7 Incredible reasons why you spend more money each month & How you can control it ?

Posted on January 13, 2015July 23, 2019 by Jagoinvestor

Wow .. Today I am going to talk about your SPENDING habits and what governs it. Spending money is a critical part of anyone’s financial life and pretty much define’s how our financial life looks like.

Spending more is pretty much a reason why we go to our work, because at the end of the day, money has to change hands, be it now or later. In a way its a beautiful creation of this world. We have some great things in life today because we have spent money on it and bought it.

While I can keep talking about the best parts of spending , today I want to cover why we spend “more” and why we sometimes go beyond out set limits.

Most of the investors financial life today is highly screwed mostly because of their spending habits and the way they deal with their expenses, and many fall into the trap of “living on paycheck month after month” . So Today I want to pick few reasons which force us or makes us spend more money than we should . Lets look at each point in detail and yes – grab some coffee 🙂

Reason #1 – Because you don’t use CASH

Yes – This one simple thing can urge you to spend more.

The whole payment system has transformed totally in last 10-15 yrs in our country. There was a time when you carried cash every time you went to market to buy something. You knew how much you will be spending before hand, carried exactly that much money with some small buffer amount and bought the stuff you wanted.

Be it Milk , Vegetables, Grocery, Petrol or anything else. It was simple transaction. Exchange money and get what you want.

Then credit cards and debit cards happened. They arrived as “convenient” ways to make payment and this convenience came at a big cost.

Paying by Cash is emotionally painful

While cards gives you convenience, it also takes away that emotional feeling which you get when you pay by CASH. When you pay cash, you take out the money, count it, can think about it and it leaves your wallet and you “feel” that something parted away with you. This is not the case with credit or debit card.

This can be clearly seen in online shopping. A lot of people buy things on impulse using their cards online, the bought items arrive and you take it because you mostly have no choice. Compare this with paying cash, you think you want something, order it with cash on delivery and then let some time pass.

In this option, you have enough time to think back on your decision simply because the money has not yet left your wallet (with cards, it’s already gone) .

This is exactly what happens in real life too, people who buy things on cash on delivery often change their mind and reject to buy things because now they think they no longer need it. Read the report below

Cash on delivery is the most inconvenient payment option. It allows customers too much time to change their mind,” said K Vaitheeswaran, the founder of Indiaplaza.com.

Indiaplaza.com, which sells books and electronic goods, was the first to introduce the payment method more than a decade ago. It realised in about a year that cash on delivery was “painful”. Rejection rates are at about 45%, partly because there is no upfront cash commitment, according to Vaitheeswaran.

Source – Economic Times

Cash discourages spending

While this might not be consciously visible to you and many will deny this, but as per various studies, its shown that cash payment discourages spending, while using credit cards or gift payment encourage spending. Below you can read one of the studies on this topic.

Priya Raghubir, PhD, of the Stern School of Business at New York University, and Joydeep Srivastava, PhD, of the Robert H. Smith School of Business at the University of Maryland, College Park, asked participants to read various buying scenarios and answer questions about how much would they spend using cash versus various cash equivalents.

In the first study, 114 participants estimated how much they would pay using various payment forms for a vividly described restaurant meal. The results showed that “People are willing to spend (or pay) more when they use a credit card than when using cash,” the authors wrote. They attributed the difference in spending behavior to the way cash can reinforce the pain of paying.

Have you ever realised that when you use cards for payments, you are too casual about the actual bill amount, because you can pay any amount at that moment without worrying about it.

Also you generally don’t see the money leaving your wallet at all, the bill comes after a month and by that time, it’s too late to think about it in detail and your only job it to pay that bill. It’s just another bill and nothing else.

You can read this awesome report on cash vs cards payment and do listen to this short audio on this matter.

I am not saying that stop using cards. Do it wherever you feel its applicable and you can’t control things, but “cash payment is a pain” is highly overrated thing. You can very much use cash for various payments in today’s time exactly like you did it few years ago.

In fact you can take out cash from your account in start of the month for all the pre-planned expenses and then use cash for it.

Note that there can be some reasons like cash back and reward points offered on cards because of which you can use the cards, nothing in that. The point I just want to make sure is that using cards can change the spending behaviour in people and you should control that.

Reason #2 – Because you don’t make a list of items you need

Me and my wife shop all our grocery from DMART, a retail chain mostly in all the big cities in India. We once went there to buy “few grocery items” which were roughly 6-8 in quantity, and when I came out of the store after 45 min, I had a bill of Rs 2,800 in my hand with two big bags in my hand which had tons of things we shopped inside.

I didn’t feel much about it at that time, only to realise next morning that once again we bought many things we either don’t need or we bought it in high quantities than required. So what happened when we went to the store without a predefined list of items?

There was a chain reaction of “We need that also” and “Lets keep this too, as its going to finish soon” and then one items led to another and then we went to clothing section and then utensils sections and we could see so many things which we ~~need~~ WANT.

We went there without a purpose and the whole world was open for us to shop, mix this with the convenient method of payment (card) and you don’t have to feel the pinch at the same moment. It’s a deadly combination !

The other problem is that you buy things on the name of “lets try this once” and also buy things in quantities larger than you need. I once bought peanut butter, just to check why people in US love it so much, but I didn’t love it and only consumed it once, thank god my wife finished it by mixing it in curries instead of raw peanuts !

Did you use the lists many years back while shopping ?

Go back 15 yrs in life and think about those times when you mother handed over the small piece of paper which had those 10 things written down along with quantity. It was easy then, you went with the list to shop, handed over the slip to the shopkeeper and waited there for 10-15 min and that was it.

Good that my wife still does that most of times when we do the monthly grocery shopping. My wife has actually take written down all the kitchen ingredients (109 items) in excel sheet, taken many print outs and every month she checks what is needed and what is in stock. While we still buy few things which are not in the list, but it’s very small percentage.

You can see the same list of 109 items below

When you go shopping without a pre planned item list, it’s almost sure that you will buy things you really done need. If Rs 3,000 is enough to cover your actual requirement, you will spend Rs 6,000 just because you don’t go with the list. While I am not saying that you should totally shift to this kind of shopping, at least try it 2-3 times and see if you can stand it or not.

Reason #3 – Because you buy things on on short term excitement

This is mostly for the big purchases (anything above Rs 1,000) . It can be that juicer, the bigger TV, clothes, weighting scale, or even bigger car and house. Most of the people don’t spend enough time to understand if they really need something or not. This is how it typically works

You come across something
You are delighted by looking at it (and there is also a sale going on)
You come across a reason which justifies you wanting it.
Buying stuff is easy anyways (net banking debit card or credit card)

And after a week, that same thing is lying at your home unused or used once or twice. Most of the wardrobes are over stuffed by things which was bought on an impulse, because it was on Sale or because they thought they needed it (but in reality they don’t need it)

It’s extremely critical to understand today that the whole world is trying to make the buying process extremely easy for buyers today and tries to lure them with EMI’s (which makes things look affordable)

Let the excitement settle down

The solution for this is to make sure you WAIT for some time, before you buy the stuff. Let some time pass by and let that instant emotion die down.

You came across that great shoe online, where you get 40% OFF, that too with FREE home delivery and anyways your credit card is pre stored on the website – All you need to do is login and punch the CVV number and thats all – You just bought the stuff which you 100% want, but mostly don’t NEED !

I will share my own 2 dumb mistakes I did recently. First I bought a costly bicycle last year, because I so wanted to get into cycling. I joined 2 online clubs, researched a lot on cycles and within 24 hours bought one which I have to admit I hardly used. It still needs my attention.

Next I bought a little bigger size TV recently, which I wanted and needed (I watch lots of TV), but later realised that I should have bought a much bigger one, because now I can’t find much difference in the size I earlier had and the new one which I have now.

I feel I could have avoided both the mistakes, if I waited for 2-3 days and let that impulse die down. If only I had written down 3 reasons why I badly need it, I could have saved myself from the blunder I did, because I know I would not be answer myself on why I need those things strongly.

Reason #4 – Because somebody in your family/friends also have it

I seriously cant speak a lot on this, because it looks so stupid to even think how people buy things just because others have it and not because they need or want it. There are two things here ..

First is Peer Pressure , Just because friends in your group have something, you feel the pressure on you to have the same thing in your life so that you can be equal to them. If their kids go to school A , you also want your kid of go to school A , not school B . If they drive a 10 lacs car, you feel a bit uncomfortable having a Rs 4 lacs car.

The One sided Pressure most of the people feel

Most of the times, this pressure is just one-sided . It’s in your mind and not in your friends mind or even your relatives mind. True friends and people who care will never judge you with what you own and compare it with themselves. If they do, it’s better to let them go out of your life.

This peer pressure is clearly visible when it comes to giving gifts to friends/relative and spending on others when they visit you. Just because “they” put Rs 501 in the envelope, next time you can’t put less that, and god forbid if you put Rs 1,001 , now its their turn to “gift” you next time when its their turn.

If you read a book called “Linchpin” by Seth Godin, you will love the way he talks about how the world has become a place of transaction , where no real “gift” or “favor” exists in this world. Even if you truly gift something to someone without expecting anything , still the other party know it does not work that way.

Some day they will have to return the favor !

Apart from the peer pressure, at times there is purely the act of “looking good” and wanting to show off ..

People spend purely because they want to stand apart, because they want to attract some eyeballs and their ego’s are pampered just because others are talking about how great your “stuff” is , not YOU 🙂

Reason #5 – Because money is “available”

I know this would sound strange to many , but a lot of spending happens because there is money available in the pocket. However stupid that sounds, there is huge element of truth in this. Just because you have a lot of money lying with you, all the reasons to spend money seem justified to you.

Many expenses will suddenly appear “unavoidable” . Have you ever been into a situation when the supply of money was restricted for months and months? Did your life move on peacefully or not ? Did you find reasons to postpone or avoid expenses or not?

Always remember a very important point about money ..

“Money is like flowing water, if you don’t give it direction, it will find its own”

Always make sure you define a purpose for your money and allocate it for some goal in life, so that you know what is it going to be used, this is important because next time when you have some low priority expenses coming up, you know you can’t touch the money allocated for some higher priority expenses in future.

I have beautifully explained this in one of my books written by CNBC

Not just label the money, but let it leave your bank account and get invested in some financial product. By default make it tough for yourself to use it (not so tough that you cant use it at all) .

Example

To give you an example, imagine you earn Rs 80,000 per month , after your EMI and other commitments, you are left with Rs 20,000 saving per month. One thing you can do is let it be there in saving bank account and let it grow over time . After 3-4 months, you will have 60-80k in your account and more coming up in future.

At this moment, you are not that happy with your 4 yr old car and your friends are upgrading to a better car and now a small “wish” is seeding in your mind that even you deserve it (I am assuming your old car is still good enough) . In few months, you will surely make your mind to upgrade your car because you have the down-payment ready in your bank account and you also have capacity to pay the EMI for the car !

Compare this with the situation when you have already defined that the extra 20,000 will go into a recurring deposit for next 3 yrs , so that you can accumulate around 7-8 lacs in 3 yrs which will be used for your house renovation, or kids school expenses or some vacation you are looking forward from last many years.

Once you define that and let your money leave your account each month, you virtually don’t see anything lying in your bank account and your tempt to use it for your car up-gradation will die down.

This point is so powerful, that I even decided to answer one of the questions on quora.com

What is some money advice I can learn in less than 10 minutes, which will help me become rich?

Understand that I am not against upgrading your lifestyle, you have to upgrade some times when life demands it and when you really deserve it, but most of the people upgrade things not for themselves or for some strong reason, but just like that because they want to show it off or just feel a temptation.

Upgrade your life responsibly if you have to, its tough to downgrade it later 🙂

More Availability of Money and What you can Buy

You can notice that India has changed a lot in last 10-15 years in terms of availability of things we can spend on and even in disposable income lying around. There is a lot of money which can now chase a big amount of things, so naturally the temptation of buying things has gone very high.

I can say with confidence, that your most important expenses today form a very small part of your overall expenses and the big part is on things you don’t need for survival.

So whats the solution ? If you are someone who is left with money each month after your expenses, make sure you list down your goals in life, list out how much money you need to invest to achieve those goals and start your SIP’s in mutual funds or recurring deposits and let your money chase those financial goals .

Reasons #6 – Because small expenses turn out to be BIG by the month end

I love this point and this is something you can relate to easily. A lot of expenses look small in nature or a very small ticket size, but when you look at them on a monthly or yearly basis, they turn out to be a big one.

Something which costs Rs 200 might look a non trivial thing at that moment when you are spending on it, its effect on your monthly budget will not look big, but this is not how it happens in real life, you do the same thing 7-8 times and that means few thousand rupees which does not even register in your mind.

Take an example of online shopping of clothes or gadgets, while doing on transaction, it would be few hundreds or thousands, which does look big, but if you add up all the expenses by the month end or in a quarter, you will realise it was a major one which you didnt even considered while you were trying to recall where exactly your money went.

Watching Movies and Eating Out – The silent expenses

Now – I am a real movie buff (I have even started watching Marathi movies and they are so awesome) and we also eat out quote often. These two expenses are might not look quote big if you focus on it just one time. You feel you so much deserve it and that’s why you are earning so much money, But these can go over board and turn out to be a big number (at times 10-15% of your take home).

You need to keep an eye on it and I am not talking about a mental calculation, but actually writing them down for a month and seeing the real numbers. It might turn out to be a big surprise .

I did exactly that for the month of October 2014. I originally thought that my movies + eating out + snacking expenses should be somewhere around 3,000 and my grocery + veggies expenses should not be crossing 3,500.

But when I actually wrote it down for each day for the month of Oct and saw the real numbers, I was shocked to see that my movies + eating out expenses turned out to be more than double of what I originally thought, on the other hand, my grocery expenses was so less (seems like that month the grocery expenses actually were very less for some reason, as we just 2 of us).

Below you can see the exact numbers

So what you should do ? Truly speaking – I don’t think one should restrict themselves on spending on things which add up to their quality of life and if you truly enjoy it. You can surely spend money on things you truly wish and cut down on things which are waste or does not add much to your life. Ramit Sethi calls it as ‘Conscious spending’ and you should read his article on this point.

So just be a bit alert on things you are spending on and when it starts going over the roof – take charge of it and control it. Dont be over fanatic over controlling each bit of it, it does work in real life.

Reason #7 – Because of ‘Enjoy today, Pay Later’ trick

The last point I want to cover is EMI option of payments. The option of payment in installment is a powerful tool to make people believe that they can afford a stuff and because the EMI amount fits their monthly income, most of the people buy things much more than they need or can afford.

EMI option in payments is nothing less than a revolution which has driven the consumption levels to insane levels. Everything you can imagine today, especially in online shopping, where you can buy literally anything on EMI and bring it inside to your “affordability zone” by just choosing “Buy on EMI”.

If you look at an example of flipkart , I add Moto X smartphone which costs Rs 29,999 in the cart for buying. Now for someone who has a salary of Rs 30,000 per month (A lot of youth lies in this category) can’t afford this phone because its equal to one month salary.

How EMI option changes the whole equation of affordability

They can purchase it without any issue just because they can buy it on EMI option and suddenly they will just have to cough up Rs 3,500 per month. While this looks really amazing to some people, this is how the debt cycle start for most of the youngsters new into job and then they get trapped into it for many years.

Here is a report from Livemint which talks about the way companies use EMI options

EMIs (equated monthly instalments) aren’t new to Indians, but it’s a strategy that companies such as Apple Inc., Gold’s Gym and others are increasingly adopting in a bid to beat the sluggish economy, convincing customers to overcome their reluctance to spend too much money and to go ahead and splurge on an iPhone or a fitness club membership.

Clearly, India is turning into an EMI nation.

A range of items are available—cellphones, sunglasses, jeans, vacations, hair transplants, gym memberships—as companies seek to drive consumption in a weak economy. And it seems to be working, most evidently in the case of the iPhone, once a rarity, but suddenly more commonplace in urban India.

IndiGo and Jet Airways (India) Ltd, two of India’s largest airlines, are the latest to announce the availability of air tickets on three- or six-month instalments. Although the schemes have been on for a year, the firms’ recent promotion through newspaper advertisements helped persuade dithering customers, especially since fares have surged 25% in the holiday season

Hence, its important to make sure you don’t fall into the trap of EMI’s for those things which you absolutely don’t require and cant afford.

So how to spend optimal money ?

Expenses are important element of your financial, if you earn a lot , its of less use if you also spend a lot , because what ever is left at the end of the month goes into creating your financial wealth in long run. Its important review your spending pattern, various categories you spend money on and talk with your spouse, parents about it and try to optimize it.

Review each thing and see which of those expenses can be reduced or eliminated or shifted to some other category.

At the end of day we all earn money primarily to spend it on things, but at times things get out of control and does not fit into what we had originally planned.

What are your thoughts about this article ? Please write down your comments by clicking here

Sukanya Samriddhi Account with 80C benefits – Special scheme for girl child

Posted on January 29, 2015July 23, 2019 by Jagoinvestor

You must have heard about “Beti Bachao Beti Padhao” initiative recently on television advertisements. As part of it, the government has recently announced a scheme called “SUKANYA SAMRIDDHI ACCOUNT”, which is mainly for saving money for the girl child.

This is a welcome move because a lot of investors will get some extra incentive to save in the name of their girl child once they are born from a long-term perspective. You can see the exact PDF containing all information.

Sukanya Samriddhi Account

Let me share with you all the benefits and features of this scheme in details.

What is Sukanya Samriddhi Account?

Sukanya Samriddhi Account (SSA) is an investment scheme which can be opened for a girl child. The scheme is specially designed for girls higher education or marriage needs and should be opened by her parents or legal guardian(in case parents are missing).

One can deposit a maximum of Rs 1,50,000 per financial year (Apr-Mar) and the yearly interest rate in this account is 9.1% compounded on a yearly basis. Note that this interest rate is not fixed and will be notified on a yearly basis or from time to time whenever applicable, very much like PPF.

The best part is that the investment in this account is exempted from income tax under sec 80C.

Amount of Deposit and Frequency

The minimum amount one has to deposit per year is Rs 1,000 and the maximum amount is Rs 1,50,000. There is no limit of the number of transactions in a year. When you open the account for the first time, you have to deposit a minimum of Rs 1,000 and above that any multiple of Rs 100 (like Rs 1200 or Rs 1400, but not Rs 1,450).

You also need to make sure that you do not skip your payments each year, otherwise a penalty of Rs. 50 will be levied for each year of non-contribution. At this point in time, it’s not clear if NRI can invest in these schemes or not. I don’t see any wording in the official document published by govt. If someone has clarity on that, please share it in the comments section.

This account can be opened before the girl attains 10 yr of age. So the moment the girl child is born, you can open this account in her name or wait for some years and open it later, but once the age of 10 is reached, one can’t open a new account for the girl child.

You can deposit the money in the account only for the 14 yr period, from the date of opening, so the best thing is to open the account early itself so that you get the maximum window of 14 yr to accumulate the money.

You will need following documents to open this Sukanya Samriddhi account.

Birth certificate of the girl child
Address proof
Identity proof

One can open only maximum of 1 account per girl child and in total only 2 accounts can be opened by parents for 2 girls (one for each), but in case the second birth has resulted in twins, then 3 accounts are allowed. You can’t open multiple accounts for the same child as you do in saving bank account.

Where can you open this account?

As per the notification, this account can be opened either in a Post Office or any public sector bank. You will get a passbook under this scheme which will have details of the account holder (daughter name) along with other information like date of opening etc like it happens in the case of PPF account. Also, the account can be transferred to any city in India later if you wish.

As this has been recently announced, I believe the banks and post office must be in the implementation mode right now and must be training their staff on this.

So if you immediately visit them to open an account, you might face problems as the staff might not be 100% clear of rules. So I suggest to wait for 2-3 months and let the whole thing settle down.

Maturity and Premature Withdrawal

Sukanya Samriddhi Account will get matured after 21 yrs from the date of opening the account or before the marriage of the girl, whichever is earlier. The good part is that if parents want to close the account before 21 years for marriage purpose, they have to give an affidavit that the girl has reached at least 18 yr of age so that one can’t use it for child marriage (before 18 yr).

One can also partially withdraw 50% of the balance amount after the girl reaches 18 years of age, for the educational purpose and rest has to be left in the account so that it can be used for the marriage purpose.

Sukanya Samriddhi account Rules

Also in the worst case, if there is the death of the girl child, the account will have to be closed and the money will be paid to the legal heirs (mostly parents). Apart from that, the account can still be closed much before in cases of extreme compassionate grounds such as medical support in life threatening diseases. death, etc.

There is no loan facility under this scheme.

How can you deposit the money under this scheme?

You can make the payment by Cash, Cheque or demand draft by going to the post office or the bank where you have opened the account.

Unlike PPF or Saving bank account, you can’t deposit the money online as of now, which will really discourage those investors who are too much into online transactions. However, I am sure this is not a cause of concern for people from smaller cities and villages who are the main target for this scheme.

Tax applicable on the money deposited and earned and maturity amount?

As of now, the taxation status of this scheme is ETE (Exempt, taxed, Exempt), which means money deposited is exempted from tax, interest earned is taxable, but the maturity amount is again exempted from tax.

This is exactly how tax-saving fixed deposits work, they also have ETE status. Some people will compare with PPF which is EEE (Exempt, Exempt, Exempt) and there is no tax to be paid in any case.

How much corpus you can accumulate by investing in Sukanya Samriddhi Account?

So how much money you can accumulate in this scheme if you try to get the maximum benefit from this scheme. Assuming you open the account the moment your girl child is born, you will have complete 21 yrs in hand, and if you invest the maximum permissible amount Rs.1,50,000 per year for 14 yrs (tenure allowed for investment).

It can accumulate to the approx amount of Rs 72 lacs after 21 yrs tenure. You will have approx 55 lacs, by the time the girl turns 18 years. So in a way this account can be meet your girl’s education and marriage expenses.

You can withdraw 45-50 lacs for education purpose and also have 25-30 lacs for marriage expenses (try to focus more on education expenses rather than marriage).

The below graph gives an approximate idea of how your corpus will grow in this scheme.

Should you open Sukanya Samriddhi Account for your daughter or not?

If you look at the features of this scheme, then you will realize that it’s very much close to PPF features, the lock-in period, interest rate, passbook facility, partial withdrawal, and taxation status.

So the real question is if it is better than PPF? Or Recurring deposit? In my opinion, overall it’s a good initiative by the government, the intention is pure and something very much required, but it still does not beat PPF as the product. I personally didn’t find any reason why I would prefer this scheme and not PPF?

However, when you look at this scheme, it’s much better than the traditional child policies and child plans (non-equity) from insurance companies. I would recommend this one over them.

How to open Sukanya Samriddhi Account – Real Experience

Thanks to Dr Dinesh Rohilla for sharing his real life experience of opening the SSA account. I am sharing his exact words and experience below

Quite surprised by the updated knowledge of post office staff in a small town like Pataudi regarding this scheme while the commercial banks in the area didn’t have any instructions regarding SSA neither there customer care helpline.

Anyway following is the procedure adapted by me :-

1) Downloaded form from internet along with gazette notification
2) Fill the form and deposit it along with –

Date of Birth Certificate of my daughter

My identity proof

Latest electricity bill for residence proof

Note:- I had pasted photo on form on which it is written that photo is optional but at post office they told me to give them two more photos. So be prepared.

3) Please check whether they had correctly written in pass book the name of the account holder (girl child) and the depositor (parent/guardian).

In my case they had written just depositor name ( girl child which is not correct way) and after bringing it to their notice they promptly corrected and said they write this way on all pass books but will be happy to know the correct method.

4) Please deposit original birth certificate .Postal staff told me that there is no need to deposit original certificate and photocopy will be sufficient. Being a Birth and Death registrar earlier I know that wherever required Birth/Death certificate should be original. You can take as many as certificates as you wish from authorities by paying fee .

5) On the day of opening account you cannot do other transaction as per staff but can open account with any amount.

Overall experience was very pleasant and efficient working of staff really made me happy .
Thanks India post.

S.K Morthy also confirms that many people have started opening this account in the head post office in Chennai .. See his message below

opening of Sukanya Samriddhi Account

Given the long-term nature of girls education and marriage goal, it’s important to beat the inflation and some part should be invested in equity component too. I would suggest SIP in mutual funds for some amount at least if not full.

For someone who is not willing to take any risk, this scheme is a good choice. Also, note that it’s a good idea to open this account if you are already exhausting your PPF limit and cant invest more on girls child name. Even though you will not be getting tax benefits, but you can still invest more money with help of this account.

Sukanya Samriddhi Scheme vs Other investment options

Also, one good point of this scheme is very much focused on girl’s education and marriage expenses and their future, so mentally it’s easy for investors to relate to it and keep their investment separate.

Below there is a comparison between Sukanya Samriddhi Account and PPF account (SSA vs PPF), along with recurring deposit – because you can open all 3 accounts for long-term and invest on a regular basis like on a per-month basis.

Sukanya Samriddhi Scheme comparision

I hope you are the best person to judge if this is better than other alternatives or not.

Please share your thoughts on this initiative and comment back.

6 facts to know before you apply for credit card in India

Posted on January 22, 2015July 23, 2019 by Jagoinvestor

So you want to apply for credit card? That’s great, but are you well versed with the world of credit card? Do you know how does bank evaluate its potential credit card customers? Are you clear about your requirements and why are you so eager to get a credit card?

Most of the people do not spend much time to check which credit card is best for their requirement, but just grab the one that is offered to them for the first time. So today, I want to make sure I give you a sneak 360 view of the world of credit card and what all things one should be looking at before they apply for a credit card in India.

1. Your Income is important parameter for Credit Card Eligibility

When you fill in the application form while applying for a credit card, the lender asks you for various information like your age, city, take home income per month and type of your employment, which all is required to decide if you qualify for getting a credit card or not.

But out of those, your income is a very important parameter because that’s the main thing which determines your repayment capacity of your dues each month.

Someone earning Rs 50,000 per month is generally more eligible than someone who earns Rs 25,000 per month, because higher income is an indication that you will be able to pay your bills on time and on a consistent basis.

You income is also an important information for bank to set your credit limit at the time of issuing the credit card to you. You can see below a snapshot of HSBC credit card page and they have mentioned that the minimum annual income of a person has to be Rs 5,00,000 to apply for these credit cards.

income criteria for credit cards

So if you are earning good enough money, only then banks will be interested to give you a credit card. Make sure you do not apply for credit card just for the sake of it without a minimum threshold income. Also, note that you would need to submit your latest ITR copy for income proof.

2. Existing relationship with bank fastens the process

If you already have a salary account or saving account with some bank, it is relatively easier to get a credit card, especially when you have handled your accounts properly, I mean not have too many overdrafts, maintaining your minimum balance over the years and having a consistent flow of money in your account.

This is because the bank can easily verify your income details and see your activity and how responsible you have been over the years.

So for example, if you want a HDFC credit card, but you have salary account in ICICI bank, it would be recommended that you apply for ICICI credit card first (assuming it does not matter much to you). You can easily apply for the card online on bank website, and even bank will ask if you are an existing account holder in the bank or not. To which you can choose YES

existing bank account for credit card

If you do not want to apply online for your card, then you can also visit the branch and meet the representative face-to-face. Bankbazaar is a good portal to compare and apply for credit cards or any other kind of loans.

3. Your past credit history matters

It also matters how was your past credit history, if you are looking for credit card. If you have taken some personal loan, education loan or home loan and now applying for credit card (generally a second credit card), your CIBIL report will be checked by the company to find out how was your credit history.

Did you make your payments on time? Did you close all your loans and outstanding without any balance or not?

You can see a snapshot by cibil.com below which shows you what all documents are required by the lender before issuing various kinds of loans and it shows that the latest credit score and CIR is mandatory.

apply for credit card document

In fact the CIBIL report is now mandatory check for any kind of loan. Make sure you surely check your credit report once before you apply for your card.

4. Be clear about the purpose of credit card

There are various kinds of credit cards available with bank. You need to understand very clearly what is the main reason you want the credit card?

If you want to use the credit card primarily for dining and shopping, then you can choose the card which gives more benefit for that. If your main spending is on fuel, then there are cards which cater to that requirement. There are tons of ways you can get rewards and cash back on credit cards. It’s important to do a bit of research on this.

Below you can see some HDFC cards examples .

hdfc credit cards

Most of the credit card companies offer cards under categories like Silver, Gold, Platinum, and Titanium and then as per categories like Diners card, Fuel Card, Cashback cards. If you look at HDFC credit card page, you can see categories and various kinds of features as below

5. FREE vs. Annual Fee credit card

There are credit cards which are totally FREE for lifetime and then there are cards which come with annual fees ranging from Rs 99 to few thousands per year. Most of the people want a lifetime free credit card, which is totally fine if your credit card usage is basic in nature.

But if you have very heavy card usage and 40-50% of your spending happens on credit card itself, then it makes sense to go for premium credit cards, which have some annual fees, because those cards offer you awesome benefits and various ways to save money.

You get higher reward points and cash back in those cards. Also, they have special tie ups with airlines, hotels, shopping stores, fuel companies etc and you get maximum benefits by being a premium member.

For example: Those who travel a lot by airlines can look at Signature Credit Card from HSBC which has special tie up with Makemytrip and comes with annual fees of Rs.3,500, but gives lots of discounts and vouchers which can be used by the cardholder. You will not get these offers if you have a normal credit card.

Signature Credit Card HSBC

If you want to learn how can you use your credit card in more efficient way, a good resource is this article written by Shabbir.

6. You can also get credit card against a fixed Deposit

Do you know that you can also get credit card against fixed deposit open with a bank ? Yes – That’s possible . There are many banks, which will offer you a credit card, if you open a fixed deposit and want a card against it as security (These are also called Instant Credit Card).

This is very much beneficial for those people who are not able to get credit card due to low credit score and banks are rejecting their credit card application. So you can apply for a credit card if you are ready to open a fixed deposit and its also one of the good ways to start improving your credit score, if its messed up.

Below is a snapshot of ICICI Bank credit card page about instant credit card

credit card against fixed deposit

Most of the banks have a minimum threshold of Rs 20,000 fixed deposit to be opened with them and your credit limit is always below that FD amount.

So if you open a Rs 40,000 FD with bank and take a credit card against that FD, then your card limit might be 20-25k per month and if you default of payments for a long time, bank will break the FD and take their dues from it, so there is no risk for bank.

This is the reason that it’s much faster to get a credit card against a fixed deposit and there is no income proof required to get credit card against a FD .

Get set Ready

I hope you are now clear on various things before you apply for credit card from any bank. It’s very important to be very clear on your expectations from the card and for what purpose why you need it.

I would be happy to know your views on this and if you can give some tips to a beginner who is looking for cards for the first time

6 money lessons every investor can learn from Pradhan Mantri Jan-Dhan Yojana Posters

Posted on January 5, 2015July 23, 2019 by Jagoinvestor

I recently was reading about Jan Dhan Yogjna and came across some really nice posters created by their team which is used to educate public in their financial literacy camps.

On looking those posters, I was really touched by its simplicity and how powerful they are to install basic foundation lessons. There were many posters in the PDF file I saw on their website, but I picked 6 posters which I was to show you and teach you some important and foundation lessons on money.

I request you to read what I have written for each of them (don’t skip them) to benefit most from them. I know some of you might feel, these points are not for you, but trust me – many of you need them as much as others.

Lesson #1 – Essential Expenses comes first before Non-Essential Expenses

financial literacy from Pradhan Mantri Jan-Dhan Yojana

You always have two kind of expenses, essential and nonessential and whatever income you earn should first go into expenses which are extremely essential in nature like food, house, education, Medication etc .

If you see the porter above, it shows you a pot which in its bottom has all the essential things and all the non-essential things come about it. In the similar way, when you are investing or spending your money always ask this question – “Have I taken care of the essential first ?” .

I know this looks too basic thing and its assumed that even a fool knows this, but reality is very different. You will see lots of parents who have spent 30-40 lacs on lavish wedding of their children, who are now struggling to even buy a house.

There are people who have invested their money in land, which is locked and now they are struggling to pay high education fees for their children. There are parents who are saving for their car, even before they have any money accumulated for their kid’s school fees.

Lesson #2 – Financial Planning is extremely Easy – if you are ready

financial literacy from Pradhan Mantri Jan-Dhan Yojana

The next poster shows the simplicity of financial planning and how easy is it to implement. All you need to do is be ready beforehand and act on requirement. The above poster is created from a poor person’s perspective, but there are big things to learn .

Whatever is your future need, write it and then find out how much you need to invest on a monthly basis and then DO IT . There is no extra ordinary thing done by those investors who always meet their life goals, all they do is properly save with discipline.

Lesson #3 – Spend, Reduce and Avoid

financial literacy from Pradhan Mantri Jan-Dhan Yojana

You always have 3 categories of expenses in your life. Needs , which needs to be taken care of no matter what you do and you have to spend on those things, no matter what, like education, food, health, medicine. You should make sure you spend on these things and don’t cut on them provided you have the money for these things. Its essentials of life and they are critical for your existence

However there is another category called Wants, which are “great to have” things in life. Things like expensive clothes, entertainment, holidays – which is something where you have to define your limits. You don’t have to cut them out of your life, but always remember how much you need to spend on those things.

You have to REDUCE your spending on these things if possible and then at last there are VICES, which are bad for you, which destroy lives in long run. Smoking, alcohol , gambling etc which give a pleasure in short-term, but should be totally cut out from your life. Most of the people in lower strata of income always remain poor mainly because of these vices.

Lesson #4 – Debt will destroy you, if you dont handle it properly

financial literacy from Pradhan Mantri Jan-Dhan Yojana

I love this poster most because I know most of the people can relate to it more than other posters. Debt is like sugar – sweet for now, diabetes for future . Millions of people today are in debt cycle which started very small.

When their career started, they bought a bike on EMI , or they swiped their credit card because they need loan for some not so important purpose in life (and many times, very important) and then from that time, till date they are paying the EMI for some of the other purpose.

Availability of easy credit has made them addicted to loans and credit offers. One side when one has to save and grow their money, people in debt cycle are actually doing the reverse.

If you see the image above, you can see how poor people get in debt cycle, the easy availability of credit from sahukar or friend in their village makes sure that they are always in that debt cycle, because anytime they need money, they can get it (at small level) and the interest they pay does not look huge (because it’s in rupees terms) like Take Rs 1000 and give back Rs 2 every day , that is bloody 72% per year. Avoid it if you can

Lesson #5 – Save money keeping in mind your life cycle needs

financial literacy from Pradhan Mantri Jan-Dhan Yojana

Most of the people live as if life will always be great and they will always see happy days in life just because their current situation is awesome. Bad things happen in life and you can have it too . It’s important that you save for bad days keeping in mind all phases in life.

I came across a 53 yr old person recently who has spent on everything else in life, but has Rs 0 for him today and now when he is free from other responsibilities in life, wondering how will he manage in his old days since only 7 yrs are left before he will be “senior citizen” .

You will see change of jobs, birth of child, death of someone , lowering of income and many other things which will need money that time which brings an important question – “Are you saving minimum 20-30% of your income for your future needs?” . If not , think on this .

Lesson #6 – Borrow to undertake an activity, which enhances your income

financial literacy from Pradhan Mantri Jan-Dhan Yojana

I want you to stay grounded with that statement for a moment.

– “Borrow to undertake an activity, which enhances your income“

No statement can make it simpler than this. If you are taking loan, ask the question (unless its emergency) – “Will it be used for something which can enhance my income or build me a growing asset ?” . If the answer is YES – you can go ahead, else refrain from it.

Most of the people I came across have tons of personal loans, credit card debt, car loan which is not helping them build anything in life, it’s mainly for their consumption . To some level I am not too much against it personally, but when it’s beyond the limits – it really troubles you all the life because you never get a good enough start in your financial life in initial years.

Basic, but foundation lessons

Today’s article was a bit basic in nature, but I would say its very important one which builds foundation of every investor. Despite it looking basic, millions of investors don’t follow it and get into trouble. I want you to send this article to at least 5 people you know are starting their career, or you feel need some foundations in personal finance knowledge.

Would love to know what you think of these lessons and did you love these posters ?

What happens when you accidentally transfer money to wrong bank account ?

Posted on January 1, 2015July 23, 2019 by Jagoinvestor

Have you ever wondered what will happen if you accidently transfer money online to some strangers bank account ? If you are thinking thats its a rare event, you are wrong. There are thousands of real life cases where a person transferred the money to someone account and then realised that one digit in account number has changed by mistake .

Do you get the money back ?

What are the rules from the bank side and what are your rights as a customer? We will look at this topic today, so that you know what you need to be careful about !

Before we go ahead, I would like to show you some real life examples and complains people have given

Real Life Example 1 – How Rajni transferred Rs 30,000 to strangers account

I did online transaction of transferring Rs 30,000 with ICICI Bank on September 30th,2008.By mistake I transferred money to wrong account number which I did not intend to .I wanted to transfer money to Adarsh Kumar A/C – 000501518633 but by mistake i transferred it to someone by name Virender Asati A/C 000501518366.I gave written letter to ICICI bank ,GT Road ,Jalandhar branch on Oct 4th which they are not able to trace and then I gave one more written letter to ICICI,Dwarka Branch ,Sector 5 ,New Delhi where I am holding the account in November and also sent several emails to them through net banking but ICICI back says that they can not transfer the money without Account holder’s permission . (Source)

Real Life Example 2 – How Vipin by mistake sent Rs 1,00,000 to strangers bank account

I am writing to you for a payment of 1 lac rupees through NEFT transfer on 2nd April 2012 to my sister Meena A/C . But due to a very high level technical mistake by HDFC my payment didn’t receive to my sister a/c whereas it had gone to other person account in some where. After few days when I enquired about that same we came to know that you have filled a starting digit incorrect that’s why your payment had gone to other person accounts. Here my question is to hdfc if anybody fill any information inaccurate, account will not be added as i know but in my case my all entries was correct except one digit error as you are telling us. It’s a universal awareness that there are so many mandatory requisite information criteria; when they not simultaneously completed transaction becomes failed like unmatched IFSC Code , unmatched city and even error of gender.

From that date I called so many times to customer care and visited the respective branch but I am not getting any proper answer from them and not knowing that what action is taken from your side. This is very sad to me that your are not taking any action and not giving me any assurance of my money. (Source)

Only “Account number” matters for online transfer

Let me give you shock of your life now.

Do you also think that if you transfer money to someone by adding their name, accounts number and IFSC code and if one of those does not match the transaction should fail and you should get back your money in your account. Right ?

But its far from reality ! . As per RBI guidelines, at the end of the day only bank account number should matter and name of the account holder and IFSC code are additional information which should be ideally checked by bank on their end, but there is no rule like that.

If you mess up with the account number, the transaction can go through you the money will be transferred. Its totally a bank choice and a “suggestion” from RBI to banks that they should ideally match Name and IFSC code before the transaction, but its not mandatory.

Below is the RBI notification for you to read, which clearly states this. I suggest you read it fully to understand how the banking world thinks and works.

Responsibility lies with the remitter and not beneficiary

As per RBI directions, the final and sole responsibility of cross checking the account number, Name of the account holder, amount and every other detail lies with the remitter (the person who is sending money) and not the beneficiary (who is getting the money) . You can check numerous times before clicking the final button and after that no one else is responsible for your loss or transaction.

You as customer can not blame the bank to not check details at their end. There are thousands of cases where while typing the account number, one last digit got interchanged with another digit and the person did not realise this and their money is then at stake and in most of the cases , they never got it back. (You can learn more about NEFT and RTGS here)

If the account number does not exist, then surely the money will come back to you, because there is no valid destination to send the money. But if the account number exists and its active, then there are high chances that the transaction will go through .

What you should do if you have accidentally transferred money to wrong bank account ?

If you have made a mistake of transferring the money to a strangers account, then you should follow these steps mentioned below

The first step is to make sure you inform your bank the moment you realise that unintended money transfer has taken from from your end. The bank will then contact the beneficiary account holder and try to explain the situation to them. They will ask the account holder to give them permission to reverse back the transaction. In most of the cases, I have read on internet that the recipient of the money have agreed for the reversal (We have good people in this world, despite widespread belief that world is evil) . Below is a real life incident where the person sent back the money.

In some cases, where the other party is greedy (when amounts are quite big) , the other person might not revert back at all or just delay the whole thing and withdraw the money or just don’t take any action . In which case you really are in a fix and it becomes almost impossible to get back your money.

You should then meet the branch manager of your bank, who can go one step further and talk to the destination bank and if they can help in this or in communication with the beneficiary.

One important point to note here is that bank cannot reverse the transaction from their side without the customer approval, because its a breach of agreement and is not the right thing. You never know what exactly is the whole story and who is saying truth (I can pay you and then just say, it happened by mistake)

3 Precautions you should always take while transferring money Online ?

Precaution is better than cure, I personally believe that we are ourself responsible for any money transfer done online. Nothing stops us from taking extra precautions while transferring money online.

Lets see few things you can do ..

Trick #1 – Use CTRL-F to verify your account number

Most of the times, we are typing an account number which we have got in our emails, we look at the number (few digits at times) and then type it in other window when we are adding the beneficiary. What I personally do is once I have typed the account number (you cant copy paste the account numbers in all the bank website, as its disabled) . In that case you can just copy your account number from email, and type CTRL-F and paste the number there and you can visually see if it matches with what you just typed. Below is a screenshot I created for you to understand what I am talking about..

Trick #2 – Transfer Rs 1 first and test the transaction incase of big amounts

If you are transferring a big amount to someone, you can go one step ahead and first transfer Rs 1 and then confirm with the beneficiary if they have got it, and then on confirmation, you can trasfer the full amount. But I suggest to use it only in extreme situations when you really want to make sure if the account is genuine or not. At times, you might come across someone who gives you their account number and you are aware that they are careless by nature, and might have made some mistake while sharing account number, In that case you can take this extreme precautionary step ! .

Trick #3 – Verify the account number from right to left

Generally we are programmed to read left to right and we also match the account number that way, truly speaking, it might happen that we sometimes get fooled by our own confidence (4 zero , might look like 5 zero) .. So its better to also cross check the account number digit by digit from right to left. I personally cross check an account number digit by digit 2-3 times because I transfer any money online. I have never faced any issue of wrongly sending money to strangers account or sending excess money by mistake (One excess Zero in 10,000 and it becomes 1 lac) ..

Spend 1 extra minute to save your self big trouble

I hope you are clear by now that its your mistake if you transfer money to someone else account and you cant held someone else responsible for your mistake. Hence its always better to add the beneficiary account with precaution. Always cross check the account number 2-3 times.

I would be happy to know if you benefitted by this article and if there are any real life incidents around this area. Also please share anything related to this topic in comments section.