Category Archives: Peronal Finance

Beating the inflation – what to do with your savings (Feb 2017)

Cash at hand may sound good but it is not a good idea for several reasons. On one hand, it may not be safe and can be a hassle carrying it around but more importantly, it loses value with time – due to inflation. In short, if you are able to buy something for 100/- now, you may have to pay more for it next year. Inflation for January 2017 was 5.5% as per the Central Bank of Sri Lanka, therefore you need to grow your money by more than these levels to preserve the value of money.

Generally people are aware that they receive an interest on bank deposits, but at times they do not know how much they get. While current accounts pay no interest on the balance, savings accounts give a low interest around 3-4% pa normally but give flexibility on the amount and ability to withdraw at any time. There are specialized savings accounts by certain banks which provide higher rate of interest with few conditions.Fixed deposits are the next option with less flexibility in terms of withdrawal but they do offer an option to take a loan on deposit at any time if needed. Finance companies generally offer higher rates for than banks and even higher for senior citizens.

Let’s take a few options for an excess amount of 100,000/- at hand and what you can do with it.

  • PABC Champion Saver – 5.50%
  • DFCC Xtreme Saver – 6.50%
  • Cargills Bank High Return Saver – 7.00%
  • Cargills Bank 12 month FD – 13.00% pa
  • Sampath Bank 13 month FD – 13.00% pa
  • Sampath Bank 12 month FD – 12.00% pa
  • DFCC 12 month FD – 12.00% pa
  • Vallibel Finance 12 month FD – 12.50% pa
  • Vallibel Finance 5 year FD – 13.50% pa monthly interest payment

Above rates are as at 8th February 2017 from the respective websites.

You can also consider investing in shares if you prefer. Equities tend to give better returns over long period of time although currently the Colombo Stock Exchange index has taken a beating during last few months. ASI index is 6093 as of 7th February 2017. Contact your stock broker for professional advise.

 

 

 

Is saving really necessary?

Most of us are familiar with savings accounts offered by banks. As the name suggests, it is for us to save a part of money that we earn regularly. We put aside a certain amount for later use. It can be some specific use or for an emergency. A few transfer this to a term deposit when a significant amount is built up so a higher interest can be earned.

So, is saving really necessary?

I happen to see friends, who (at least when they were new to earning) used to spend up all that they earned. It’s that ‘honeymoon’ period with working for the first time and you get a handful (or account-full) of cash at the end of the month. In some cases, half the salary would vanish within the first week, after buying ‘stuff’. Credit cards too come into action later which makes things a bit more complicated. But the bottom-line is that the individual is enjoying by fulfilling all their needs for which they had to wait for quite some time. Is there anything wrong in that? No.

But this should not go on forever. One must not work under the assumption that the flow of income will last forever and everything will go according to plan. It won’t. Things change when moving out of parents house, getting married, dismissed from work, etc., There will be a sudden need for a higher income which one cannot find in a rush.

Savings helps here (unless you are loaded already or due an inheritance). Best way to save is to set aside a part of your income instead of the balance after spending.

The balancing act of spending vs. saving

While most argue that saving will sacrifice on what you spend now on improved lifestyle, fulfilling needs (not wants) and how short and unpredictable life is, a short-term mindset like this may make you pay in the long run. On the contrary, returns on investments from the savings will let you do do these gradually a few years down the line AND also have a savings fund. It’s important to find the right balance for your life.

The art is not in making money, but in keeping it. – Proverb

Life does not always come with constant recurrent expenses every month. There will be large expenses, both expected and unexpected that will arise from time to time. This is when most turn to debt. Thereafter pay down the debt, which again will shrink your purchasing power. It is never a good idea to take out a loan if it not used for something that will pay you back (unless it’s an emergency). If it is an urgent medical need, a loan may not be obtained in quick time unless expensive. As for having a wedding, taking a loan to spend for it, does not make sense at all. The list goes on, and will make you realize why savings is necessary.

Then we come to the point on what we should do with our savings. Well that’s a topic for another time.

So think of how savings matters to you (if it does at all), and how to strike a balance between saving and spending.

 

How To Become A Millionaire By Age 30

Source: Read more: http://www.entrepreneur.com/article/234454#ixzz3XfRJb9Ir

I found this to be a good read. Most, if not all, points of the author reflect my personal views as well. I hope to write something similar soon in my own words. Meanwhile…

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