Financial literacy and more
All about the basics of money
The most important part of a compound interest calculation is the time period when the money compounds.
This is the time at which the interest is calculated and then added to the base to make it bigger.
The larger the number of times the money compounds the better it is for the investor.
This gives the investor higher earnings in the form of interest as the base gets bigger frequently.
A deposit can compound quarterly, half yearly or even annually.
Compound interest is a method of calculation of interest where the base of interest calculation increases every year.
In this method the interest earned in the prior period is added to the base for the next calculation
For example a deposit of Rs 10,000 with a 10 per cent rate will earn Rs 1,000 in the first year.
In the second year the base becomes Rs 11,000 (10,000 + 1000 interest earned) and the earnings will be Rs 1,100.
This continues with the end result that the interest earned increases with each passing year.
Simple interest is a way of calculating the interest on your investments like a fixed deposit.
This is an easy way to calculate the interest on a fixed base..
The base amount remains the same in this calculation of interest.
For example an amount of Rs 5,000 earning 10 per cent interest will generate Rs 500 in simple interest every year.
This figure will remain the same year after year till the end of the calculation period.
Those looking to cut discretionary expenses can look at many different areas to reduce it.
Different brands charge different prices so shifting from one brand to another is a way to cut costs.
A reduction in the number of time one spends is also a way to reduce this like eating out less or buying less clothes.
Comparing different places and then buying it from a cheaper place is another way to use the same thing but reduce costs.
Use of discounts and sales is another way to reduce these expenses
Fixed expense are not possible to be reduced or controlled.
This is especially true when the expense is for a basic thing like rent or electricity.
The way to reduce fixed expense is to stop using the thing altogether but this is not possible for basic needs.
Discretionary expenses are the one that can be controlled by putting off the expense.
They can also be controlled by buying cheaper things.
These are expenses which are not essential for day to day living
The amount to be spent is dependent on you as an individual
The figure is based on your decision or choice and hence is known as discretionary expense
Two people can buy a similar thing or get a service but pay vastly different amounts for it
Even the same thing can be bought at different prices for example buying a shirt for Rs 300 or for Rs 900.
Once there is a list of the expenses that are being made then it has multiple uses.
One can look to see if there are any heads of expense that are not essential.
The amount spent is also important from the point of view of controlling expenses.These can be gradually reduced to bring the expense down.
Sometimes the list will also give an idea why expenses are actually far more than what they should actually be.
It easily show how the expenses have changed over a period of time.
If the list of expenses are not available then a fresh one can be made.
This will require noting down each spend as it is made.
At the end of the month the total expenses will be available.
The heads under which this is made would also be known.
It can become a way to reconstruct the expense list.
There is a need to have a complete list of the expenses made.
This will require sitting down and looking at the various spends made by the family.
These need to be listed out one by one so that nothing is missed out.
There could be a need to revisit this over and over again to include items not considered earlier.
The final list would then be available and this is a better way to ensure that all items are included..
Fixed expenses are those amounts that have to be spent each month or week.
There is no choice in terms of trying to control these expenses.
A rent paid for the home is a fixed expense as this has to be paid each month.
These usually have to be paid on a certain date of the month.
All the fixed expenses together represent the basic minimum amount that has to be earned each month.