Personal Finance Ideas

What you may not know about your Bank

MSN Money has an interesting article on some things that you need to know about how banks make money off you.

10 things your bank won't tell you

The Underwear Index

There are a number of unofficial so-called indexes that some experts use to check consumer confidence and spending behavior. One of the most common is the Lipstick Index, which measure the sale of Lipsticks.

MSN Money has a article on a new index I have never heard about the Underwear Index.

The article goes on to discuss some other non-common economic indicators.

Interesting Read…

Spend Prudently

I found this very interesting article at yahoo..

Want Peace of Mind? Spend Prudently

“That will be my goal for the next 40 years: to spend prudently. If you are smart, it will be yours, too.”

Can your hobby make you wealthy

Many of us have hobbies that involve collecting things. The most common is Stamps or Coins. But it is not restricted to these alone. Any item that has a collectable value can be a valid investment idea.

Stamps and coins are the most common collectible investments that are pursued by millions of people all over the world. Do note there is rarely a definitive way value or trade in these items. For now most people use ebay /similar online auction sites or dealers for trading in these items. So valuations are very difficult to arrive at. There are a number of catalog that can give you what people usually refer to as catalog value, but the real market value may be drastically different. Common items may trade well below their catalog value, while very rare issues may trade a lot higher.

Scinde Dawk, the first stamp issued in India/Asia

Most people collect stamps or coins as a hobby. Very few actually recognize that this is an investment. Thus, most stamps/coins are rarely well taken care of and thus result in loosing their value. Generally most stamps or coins just about keep pace with inflation. Even if you start collecting recently, your stamps values increase over the years (but rarely will give you wealth). Obviously, you may not make a killing on your collection unless you have a rare issue. The value of a stamp or coin increase due to multiple reasons. The most common is due to high demand. For example, the Gandhi stamps set of India is very highly valued as a lot of collectors want that set and the supply is not very high. There may be also certain events that may increase the value of certain stamps. E.g. There was a increase in value of Princess Diana stamps around the time just after her death.

The important thing is that you need to have deep expertise in specific areas to make Stamps or coins a wealth creator. This is perhaps the most risky area and it is very difficult to find those high value stamps/coins that will make you money. Also now that a lot of investors recognize stamps can build wealth, rare stamps now costs a lot to buy.

Personally, I collect stamps. I have fun collecting them and also in recent years started to focus on the value of these stamps. You already collect these and so the added advantage of them being a wealth creation tool is a great thing. The main thing is to take the effort to make sure that you take care of your collection so that its value is not diminished by bad handling. (A lot of part time collectors just put stamps into boxes and forget about them. Damages always decrease the value of your stamps)

So look at collecting first as a hobby enjoy it and maybe it will also add to your portfolio.

Happy Collecting

Micro or P2P Lending – Investment or Charity

If you look at the current online opportunities available for either Micro or P2P lending, you see this positioned either are Charity (or do good thing) or as an investment. For example, if you see MicroPlace or RangDe, they position themselves to attract your good/giving side, rather than your risk and growth conscious investment side. If you see LendingClub or Prosper, then they kind of offer a high return investment option, which also allows you to help other people in need.

So the obvious question is whether you look at this Asset Class as part of your Charity piece or as a valid investment option?

This is a very difficult question to answer.

Though both of these investment options are highly risky, P2P lending is usually riskier as the Micro Lending companies at least have better credit checks and local companies backing at least part of the funds. Actually RangDe seems to offer some kind of protection is that the SHG groups that are part of its lending network actually kind of insures you against loss of your investment (Social Collateral).

Even given this, this is a high risk investment. So the reason you are even looking at this as an investor, is because it has high returns.

• In P2P, this is usually in terms of higher interest rates, up to 16-20% (the general interest rates in the US being around 1.5%-3% for saving accounts and CDs gives you a perspective on how good this return is).
• On the Micro Lending side, the return is not in terms of money, but more in terms of feeling good, impact on society, satisfying your charitable instincts etc.

But overall I think even micro lending can be viable and actually grow only if it also satisfies part of your investing brain. This is basically because, the amount of money people will put up for charity is extraordinarily small compared to what they would put into an investment. So for Micro Finance to actually grow, it needs to start also tapping into the investment instincts. Microplace is starting to do that. They now have investments that earn interests around 5-6% (which is quite good in the US context, compared to the much safe CDs , which is market what Microplace is serving). So if people think they are getting adequate returns and it is also good for the society, this can really open the taps for Micro finance as a whole.

Personally, I divide the amount I keep aside for investments in M & P2P lending roughly at 30-70, towards charity vs. investments. So 70% of the funds go into either the 5+% return notes in Microplace or P2P lending (with 8+% returns), while 30% towards MicroPlace investments that I believe in (notes servicing groups in India or Green initiatives) and other charity lending like RangDe.

If you are serious about this asset type, I would recommend that you to do something like this so that you both do your bit for society at the same time you make sure your wealth is growing adequately.

Happy Investing

 

Technorati Tags: Microfinance,P2P Lending,Charity,Micro Lending,Investment Strategy

Job Losses and Indian Reaction

The Recession has had a major impact on the Indian IT industry. Since most of their revenues are from external sources, when the world sneezes, the Indian IT industry catches a cold.

This sudden change in economic activity has given a bad blow to an industry that was trying to recover from a strong rupee, created by a booming economy in 2007.

Over the last couple of days I have been seeing reports of companies like Infy and TCS laying off workers. This is something I would have expected in any recession and with the kind of job losses US is witnessing, the numbers seem miniscule (Infy sent out 2200 workers, around 3.5% of the company).

<rant>

Obviously India being what it is, any retrenchment is seem as a major rich man-poor man issue. See what happened when Jet Airways wanted to trim their staff. It even became a political issue. So most IT companies say that they sent out under performing people. Yes, most IT companies do send out underperformer regularly and this is almost never reported. But this being a bad year, everything is news.

Seeing the responses/comments on articles relating to artilces on the Infy layoffs, I can see people bad mouthing Infy and its management. This show a lack of understanding of how businesses work. It is ok to be critical of any company. After all in a democracy, you have the right to your opinion. But most of these people did join Infy when offered a job that too at maybe 100 times the salary a normal Indian makes. What really makes me mad, is that these same people now talk about Infy being a bad company??

I see discussions around creating an IT union to fight this issue etc. I can see this become a political platform and easily cripple the growth of the IT industry as a whole.

Think about a situation where a company cannot every reduce its employees. It just increases pressure on the company to hire less so as to be safe.

</rant>

What can help the IT industry (or any other industry for that matter) grow?? Both the company/government as well as each employee has to work on things to make it easier to do business.

A few of my ideas:

1. Government or Industry - Allow companies to hire and fire easily and truthfully. Not cover things as firing underperformers etc.

2. Government or Industry - Create an unemployment pay system (something that will cover your salary for a fixed no of months, say 6 months). I guess the best way is to create an insurance product in this space. So when you work, you pay the premium every month out of your salary and after a minimum no. of years (say 5 year), if you loose your job the insurance covers your salary for some time. Instead of this being run by the government, as in the US, this can be better managed if run by the Insurance companies (LIC, HDFC, ICICI etc).

3. If you work in any private company, plan on being fired and save a fixed amount every month for an emergency fund. It is usually recommended that you save at least 5-8 months of your expenses in this emergency fund.

4. Always improve your skills. This helps you get a new job when you loose one.

5. Network with your peers. Either use events or user groups etc to meet and get to know other people in other companies or use the web, linkedin or other networking sites.

6. Don't ever talk foul of your ex-employer. It does affect your ability to get a new job.

(Cross Posted both in .NET From India and Personal Finance Ideas)

Social Lending and Peer-to-Peer Lending

Social Lending and P2P lending have gained a lot of focus lately. I have also written some posts on these before: Micro Lending - Invest for Good and Micro Lending in India.

These two terms are usually used to mean the same thing, but I personally think these two are different and you need to have different focus when you invest in each of these.

For me, Social Lending is when the money you lend goes towards helping people below the poverty line or people who will not get credit the normal way via banks etc. This scenario is mostly found in developing or under-developed countries. That is why most of this kind of lending happens in countries in Africa, Asia or Latin America. Most of the companies that seem to work in this space are non-profit or NGOs. As an investor, I look at this kind of investments as lower interest bearing but good for humanity investments. That does not mean that I give money away for free (for that I would be doing charity), but look at this as investment. I accept a lower monetary return, but see what kind of impact on humanity returns I get. It is still an investments and I carefully weigh the returns, always.

Places where I do Social Lending:

Microplace – USA

Rangde - India

P2P Lending is an alternative lending network. i.e. if you are in need of a personal loan, instead of going to a bank or use a credit card, you go to a P2P lending system. So basically a P2P lending network is a place where investors meet borrowers and the system provides a framework to lend, get returns etc and takes a commission for the service. Most of these sites allow you to invest as little as $25, but since a lot of people invest small amounts, a borrower may be able to get as much as $25K. The interest rates on these loans are based on the credit history of the borrower, anywhere from 9% to 20%. Usually this is lower than the interest rates charged by Credit cards or banks for similar loans. Basically P2P lending provides a win-win scenario. The lender gets an interest rate that is not available to then in any bank and the borrower gets a loan at a rate cheaper than what would be available from a bank.

As an investor in a P2P lending network, I am basically looking at the best return for the amount of risk I take. No charity, just investments in this case. That is the major difference between Social lending and P2P lending in my perspective as an investor.

Note all these loans are basically unsecured loans and if the person taking it does not pay it back or goes bankrupt you loose everything. That is one of the reason why it is a good idea to spread your risk across multiple loans and keep your exposure to each loan low.

There are a number of P2P lending systems in the US. But the one that is currently open to new lenders is Lending Club (US Only). I have been searching, but am unable to find a P2P network in India. There are mentions of GlobeFunder starting an Indian P2P network, but the site has been saying coming soon for 4-5 months now.

Social Lending and P2P lending should be a part of your investment portfolio.

Technorati Tags: Social Lending,P2P Lending,India,USA,Microfinance

Bailouts and Bonuses

There has been a lot of media attention around how the US bailout is being handled and the bonuses issue. People have been all out about how the bailout is bad and government intervention into businesses will result in all business closing down(Atleast according to some of the more vocal experts I see on TV :)).

I found a post on Motely Fool that give a different perspective to the whole issue and I actually find some of those very logical (Though I do not agree with all the arguments posed, I do agree with quite a few. Actually more than with most of the so called experts on TV). I found this quite interesting.

Cars, Banks and Dollars Without Borders

Micro lending in India

One of the comments on my previous blog post on Micro lending points to a couple of micro lending opportunities available in India. As I mentioned in my updated post, MicroPlace is available only to residents of the USA.

The two sites mentioned in the comment, Dhanax.com and RangDe.org have been on my radar for a month or so now. I am still not convinced about how secure the organizations that run these sites are.

The first site I tried was Dhanax and I could find only two organizations that we registered as borrowers. Also their page accepting Bank and other personal information was on Http and not secure (https). I did send a couple of mails to them about this and got no response. That is one of the reasons I have not recommended this site. If an organization does not respond to mails from people registered with it, then I don't think they are yet ready to be entrusted with money.

I started looking at RangDe fairly recently. Again the site is not secure, but they seem to use the ICICI secure site for credit card transactions. So atleast that information goes over the web via a secure tunnel. But the reason I have not committed yet is that their fee structure is something that does not make sense to me yet. The investor get 3.5% interest and the fees is 5%?? Also most microfinance loans are at interest rates in excess of 20%. So I am kind of not yet sure on the 8.5% rate. But I have still not close out on this one.

I will post an update once I spend sometime with these two sites. If any of my readers have indeed used these sites, I would appreciate any comments or feedbacks. Also if you or someone you know are involved in these sites/companies, I would like to hear from you too..

Update (20/Apr/09)

• I have got some kind of a response from Dhanax. They say they are in the process of changing their site to use Https. Let us wait and see.
• Also I have taken the plunge into RangDe. Though I have not yet taken this to be a full fledged part of my ML portfolio, I have taken the first step now. Lets see how it progresses.

Micro Lending – Invest for Good

Micro Lending has been around here sometime now. It aim at providing small loans to the poor to help them run a business. These loans are usually very small amounts, around 25-100 USD to the poor in developing nations. The problem is that it is usually difficult for an individual to be a part of micro finance.

Microplace is an initiative from eBay and helps you as an investor to connect with institutions that are in micro finance. You can invest as little at $25, but have an overall impact on helping someone. Do note most micro lending institutions will provide loans at interest rates of around (20-30%), but the highest interest rate listed in MicroPlace is around 6%. This is still way above what you can get with a CD in a bank. The big difference is that these are unsecure loans and you can loose money. (I have been using MP for the past 6+months and have not lost anything yet)

This is not the place to look for wealth building, but is something that I thing everyone should have as a part of their portfolio. This is a kind of Charity, but without having to give your money away.

Good for you, and good for your money too!!

Note: MicroPlace is currently available only to residents of USA

Technorati Tags: MicroLending,MicroPlace,MicroFinance