in such contingencies like personal loans, hand loans, etc. but they would finally end up as a liability and hence will cause serious dents in surplus levels. Ignoring the savings for emergency can even cost future goals impacting the entire personal finance of the individual. It would be good to start saving with a disciplined approach to face any emergencies in life.

The Difference Between Real Estate Investment and Speculation

http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=25988&cat_id=1
Property Pulse - the Realty Plus Newsletter

The Difference Between Real Estate Investment and Speculation
Arvind Jain,
Managing Director - Pride Group

In financial circles, the terms real estate investors and real estate speculators are used to refer to people who are buying property to make a profit, rather than for personal use. Though the two terms are often used interchangeably, they are not exactly the same. Nevertheless, even veteran financial specialists tend to get mixed up between the two.

In order to understand the difference between the real estate investor and the speculator, it is necessary to have a look at their methods of operation. A speculator predicts (or attempts to predict) the future return on any investment, and tends to be focused on short-term profits. He or she is often not very well informed on how the asset class of real estate works in a particular locality. Since speculators are usually also active in other investment segments such as stocks, bonds and bullion, they tend to use the same approach for all asset classes. The general approach is to buy low and sell high in a very short period of time.

A real estate investor, on the other hand, makes a careful analysis of the current market position, market trends and related affecting factors so as to make an informed and forward-looking investment decision. Investors are not looking at short-term profitability, which is in any case not a viable objective to operate from in Indian real estate. While investors also tend to invest into other asset classes, they do not do so without fully understanding them.

The next question about the difference between speculators and investors would pertain to the returns they get. While a speculator may make a lot of money if he makes an accurate guess, all such returns are short lived. If the real estate market is facing a short-term decline, the speculator stands to lose all his money because he is also investing only for the short term. A related facet of real estate speculation is that it is, for the above reasons, not suitable for rental income generation.

An investors, however, is looking at healthy, steady returns on capital appreciation and rental income. For this reason, he maintains a reasonable investment horizon which is tailored to the market dynamics of this particular asset class. This is important because Indian real estate is subject to cyclical ups and downs. A property cycle is dictated by various factors related to population growth, GDP, policy framework and sentiment, and boom and slump periods are more or less a given. Indian property investors aim to ride through the predictable ups and downs of this cycle. To do so they must remain invested for a period of at least 5-7 years.

Another reason why a longer investment horizon is important is that most investors look at buying properties at a lower rate at new locations in anticipation of the demand to come. For this to bear fruit, they must give these locations sufficient time to receive basic infrastructure and spillover demand from adjoining areas.

Long-term investments made by property investors provide stable and reliable returns. Investors are not prone to losing their money due to a receding market, because they have made a more careful analysis of the market condition and are willing to wait till their expected results are delivered as per the market data before they make their move.

As Robert Kiyosaki puts it ‘Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.’ Also, real estate is by far the ultimate asset since it not only grows in value but also performs as a rental income generator. But it must always be approached from an investor's perspective rather than from speculative objectives.