My blog hopes to empower you on your money journey. Each week I will decode, demystify and mark a trend that has to do with your money life. The format is one explainer and three questions answered. Write to me at email@example.com with questions you would like answered or things you want explained. Or tag me on my social media handles: @monikahalan.
You can hear this episode on my podcast Let’s Talk Money With Monika Halan
Let’s talk money!
- Why is the stock market a drama queen?
Markets go up and down, sometimes dramatically and sometimes they are just sideways with not much activity. Indian markets have gained an absolute 83% over the past five years, but show a boring 6% return over the past year. Stock markets are drama queens in the short-term reacting to news both local and global. But long-term the markets reflect the underlying growth of an economy.
When the markets ran up in mid 2023 there were fears of a bubble. Remember that bubbles are formed when there is excess liquidity in the world – typically when the central banks like the US Fed keep interest rates too low for too long. After two years of near zero rates, Fed rates are at 5.50% now – there is certainly no cheap money inflating stocks this time round.
Is it a scam? While individuals and individual stocks had the power to derail the Indian stock market in 1992 and 2001, the sheer size, depth and maturity of the market prevents such a scam from causing a scam fueled rally.
The stock market in India is connecting the dots of hard reform in the past decade – GST, Bankruptcy code, UPI, focus on formalisation on business. India is beginning to see green shoots of corporate investments. All this makes the marker anticipate growth.
Growth translates into profits that translate into a rise in stock prices.
Are you too late or is the market going to crash? I have seen the Sensex from the time it was 2,000 in 1991 in its ups and downs and for a long-term investor there is no one good time to invest.
- Stock markets reflect state of the economy. They are short term temperamental and long term sensible
- React to short term events, for example the pandemic and the longer-term trend line reflects the growth in an economy
- Trend of India’s average index return has been 12% annual. Projection is of about the same for the next decade at least.
What should I consider when opening my bank account?
There are three things to consider before you open a bank account:
- Operational efficiency
Ease of operation – The bank you choose must have efficient net banking and mobile banking services. Most large public and private banks have good tech in digital banking – the private banks are a little ahead. Surprisingly some of the foreign banks are way behind the tech curve.
Branch near home – branch access is needed when you need special services like a in person KYC update or a draft to be made. Many banks do this online, but the presence of a branch near your home is always a factor to keep in mind.
How many ATM visits are free – usually five from bank ATM and three from other bank ATMs. With so much digital payment, the need for cash has gone down, yet you need to keep this charge in mind.
Availability of locker – for important papers and jewellery make the locker availability a criterion for opening an account. Check locker fees – some PSU banks charge as little as 4,000 a year and some private banks as much as 12-15,000 a year.
- Cost and return
Check the minimum balance requirement – salary accounts usually are zero balance accounts. Banks can have a requirement to have some amount of money as the average monthly balance – some banks ask for a minimum of Rs 10,000, others can have a higher limit. Check this carefully for there are charges if you go beneath the limit
What does the bank charge for services such as sending SMS alerts or for credit and debit cards, issuing cheque books, internet banking fee, cheque bounce charges? Find out what you might have to pay.
Find out how much interest the bank pays on its deposits. Most banks maintain a savings deposit rate of 3.5%, some banks give a higher rate but that is usually accompanied by a higher minimum balance requirement. I would not worry too much – I worry about safety of money rather than return on a saving deposit from a bank
In short: What should I consider when opening my first bank account?
- Operational efficiency: digital banking, branch near home, free ATM visits – usually 5, own bank, other bank, availability of locker
- Costs and returns: min balance requirement and cost to breach, bank charges for services such as sms alerts, interest rates on SD and FDs
- Most important things: large commercial private or PSU bank – safety over return, low min balance charge, excellent digital banking facilities
When should I get a credit card, how many should I have and what do I use them for?
What is a credit card – it is an unsecured loan with a free payback period of around 30 days. There are very high interest rates if you do not pay in time. You end up paying a late fee plus interest. Interest cost can be 24-42%.
When should you begin using it – when you begin earning and find yourself being responsible about your money. When expenses are well within the means.
Advantages – it is an interest free loan for 30 days. Useful in an emergency when you don’t have funds. Extra services such as reward points can be useful at a certain level of spending. Prudent use helps build your credit score with the credit rating agencies.
Disadvantages – can get you in a debt trap. Easy to spend on impulse purchases with a card. Rs 50,000 of credit card outstanding with min of Rs 2,500 (5%) paid, will take 15 years to pay off and will cost you more than double.
Top 3 things to keep in mind
Use the card, don’t get used by it
Choose one with zero annual cost
Pay it back on time, every time
When I get my first salary, how do I break it up into expenses and savings?
- Enjoy for 6 months. You have waited a long time for this day. You studied hard and you passed competitive exams all to lead upto this day when you begin earning. Enjoy the money with all the pent up spending moments but remember to not get addicted to it. 6 months is fine, 6 years is not.
- Build the triple S cash flow system. The Separating Saving from Spending Cash Flow System works with 3 bank accounts. All income drops into one bank account – call it the Income Account. At the beginning of the month you move money to spend in that month to a second account – Spend It Account. Whatever is left (or is a target) moves as the amount saved into the third account – Invest It Account. Use this system to practice the habit of saving. Just experiment with different levels of spending to see how much is enough.
- Spend 50% take home, EMI 30%, Savings 20%. Once the 6 month spending binge is over, get down to some serious planning about your money. A simple way to know that you are doing ok is to use these ratios of spending, saving and EMIs. If initially you cannot do 20% savings as income is less, do whatever you can, but once you begin to earn more, or you get a bonus or increment, remember to up the ratio to reach 20% or more to make up for the lost time.
Read Monika Halan’s oped in Hindustan Times
The story of India’s unluckiest investor