Ways to save money by spending more

Saving money by spending more sounds contradictory. But what if it’s true though?

Frugal living is has always been a popular lifestyle choice, both among the financially independent, as well as for those living paycheck to paycheck.

However, often times choosing to pinch pennies only gives us the illusion of saving money.

Truth be told, there are certain situations where spending more actually leads to serious savings in the long run.

Here are some examples where you could actually save money on common household expenses by spending more.

1. Choosing to spend on quality ingredients

Cooking at home is well known to be a huge money saver.

However, some people can take it to the extreme and choose quantity over quality.

A common situation is buying food on sale, that’s about to expire. Or, buying fruits and vegetables likely to go bad soon, but for that very reason grocery stores sell them for cheap.

To save money, it’s often tempting to choose the (so much) less expensive option!

Problem is, low quality ingredients could potentially lead to health problems. Which in return, leads to spending money. Since medicine and doctors aren’t cheap, you’re probably better off spending more in quality!

2. Spending more on quality appliances / tools / gadgets etc.

Say you need to buy an air conditioner. Or a coffee maker, since your old one broke down because you’ve used it every single day for years!

saving money

If you’ve ever shopped around for.. anything, you must have noticed the huge price difference between different brands.

Now, not all costly items are worth buying. On the contrary, often times it’s just the brand that’s expensive.

However, it is also true that energy efficient appliances cost a lot more than less efficient ones. Just as, low quality gadgets are usually cheaper because they often break down when you lest expect it (or, as proven by Murphy’s law, when you need them most).

In order to save money on utility bills in the long run, you might want to opt for appliances and devices that consume less energy.

On the same note, it’s always worth paying for quality. This way, you won’t have to fork out a serious chunk of money whenever your “new” purchase needs to be replaced.

3. Spending money on quality clothes, shoes & accessories

This might be considered splurging but truth is, quality does last longer.

Although some shoes and clothes can be both qualitative and cheap, other items that complete your wardrobe could wear out after only a few weeks.

What do you do if you find a hole in your shoes? You probably should buy a new pair…

As a result, instead of saving money, you actually spend a lot more by buying the same product multiple times.

4. Hiring help

When you have an electrical wiring problem, do you usually call your cousin Jimmy to fix it for free?

That might be a good plan, if Jimmy was an actual electrician! ‘Cause if he doesn’t know what he’s doing, you might end up with even bigger problems!

Often times, we try to save money by fixing things ourselves. It works in some cases (and can save a pretty penny as well), but hiring an expert when you have a serious problem to fix is probably a good investment!

5. Investing in home improvements

Big or small, certain home improvements can save some serious money along the way!

Adding insulation can turn out to be a costly investment, but do you know how much money you can save on your utility bills in the long run? At least few hundred bucks a year!

Other small investments might seem useless, especially if you’re stressed out about spending money.

However, faucet aerators can help save on your water bill. Energy efficient light bulbs, like LED (light emitting diode) or CFL (compact fluorescent lamp), can help save money on electricity. They’re both small expenses, considering how much money you could save in the long run!

Looking to save money by spending less doesn’t make you stingy.

It’s only natural to look for ways to curb your spending, especially if you’re aiming to become a financially responsible person.

Often times, the more expensive option might be the smart thing to do.

Author bio: Adriana is an experienced web content writer, passionate about everything personal finance. She blogs about the topic over at moneyjourneytoday.com, where she covers everything from saving money and frugal living tips, to real estate and investing.

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Everything You Need to Know About the Terms Small Caps and Mid-Caps in Stocks

Public companies (organizations listed on the stock exchange) are classified as large, mid, and small caps, where cap stands for capitalization.

This classification is based on their market capitalizations and size. Small and mid-cap stocks have lower market capitalization and free float when compared to large cap stocks.

Understanding market capitalization

Market capitalization is the total value of the company on the stock exchange. It is calculated by multiplying the total number of outstanding shares with the current market price.

investing

The free float includes those shares that are not available on the stock market for trading under normal circumstances. These are known as strategic or controlling holdings and are not included in free float. Some of these holdings include shares held by founders or promoters, government bodies (as acquirer or promoter), employee welfare trusts, controlling interest holders, and locked-in shares.

Benefits of investing in small and mid-cap companies

1) Higher growth potential

Large companies are established organizations with large market presence. However, such businesses have limited opportunity to grow or release new products in the market primarily because of bureaucracy, the taxes they pay to government and long approval and legal procedure. Therefore, although large cap stocks are safer than small and mid-cap companies, the potential to earn huge returns is limited.

2) Better return on investment

Mid-cap companies are established but still in a growth phase. Such organizations are able to take advantage of newer markets and expand their business. Therefore, you may be able to earn good returns when you invest in stock market in mid-cap companies.Furthermore, small cap businesses have the capability to outperform large companies over a period of time. As these companies expand their business and earn higher profits, you may be able to reap the benefits. Over a period of time, other investors become aware of small companies demonstrating future growth potential. Therefore, the demand for their shares increases, which results in a surge in their prices. This enables you to earn high returns on your investments.

Investing in small and mid-cap stocks

Several investors who are willing to assume higher risks opt for investment in such companies. However, there are certain inherent risks to this type of investment strategy. Here are two such risks

1)  Size

Compared to large cap companies, small and mid-cap organizations are significantly smaller in size. Therefore, there is a higher risk of losing some or all of your investment when you adopt this strategy.

2) Liquidity

Generally, small and mid-cap companies are not traded in as high volumes when compared to large cap organizations. Therefore, you may not be able to easily liquidate your holdings in such stocks, if you need funds urgently.

As an investor, you have the option of investing in one or more of the large, small, and mid-cap companies. However, your decision must be based on your risk profile because small and mid-cap stocks are riskier. You should make an informed decision based on the company’s prospects in the future and its growth potential.

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A poor credit score will cost you a lot of potential benefits in life

A poor credit score is probably one of the worst financial disasters anyone can go through. It not only makes your financial status poor but also affects your lifestyle and your emotional being. It all starts like a game when you skip paying some bill but before you know it, your credit cards are maxed out and the nightmare begins. Here are some of the ways a poor credit score can damage your life.

1. Limited borrowing options

With a poor credit score, nobody wants to be associated with you financially. This makes almost all lenders to fear lending you any money. Every time your credit score pops up, a red flag flies alongside it. All this is because a poor credit score is associated with poor financial decisions. Subsequently, no one would be willing to trust you with his/her money. Even though some may be willing to lend you, the interest rates are super high. It is just too expensive to borrow and add more debt on yourself.

credit score

2. You can’t even buy a car

When you go to buy a car, they always check your credit score. When the credit score is poor, you might be denied the car loan to get you a car. Even when the lender approves the loan, your interest rates will be higher than normal. If you don’t boost your credit score, this nightmare continues.

3. It might even affect your love life

At this age, no one wants to date or marry anyone who is not financially stable. There are dating sites today that use credits scores when making your profile. The higher your credit score, the better your chances of meeting someone serious. Many women also consider money management skills while searching for a partner. This implies that a poor credit can ruin your chances of settling down.

4. Difficulty getting a job

Before you are hired, your prospective employers might ask for your credit score. When applying for a high position in a company, your credit score must be impeccable. When you have a poor credit, employers tend to think that you cannot manage money well. Nobody will be willing to hire you because he/she cannot trust that you will manage his or her money when you cannot manage your own. When you cannot land a job, you risk sinking deeper into debt because you have no source of income but you are still spending money.

5. Hard to get a mortgage

Even getting a mortgage requires you to have a good credit score. When you go to apply for one, they must check your credit history to know how you manage your funds. With a poor score, you may find it difficult to get a mortgage. If you manage to get one, the interest rates are higher than usual. The owners fear that you may never pay them if you are declared bankrupt.

6. High insurance premiums

Even insurance companies won’t trust you if your credit score is poor. They see you as a ticking bomb waiting to explode and give high claims. Therefore, they increase your premiums. This makes your life even harder.

7. It damages your name and reputation

Once you go deep into debt, everyone will know. This can ruin your reputation among friends and family. You become known as the person with poor financial decisions.

8. Finally, it affects your health

After getting rejection after rejection from people and companies, your health might deteriorate drastically. Many people fall into depression because of this. High stress levels might cause headaches and sleepless nights. Your mental well-being is at risk at this point.

A poor credit score is a place you don’t want to go. Every time you get a chance to repay your debts on time, do it. Pay your bills as soon as you can. The last thing you want is to be maxed out on your credit cards.

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How should you deal with your finances to have a safe financial future?

In order to make your financial future safe and secure, you will have to make sure that you deal with your finances in the right way. You will have to know how much to save, where to invest, etc. Thus, it is very important to keep yourself updated about the new happenings in the financial world.

Ways to deal with your finances

Here are few ways which will help you deal with your finances better:

  • Budgeting: When we speak of personal finances, the first thing that comes to our mind is budgeting. Though initially it may be quite tough to create a budget and stick to it, once you are in the habit of it, things will be fine and easier. You should create a budget after you have a proper idea of your income and your expenses. Creating a budget doesn’t mean that you will have to manage within a meagre sum of money. It is just about cutting unnecessary expenses so that you have more money to save.
  • Emergency fund: In order to keep yourself immune against any kind of sudden crisis, you should create an emergency fund. At any given point of time, this emergency fund should have at least 6 months of your income in it. Thus, if you lose your job or have a sudden medical emergency in your family, you can use this fund.

deal-with-finance

  • Retirement savings: It is very important to safeguard the golden years of your life. So, in order to be in a better position, you should start saving for your retirement since the beginning of your professional life. You can opt for 401k accounts or go for any retirement saving options as given by your employer. If you have a lump sum amount as your retirement savings, you won’t be dependent on anyone. You will be self sufficient.
  • Life insurance: Yes, life insurance is also important when we speak of personal finance. This will be of great help to you as well as your family. In case of your sudden demise, this policy will help them in paying off any loan or mortgage that you may have taken out. It can also be of great help to them in order to manage their day to day lives.
  • Avoid too much of unsecured loans: Most of the unsecured loans, except for student loans, are considered as bad debt. These unsecured loans are available at a high interest rate which will eat up a large part of your pay check. So, try to reduce or pay them off. Rather, you can go for a good debt like mortgage, which will help you build an asset for yourself in the form of your house.
  • Consult a financial planner: There are many of us who cannot deal with their finances on their own. In such a situation, it is better to take help of a financial planner. This person will be well informed to let you know where to invest and how to save money.

Hope the above options will guide you in dealing with your finances better!

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What is a good CIBIL score to Apply for a Home Loan?

Your CIBIL score (credit score) plays a key role in determining your eligibility to get a home loan. Based on this score, your lender will determine whether your home loan application is approved or rejected.

When you submit your application for a home loan, online or in person, the first thing your lender will check is your CIBIL score. If the CIBIL score is low along with a bad credit history, your home loan is likely to get rejected. But with a good enough CIBIL score, it will be approved at varying interest rates as per the score. And your application will be processed quickly with a high loan amount and low interest rates if your credit score is outstanding.

credit score

 

So, what is a poor, good or great CIBIL score? Although there is no standard score to define good or bad, every lender has a minimum number that determines approval or disapproval of applications. Usually, all banks and lending institutions consider 750 and above very good and below 350 very bad. This three digit summary of your finances is analyzed as per your credit history, debts and their repayments, credit cards overdues, and secured and/or unsecured loans, among others. Credit score valuation for home loans usually ranges from 300 to 900.

For home loan eligibility, you must have a CIBIL score of more than 700. Nonetheless, the higher your score is, the more faith your bank will have in you. This gives them surety of on-time repayments, which further enables you to get good interest rates. With a good credit score (closer to 900) and a good credit history, your lender may approve a home loan up to 85% of the property’s total cost.

It’s fairly easy to obtain your credit report from the CIBIL website at a minimal fee. This comes handy in figuring out where you stand when applying for a home loan. And in case, it’s not as great, you can always improve it. Your credit report at CIBIL provides information like:

Records of availed credit, loan repayments and credit card bills,

  • Defaults of late payments made by you,
  • Current credit card debts and loans, and
  • Information about loans and credit cards for which you have applied in the past.

With this list of your credit information, you can find out your home loan eligibility before applying and close previous debts to avail a better score for future.

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Why Credit Score is Important when Applying for a Home Loan

Buying a house is a cherished dream and to fulfill it, you work hard for years – whether to earn money or find that perfect abode where you can raise your family with pride and joy. However, many homebuyers find themselves stuck in a difficult situation when they apply for a home loan and either get declined or obtain loan at high interest rates. This happens to applicants who don’t have good enough credit score. So, let’s find out how credit score impacts your lending eligibility.

home loan

 

Lending institutions check the credit profile of every applicant prior to deciding whether or not to lend and the lending amount as well as at what interest rate. It’s just like recruiters checking out your resume for a job. When checking out home loan applications, lenders assign a credit score to each applicant. The scores begin from 300 and go up to 900, with 700-750 considered perfect for home loans.

Your credit score is crucial for determining your home loan eligibility by lenders. Here are the things that really impact your credit score.

Credit history

The credit history of applicants determine their creditworthiness and makes lenders sure of each applicant’s ability to repay the loan. You have to show records of your past bank statements, outstanding loan amounts (if any), and recent credit activities.

Capacity of borrower

This section includes checking whether or not the borrower is capable of paying up in future, irrespective of market conditions. The most determining factor for capacity is the borrower’s debt to income ratio.

Collateral

When applying for a home loan, borrowers pledge something they own as collateral for secured home loan. The property to be bought is taken as collateral by the lenders and even the loan amount is considered based on the value of collateral.

Capital

This part includes your investments, savings and assets as alternate repayment sources since your monthly income is the primary source. This assures lenders of guaranteed repayments even if primary source is unavailable for any reason.

Prior to applying for a home loan, you should check your credit score yourself and be sure beforehand. Work on the problem points of your credit score and then apply for a loan so that you have better chances of getting good amount at great prices. And this will also help you save up on the processing fee, just in case your credit score isn’t good enough right now.

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Everything You Need To Know About Tax Saver via NPS

Since the Finance Minister offered additional tax benefits for contributing to the National Pension System (NPS), the number of subscribers has increased significantly. The NPS is a defined voluntary retirement scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Under this system, subscribers must open a Tier I account and invest at least INR 6,000 per year until the age of 60 years. They may opt to invest additional money in a Tier II account. On maturity, investors are allowed to withdraw up to 60% of the accumulated amount as a lump sum. The balance must compulsorily be converted to an annuity plan to earn regular income during the post-retirement years.

pension

 

Every investor receives a Permanent Retirement Account Number (PRAN) on successful application. In case, an individual does not receive this unique number, he or she may check the PRAN status on the regulator’s site or with the Point of Presence (POP). POP is a PFRDA- approved institution where the NPS account is opened.

Tax savings with NPS

Section 80CCD (1)

Subscribers are able to enjoy tax deductions of up to INR 1.5 lacs under section 80CCD (1) of the Income Tax (IT) Act. This section is applicable for availing tax benefits for investments made in a government-notified pension plan. In addition to the NPS the plans include Public Provident Fund (PPF) and insurance policies. The limit under this section was enhanced from INR 1 lac to INR 1.5 lacs, which provides investors the opportunity to enjoy additional tax savings.
The cap for employees under this section is calculated as 10% of basic salary plus dearness allowance. Self-employed subscribers may avail tax benefits under this section for an amount capped at 10% of their gross income.

Section 80CCD (1B)

In the previous year’s budget, the Finance Minister offered a boost to NPS by announcing an additional tax benefit for contributions made to this defined plan. Section 80CCD (1B) of the IT Act offers investors the chance to avail additional tax deductions of up to INR 50,000 per year on their NPS contributions.

The combined NPS tax benefits are advantageous for taxpayers in the highest (30%) bracket. They can save an additional INR 15,450 in taxes [under section 80CCD (1B)] by contributing INR 50,000 to their NPS account.

Section 80CCD (2)

Contributions made by the employers in their employees’ NPS accounts are eligible for tax benefits under section 80CCD (2) of the IT Act. This amount is capped at 10% of the basic salary plus dearness allowance.

Maturity

Since its launch, NPS has been categorized as an Exempt-Exempt-Taxable (EET) scheme. This means the annual contributions made to this scheme and the interest earned are both tax-free. However, investors have to pay taxes as per their tax slabs at the time of maturity.

In Budget 2016, the Finance Minister has relaxed the tax on maturity. As per the revised regulations, 40% of the lump sum withdrawal on maturity is now tax-free. If the subscriber opts to withdraw more than 40% of the accumulated corpus, the difference is taxable at the prevailing tax rate. The amount converted to an annuity is tax-free; however, the income through this plan is taxable in the year it is received. The annuity income can be calculated using a pension calculator.

The PFRDA in October 2015 has further provided benefits for NPS subscribers. Subscribers may now withdraw the lump sum amount in 10 annual installments until the age of 70 years. Using this modification wisely may benefit subscribers in further tax savings.

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