As Dhanteras approaches, a time traditionally associated with wealth and prosperity, it's the perfect moment to reassess the way you plan finances for the upcoming year. If you're looking to boost your financial acumen and manage your money more effectively, Ankur Warikoo's audiobook, Make Epic Money on Audible, offers a “wealth” of tips to help you navigate your financial journey, simplifying complex finance concepts and transforming them into actionable steps to help you build wealth, invest wisely, and save more effectively. This Dhanteras, give yourself the gift of financial empowerment with these five key takeaways from the audiobook to help you kickstart your financial planning.
Boost Income Opportunities When Young
Ankur offers multiple tips for those in their 20s:
“If you are in your 20s and your income is less than 3 lakhs per annum, you have time. Take risks and find ways to boost your income. First is financial protection and emergency funds. Build it for three months. Health insurance for your parents - they need it. You can be without one right now. Life insurance can wait till your 30s or till your income exceeds nine lakhs.
Don't spend more than 20% of your desires on this income. You can't afford to spend more than 20% of your monthly salary after tax.
Find ways to increase your income. Look for other active and passive income opportunities. Invest at least 30% of your income. Time is your biggest asset.
Most of your portfolio should go into the stock market to maximise the power of compounding and get yourself higher returns.” he says.
Save Interest On Loans
When taking loans to purchase big-ticket items, it can be stressful to shell out money every month, not just to repay the principal amount but also the interest to the bank. Sharing a quick tip to get rid of the loan sooner, Ankur shares a trick to save the interest on loans. He says, “The only principle you need to know - reduce the loan tenure so you can reduce the interest you pay. In the initial phase, you pay more interest and less principal so the banks reap profits. Over time, you pay more principal and the interest declines. The trick is to slash your interest costs as early as possible. There are two ways to save interest on loans. Number 1 - pay extra EMIs every year and number 2 - keep increasing your EMI every year. Every year if you pay 1 extra EMI, so instead of 12 EMIs you pay 13 EMIs plus increase your original EMI amount by 5% every year, you will clear your 25-year loan in just 12.5 years. What if you increase your EMIs by 10%? You will clear your 25-year loan in just 10 years. You will also save 50% in interest that you would've paid over 25 years. The best part - it doesn't matter what the loan amount is.”
Find Out What Works For You: Renting Or Owning A House?
Addressing the perennial question of buying versus renting a home, Ankur challenges the conventional thought process that owning a house is the wisest financial decision and ultimate life achievement. As he continues to dissect the financial dynamics with clarity and precision, Ankur encourages listeners to approach the decision practically and consider both the house value and the rent growing evenly in the future. In the case of renting, the key expense is the monthly rent while the cost associated with buying comprises the down payment which is around 20-25% of the value, the EMI and the interest, the registration cost which varies between 3-7% of the home cost, the brokerage fees that is usually 1% of the home cost and the maintenance cost. He adds, “When you add up all of these costs, you end up paying nearly 3 times of the home price over a 20-year period. Invest the down payment for the next 10 years as a lump sum amount. Invest the difference between what would have been your home loan EMI and the rent as a monthly SIP. Then over a 10-year period, you will build enough corpus to buy nearly 50-70% of your dream home on a down payment.” Hence, he proves how renting can provide one with a higher standard of living within the budget because rental yields are very low in India, proving monthly rent is kinder to one's wallet.
Difference Between Assets And Liabilities
Delving into the significance of financial literacy, Warikoo explains the difference between earning a living and growing one's wealth. “The truth is that professional degrees help you earn a living, and financial literacy helps you build wealth. Don't just look at the price tag, see the full cost of ownership. If it costs you money and loses value, it is a liability. Aim to get assets that generate cash flow, assets that earn you money while you chill, assets that cover your expenses and assets that let you do the things you want to do. Keep liabilities to a minimum.
Credit Card Trap
Ankur advocates for prudent financial habits by encouraging listeners to remain debt-free. He emphasises the importance of responsible usage of credit cards, advising individuals to consistently settle their credit card balances in full to avoid accruing unnecessary interest charges. He also teaches listeners how they can use credit cards to make money. “Number 1 - Interest-free loans. Credit cards offer a 30–45-day interest-free period. It's like a mini loan for whatever you need. So, if you make a big purchase using a card early in the month, invest that amount in a short-term debt fund. You earn some happy money for free. Number 2 - Improved credit score. Your credit score, which is also called the CIBIL score, determines creditworthiness. It increases based on how consistently you pay off your loans and how many loans you have. A higher score is equal to a better credit profile. So if you pay your credit card bill on time and in full, your rating builds and improves. A better rating means VIP loan treatment in the future. You get a lower rate of interest and save money in the long run. Number 3 - Reward points. Redeem rewards points for air miles, free tickets, hotel stays, gift cards, cashback and more. Explore and make the most of these freebies.” Sharing a pro tip, he suggests opting for a credit card with 0 yearly charges or one that is backed by a fixed deposit when applying for it for the first time.
