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Saturday, 25 May 2013

10 deadly sins that keep you poor

Wonder why you’re always out of cash? These are poor habits that keep you from getting rich. These are mostly spending sins.

   1. Using credit cards or debit cards:

    The card has become such an important part of our lives we cannot live without it. I have always argued that the card dramatically reduces our need to print notes, etc…however if you wish to reduce your expenses, stop using the card, shift to cash.
 2. Emotional Shopping:

    Stop and think why you are buying things. Is it because you had a fight? an argument with your boss? time-pass? as entertainment? you have been waiting for a friend and you were supposed to meet in a mall? Or do you really need the things that you are staring at in a shop? Instant gratification is great – so what if it creates debt in the long run?
 3. Entitlement shopping:

    Amazing how many people think ‘this much is basic’ how can I not travel by air, taxi, auto…or ‘it is my wedding anniversary, I MUST BUY HER a diamond ring’ or ‘sir we just need an I pad’ . Amusing to see kids buying a mobike, car, house, …all on such ‘sir everybody borrows to buy a house’ theory. Entitlement based on dad’s earnings is even funnier to watch.

  4. Peer pressure:

    where you live, what you buy, where you eat out, what you do – all this is decided by colleagues, classmates, etc. who are actually chasing you. Funny situation is it not? No clue who is chasing whom – seem to be running in circles and wondering where have they reached!

 5. Addictions can be expensive:

    shopping, tobacco, eating at fancy joints, buying expensive things, alcohol, travel – anything which becomes an obsession or addiction sucks money out of your system, and fast!

 6. A victim of the media:

    today your entertainment has to be going to a mall, bowling, playing other games, movies or eating out. To imagine that reading a book, carrom, going for a walk, cycling around, etc – those which you can do together but does not cost money have been so beautifully killed as entertainment thoughts! Wow media, you have achieved your goals!

 7. Self worth is completely dependent on what you have.

    So all ‘show off ‘ assets HAVE to be branded. There is a whole gen out there which has been beautifully told that Brand = Value. Excellent for me as a shareholder of cos. where I am a shareholder…but it is hurting you like mad, wake up!

 8. No plan:

    no plan of expenditure, career, savings, retirement, …so it hardly matters.
 9. No understanding of investment concepts

    like start early, compounding, power of small numbers – leading to fatalistic statements like – what will I be able to do saving Rs. 4000 a month? or I will never be able to buy a house in Mumbai, so let me live it up!
  10. One more loan won’t matter

    I anyway have X amount of student debt, x amount of car debt, y amount of personal debt…so what if I added another small amount

    Click next to find out secrets to earn more wealth
    For every newly minted billionaire, there are cautionary tales of the well-heeled undone by visits from the tax man, the loan officer and Uncle Sam himself.
    A fortune requires finesse. As well as a willingness to embrace financial exotica, trips to Bermuda and the drive to start your own business--as a survey of FORBES' knowledge of the world's wealthiest people reveals. Below are seven tricks, secrets and maneuvers regularly conducted by those with more than a shekel or two to accumulate and maintain their fortunes.

 1. Cash flow is important. Buy MLPs, sell the steak house
    Where does Brad Pitt put his multi-million-dollar paychecks? It's not too much to presume that he, like much of Hollywood, has money invested in master limited partnerships (MLPs). Conversations with five of Hollywood's top money managers revealed a cult following for these stocks, which generate strong yields and cash flow. Like real estate investment trusts, MLPs pay no taxes. Hence, they have more to share with investors, and payouts are more lightly taxed.
  They're certainly more than one-hit wonders. The Alerian MLP Index's returns beat the S&P 500's on a 1-year, 3-year-, 5-year and 10-year basis. The index, holding some 50 MLPs, favors gas-and-oil infrastructure companies like Enterprise Products Partners, Kinder Morgan and Plains All American Pipeline.
 Alan Goldman, a Los Angeles business manager with a star-studded rolodex and client roster, says he's often left talking his crew out of pitches on the next trendy restaurant, instead advising more consistent investments, like MLPs. "We find that they need to be more conservative than Joe Average." Goldman sighs. "The restaurants are very, very popular with entertainers. We look at something like a restaurant and just assume that the money is gone."
   2. Think like Zuck. Think trusts
    Doubts about Facebook the company's longevity aside, Mark Zuckerberg and his co-founder Dustin Moskovitz have already taken steps to secure their family's legacy. As FORBES reported last March, Zuckerberg and Moskovitz put pre-IPO stock into a type of financial instrument called a grantor retained annuity trust (GRAT). The pair, by FORBES estimates, wound up moving more than $200 million to the trusts. Future payouts will avoid the 45% gift tax that existed (in 2008) when these trusts were created. Perhaps not as cool as sliding $1 billion past the IRS, but a GRAT is especially useful for stashing away hard-to-value assets, like private companies shares, because it allows changes to the trust's details if you're audited.
 3. Make your corporation pay you
    Ever heard of these corporations: Screaming Lord Baltic, Flip-Flop Films or On Nets Above People? Probably not, unless you're toiling in Warner Brothers' back-office.

    Each of those entities were incorporated by an entertainer, specifically those advised by Scott Feinstein, who reps celebs like Aaron Paul, Hilary Duff and Taylor Lautner. Feinstein suggests the maneuver because it allows clients to better manage taxes and expenses. Celebs many times have trouble deducting some of large business expenses they face. "These are people paying out like 20% or 40% in their income in expenses," to people like agents and managers, Feinstein says. Why can't the silver-screen crowd make the deductions? The Alternative Minimum Tax, something every American pays. "It effects something like 20 million Americans, and it limits how many expenses you take to eliminate your taxable income."
To get around this, celebs start a corporation and instruct producers to pay the corporation, not them directly. (The government made an exception for entertainers to earn wages this way, Feinstein says. You, in all likelihood, cannot.) The corporation, in turn, pays the entourage, and the star emerges with a lowered taxable income.

 While Feinstein favors this method, he refuses to take the blame for the oddity of the corporate names: "I tell them to come up with something that means something to them." Screaming Lord Baltic. Huh.
 4. Insurance, Bermuda-Style
    The latest tax loophole exploited by hedge funds involves the reinsurance business. A whole host of billionaire hedge fund managers have started Bermuda-based reinsurance companies since 2011, according to Bloomberg, and the roll includes bold-faced names like John Paulson, SAC Capital Advisors' Stevie Cohen, Third Point's Dan Loeb. (They were inspired by Greenlight Capital's David Einhorn.) By sending money through these companies, the hedge funds recycle it and reduce personal income taxes and delay the eventual tax bill. Normally the managers would be paying either ordinary income taxes (39.6%) or long-term capital gains taxes (20%).
  5. Find stocks you'll never sell
    At the forefront of investing royalty in the last century was an intense man with round glasses from northern California named Philip Fisher. He became the first to author an investing book that cracked The New York Times bestseller list with Common Stocks and Uncommon Profits in 1958. It became an establishing text for modern growth investing, laying out a 15-point strategy that wound up catching the attention of a young man from Nebraska: Warren Buffett, who would make tens of billions of dollars through a combination of Fisher's tenets and those by value investing founding father Benjamin Graham.
Today, Fisher's son, Ken, is also a billionaire. He manages a $42 billion asset management company, and still calls northern California home. The younger Fisher is perhaps more value oriented than his father--especially favoring the price/sales ratio when assessing a company's worth--but there's a particular point in his father's work that he says is never far from his mind. Probably because it plays well in value investing, too. It's the idea that you buy a stock with the mentality to own it forever.
 Papa Fisher had good reason to buy and never let go. He faced capital gains rates that topped 45%. (Today's, by contrast, cap gains are much lower at 20% or so.) He bought DuPont and Dow Chemical in the 1930s, selling them only four decades or so later. He picked up Motorola in the 1980s, and still owned shares when he died at age 96 in 2004.
 Does such a mentality have a place in today's world of milisecond trading? "If done right, yes," says the younger Fisher. "People aren't perfect, though."
   6. Put growth investments in a roth IRA
    The investments with the greatest potential for growth should go into a Roth IRA. They sit there tax free, and as long as you wait until the age requirement (59 and a half), withdraws won't be levied either. Employees at fast-growing private companies often go this route. Peter Thiel did it as CEO of PayPal in 2001, buying 1.7 million shares for 30 cents a share through his Roth. The 2002 eBay acquisition of PayPal make those shares produce a $31.5 million profit. The man who founded PayPal with Thiel, Max Levchin, has also done something similar. His Roth has already sold 3.1 million Yelp shares and holds another 3.9 million. Result: some $95 million that an elder Levchin can withdraw tax free.
  7. Start your own business
    Click over to FORBES' roll of billionaires, and you'll notice something if you dig into the biographies. Nearly all of the 1,426 billionaires made their fortunes through an entrepreneurial spirit (or their fortunes come from a family member who created the business). Ten-figure sums aren't earned by rising through corporate ranks. They're made from creating the whole shebang from scratch. It will likely occur by happenstance, in the most unsuspecting of ways. Recall that the world's fourth richest man, the aforementioned Buffett, left the working world in 1955 with plans to retire. Shortly after, cajoled by a seven-person group of family and friends, twentysomething Buffett formed a partnership that laid the groundwork for his $53.5 billion fortune. He did so over a small dinner at the Omaha Club.
 Click next to find out 7 easy ways to save money
  There is a paradox that exists when you're in your 20s; you have the energy and freedom to do whatever you want, but not necessarily the funds to do so. Often the two sides are at odds with one another, but they don't inevitably have to be. There are a number of ways to exercise your youthful exuberance, whether it be venturing out into the world on your own or pursuing your passions, without hemorrhaging money.
 Here are a few tips to survive and thrive in your 20s without breaking the bank.

  Live with Roommates

    If you attended college and shared a place with peers, why not continue to do so after you enter the workforce? It's a good way to begin the onset of personal budgeting and household running without having to incur the higher prices that come with a single-bedroom residence. Living with roommates will also allow you to build up some experience dealing with financial responsibility and living under the same roof as other people before you dive headfirst into purchasing property with a spouse. Splitting rent with three other people for a place with a single bathroom, or sharing a fridge, may not be the most glamorous of accommodations to have in your 20s, but a few years down the line it will save you money while allowing you to maintain some financial independence.
 Rent appliances

    Instead of purchasing appliances try to rent appliances so if you have to suddenly move out you have to bear no re-location charges or risk damaged goods in transition.

 Invest in a bicycle instead of motorcycle or car

    You’ve just landed a job and the motor cycle looks really tempting, but you could save up that money and buy a bicycle instead and work up those muscles. You can always cycle to work if you live close enough or leave it at the metro/train station. This would also save you your gym subscription. The car can wait till you manage to save enough for a decent down payment.
 Learn to Cook

    Learning how to cook can boost your finances and cut out unnecessary fat, both literally and figuratively. Suppose you spend at least Rs 200 on meals each day of a full week - you're looking at a food budget of 1400 a week, excluding snacks and beverages. For the same amount, you can visit your local grocery store and purchase produce, meats, spices and grains which will yield a wide variety of healthy meals that can last you for more than a week.
 Cancel Your Cable TV Subscription

    As the generation that heralded in the advent of the Internet, you have to honestly ask yourself: do you truly need to pay Rs 400 a month on cable television? With a basic broadband Internet connection, you can be connected to hours of free media from sites such as YouTube. Why then, coupled with the cost of your Internet connection, would you pay for a cable package that provide dozens of networks that you likely do not watch? There are multiple subscriptions that the average frugal 20-year-old can cut from his or her monthly budget, but given the amount of media available for a fraction of the cost of a basic package, the choice to let go of cable television seems to be the first obvious choice.
  Steer clear of credit cards

    You’ve only just started earning; do you really want to be in debt just yet? Living without a credit card is a good way to learn to live within your means. You can always create a fund and save up for a few months for the 42 inch plasma TV that you’ve been eyes since college. You’ve waited so far, wait just a little bit longer.

Volunteer With an Organization

    Do you like looking at fine art? Attending concerts? Playing with dogs? Look for a business or organization in your area looking for volunteers. You might be surprised at how many of the places you enjoy frequenting will let you volunteer. What these opportunities lack in compensation, they make up for volunteer perks. For instance, some music venues look for ushers and bartenders to work at shows and in return allow volunteers to watch performances for free.

    While letting you enjoy your passions at no cost besides your time, volunteering has the added opportunity for you to mingle and meet new people.


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