User's blog

Month: August 2022

  • Some ways to save money and cut expenses

    Who doesn’t like to see some extra money in their savings without having to sacrifice their living standard?

    Saving is the money left after subtracting all our expenses from all our income. This is, after all, the money you can ultimately invest and grow. Well, there are two ways to save money.

    Yes, you guessed it right, either you increase your income or reduce your expenses. In this post, I will focus on the latter.

    I will share some easy ways for you to reduce your monthly expenditures, without even feeling it. While some of these may seem common sense, it is still good to read this article. Maybe, you will find one particular option, which I am going to list below.


    I am combining personal finance and human psychology with my favorite economics knowledge to come up with some doable changes we all can implement. So without further ado, let’s get into it!

    Cut Down on Streaming services

    To start with, please cancel any unnecessary online streaming subscriptions. Many times, we take too many streaming services that we don’t even use much. Honestly, on average, if you are working or studying full time, how much TV do you get to watch every day? Maybe a couple of hours, max?

    So, yes most people do not get the time to watch that much TV and we often end up paying too much for each service. So you should consider how many of these you can’t live without. Even though their monthly fees don’t seem that much individually, together they all add up.

    Is Gym membership worth it?

    Think about marginal benefit vs. marginal cost of Gym membership

    Unless you use the gym 4-5 times a week, paying $20 or so per month isn’t worth it. We get tempted by their deals and may use them for some time in the beginning, but most of us are not able to continue for whatever reason.

    I am totally in favor of exercising and maintaining a healthy lifestyle. And there are free resources for that. You can always start with walking or jogging outside or jump roping. You can also do yoga and make use of many free online exercise videos or free cardio classes. These will all give you the same results if done 3-4 times a week for 30 minutes a day.

    Do you still use Cable TV?

    How to cut your expenses without affecting your living standards?

    In a world where there are so many streaming services, I honestly think we don’t need cable TV anymore.

    I find that a lot of time is taken by the ads shown, and we don’t have the option to skip ads, in cable TV. Honestly, most people just flip between channels waiting for the ads to finish. What a waste of time!

    Consume less electricity during peak hours

    For most places, peak hours are between 4 to 9 PM. This is when you get charged the most. So try not to use your dishwashers and washers during this time if you can. Also, Having an app like Nest will help you monitor how much your AC is running and how to control it. I found some additional ways to reduce your electricity bill in this post in case you are interested.

    Refinance your loans

    If you follow my posts and the news, you must be aware that the Fed has (indirectly) raised all the interest rates that affect us. This includes our home loans as well. The Fed has clearly stated that to fight inflation, it will further raise interest rates. So there is still time for you to refinance some of your loans for a lower rate.

    So anytime, you find interest rates lower than usual, don’t miss the opportunity to refinance your mortgage.

    Eat out less

    Well, this goes without saying, right? I understand everyone can’t have a home-cooked meal every single day. We also need a break and eating out provides us with that happy feeling. But if you can, try to slowly decrease the number of times you go out to eat. For example, start by reducing it by 25% and gradually increase it.

    There will be two advantages to it. Not only you will save money on restaurant bills, but you will also be able to have a healthier life. To get to this, you will certainly need better meal planning (esp. since we all live very busy lives). Nevertheless, it is doable if you incorporate simple and healthy options to cook. One way to do it, which I sometimes do is to make extra servings of the food in an instant pot and use my freezer to save it for the future.


    Avoid instant online shopping temptations

    When we pay with credit card or debit card, often times we don’t know how much money we have spent. We easily fall prey to online shopping deals and offers. Studies have found that the pleasures of online shopping release dopamine, a happy hormone.

    Oftentimes, we just want to buy something because we see others using it. Here, we need to stop and think if we really need it. Is this really adding value to our life?

    An additional tip is while buying clothes, shoes, and accessories, try not to do too many one-time-use purchases. Buy something that you can use more often. We all need a few party wear and special occasions outfits but just choose the number wisely. We work hard for the money and we need to use our judgment while making any purchase.

    Most of the time the pleasure we get by making any purchase is very short-lived. We suffer from something called “shiny object syndrome”. So always think before giving to this instant online need to splurge. One tip is to leave the item in a shopping cart for a few days and then decide if you still need to buy it.

    Return options

    Many of the companies we buy from these days, offer return services, some up to 90 days or more with a receipt. We procrastinate returning because of this long window and may forget to return the item. I am sure it has happened to some of you. So either set up reminders or do it as quickly as you can to avoid sitting with that item.

    Be cautious of free trial magazines and other services

    Sometimes, we take a service, which is free for a trial period. Usually, these services require us to give the payment information even though they don’t charge for the trial period. They also give the option to cancel the service anytime during the trial period. But life happens and we may forget to cancel it.

    Then unknowingly, we get charged for a whole year. Be cautious of these. I would suggest not falling for these offers unless you are very disciplined and can keep track of all your free trial subscriptions. One way to avoid getting charged is to set reminders on your phone to cancel before the free trial period ends.

    So, these were some of my tips for reducing your expenses without substantially affecting your lifestyle. I am sure there are many more, so feel free to share those in the comments section below. In my other post, I will also cover some ways to increase your income.

    I hope you learned something from this personal finance post series. Please leave your comments on what type of posts you would like to read, it will help me connect with my readers more. I hope you are having an amazing day and I will be back soon with another topic. Thank you for reading till the end!

     

  • Did inflation fall to 0% in the US in July?

    Yesterday, in the news, I read President Biden saying the US had 0% inflation in July. The BLS, the official source of inflation numbers, reported no change in the CPI (Consumer price index) from June.

    So did inflation suddenly disappear? Well, it depends on how you measure it.

    Sometimes, the way politicians report some facts could give us misleading conclusions. So, the economist in me had to write something today to help my readers understand it better.

    How do we measure inflation?

    As I said above, the official inflation number in the US comes from the BLS every month. BLS calculates price inflation both monthly and annual.

    If you want to know more about inflation in simple words, you can read my previous posts. I described how we can calculate inflation using some simple examples. I also explained what policy measures the central bank takes to control inflation – my most favorite post.

    So was Biden lying when he said 0% inflation?

    There was indeed no general average price increase from June 2022 compared to July 2022. This meant a 0% monthly inflation.

    However, the year-to-year inflation ending July 2022, was 8.5%. This is still very high, compared to the average US inflation of around 2%. Inflation is the percentage price increase of a basket of goods and services people in the urban United States use. This is of course, over a specific period.

    But, the good news is that it was somewhat less than the June 2022-to-2021 inflation of 9.1%.

    A picture is worth a thousand words

    Here is a chart showing category-wise inflation. The food prices continued to rise. Few others, such as electricity, new vehicles, and shelter also rose.

    The main reason behind 0% monthly inflation was the falling gas prices. It offset the increase in food and shelter indexes. The lower gas prices finally come as a relief to millions of Americans. We have been experiencing a sharp rise in gas prices for a long time and wanted a break.

    Hopefully, Fed’s tight monetary policy will bring inflation down further in the coming months. But, there might be a cost to it- the possibility of a recession. As we say in economics, there is no free lunch. Let’s just hope that even if the R word happens, it is not significant.

  • The jobs market in the US is still going strong

    Two days ago, President Joe Biden proudly posted that the unemployment rate in the US was 3.5% in July. This matched the lowest rate in the last 50 years. He also said that since he started, 10 million jobs have been created in the US economy.

    Praising the fastest-growing job market, Biden mentioned that 528,000 jobs were added in the US in July itself. “Today, we also matched the lowest unemployment rate in America in the last 50 years: 3.5%,” he said.

    The Bureau of Labor Statistics (BLS) in the US publishes data for the unemployment and labor force statistics every month. These are based on the data collected from household surveys and establishment surveys on sample-based estimates of employment.

    I got this Civilian unemployment rate graph from the BLS. You can see that the US unemployment rate is now at its lowest level at 3.5%. This had happened three times before in Sep 2019, Jan 2020, and Feb 2020, when it hit 3.5%.

    But have you ever wondered what is the unemployment rate anyway?

    Well, the unemployment rate is the percentage of people who don’t have a job but can work and have actively looked for a job in the past 4 weeks. This is relative to people in the labor force.

    According to the BLS, The labor force is the sum of employed and unemployed people ages 16 and older at a given period.

    Their recent report about July’s unemployment rate was contrary to what many people would have expected. People were expecting a somewhat slowdown in the job market, but clearly, this hasn’t happened yet. The Fed has been raising interest rates to control inflation. The Fed’s policy aims to cool the overheated economy by reducing overall spending by individuals and businesses.

    So what does a low unemployment rate mean for you?

    If you are looking for work or want a change of job, right now could still be a good time for that. There’s a huge likelihood of you finding it sooner than later and as per your terms. With many employers paying higher salaries, it is a good time to ask for a raise if you think you deserve it.

    When the effects of tightening monetary policy start showing up and we see a reduction in jobs created, it might be a little late to negotiate.

    As always, if you enjoyed reading my post and learned something, please feel free to write your views in the comment section below. Thank you, till we meet again next time!

  • How to always make money in the stock market? What is a Dollar Cost Averaging?

    Today, I will introduce you to a very useful concept called Dollar-cost averaging. It is an investment strategy where you invest a fixed amount of money every period, such as every month, despite the stock market trend. You could invest your money in an index or mutual fund, or electronically traded funds (ETF).

    So, no matter how the stock market behaves if you keep putting in a fixed dollar amount every period, over the long run, it will surely give you good returns.

    Let’s understand this with a help of an example. The dollar amount you contribute each period, divided by the stock price, gives you the number of stocks you buy for that period. So, when you invest a fixed dollar amount (let’s assume you contribute every month), you end up buying fewer stocks when the stock price is high.

    Conversely, when the stock price falls, you buy more stocks for the same dollar amount you invested during that month. This way, your average purchase price per stock stays low over time.

    There is an excellent example explaining dollar cost averaging that I found on the Charles Schwab website.

    To be a successful investor, you need to have patience and invest for the long term. People expect their money to grow overnight and this certainly doesn’t happen.

    Why people need to use this strategy?

    People try to buy stocks when their prices are falling and sell when they are rising to make profits. But it is very difficult to time the market. There is no foolproof way to know how the stock price will behave the very next day or coming days.

    Sometimes, you may buy a stock thinking it is selling at a low price and will rise in the future. If the stock price rises and continues to rise, you made a good investment decision until you sell it at a higher price and make a profit. However, if the stock price falls further for the next few days, and you end up selling it at a lower price than you bought it for, you made a mistake.

    Dollar-Cost Averaging

    In reality, people panic and start selling individual stocks when the stock prices are going down. This is actually the wrong thing to do.

    Also, people, sometimes, don’t buy those underpriced stocks thinking they are not performing well and will continue to fall.

    We, as individual investors don’t have enough information about a specific company and other economic events. Hence, our guesses about market stock price and index movements are not always correct.

    How does Dollar cost averaging help?

    This can be avoided when we invest a fixed dollar amount. With dollar cost averaging, you can stick with a good investment schedule and will not overthink about when to buy or sell stocks.

    I like to invest worry free

    Thus, a big advantage of dollar-cost averaging is that it is a worry-free method of investing. The emotions and anxiety associated with investing are taken out and you just invest a fixed amount at a fixed time (such as every month), ignoring the market ups or downs.

    An example of dollar-cost averaging investing would be the investments done through your employer’s 401k plan. Here you and your employer contribute a fixed amount of money towards your retirement income.

    I hope you learned something from my post today. If you haven’t already, you will start making use of this useful technique in making your investment decisions. Also, please start early, as time is the key. After creating the emergency fund in your savings account, invest your money so it can grow.

    Disclaimer: The information presented here is for educational purposes only. I am not a financial advisor and do not provide investment advice. I recommend you consult a qualified financial advisor to make investment decisions.

  • Saving vs Investing

    What is saving?

    Saving is the extra money we are left with after meeting our expenses from our income. It is the difference between our total income and our total expenditures.

    There are several things we can do with that extra money. We can either leave it at home (the worst option) or keep our extra money in a bank, such as in a savings account or invest it.

    In this post, I will cover how much money we should save in a bank vs investing it to grow it.

    Advantages of having a savings account in a bank

    First, and foremost, we need to understand money loses its value over time because of inflation. So, even though the interest paid on a savings account is not very high, we still get some interest to compensate for loss happening from inflation. Thus, it is certainly better than keeping it in your house, as you don’t earn any interest when you keep it at your house and will lose its value due to inflation.

    However, the best part about a savings account is that your money is safe in a bank, as most commercial banks in the US are insured by FDIC. FDIC is Federal Deposit Insurance Corporation that insures that will not lose their money if that bank goes bankrupt.

    In other words, people who deposit money in a savings account protected by FDIC for up to $250,000.

    So, when looking for a savings account, make sure your bank has FDIC insurance. Also, if you want to select a bank for a savings account, you should look for one that charges the minimum fee for you to hold an account.

    Another important use of keeping money in a savings account is that you can withdraw it for expenses such as a down payment for a car or a house.

    Get that Emergency fund established first

    People also keep money in their savings accounts for emergencies. I strongly feel everyone should create an emergency fund. If something were to happen to our income, we should have at least 6 months’ worth of money to survive.

    So, keeping money in a savings bank doesn’t make you rich, but it helps in creating an emergency fund and meeting some big expenditures. So before, we start investing, we should have at least 6 months’ worth of money in a savings account for emergencies.

    This can change based on the size of the family and sometimes people need up to 12 months’ worth of expenses if the family size is big.

    Anything after that, we should invest if we want our money to grow.

    What do we mean by investing?

    In finance, investing means when you invest your extra money with the hopes to grow it. The most common forms of investment are stocks, bonds, an index or a mutual fund, commodities like gold and silver, and real estate (property).

    If you are interested in learning more about these options, you can check out my post here.

    Disclaimer: The information presented here is for educational purposes only. I am not a financial advisor and do not provide investment advice. I recommend you consult a qualified financial advisor to make any investment decisions.