Market Watch: June 2, 2009

If you’re a parent you know the anticipation, and perhaps even the fears you felt before your first child was born. With technology as it is today, so much can now be discovered before hand. Fears can be laid to rest or plans can be made to accommodate complications. But it hasn’t always been that way.

People also believe that you need credit cards in case of emergencies. Honestly, no financial advisor will ask you to sign up for it in case of emergencies. Responsible financial planning techniques involve saving six to eight months of expenses for emergencies, not owning such card.

In your financial journal, place a new entry that identifies all your expenses in one section and all your income in another. Subtract your expenses from your income. What is left is what you have to work with for savings. Determine when you want to have the cash to pay for your next big purchase and plan the savings accordingly.

Many financial plans include a review of your current property and casualty and life insurance coverage. Approach this an opportunity to shop your current coverage and see if you can save money. Any savings can go toward meeting a retirement goal. Couple this with tax planning and you may be able to increase your tax deductions and decrease your taxable income. Additionally, most people don’t realize that they can move an annuity (tax free) from one insurance company to another in order to lower your fees. Your existing provider won’t tell you this because it is not in their best interest…however, it is in your best interest. That is critical to your success and an independent financial planner will review potential savings with you.

The RBI may continue with its rate hike spree for some more time. “We expect a 50 basis points increase in key interest rates over the next three to six months, which will keep the short-term interest rates firm,” says Ramanathan K, CIO-single manager investments – ING financial planning. Nowadays, good credit-rated financial instruments maturing in 90 days offer an annualised yield in the range of 8.75% to 9.25%.

Buying financial planning services costs are extreme. Often buying costs add a huge 12-13% on top of the purchase price of a property. Sales costs aren’t small either. This means your property has to grow at least 13% before you get your money back (then the German government will still take a large slice of the profit). This makes the German property market very illiquid – not good – and increases investors risk substantially.

We strongly suggest that you move papers to the bank and obtain a pre approval of your home loan. This will come in handy in many ways. It is as good as cash and you will be able to negotiate for a best price with the pre approval in place. Secondly you can close the deal and execute the agreements etc very fast without having to waste time because your loan is already approved and waiting for disbursement.

Another important factor when you are investing money is to determine the level of risk that you are comfortable with. Typically investments that have a very low level of risk do not have a very high potential return on your investment. The flip side of that is that if there is a high level of risk involved, it means that if you get a return on your investment, it is much likely to be larger. Before you settle on your investments, make sure to consider how much risk you are willing to take on.

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