Monday, June 24, 2013
Inspired from most admired finance guru in the world, we recommend five most important personal finance tips for everyone:
1. Spend wisely
If you buy things you don't need, you will soon sell things you need. - Warren Buffett
All of us suffer from the urge to splurge and we justify our spending using the pretext of special occasions, peer pressure, lifestyle, family, emotions and even smart decisions. Most marketing companies understand this urge and try to exploit it by making offers that give consumers the false notion of having made the right decision. Unhealthy carbonated drinks are sold with promises of happiness, adventure, youthfulness, etc. Take the example of the current EMI options on expensive smartphones.
When one could do with a Rs. 15,000 phone (within budget), the EMI option gives a false sense of smart decision and instead makes you buy a Rs. 35,000 phone (overstretched budget). Spending wisely is not being stingy but being smart and aware. Every rupee spent on unnecessary urges contributes to lost wealth.
What you should do: Always ask these questions: Do I really need this? Am I overspending? Can I save some money without compromising on the value I want from a particular product/service? Encourage your family members to follow this path.
Lesson: Rule No. 1 : Never lose money. Rule No.2: Never forget Rule No.1 - Warren Buffett
2. Saving: Save for the unexpected
Someone's sitting in the shade today because someone planted a tree a long time ago. - Warren Buffett
All of us know that saving is important for a better future. But it is alarming to observe that most of us do not even save enough for emergencies. This happens due to our myopic view about personal finance.
Instant gratification today matters more than saving for tomorrow. In fact, saving is perceived as sacrifice by people.
What you should do: Follow "pay yourself first" principle. Set aside money for your future goals (and risk) as soon as you receive your monthly paycheck. Take professional advice to know where and how much you should invest for achieving goals.
Lesson: Don't save what is left after spending; spend what is left after saving. - Warren Buffett
3. Think long-term and be patient
"No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant." - Warren Buffett
Money is part of nature, it doesn't grow overnight. However, we overestimate money we can make in a year and underestimate what we can make in 10 years. People make money by staying invested for the long-term and without doing much "dancing in and dancing out" i.e. changing portfolios frequently.
Investors around the world believe in the India story in the long-term. You can benefit from India's growth only if you invest for long-term and not panic seeing short-term fluctuations.
What you should do: Make a diversified portfolio based on your risk appetite and financial goals. Pick right financial instruments recommended by your financial advisor and invest regularly and persistently for the long term (8-10 years).
Lesson: Life is like a snowball. The important thing is finding wet snow (opportunities) and a really long hill (long term). - Warren Buffett
4. Borrowing: Limit what you borrow
You will not become rich by living on borrowed money (credit cards, loans). People initially think that borrowing is manageable. But our country is full of examples when managing debt becomes overwhelming. Borrowing should never be done without an objective assessment of future cash flow and other financial needs. One needs to have a solid plan to pay the debt back and not become its lifetime slave. A debt-free life is the best life.
What you should do: Start with thinking that borrowing money is not an option. Shift to using debit card (in-hand money) from credit card. Negotiate your interest rates with the banks and re-finance (early phase) if necessary. Objectively assess inflation rates, income growth, sources of income, assets to pledge, etc, while planning long-term borrowing.
Lesson: I've seen more people fail because of liquor and leverage - leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing. - Warren Buffett
Risk comes from not knowing what you're doing. - Warren Buffett
Everyone wants to make money and we all want it quick. We go for investments which promise high returns. But we fail to objectively analyze the associated higher rate of risk. Trying to hit a six on every ball with your hard-earned money is nothing short of gambling. This happens because we are greedy, don't read fine prints of financial instruments and don't understand their investment objective. Our financial planning is vague and is done in a random fashion which leaves us susceptible to risk.
What you should do: Understand the objective of various financial instruments and asset classes.
Consult professional advisors to understand the investment pyramid, develop an investment strategy, review regularly and diversify.
Lesson: Investing without knowing increases risk. However, instead of shying away from investing one should acquire knowledge to get it right.
Sunday, June 23, 2013
In a country where most people own a mobile phone yet lack basic Internet access, it is a risky gamble even for India's richest man. He is counting on an unproven strategy and still-developing technology in a market with very little pricing power.
Three years ago energy conglomerate Reliance Industries Ltd (RIL) won an exclusive nationwide licence to roll out 4G across India, giving it a foothold to tap a potentially lucrative market in phones, tablets, computers and television.
The data-focused service could start to roll-out in New Delhi and Mumbai by the end of the year, sources familiar with the matter, who asked not be named, told Reuters. Eventually, the plan is to run it across hundreds of cities. Ambani has refused to divulge any specifics on the launch.
In what is one of the world's poorest countries, Ambani's 4G mantra is affordability. This has fuelled industry worries of a price war in a still-crowded telecom sector that has recently started seeing stability after years of cut-throat competition and regulatory uncertainty.
Ambani's strategy is cut-price handsets and data, even if it means he has to subsidise the devices from his own cash pile. Fortunately, he has very deep pockets. Reliance's cash hoard of $15 billion stands in contrast to rival telecom carriers who are estimated to have a combined debt load of $32 billion.
"Broadband and digital services will no longer be a luxury item - a scarce commodity - to be rationed amongst the privileged few," Ambani, the world's 22nd richest person according to Forbes magazine, told shareholders this month.
Ambani hopes to offer 4G devices costing less than 5,000 rupees and in talks with Samsung Electronics Co and others for sourcing handsets and other devices, one of the sources said.
A spokeswoman at Samsung's local unit declined to comment.
While it appears to be a risky bet, the payoff for a successful venture is first-mover advantage in mobile data communications, which has transformed media, marketing and business strategies from Europe and the United States to China.
In a sign that its rollout is gaining pace, Ambani's Reliance Jio Infocomm unit this month signed a $2 billion telecom tower sharing deal with mobile carrier Reliance Communications, which is owned by his younger brother Anil. That followed an agreement with rival Bharti Airtel for leasing international bandwidth, and two other pacts.
India's cellular market is the world's second largest by users after China, with users surging from just over 5 million in 2002 to nearly 870 million now. However, less than 5 percent of mobile phone owners use their device for high speed 3G data.
The uptake for 3G has been slower than expected since its launch in 2011 after costly airwave auctions, mainly due to the premium pricing of data services in a country where voice rates are less than 1 U.S. cent a minute, among the lowest anywhere.
Cheap data rates could help grow usage of 4G, which offers several times faster download speeds, but would force Ambani to play an expensive mass volume game - a bruising strategy that has battered margins for India's incumbent mobile carriers.
Over the next five years as infrastructure is built, analysts predict India's rapidly growing middle class will buy between 30-80 million 4G connections.
Some investors, however, are worried Reliance may be taking too much of a gamble in its bid to diversify away from its oil and gas-related business which produces the bulk of its $70 billion in revenues.
They are also growing impatient over an outlay that has cost nearly $5 billion and counting, with no returns expected anytime soon.
Serious technology challenges await Reliance.
The company is using a version of 4G that is still evolving, and there are few compatible network devices and handsets now available. Bharti, which has 4G permits for some service areas, launched its first network more than a year ago, but is yet to start selling a handset that works on the technology.
The 2300 megahertz spectrum band India has allotted for 4G is less efficient than the 700 megahertz band widely used in the West. Apple Inc's iPhone and iPad and Samsung's popular Galaxy S4 are not tuned for RIL's spectrum.
The 700 band is currently allocated for state TV broadcasting services and security agencies, but the sector watchdog has recommended that the band be auctioned in 2014. Both bands need the same core infrastructure, making the switch from one to the other possible.
Ambani's telecoms ambitions have a familiar ring - a decade ago a phone company run by him sharply cut call prices and sold handsets for an initial payment of just $10. It transformed an industry that came to symbolise India's rampant economic growth.
His re-entry raises the possibility of another price war in a sector where carriers including Bharti and Vodafone have only recently started seeing price stability.
"It's a very competitive market, and Reliance looks to be very serious and aggressive," said Walter Rossini, a Milan-based fund manager at Aletti Gestielle SGR, which counts Reliance and Bharti among its Indian holdings.
But many question Reliance's dependence on a data-focused network in a market where voice generates nearly 85 percent of carrier revenues.
"Though we think RIL's entry into the telecom space cannot be ignored, we believe that for RIL to pose any credible threat to incumbents, a strong comprehensive voice business is an imperative," Macquarie analysts wrote in a note on June 7.
Reliance received a boost when India recently allowed 4G carriers to offer voice services by paying an extra fee. It is yet to decide whether to offer voice on its 4G airwaves using new technology or by tying up with an established voice carrier, a company source said.
Reliance did not reply to emailed questions seeking comments on its 4G plans.
While acknowledging scepticism towards his 4G venture, Ambani said at the shareholders meeting this month he was in the "optimistic minority" who held a bullish view of the sector.
Executives at rival carriers play down the Reliance threat.
"For them it is everything starting from scratch and we have a very serious headstart in this business," said an official at a large rival telecoms carrier, declining to be named.