Control Your Expenses

Many of us focus more on earning money these days. The real secret to achieve financial freedom or to save more money for happy life is to reduce the expenses. A small control on our expenses can lead to a better living. If we need to spend Rs.1,000 today and if we are able to control that under Rs.800 and investing that in a better place will lead to a great heights financially in future.

In many businesses, promotors spend certain amount of money to reduce the tax. As we know the business can pay tax only on the income made after deducting the expenses. Many medium size companies does this to have a tax saving. I personally have a different view on this. Any business should reduce their expenses on whatever the concern it may be. Only by doing so, they can travel to the next level on their business.

When a person controls his/her expenses, it shows the disciple he/she has towards his/her personal finance. It also gives the better image on their future. As Dave Ramsey said in his famous book "The Total Money Makeover" - If you will live like no one else, Later you can live like no one else. 

These lines gives the indication on how one should control their expenses for the betterment of future well-being. Thiruvalluvar said in his 478 kural about controlling the expenses as below:

This means "Incomings may be scant; but yet, no failure there, if in expenditure you rightly learn to spare". No matter how big / small the income is, if one knows how to control his expenses. Else, even if it was a king, he will face the consequences.

How to control expenses and start saving and investing ? Is there a way ?

There is a way as said in the book "The Richest Man in Babylon". This would be tough initially but when practiced, it will make anyone richer than they wished for. What ever you earn as an income from any source, first step is to take 10% aside and start saving or investing it for the future. This can compound and make anyone richer in future.

I wish all the readers of this blog to take control of their expenses and invest in a better way to gain more wealth.

Have a Great Day

B G Nareshkumar

Personal Finance - Budgeting

Many of us are good at managing our finances but few have the habit of monitoring their personal finance through budget system. It is the reality to understand one can achieve financial freedom at the earliest by maintaining the budget process for daily finance. Now-a-days we have many apps and systems to maintain and monitor our budgeting system. This not only allow us to enter the income and expense and see the data, it allows us to plan for the future.

Once a person starts maintaining the budgeting process in their personal finance, he/she will notice the discipline in their spending nature and will ask themselves before spending or buying anything. Budgeting system allows them to keep their requirement and needs shorter as possible. By following this, the investment and saving process becomes very effective. When investing process becomes effective, the compounding plays its role to make them richer and financially free at the earliest.

Budget should be made for all expenses including loan repayment to daily expenses. Few can be Rent / Home Loan EMI, Car Loan EMI, Business / Personal Loan EMI, Groceries, Eating Out, Entertainment, Travel, Fuel Expenses, Shopping, Miscellaneous and so on.

When we have expenses maintained, the most important part is to include the income in our budgeting. Once we start maintaining the income source, we will push ourselves to have more stream of income. Few of the income sources can be Salary, Business Income, Capital Gains (it can be land, stocks or gold sale), Dividend Income, Income from Rent and so on.

Once we start maintaining the income and expenses part on a daily basis, we will automatically push ourself to control our personal finance. Later, this will lead to happier and controlled financial structure.

These days people use UPI payment process for most of the purchases. This easy way of payment process makes people to spend more. This can only be monitored and reduced through budgeting process. Our hard earned money should be kept in a place where it is not easily accessible to spend. UPI is a place where spending is easy. We can follow the below 3 ways to reduce or avoid over spending through UPI.

• It is better if we can avoid UPI payments wherever it is possible and use cash as payment mode

• We can keep a rule to ourself that we will use UPI payment only 2 times a day with a limit to payment

• We link the UPI payment gateway to a bank where we have limited amount maintained and restriction given to the particular bank on spending per day / month

I am not against the easy processing system on payments. However, this should not control us and push us to over spend. These days UPI payments can be done overseas as well. Hence one should be very careful on charges and spending.

Hope this helps the reader of the blog follow the budgeting process on their personal finance and enjoy the investing process and generate huge wealth.

Have a Great Day

B G Nareshkumar

Capital Gain, Tax & Pledge

When we are speaking about stock market and investing, we cannot forget the term capital gain & capital gain tax. There are 2 types of capital gains, Shot term and Long term. Short term capital gain is defined as profit generated by selling a stock or group of stocks which were held and sold with in a year. Whereas, Long term capital gain is stocks sold which were held over a year. The long term gains from equity above Rs. 1 lakh annually are taxed at 10% while short term gains are taxed at 15% as of July 2024.

I invest on selected stocks, which I feel would give great returns on long term. However, initially when I started my investing journey, I own few stocks and sold with in a year. These comes under short term capital gain tax of 15%. This was very huge and revisited my portfolio and spend time in identifying the quality stocks which I would keep at least for 10 years and invested on those. Buying and selling of stocks not only attract capital gain taxes, we should also consider brokerage, security transaction charges, exchange charges, GST and stamp duty. So, holding a stock more than 10 years would reduce our taxation and also increase the profit earned over time.

Let us keep aside this capital gain tax aside. When we hold a quality stock, we also has the option to pledge those and get the collateral margin to perform trading (this is advisable only when a person gets enough knowledge and practice with small money). This collateral margin received could be somewhere between 80% to 90% of the current value of the stock. So over time, when the stock price increases we will also get higher collateral money to trade on futures and options. This could give us some additional profit, if done carefully with patience.

So, this gives the clear understanding that when a quality stock was held for a longer period of time, it will give us higher capital gain / profit, it attracts lesser tax percentage on capital gain and enough margin to trade on futures and options. I would not recommend readers of this blog to do any trading on futures (as I don't believe one can make money in futures). However one can sell far "out of the money" option to gain some premium.

Hope this blog helps in understanding the concept of capital gains and taxes.

Have a Great Day

B G Nareshkumar