The 3 Decisions That Will Change Your Financial Life

There’s nothing worse than a rich person who’s chronically angry or unhappy. There’s really no excuse for it, yet I see this phenomenon every day. It results from an extremely unbalanced life, one with too much expectation and not enough appreciation for what’s there. Without gratitude and appreciation for what you already have, you’ll never know true fulfillment. But how do you cultivate balance in life? What’s the point of achievement if your life has no balance? For nearly four decades, I’ve had the privilege of coaching people from every walk of life, including some of the most powerful men and women on the planet. I’ve worked with presidents of the United States as well as owners of small businesses. Across the board, I’ve found that virtually every moment people make three key decisions that dictate the quality of their lives. If you make these decisions unconsciously, you'll end up like majority of people who tend to be out of shape physically, exhausted emotionally and often financially stressed. But if you make these decisions consciously, you can literally change the course of your life today. Decision 1: Carefully choose what to focus on. At every moment, millions of things compete for your attention. You can focus on things that are happening right here and now or on what you want to create in the future. Or you can focus on the past. Where focus goes, energy flows. What you focus on and your pattern for doing so shapes your entire life. Which area do you tend to focus on more: what you have or what’s missing from your life? I’m sure you think about both sides of this coin. But if you examine your habitual thoughts, what do you tend to spend most of your time dwelling on? Rather than focusing on what you don’t have and begrudging those who are better off than you financially, perhaps you should acknowledge that you have much to be grateful for and some of it has nothing to do with money. You can be grateful for your health, family, friends, opportunities and mind. Developing a habit of appreciating what you have can create a new level of emotional well-being and wealth. But the real question is, do you take time to deeply feel grateful with your mind, body, heart and soul? That’s where the joy, happiness and fulfillment can be found. Consider a second pattern of focus that affects the quality of your life: Do you tend to focus more on what you can control or what you can’t? If you focus on what you can’t control, you’ll have more stress in life. You can influence many aspects of your life but you usually can’t control them. When you adopt this pattern of focus, your brain has to make another decision: Related: Tony Robbins on the 7 'Forces' of Business Mastery Decision 2: Figure out, What does this all mean? Ultimately, how you feel about your life has nothing to do with the events in it or with your financial condition or what has (or hasn't) happened to you. The quality of your life is controlled by the meaning you give these things. Most of the time you may be unaware of the effect of your unconscious mind in assigning meaning to life’s events. When something happens that disrupts your life (a car accident, a health issue, a job loss), do you tend to think that this is the end or the beginning? If someone confronts you, is that person insulting you, coaching you or truly caring for you? Does a devastating problem mean that God is punishing you or challenging you? Or is it possible that this problem is a gift from God? Your life takes on whatever meaning you give it. With each meaning comes a unique feeling or emotion and the quality of your life involves where you live emotionally. I always ask during my seminars, “How many of you know someone who is on antidepressants and still depressed?” Typically 85 percent to 90 percent of those assembled raise their hands. How is this possible? The drugs should make people feel better. It's true that antidepressants do come with labels warning that suicidal thoughts are a possible side effect. But no matter how much a person drugs himself, if he constantly focuses on what he can’t control in life and what’s missing, he won't find it hard to despair. If he adds to that a meaning like “life is not worth living,” that's an emotional cocktail that no antidepressant can consistently overcome. Yet if that same person can arrive at a new meaning, a reason to live or a belief that all this was meant to be, then he will be stronger than anything that ever happened to him. When people shift their habitual focus and meanings, there’s no limit on what life can become. A change of focus and a shift in meaning can literally alter someone's biochemistry in minutes. So take control and always remember: Meaning equals emotion and emotion equals life. Choose consciously and wisely. Find an empowering meaning in any event, and wealth in its deepest sense will be yours today. Once you create a meaning in your mind, it creates an emotion, and that emotion leads to a state for making your third decision: Decision 3: What will you do? The actions you take are powerfully shaped by the emotional state you're in. If you're angry, you're going to behave quite differently than if you're feeling playful or outrageous. If you want to shape your actions, the fastest way is to change what you focus on and shift the meaning to be something more empowering. Two people who are angry will behave differently. Some pull back. Others push through. Some individuals express anger quietly. Others do so loudly or violently. Yet others suppress it only to look for a passive-aggressive opportunity to regain the upper hand or even exact revenge. Where do these patterns come from? People tend to model their behavior on those they respect, enjoy and love. The people who frustrated or angered you? You often reject their approaches. Yet far too often you may find yourself falling back into patterns you witnessed over and over again in your youth and were displeased by. It’s very useful for you to become aware of your patterns when you are frustrated, angry or sad or feel lonely. You can’t change your patterns if you’re not aware of them. Now that you’re aware of the power of these three decisions, start looking for role models who are experiencing what you want out of life. I promise you that those who have passionate relationships have a totally different focus and arrive at totally different meanings for the challenges in relationships than people who are constantly bickering or fighting. It’s not rocket science. If you become aware of the differences in how people approach these three decisions, you’ll have a pathway to help you create a permanent positive change in any area of life.

5 Ways to Sustain a Long-Term Career Focus

1. Become a professional student. I don't necessarily mean return to school for an MBA or doctorate. What I urge you to do is to consistently engage in the process of learning new things, both within and outside your chosen field. Today's entrepreneurs live in an era when free and readily accessible information is at their fingertips -- more so than ever before. If knowledge is power, then it's what businesspeople need to achieve the professional goals found at the finish line. 2. Remember that mistakes are simply expensive tuition. I have learned that wisdom comes from taking more from mistakes than what they take out of you. Replay mistakes? Yes. Obsess over them? No. Look at mistakes as a very necessary part of your education -- another way to test your resolve and prepare you to succeed. In the book Great by Choice, author Jim Collins put it brilliantly: “Treat mistakes as expensive tuition; better get something out of it, learn everything you can, apply the learning, and then don’t repeat.” 3. Rely on the old-fashioned work ethic. Every week headlines announce yet another tech company that sold for millions, leaving the former owners instantly rich. One could infer from news like this that luck or a single stroke of genius is the impetus for success. But if you question these entrepreneurs about the real reasons, the phrase “hard work" will pop up in every answer, I'm willing to bet. A strong work ethic has a way of leveling the playing field. Put in the hours and you’ll be in the right place and luckier more often than those who don’t. Remember that time doesn’t discriminate. Everyone has the same number of hours in a day to work hard and move forward. Related: The Real Person's Guide to Finding Your Passion and Loving What You Do 4. Work with a purpose. There's work and then there's working with focus -- and the latter is always preferable. While you’re involved in a project, the intent should be mastery of the task at hand. Do I believe hundreds or thousands of hours of deliberate practice will always accomplish the impossible? No. But if you're in a field or business that you're passionate about and work with unbreakable focus, then more times than not you’ll remain a step above the competition. 5. Weigh decisions with the long view in mind. The battle between short-term versus long-term gratification has been waged for eons by the best and brightest. It's captured in this everyday question: Should I eat this piece of cake or hit the gym? Devouring the sweet treat will undoubtedly make you feel better in the moment, but you know the gym is the better long-term decision.

10 Reasons You Have to Quit Your Job

My boss screamed at me in front of my colleagues. I had done something wrong of course. I had sent a product to the client without debugging it thoroughly. It was my fault. But I don’t like being yelled at. And fortunately I was sitting on a job offer that I decided to take that moment. So the next day I said the magic words, “I quit”. And then a few years after that, I quit again, and never went back to work in the corporate world. And now it’s too late. Now the course of history has finally written its next chapter. There’s no more bullshit. I’m going to tell you why you have to quit your job. Why you need to get the ideas moving. Why you need to build a foundation for your life or soon you will have no roof. 1. The middle class is dead. A few weeks ago I visited a friend of mine who manages a trillion dollars. No joke. A trillion. If I told you the name of the family he worked for you would say, “they have a trillion? Really?” But that’s what happens when ten million dollars compounds at 2% over 200 years. He said, “look out the windows”. We looked out at all the office buildings around us. “What do you see?” he said. “I don’t know.” “They’re empty! All the cubicles are empty. The middle class is being hollowed out.” And I took a closer look. Entire floors were dark. Or there were floors with one or two cubicles but the rest empty. “It’s all outsourced or technology has taken over for the paper shufflers,” he said. “Not all the news is bad,” he said. “More people entered the upper class than ever last year.” But, he said, more people are temp staffers than ever. And that’s the new paradigm. The middle class has died. The American Dream never really existed. It was a marketing scam. And it was. The biggest provider of mortgages for the past 50 years, Fannie Mae, had as their slogan, “We make the American Dream come true.” It was just a marketing slogan all along. How many times have I cried because of a marketing slogan. And then they ruined it. Related: Multi-Tasking Will Kill You (LinkedIn) 2. You’ve been replaced. Technology, outsourcing, a growing temp staffing industry, productivity efficiencies, have all replaced the middle class. The working class. Most jobs that existed 20 years ago aren’t needed now. Maybe they never were needed. The entire first decade of this century was spent with CEOs in their Park Avenue clubs crying through their cigars, “how are we going to fire all this dead weight?”. 2008 finally gave them the chance. “It was the economy!” they said. The country has been out of a recession since 2009. Four years now. But the jobs have not come back. I asked many of these CEOs: did you just use that as an excuse to fire people, and they would wink and say, “let’s just leave it at that.” I’m on the board of directors of a temp staffing company with one billion dollars in revenues. I can see it happening across every sector of the economy. Everyone is getting fired. Everyone is toilet paper now. Flush. 3. Corporations don’t like you. The executive editor of a major news publication took me out to lunch to get advice on how to expand their website traffic. But before I could talk he started complaining to me: “our top writers keep putting their twitter names in their posts and then when they get more followers they start asking for raises.” “What’s the problem?” I said. “Don’t you want writers that are popular and well-respected?” When I say a “major news publication” I am talking MAJOR. He said, “no, we want to be about the news. We don’t want anyone to be an individual star.” In other words, his main job was to destroy the career aspirations of his most talented people, the people who swore their loyalty to him, the people who worked 90 hours a week for him. If they only worked 30 hours a week and were slightly more mediocre he would’ve been happy. But he doesn’t like you. He wants to you stay in the hole and he will throw you a meal every once in awhile in exchange for your excrement. If anyone is a reporter out there and wants to message me privately I will tell you who it was. But basically, it’s all of your bosses. Every single one of them. 4. Money is not happiness. A common question during my Twitter Q&A (that I give every Thursday from 330-430 PM EST), asked at least once a week, is “should I take the job I like or should I take the job that pays more money”. Leaving aside the question of “should I take a job at all”, let’s talk about money for a second. First, the science: studies show that an increase in salary only offers marginal to zero increase in “happiness” above a certain level. Why is this? Because the basic fact: people spend what they make. If your salary increases $5,000 you spend an extra $2000 on features for your car, you have an affair, you buy a new computer, a better couch, a bigger TV, and then you ask, “where did all the money go?” Even though you needed none of the above now you need one more thing: another increase in your salary, so back to the corporate casino for one more try at the salary roulette wheel. I have never once seen anyone save the increase in their salary. In other words, don’t stay at the job for safe salary increases over time. That will never get you where you want – freedom from financial worry. Only free time, imagination, creativity, and an ability to disappear will help you deliver value that nobody ever delivered before in the history of mankind. 5. Count right now how many people can make a major decision that can ruin your life. I don’t like it when one person can make or break me. A boss. A publisher. A TV producer. A buyer of my company. At any one point I’ve had to kiss ass to all of the above. I hate it. I will never do it again. The way to avoid this is to diversify the things you are working on so no one person or customer or boss or client can make a decision that could make you rich or destroy you or fulfill your life’s dreams or crush them. I understand it can’t happen in a day. Start planning now how to create your own destiny instead of allowing people who don’t like you to control your destiny. When you do this count, make sure the number comes to over 20. Then when you spin the wheel the odds are on your side that a winning number comes up. 6. Is your job satisfying your needs? I will define “needs” the way I always do, via the four legs of what I call “the daily practice”. Are your physical needs, your emotional needs, your mental needs, and your spiritual needs being satisfied? The only time I’ve had a job that did was when I had to do little work so that I had time on the side to either write, or start a business, or have fun, or spend time with friends. The times when I haven’t is when I was working too hard, dealing with people I didn’t like, getting my creativity crushed over and over, and so on. When you are in those situations you need to plot out your exit strategy. Your hands are not made to type out memos. Or put paper through fax machines. Or hold a phone up while you talk to people you dislike. 100 years from now your hands will rot like dust in your grave. You have to make wonderful use of those hands now. Kiss your hands so they can make magic. One can argue, “not everyone is entitled to have all of those needs satisfied at a job.” That’s true. But since we already know that the salary of a job won’t make you happy, you can easily modify lifestyle and work to at least satisfy more of your needs. And the more these needs are satisfied the more you will create the conditions for true abundance to come into your life. Your life is a house. Abundance is the roof. But the foundation and the plumbing need to be in there first or the roof will fall down, the house will be unlivable. You create the foundation by following the Daily Practice. I say this not because I am selling anything but because it worked for me every time my roof caved in. My house has been bombed, my home has been cold and blistering winds gave me frost bite, but I managed to rebuild. This is how I did it. 7. Your Retirement Plan is For S**t. I don’t care how much you set aside for your 401k. It’s over. The whole myth of savings is gone. Inflation will carve out the bulk of your 401k. And in order to cash in on that retirement plan you have to live for a really long time doing stuff you don’t like to do. And then suddenly you’re 80 and you’re living a reduced lifestyle in a cave and can barely keep warm at night. The only retirement plan is to Choose Yourself. To start a business or a platform or a lifestyle where you can put big chunks of money away. Some people can say, “well, I’m just not an entrepreneur .” This is not true. Everyone is an entrepreneur. The only skills you need to be an entrepreneur: an ability to fail, an ability to have ideas, to sell those ideas, to execute on those ideas, and to be persistent so even as you fail you learn and move onto the next adventure. Or be an entrepreneur at work. An “entre-ployee”. Take control of who you report to, what you do, what you create. Or start a business on the side. Deliver some value, any value, to any body, to somebody, and watch that value compound into a carer. What is your other choice? To stay at a job where the boss is trying to keep you down, will eventually replace you, will pay you only enough for you to survive, will rotate between compliments and insults so you stay like a fish caught on the bait as he reels you in. Is that your best other choice? You and I have the same 24 hours each day. Is that how you will spend yours? 8. Excuses. “I’m too old”. “I’m not creative.” “I need the insurance.” “I have to raise my kids”. I was at a party once. A stunningly beautiful woman came up to me and said, “James, how are you!?” WHAT? Who are you? I said, “hey! I’m doing well.” But I had no idea who I was talking to. Why would this woman be talking to me? I was too ugly. It took me a few minutes of fake conversation to figure out who she was. It turns out she was the frumpish-looking woman who had been fired six months earlier from the job we were at. She had cried as she packed up her cubicle when she was fired. She was out of shape, she looked about 30 years older than she was, and now her life was going to go from better to worse. Until…she realized that she was out of the zoo. In the George Lucas movie, THX-1138 (the name of the main character was “THX-1138″) everyone’s choices are removed and they all live underground because above ground is “radioactive”. Finally THX decides better to die above ground than suffer forever underground where he wasn’t allowed to love. He wasn’t free. He makes his way above ground, evading all the guards and police. And when he gets there, it’s sunny, everyone above ground is beautiful, and they are waiting for him with open arms and kisses. The excuse “but it’s radioactive out there!” was just there to keep him down. “This is easy for you to say,” people say to me. “Some of us HAVE to do this!” The now-beautiful woman had to do it also. “What are you doing now?” I asked her. “Oh, you know,” she said. “Consulting.” But some people say, “I can’t just go out there and consult. What does that even mean?” And to that I answer, “Ok, I agree with you.” Who am I to argue? If someone insists they need to be in prison even though the door is unlocked then I am not going to argue. They are free to stay in prison. [Or, you can see my Ultimate Cheat Sheet for Dealing with Excuses.] 9. It's OK to take baby steps. “I can’t just QUIT!” people say. “I have bills to pay”. I get it. Nobody is saying quit today. Before a human being runs a marathon they learn to crawl, then take baby steps, then walk, then run. Then exercise every day and stay healthy. Then run a marathon. Heck, what am I even talking about? I can’t run more than two miles without collapsing in agony. I am a wimp. Make the list right now. Every dream. I want to be a bestselling author. I want to reduce my material needs. I want to have freedom from many of the worries that I have succumbed to all my life. I want to be healthy. I want to help all of the people around me or the people who come into my life. I want everything I do to be a source of help to people. I want to only be around people I love, people who love me. I want to have time for myself. THESE ARE NOT GOALS. These are themes. Every day, what do I need to do to practice those themes? It starts the moment I wake up: “who can I help today?” I ask the darkness when I open my eyes. “Who would you have me help today?” I’m a secret agent and I’m waiting for my mission. Ready to receive. This is how you take baby steps. This is how eventually you run towards freedom. 10. Abundance will never come from your job. Only stepping out of the prison imposed on you from your factory will allow you to achieve abundance. You can’t see it now. It’s hard to see the gardens when you are locked in jail. Abundance only comes when you are moving along your themes. When you are truly enhancing the lives of the people around you. When every day you wake up with that motive of enhancement. Enhance your family, your friends, your colleagues, your clients, potential customers, readers, people who you don’t even know yet but you would like to know. Become a beacon of enhancement and then when the night is gray, all of the boats will move towards you, bringing their bountiful riches.

7 Tools Every Job Seeker Needs

If you are considering a job hunt or revamping your current search in 2015, these are the tools and apps you need to succeed in finding your next opportunity: 1. Email signature. Your email signature is possibly one of the most important branding tools you're not taking advantage of. It's your chance to let everyone know what your expertise is, how to contact you and where to learn more about you online. Employees are often required to add the company logo, tag line and contact information to email signatures. As job seekers, an email signature is a subtle way to remind people what you do. Quick tips: The most important information to include is your name, phone number, email address, desired occupation and link to your LinkedIn profile. An easy solution is to use an app like WiseStamp to create and insert your signature. 2. Active and robust LinkedIn presence. LinkedIn has become a go-to source for companies of all sizes to seek out talent. While your profile will be similar to your résumé, it is not exactly the same. LinkedIn is a social network where people share information. Besides having a profile rich in content and media, you should also share newsworthy articles to help build your online reputation and stay connected with your network. Quick tips: You must have a headshot, a headline that describes what you do and a summary where you tell your story. But don't stop there. Embed a presentation that summarizes your experience or includes testimonials. Have you downloaded the SlideShare app for LinkedIn? What about the LinkedIn Connected or Pulse apps? These tools give you a better mobile LinkedIn experience. 3. An easily accessible, on-the-go r ésumé . There will be occasions when someone wants you to send your résumé ASAP or when you arrive at an interview and your résumé is MIA. Save your résumés so you can easily access them and share them from your mobile device. Quick tip: Being able to access important documents from anywhere is critical not only in your job search, but at work, too. Learn how to save and share documents using Dropbox or Google Drive, which provide free storage and are easily accessible from any device. 4. Business cards. This may seem old-fashioned, but business cards make life easier. When you meet someone new or reconnect with an old friend, just hand him or her your card at the end of the conversation. Quick tip: Your business card need only include the information you want to share: your name, occupation (or desired occupation), phone number, email address and links to any social media profiles, like your LinkedIn URL. If you want to use something more high-tech, try one of the apps that allows you to share your card from your phone, like CardDrop. Or pick up a business card with FullContact's Card Reader. 5. Your perfected pitch. You only have one chance to make a great first impression. Don't blow it. You'll need it when you meet people and they ask what you do. You'll also need one customized for every interview you take. Your pitch conveys what problem you can solve for an employer. Use words and language to ensure your unique style and personality come through. And avoid résumé-speak or jargon that isn't universally understood. Quick tip: Keep your pitch under a minute, and practice so it sounds natural. If you need some guidance, check out the myPitch app created by Karalyn Brown of InterviewIQ. 6. Target list of potential employers. Rather than searching job boards all day, looking for the perfect job and getting lost in the black hole of applications, why not approach people inside companies you would like to work for? This route is more work up front, but it will help you stand out and rise to the top of the referral pile if you make the cut. Quick tip: There are tons of apps for finding posted jobs, but what you really need is additional help networking. Don't miss Alison Doyle's new app called Career Tool Belt. It's loaded with job hunting tips, including the 30 Days to your Dream Job series to guide you day by day. 7. A dose of motivation. Job searching tends to lead to frustration. Rejection is an unfortunate part of the process. Invest time doing things that rejuvenate your energy and keep you feeling hopeful, such as exercising, volunteering or learning a new skill. Keep moving forward and create to-do lists and follow-up actions every day.

Essel Group pledge to invest Rs.20,000 crore in Bengal

Kolkata, Jan 8 (IANS) Diversified media to education business conglomerate Essel Group Thursday pledged to invest Rs.20,000 crore towards developing two smart cities and and various vital infrastructural projects in West Bengal. The group has submitted a letter of intent (LOI) to the state government to develop the two satellite townships Salt Lake and New Town into smart cities by investing Rs.10,000 crore. "The group was also interested in participating in infrastructural, urban renewal and socially relevant projects worth Rs.10,000 crore through competitive bidding under Build, Own, Operate and Transfer (BOOT) model and/or EPC (Engineering, Procurement and Construction) model," the LOI said. Essel is targeting projects like toll roads with an investment of Rs.3,000 crore, sanitation and water treatment worth infusion of Rs.2,000 crore, and a project to convert municipal solid waste to energy by pumping in Rs.2,000 crore. Besides, it is eyeing projects like, metro, monorails or Light Rail Transit mass transport involving investment of Rs.3,000 crore. The group's integrated utilities company Essel Utilities Distribution Company Limited (EUDCL) is also looking at projects in power and water distribution services, drainage and storm water management, Wi-Fi, cable and broadband, city gas distribution and intelligent traffic management systems, a release by the Group said

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Tips to create a household budget

Where does your monthly salary go? Do you allocate a certain amount to be spent on the house, or is it a case of buying things as you need? Did you know that there are huge savings to be had from maintaining a budget, and not just in terms of cost?

What is household budget management?
Managing a budget for your household is more than just keeping track of all the expenses for the month. It is a chart of how much income there is, how much will be spent, and what can be saved. The idea of the budget is to broadly plan for living within your means. A budget ensures that bills are paid on time, household debts are cleared and savings goals are set and achieved.
A really simple way to do this is to label different envelopes with the heads of all the recurring expenses of the month (such as rent, electricity, help, car EMI, etc.). You then know exactly what is going where, and if there is any left over, it can either be carried over to the next month, or set aside as a saving.
You could also project your monthly income and create accounts from which to debit or credit money as bills are paid and income is received.
Where do you start?
Begin by making a plan
Create an inventory of needs and wants, from the biggest to the smallest. Learn to differentiate between needs and wants; those things that are essential to living, and those that make your life better. Categorise between non-negotiables (such as food, rent, clothing, education, transportation, and insurance) and everything else. Or further divide into what is necessary, what is adaptable, and what is expendable.
Select an appropriate budget format
You can download these for free from the Net, or create one of your own. You need to ensure your spreadsheet works on a monthly cost basis, so all income and expenses should be multiplied or divided to fit this calculation. A weekly expense should be multiplied by 52 (weeks in the year) then divided by 12 (months of the year) to get a monthly equivalent figure. A quarterly bill should be divided by 3 to get a monthly amount etc.
Track your expenditure for a month to establish your spending pattern.
This also allows you to prune out those things that can be classified clearly as 'frills'.

Become a conscious spender
Now that you have an idea of where your money goes, you have to actually keep that in your mind while you spend. And set aside time to review your finances and expenditure on a weekly basis.
Go local
The supermarket may contain everything under one roof, but if you spend a little time comparing prices, you will find that local shops carry items of the same, or better quality, and at better prices. You're also assured of freshness if you go to the market.
Prepare for the unexpected
Car repairs, medical costs, weddings and birthdays, appliance maintenance, emergency travel, all qualify as additional expenditure, which you can actually plan for with the help of your spreadsheet, now that your finances are clearly laid out before you.
Reassess the budget after one month, making any adjustments that are necessary. Assess again after three months.
Making and maintaining a good household budget: Tips
Share responsibility
If you have a family, then it's very important that they know and understand how income is distributed over the month, and what it is you are working towards. You can even ask your children, if they are old enough, to contribute to the budget. You will be surprised at the innovative suggestions you will receive. Most importantly, you have buy-in.
Set targets
Save money on a monthly basis to achieve your target, whether it's a high end mobile phone, or a holiday. Don't succumb to instant credit card purchases or EMI payments on the smaller stuff. In fact, put away your cards and stick to cash.
Think out of the box
Emergencies are natural, and you will find yourself strapped for cash at times. The point is not to panic, but figure out a way in which you can spend less, save more, yet continue to live in the manner to which you are accustomed.
Review what you want
Differentiate between what is meaningful, and simply 'keeping up with the Kapoors'. Continue to do this often, because your desires will change, as you grow.
Be flexible
A budget is not meant to tie you down; rather, it gives you defined economic freedom, not financial restriction.
A good budget allows you control over your money, helps you enjoy rather than worry over it, makes spending more purposeful, and protects you from financial problems.

When you face steep interest rate hikes…!

In a rising interest rate scenario, times can be tough for an existing borrower who is a couple of years into his tenure. Ofcourse his monthly budget may not be affected in the short term, as often banks increase the loan tenure in most instances. However, increase in tenure would mean more interest outgo and if hikes happen repeatedly the borrower will take even more time to close out an already long term loan.

In such circumstances to either decrease his EMI burden or shorten the loan tenure - as the case maybe he can try to discuss the situation with the bank to arrive at a mutually beneficial solution. Though banks or HFCs do not offer the option of negotiating interest rates half way through one's loan tenure, some banks and housing finance companies do consider a request from a borrower who has a good repayment track record.
On the basis of such a request, sometimes a loan conversion scheme could be worked out by the bank where the bank can shift an existing borrower to a new loan rate that a new borrower can lay claim to! In any case banks are expected to be involved in such an exercise when the base rate regime was introduced, where the old borrower can request to shift to the base rate system of interest rates.
Let us consider an example of how this works: Manoj took a loan from a housing finance company in November, 2008.  After factoring in all his hikes he is currently paying a loan interest rate of 14% on his current outstanding loan amount. He approaches his housing finance company in an effort to negotiate his home loan interest rate as he finds that the new borrower is able to take up a loan at a much lesser interest rate than he is currently paying. On the basis of the good repayment track record the bank agrees to consider his request especially since he would always have the option of a loan transfer to a different bank.
However, to avail a new interest rate he would need to pay an upfront amount as a loan conversion fee. Banks usually charge a percentage of your outstanding principal amount as the conversion fee. The minimum percentage of your outstanding principal amount that is usually charged as fee is 0.5% -1%. The higher the spread between the new interest rate and the old interest rate, the higher the conversion fee that needs to be paid to the bank.
In case of a significant difference in spread, banks also calculate it in the following manner - By charging the consumer one half of the spread percentage of the outstanding principal amount.
Let us understand how much Manoj paid as loan conversion fee:
He took a loan of 30L on November 1, 2008 for a loan tenure of 20 years at an interest rate of 11.75%. His current interest rate is at 14% and outstanding loan amount is Rs.28.9 Lac.
The new interest rate he converted to in August 2011, will be 11%. The difference in spread between the two interest rates is 3%.
The percentage at which his loan conversion fee will be calculated on his current outstanding loan amount is ½ of 3% which is 1.5%.
Loan conversion fee =1.5% of 28.9 Lac = Rs.43,350.
If you do this periodically, you will be able to bring down your loan tenure considerably as the reverse happens (Increase in interest rate, will lead to increase in tenure, while if you move to a lower interest rate your tenure will decrease with the EMI being constant - i.e. same as when you started your loan). Of course you need to factor in the conversion fee and figure if it will still be beneficial. Chances are it will prove beneficial, helping you close out your loan earlier than planned.
Another way to do this conventionally is of course prepay your loan amount. Banks may have a clause stating you should not prepay immediately after you convert a loan. This may vary anywhere between 3- 6 months depending on the bank.
However, a combination of prepayment and conversion can yield good results. If your bank is not amiable to a loan conversion you should try prepaying in small amounts regularly instead. This is a more conventional and viable manner of closing out a loan in good time as well. Most banks offer prepayment rather than loan conversion.

Loan against shares: What should you know?

With consumer spending on rise and loans getting expensive, individuals are finding new ways to fulfill their money requirements. Providing Loans against Gold etc. is one more way in which borrowers are able to procure loans from banks. Yet another way to procure a loan is through LAS (loan against security). A loan against shares would fall under this category. This option is not known to many borrowers as banks do not advertise this often. The loan is granted when you pledge your shares to the bank. More and more banks are offering this option now and also expanding the financial assets that can be used as for a LAS option.

How does this work?
You cannot get a loan against all shares. Banks usually define the shares of the companies which can be pledged against the loan. These shares are very liquid, from high quality companies, and highly valued securities. The amount depends on valuation of shares, margin allowed by the bank, and your past credit history. The amount of loan is about 50% to 70% of the value of the shares pledged with the bank. Hence if your stock portfolio for these shares is 10 lakhs, you can get a loan of 5 lakhs to 7 lakhs against the stock portfolio. This again depends on the liquidity of the stocks in your portfolio.
You can pledge your shares with the bank, which will issue a current account. You can withdraw money from this account. The advantage of loan against shares is that you will be charged interest only on the amount you withdraw from the account and for the span of time the fund is utilized. The other advantage is that you require no personal guarantor for loan against shares.
Banks keep changing the shares against which loans can be taken. This happens at regular intervals. This is done to ensure the stability and liquidity of shares which can be pledged.
If you have shares in the physical form, most of the banks require that you convert them into dematerialized form and then only you can apply for a loan. Dematerializing physical shares is not difficult. Few banks may provide loan against shares in physical form too. However, the interest rate will be higher and also the loan amount as a percentage of the value of the share will be lower.
When should you go for it?
You should opt for loan against shares only when you need instant liquidity and you are sure to pay it back in few months. If you have any doubt on your repayment capability, try other sources.
The interest rate on loan against share depends on the prevailing rate in the market. You should compare the interest rate for loan against shares with other options such as a personal loan or need specific loan. If you find a cheaper option, go for that.
Many borrowers take loan against shares to invest it back in shares. Don't do this. Taking a loan to buy shares is a financially harmful habit. In fact many banks attach the clause that you cannot use it for buying shares.
Important points to keep in mind
Getting a loan against share is hassle free and the borrower is mostly free to spend the money in a manner he or she wishes to. This comes with no strings attached. You should have good and valued shares in your portfolio to get a loan against it. However, you must keep some factors in mind when you opt for this.
The minimum amount of a loan against shares is 1 lakh while the maximum amount is 20 lakhs. You can get the loan for a year and renew it in future. The tenure may vary with individual banks. The maximum amount in the case of physical shares is 10 lakhs.
Don't be tempted to borrow just because you have a good portfolio. You have built this portfolio over a period of time with due diligence. Unless absolutely necessary, don't pledge your shares to obtain a loan. If you do pledge to get a loan against the stock portfolio, make sure that you pay it back at the first opportunity.
Look at the various charges such as processing fees, one-time fee, renewal charges, Government levies, and service taxes. Usually there is no pre-payment penalty but it is advisable to ensure this with the bank. These charges may make the actual cost of loan higher than the interest rate charged.
Shares are valued every week to see the maximum limit of loan available to you. As long as the market is bullish, you will have no problem. In fact if the share prices go up, the banks will be able to give you a higher amount of loan. However, when the value of your portfolio falls, banks ask you to pay the difference using cash or by pledging more shares. This could be potentially dangerous if you do not have any cash available with you or any more shares.  Banks may sell your stocks to recover the loan, if circumstances demand so.
The dividends, bonuses, or any benefit on the pledged shares will accrue to you.
On loan against other financial assets
Banks also provide loan against other financial assets such as mutual funds, insurance, bonds, fixed maturity plans, exchange traded funds, and Government securities. The total loan value against the pledged assets varies with individual cases. The value is higher, almost 80% of the asset value, for Government securities as these are risk free assets.

How can you cash in on inflation!

"Inflation" is the one dreaded word that can shake the confidence of economists, investment bankers, policy makers and even the government! Well, the harsh reality is that if the economy is growing inflation will definitely raise its head to haunt you. Let's try to explore why it is such a dreaded word and is there any hidden opportunity for an investor to generate profit out of this?

Inflation is a state where there is steady (at times not so steady) increase in price of goods and services. If there is too much money rolling in the system it will lead to inflation as people will have more money, which makes them willing to pay more for the same amount of goods or services.
Effects of Inflation on the market
Increasing inflation affects each and every sector of economy either directly or indirectly. The best buddies of inflation are rising interest rate, crashing stock markets, unemployment, rising bond yield and of course stress, which makes it appear on everybody's watch list.
Market Behaviour —
Inflation numbers are closely watched by analysts and investors. If there is slow and steady growth in inflation stock market behaves positively as inflation is considered a necessary evil. If the number is too high then we always see a knee jerk reaction in the negative direction.
Interest Rate cycle —
The prime reason for inflation is too much money in the system. Hence to curb it, policy makers increase interest rates so that liquidity is sucked out of the system. But as the interest rate rises, so does the cost of capital. Increasing cost of capital hampers the earning potential of companies leading to decreasing confidence of investors, resulting in stock market fall. Once the stock market falls people start running towards safer options like investment in government securities. At this point excess money seems to be resting in peace and the interest rate starts to decline and the whole cycle starts again!
Effect of inflation on investment decisions
So should you be bothered about inflation and alter your investment decisions based on it. If majority of your investment is in fixed income securities or in bank deposits then the answer is YES. Returns from fixed income securities are quite closer to inflation rates and hence you do not gain much in long run. The situation is worse if you sit on pure cash as your purchasing power is dwindling day by day.
If we cannot avoid inflation, let's figure out how to extract the most out of it. Two options which will provide a shield against eroding nature of inflation are the following.
Investment in stock market —
Generally every good company in the long run generates earnings, which is above inflation rate. Companies have the option of increasing prices of its products to enhance earnings and this pricing power acts as a weapon to fight inflation. As a smart investor, one should look for companies which can utilise this pricing power in times of persistent inflation.
Commodity prices are quite reactive to inflation and adjustments in prices are very fast so one should not ignore companies which deal in commodities. In an inflationary environment, most of the time we witness market crashes. One should use this opportunity to enter the stock market to reap better returns in future.
Investment in real estate —
In an inflationary environment, investment in home and land is always a safer option. Generally the price of a house and land increases with time and rate of appreciation is higher, as land is a limited resource.
Inflation Indexed Bonds —
RBI is also exploring the possibility to bring out inflation indexed bonds. The return on these bonds will be a little above the rate of inflation. When this is launched, inflation indexed bond could be a very good option for risk averse investors.
Final Words
As it's clear that we cannot avoid inflation let's make some smart investment choices to cope with it better. An interesting aspect is that inflation at times provides you an opportunity to buy some good stocks at cheaper prices. Just remember to be vigilant and be on the look out for opportunities.

Group Buying: A better way to buy your dream home?

Utopia Builders is a real estate company. The company has just built a housing complex comprising of 55 flats. Since the real estate market is down, Utopia could not sell all the flats and is left with 25 flats still up for sale! Utopia is ready to give heavy discounts if someone can buy in bulk, say 5 flats. Quite a few builders are in a similar situation as Utopia. In spite of the heavy discount for a bulk purchase offer, there were no takers as why would anyone want to purchase 5 flats in one go?

Ramesh, Shan, and Sayeed are software engineers at Pune, Mumbai, and Bangalore respectively. They know that the market is down and want to make the most of this situation to buy a home. However, they are not able to find a good property deal with attractive discounts in such a subdued market.
How can Utopia Builders and potential home buyers like Ramesh, Sayeed, and Shan get in touch with each other? It seems obvious that if these potential buyers and Utopia Builders got together, a mutually beneficial arrangement can be worked out!
Group Buying — a new trend in real estate buying
This is where the group buying concept comes into the picture. Since the last few years, group buying has been touted as a viable option for home buyers looking forward to get attractive discounts.
Here is how it works. Potential home buyers connect with one another through a common platform, usually provided by a third party or a group buying company (referred to as company hence forth), and form a group. The company then goes to the builder with a couple of orders and negotiates for possible discounts. The builder, sensing a good opportunity to sell a number of his properties, agrees to the discount. Typically, there is negotiation on discount but the discount is higher than what is offered in individual cases.
There are exclusive platforms such as http://www.groupbookings.in/, dedicated to group buying of homes, which help individuals to sort themselves out into like-minded groups, who are interested in bulk purchases of certain properties. Once a group is formed, the company negotiates with the builder on the group's behalf to get better discounts.
Compelling proposition for property developers
One of the reasons for the popularity of group buying is the advantage it offers to builders. Usually down payment in group buying is higher and hence developers who are just starting to build the complex get much needed cash. In the era of high interest rates and uncertain stock market, the higher down payment comes as a blessing for cash strapped developers.
Moreover, developers get a readymade market to sell their properties in bulk without spending anything in customer acquisition and marketing. This reduces their cost of selling. This savings can be passed to the home buyers in the form of extra discount.
Group buying also helps developers sell the properties faster and focus on the next venture.
Advantages of Group Buying for Home Buyers
The typical home buyer is in constant search for a better deal. As individuals, home buyers cannot negotiate for a better deal since it will not make economic sense for developers. The transaction cost with each individual will be high for developers. Also, an individual home buyer will not have bargaining power in a market dominated by real estate developers. By coming together and forming a group, the individual buyers can increase their bargaining power and hence will be able to bag a better deal!
For example, suppose Xanadu developers' prices 2 BHK apartments in its residential complex at 2800 per square feet.  The company can negotiate the price and bring it down to 2300 to 2700 per square feet for group buying of apartments. This discount will be much more than what an individual home buyer can negotiate with the builder.
Typically, the company which negotiates on behalf of the home buyers will probably be able to get a 4% to 10% discount on the price of the property. This means if the price of your dream home is 40 lakhs, you can save up to 4 lakhs in discount!
Another advantage is that the group can share common services needed to complete the transaction such as a home loan, lawyers' fee, and compliances. In these areas the individual home buyer as part of a group, will have more power for negotiation.
Here are some group buying examples:

Area	Actual Price	Group price	Discount
Bombivali, Mumbai	4000 per sq feet	3200 sq feet	20%
Krish City Bhiwadi	13.75 Lakhs	12.95 Lakhs	80,000
Paramount Floraville, Noida	3750 per sq feet	3525 per sq feet	6%

How does it work?
Let's see how group buying works. Essentially, there are two ways.
Buyer initiates the deal
In this case, the potential home buyer posts his or her wish to buy a home in a housing complex. The deal is then listed on the website and potential home buyers are encouraged to form a group if they want to buy a house in the same housing complex or from the same real estate developer. The home buyer can also visit the office of the company and get the required information. Once the group reaches the critical number, the sales team contacts the home buyers, aggregates the demand and submits the bid to the builder. The deal is then negotiated, and finalized. The home buyers get the agreed group discount.
The other way buyer can initiate the deal is to provide his or her requirement to the company. The company looks at its database and find out home buyers with similar requirements. Based on their requirement, the company proposes some of the housing complexes. Once a critical mass accepts the recommendation, the sales team negotiates with the builders and gets the discount as applicable.
Broker Company initiates the deal
In this case, the company posts a potential housing complex that will come up or an existing one.  The deal is displayed with discount on offer at the website of the company. The deal also has an expiry date after which buyers cannot form the group. The buyers are encouraged to form a group to avail the discount. Buyers typically register and then show interest in the property posted by the company.
Once the group achieves the critical number, the company submits the bid to the builder. The deal is then negotiated, and finalized. The home buyers get the agreed group discount.
Important Points
While as a home buyer you need to consider all important aspects typical to a home purchase process, you have to consider the following additional points:
The broker company is likely to charge for the services. The charges could be up to 1% of the price of the property. The charges vary with brokers though and hence you should compare and check with companies that provide group buying. You should factor these charges to the total cost of buying your home. Usually charges will only work out to be lesser than the incremental discount you get from group buying. In some cases, the group buying company doesn't charge anything from home buyers but gets its service charge from the developer.
You may have to shell out higher upfront or advance money to a developer. The money asked upfront is usually more than what you pay in case of an individual buy. The amount could be twice as much.
Building critical mass of people to buy houses in a specific location and housing complex takes time. The buyers should like the place; should have the same requirement; should have convenience of communication to their office, and should meet many more requirements of individual buyers. Assimilating all such buyers to form a group will take time and hence home buyers should be ready to wait for the deal to materialize.
Last and most important, read the deal and all its features carefully. In a group buy, most of the buyers think that others have read the terms and conditions and hence do not bother to read it. Do not make such mistakes. Ask if you do not understand some features. This is the most important aspect that you need to provide maximum attention to! When it comes to doing the due diligence, think like an individual not as if you are the only one buying the home and take utmost care to ensure the credibility of builders, papers, and possession.

Manage your home loan in smart ways!

Moving into one's own home is a joy, which is to be felt not explained. It is utopia what with the poojas, house warming functions, searching for just the right furniture and fittings, praises you get for having taken care of the finer parts in construction and decorating the house and the pride in having acquired a physical symbol of success.

After the festivities are over, and with the dawn of a new month, a new realization comes home. For the fortunate few, it is the reminder to fund your bank account, as the loan EMI is due after a week. For others the money simply flew out of the bank account.

It is time for us to act like the fund manager of a mutual fund or investment fund. Taking informed decisions to manage the asset that we call home and the liability that we call housing loan. By being prudent, you can get high "returns" in the form of saving on interest outflow.
Fund Management When Carrying a Home Loan
As a fund manager of the house, one has to find ways to maximize the benefits of the cash flows. Make a list of all the loans and savings/investments that you have made. Do you find places where the savings/investment is giving lesser returns than the loan rates? This can typically be seen with your endowment insurance plans, your EPF and PPF, the postal deposits, sometimes-even ULIPs. Why should you be invested in something when you are paying higher interest to somebody else? It is better to close all or most of these lesser returns savings/investments and divert the funds to close the home loan.
Care should however be taken to replace an endowment insurance plan with a term plan of higher cover. Your employer and your EPF officer will allow withdrawal of funds from the EPF account for buying and closing the loan of a house. The PPF is not so flexible with letting go of your money. ULIPs and the postal deposits can be closed only after the stipulated 3 years of lock-in.

Ways to repay your debt quickly:
There are ways to come out of the EMIs and make your loan tenure shorter:
1.    Partial pre-payment
2.    Switching to a lower rate
3.    Increasing the EMI
Now let us look at the options in more detail. The best part is that, the options do not in any way add to your existing budget.

Partial Pre-Payment
This is the easiest way to close a housing loan faster. The method is to make use of any one-time income like a bonus, salary arrears, gifts from friends/relatives, any wind fall gains from shares, property sold, deposits closed, tax saving investments maturing, closure of savings that are giving you lesser returns than the housing loan, etc to partially close the housing loan.
The effect is that the one-time payments help to reduce the principal balance in the loan. And when the EMIs continue, they have lesser of the principal to cover. So the same EMIs need a lesser time to close the loan. More earlier and more frequently the partial pre-payments happen the faster the loans close.
Banks generally allow partial pre-payment starting from Rs.10,000/-. There are no charges for partial pre-payment of housing loans.

Switching To a Lower Rate
The interest rates current are in a rising trend. There are times when the interest rates start going down too. Based on the interest rate reset period, different banks will reduce their rates at different times. If the reset interest band of your lender is a wider band, you may be at a higher interest rate for a long time after other banks have started to reduce their rates.
Switching to a lower interest rate will shave off a few years from your housing loan. Care however has to be taken about not jumping too many times or with low interest rate differences. This is because there is a charge for switching loans, i.e. prepayment penalty, which the RBI has been stressing, should be removed from the system. While some banks have already done away with it, some still charge if you do not pay from your own sources. However, it could just be a matter of time till it is totally removed from the system easing the cost burden for the loan borrower further!
Do remember that property verification and other legal paperwork will have to be done afresh in the case of a loan transfer. Also, for a loan transfer to be effective you should have a clear track of having cleared all the EMIs on time, every time.

Increasing the EMI
This is another option to close the loan faster. If you can spare a portion of an increment to increase the EMI, considerable saving could be made. For example a Rs.30,00,000/- loan for 20 years will need an EMI of Rs.28,950/-. If you can spare an additional Rs.2,300/- per month, the loan can be closed in 15 years itself.
The EMI can also be increased by making use of money that was going into an endowment insurance plan or a recurring deposit in a post office.
Increasing the EMI can be done at any point during the tenure of the loan. There are generally no charges for increasing the EMI.

Summary
Only after closing the home loan does one really become the owner of the house. Closing the loan as soon as possible not only relieves the mental strain of carrying a debt but also releases more money into the family budget.

Debt investments: A safer bet now?

In uncertain times everyone takes comfort with their best friends. Similar is the case with the investor community. Whenever market volatility increases, inflation raises its head, interest rates are rising and there is fear of economic down turn, focus of investors shift from capital appreciation to capital preservation. This is the time investors remember the old and trusted buddy "Debt Investment", whom they normally forget in good times. In this article we will try to understand why this instrument acts as a savior and find out the reason why it takes the back seat when the investor community is in a positive mood. We will also try to figure out when the right time to invest in debt instruments is and what are the options available with us.

Debt Instrument
A debt instrument is an asset that pays fixed returns over time. It has a fixed maturity period after that the investors can liquidate the asset and gets the principal with the remaining interest dues.
Debts are low risk, low return assets. The liquidity is low to medium.
There are many debt types available to investors to choose from.
a.       Fixed Deposits
b.      Debt Mutual Funds
c.       Bonds and Debentures
d.      Government managed saving schemes (NSC, KVP, PPF)

Debt Instrument — Savior in the time of market uncertainty
Whenever there is doubt regarding the economic growth, inflation is high, and interest rate is rising due to monetary tightening, equity valuation goes down as the expected returns from equity investment goes up in a increasing interest rate scenario and return from debt instruments becomes lucrative. As the interest rate is rising, so is the return from the debt instrument. Due to risk aversion investors with a low risk appetite prefer to invest in debt instruments. High risk appetite investors also get into capital preservation mode and reallocate funds towards debt instruments.
The best time to park your money in a debt instrument is at the peak of the interest rate cycle. We all know inflation is increasing day by day and RBI is trying to tame it by monetary tightening. The interest rates have been going up slowly since the last one year as the RBI is tightening the monetary policy. We have seen that RBI has increased interest rates 11 times in last 2 years.
There is also uncertainty about RBI's next move when they meet in this month (September, 2011). It's expected that RBI will increase rates further as till now it has not been able to contain inflation. Based on this assumption we will be somewhere near the peak interest rate scenario around November. So investors should start planning for investment as the risk reward ratio is going to be in favor of investors in another two months.
Choices available for investors
Despite low risk low return nature of debt investment, debts within their own set vary in risk and return. Government securities and bank deposits are almost risk free (let's ignore inflation and interest rate risk) while corporate debts are riskier. Let's take a look at the choices available to investors.
For investors with low risk appetite and long term investment horizon
As per new DTC which is expected to be implemented from April 2012, PPF investments will continue to be governed by EEE (Exempt, Exempt, Exempt) and not EET (Exempt, Exempt, Taxable) meaning investment, accumulation and withdrawal - all three related to this investment will be tax exempt. So investment in PPF is recommended if DTC implements this rule from 2012. Investment in PPF also acts as a tax saving instrument which adds to the overall return on investment. Government securities and schemes are other options for risk-averse investors.
For investors with moderate risk appetite and short term investment horizon
Investment in Debt Funds and FD is a good option for investors with short to medium term investment horizon. Debt funds invest in various types of debt securities and are professionally managed. Most of the debt funds are highly liquid so money can be parked in them for a short term. Once the economic condition improves and interest rate eases, this money can be reallocated to equity portfolio. If you as an investor simply want to sit and enjoy life till normalcy in market returns then medium term FD can be a very good option for you as the return on them is attractive too.
A note on Direct Tax Code (DTC)
The direct tax code is expected to take out various debt instruments available to investors for tax saving purpose. Investment in Government managed saving schemes (NSC etc.) and infrastructure bonds for tax saving purpose are a strict no for the time being as upcoming DTC proposes to remove them from the categories of exempted income. Investors should wait for the clarity in DTC before they invest in them for tax saving purposes.

How your loan repayment works!

To meet some of your goals like buying a car or building a home might require additional financial help in the form of a loan from a bank. In the current scenario of rising interest rates it is vital that you understand important elements in the loan taking process, helping you make an informed decision when it comes to balancing your monthly budget and your loan repayment.

What is an EMI?
An equated monthly installment (EMI) is the amount of money that is paid back to the lender on a monthly basis. It is essentially made up of two parts, the principal amount and the interest on the principal amount divided across each month in the loan tenure. The EMI is always paid up to the bank or lender on a fixed date each month until the total amount due is paid up during the tenure.
Now, you might assume that the equal parts of the principal and interest is repaid to the financial institution every month, however this not the case. During the initial years the interest component repaid is higher and during the latter years of repayment the principal component is higher. So, if you think you have paid half of the amount borrowed from the bank in 5 years in a 10 year loan tenure that would not be the case. You would probably have reduced the total interest component due considerably and would have only repaid the interest component for the most part.
Here is a simple example that explains how the repayment of your EMI reduces your loan amount during the repayment period leading up to the end of the loan tenure.
banakbazaargraph
Here the loan amount is 20L, which is lent at an interest rate of say 10% with loan tenure of 10 years.
The monthly EMI is calculated at the annualized rate of 10% and amounts to Rs. 26,430 per month.
You will notice that the interest repaid decreases with each passing month and the principal repaid increases with each passing month. In the case of large loan amounts with long tenures, the interest component will be the greater portion of the EMI, which will reduce leading up to the end of the loan tenure, while the reverse is true for the principal component.
Remember to request your bank for an amortization table, which will indicate at any point in time, what exactly your outstanding loan amount is!
EMI and your income
Did you ever wonder why your EMI is generally restricted to 30% or 40% of your monthly income? Here is why. Salary details, qualifications, employer/business, years of experience, growth prospects, alternate employment prospects and sources of other income, if any, are all aspects that determine the amount of loan you are eligible for.
Generally, the repayment schedule is worked out in a manner that allows only around 40-50% of your monthly take home income to be repaid as EMI. It is thus restricted keeping the following factors in mind:
- Around 10% of your income is spent on other loans, if you have any or if you avail one in the future.
- Around 20- 25% of your income could be deducted by way of statutory deductions and for investment purposes.
- Around 20-25% of your income is generally spent to meet your monthly expenses.
This leaves back around 40-50%, which is taken as your repayment capacity for your loan.
For self-employed applicants, profit is the benchmark that determines loan value. The longer the time frame for repaying the loan the lower the EMI and this also means you can opt for a larger loan amount. The loan amount you are eligible for is also dependent on other factors like the company you are employed with, city of residence and your credit history.
A long term loan like a home loan is a debt that is part of your budget every month. If you invest too much into it, there might not be adequate funds to manage a huge list of other expenses that will tend to accumulate with time. For eg. You need to make allowances for future expenses like education expenses for children, emergency funds for a job loss or the loss of one income in a situation where two people have taken a joint loan.
There might be spikes in interest rates. In such a scenario usually banks will increase the loan tenure in order to not put the loan taker in a tight spot by increasing his EMI.
However in such a situation if you have adequate funds in hand or when your income increases with time you could prepay at regular intervals, allowing scope for closing your loan early and reducing your total interest outgo. It is best not to commit to a higher EMI that might cause a strain in your finances; rather it should be the other way around where you can actually control the repayment pattern of your home loan.

Home loans and the festive season

The interest rate for home loans has been going through the roof for the last couple of quarters. At the same time, CPI inflation is stubbornly at double digit. As a result, people have postponed their decision to buy a home or invest in real estate. In such a scenario, banks are looking for ways to become innovative with their loan offerings with all the more reason to do so, as we are in the thick of the festive season!

In this article, we will discuss the discount schemes that are on offer.
Dual rate scheme
Dual rate scheme fixes the interest rate for first few years and then changes it to the prevailing interest rate. The prime example of this type of loan offered by banks is ICICI bank. ICICI bank is giving home loans with interest rate fixed for 1^st year and 2^nd year. After 2^nd year, the interest rate charged will follow the prevailing interest rate. The prevailing interest rate will be the base rate of ICICI bank plus the premium. The premium can be anywhere between 0.5% and 1.5% depending on the size of the loan. Here is what ICICI bank is offering:

ICICI Bank Dual interest rate scheme	Fixed for 12 months	Fixed for 24 months	Fixed for 36 months
Less than 25 lakhs	10.50%	10.75%	10.75%
Between 25 and 75 lakhs	11.00%	11.25%	11.25%
Above 75 lakhs	11.50%	11.75%	11.75%

Discount on processing fee
This is one of the ways to provide discount on total cost of loan. Punjab National Bank has done away with processing fee completely. This will certainly lower down the cost of home loan by few points.
Concession on home loan
State Bank of India, Dena Bank, and Corporation bank are giving discount of few basis points for home loan till the end of this year. SBI and Dena bank have offered discount of 25bps while corporation bank has offered up to 100 bps discount. Corporation bank has also waived off 60% of the processing fee.
Progressive monthly instalment scheme
Few banks are providing loans on progressive monthly instalment scheme where the borrower's liability or EMI is based on increase in salary. Hence the EMI will be lower in first few years and will be regular after the period. Corporation bank offers this scheme. This scheme is especially good for young people who expect their salaries to rise in future.
Fixed rate home loan scheme for few initial years
This is another addition to the schemes offered by banks to home loan borrowers. HDFC bank is offering two variants of the scheme. Home loan borrowers can choose either 3 years fixed or 5 years fixed home loan scheme. The offers are as follows:

HDFC Bank fixed rate for few years	Fixed for 3 years	Fixed for 5 years
Less than 30 lakhs	10.75%	11.25%
Between 30 and 75 lakhs	11.25%	11.50%
Above 75 lakhs	11.75%	11.75%

Fixed rate home loan scheme
Fixed rate home loan scheme is offered by Axis bank. This fixed rate will remain fixed for the complete tenure of the loan. This scheme is known as "Nischint". There is no change in EMI and no surprises. The EMI will be set once and for all. The interest rate is 11.75%.
Points to note
Due to the rising interest rate scenario, product innovations abound in the market, however borrowers should take care to weigh the pros and cons of the scheme. Finally, borrowers should compare the rates and overall charges from different banks to arrive at the effective cost of the loan and then make their decision.
The general perception in the market is that interest rates are near its peak; it might go up once or twice and then begin a downward trend. Keeping this aspect it mind,  explore the home loan options available with an open mind, especially if you have bagged a good home deal, which could become a lost opportunity, if you failed to latch on to it.
On the other hand, borrowers should do their due diligence and research loan schemes where the interest rate or EMI in the initial years is low. Borrowers should arrive at a rough estimate of the possible interest rates after the initial years. They should check the base rate, premium over base rate, and historic data on past loan schemes to arrive at this possible interest rate as part of their decision making process.