Happy and peaceful life is not only for those who live in monasteries and renounce worldly life. It is also for people like us who lead normal lives and who must earn a living in this dog-eat-dog world.

If you think that true happiness lies in amassing a fortune, then you are very wrong. True happiness can be achieved in our routine life itself. However, you need to follow some common paths. Consider this as the ‘Way of the Disciple‘, which every aspirant needs to take in order to attain perfection.

Live Simply, Eat Healthy, Think High: The basic principal of living a happy and contend life is not to indulge more than you can take. It doesn’t mean that you must stop working or go to your boss and ask to cut your salary in half. Earning money has nothing to do with happiness. The problem is how you use it.

If you use your money to live a life of extreme luxury, eat junk food and indulge yourself in nonsensical talks and spare no time for profound thoughts, then you will slowly discover your life slipping into depression and unhappiness.

A resolve to live well below your means with the least comforts will automatically transform you. Keep your food simple and never fill your stomach. Once you begin to live a simple life your body and mind will slowly tune into the real happiness this world has to offer. Food not only vitalizes your body but also nourishes your brain. Good food will even make you think straight and help you think the right thoughts. Right thought will make your mind positive and will make you happy and contend.

Think beyond your self and your surroundings. Think and ponder about others and about the world. This will widen your horizons and it will better equip you to face your own problems. Only true knowledge can dispel fears and sadness.

Help Create a Better World: True happiness comes when you give not when you take. You may create wealth by taking lot from other people in the form of labor, capital, time, energy etc. However, start giving to others in time of their needs without expecting anything. You will receive true happiness that no material pleasure in this world can offer you.

Indulge in making this world a better place. You need not be a Gandhi or a Mother Teresa but you can do your bit to change this world for the better. A small step is more than enough. Volunteer yourself for helping the poor in your neighborhood or cleaning your surroundings and keeping the world pollution free.

The main thing you must understand is that giving donations alone won’t make the difference. Anyone with money can make a quick donation and it stops with that. Your effort must be organic. You must get into the act. See the smile on the faces of those whom you help and this is more than enough for a lifetime of happiness.

Have a Passion or Hobby: As the saying goes, ‘All work and no play make Jack a dull boy‘. Happiness is derived when you do what you love to do the most. You might be earning a six figure salary but if you hate what you do, then there would not be any happiness in your life.

Think what makes you happy. Everybody has a passion for which they don’t mind spending huge amounts of time. Try to find out your passion. If you already have one, then pursue it. For some it is to play a musical instrument, or to draw, or to travel or learn new languages. Whatever it is, don’t let your job or family deter you from pursuing it. Killing your talents and your passion is a sin. Never destroy what God has given you.

Once you begin to pursue your passion, you will find happiness in other things that you do, even the job you hate will become more bearable. It will be a solace for you at times of great stress and sadness.

Don’t start telling that you do not have time for it. If you truly want it, you will surely find the time for it.

Have a Big Dream: Big dreams give you a meaning to live. The feeling that your life has a purpose will help you overcome any obstacle in life. It is a source of great happiness. Dreams can uplift people from a life of dullness and meaninglessness to a life of action and purpose.

Your dream need not be something big and impractical. It must reflect your strength and aspirations too. It might be small and insignificant but as long as it is important to you, then that is more than enough.

Have the Love of Your Life: The greatest happiness flows from perfect love. No amount of wealth or power in this world can replace true love. Even Gods fail in front of perfect lovers.

Love your spouse more than yourself. Make each moment with them special and enjoy it to the fullest. Nothing else can give you more happiness than being in the company of your loved one. It is the source of all your strength and success. Therefore, love hard and love well.

It is a matter of destiny to find someone that matches you but if you keep your heart open your chances are more for that person to come in to your heart.

Keep Connected to the Real Boss: Maybe my atheist friends won’t agree with this one (with due respect to them) but keeping connected to the ultimate force in this universe will give you happiness that is more than words can explain. It drives you to unbelievable heights and you can attain feats that you never thought was possible.

Our fathers have showed us ways to connect with God. Follow the path that was taught to you and tune into the presence of a higher power. The faith and love in that presence is enough to give you happiness that you have been craving for all these years.

These methods are simple and not something new but in our pursuit for happiness we ignored what was really in front of us. The most beautiful things in this world are hidden in simple unassuming places. Open your eyes to see it; open your ears to listen to the wise sayings and open your arms to receive true happiness.

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True, they might invest in it because they know the company well or they found out that the stock is undervalued now, or even they got some information about some deals that going to change the tables around for the company.

However, it doesn’t answer the question of risk, profitability and consistency.

No investor can be 100% risk free. Whatever amount of research you do cannot substantiate for the countless variables that controls the market. Therefore if you invest heavily in one stock, you are a sitting duck when the company stock is hit.

So, for those who are betting their life on just one stock, I would like to hammer home the investment strategy of portfolio management. Bet you have heard of it before, but wait till you hear about its advantages. Then invest wisely.

Portfolio Management for Wise Investments

Portfolio management simply means investing in different stocks depending on the risk and returns they offer. Or, it is the art of reducing your risk and increasing your income. The trick is to invest in different stocks because if you don’t then there are only two possible outcomes; either you make money or you lose everything.

What average investors need is a steady flow of income with limited risk. That is exactly what portfolio management helps us to do. There are many benefits if we opt for Portfolio management.

Maximizes Returns: Investing in stocks of different companies from diverse industries helps you to maximize your profits. Some industries and companies perform well in the short term while others would not. Investing in many companies helps us to maximize on those whose value goes up. If you had invested in just one scrip, then you stand to loose everything.

Reduce Risks: Following from the first point, investing in diverse industries also helps to reduce risks. We cannot predict with accuracy which industry might face downturn and which company stock is going to fall. Therefore investing in one company means that you are betting your everything that it will go up. I need not tell you what will happen if the company results are bad.

However if you had invested in other companies that performed well, you could have offset your risks with the money you made in those companies.

Maintains Balance: This type of strategy in investing helps to maintain balance thus assuring you a steady flow of income that is consistent and stable. Maintaining a balance between high risk shares and low risk shares guarantees a fixed amount every month because even if we lose on high risk shares, we can be sure to make money on low risk shares.

Such a balanced investment in every sector also helps us informed about every industry and thus helps us to switch our shares from one sector to another to make maximum results and reduce maximum damage.

Efficient Allocation of Resources: Retail investors like you and me are limited by the amount of resources we have to invest. We prefer to see our resources used in the best manner possible so that it gives us the best returns. Only Portfolio management can help you to allocate your resources efficiently. Just imagine putting all your investment in one company and losing it when the shares fall. Would you call that an efficient allocation of your hard earned money?

Helps to Stay Focused: If you invest in shares of just one company, you either end up with a windfall or go down with the tumbling shares of the company. Now how can you ever plan for the future by investing like this?

With portfolio management you will be able to predict with better accuracy about the income you will receive. This helps you to stay focused and sound. Your goal is financial security and you might have a sum in your mind that you wish to make before retiring. Only a portfolio management helps you to stay focused of your dreams.

If you find that your present income is not enough to reach your goal, you can change your portfolio to include more income generating shares. On the other hand, you can reduce your risks if you switch from high risk shares to low risk shares if your present income is more than enough to achieve your goal.

Except when falling in love with someone, never invest all that you got in just one thing! Get the idea?

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What kind of risk taker are you?

Most of us think that we take investment decision based on the money we got, the market cues, interest rates etc. but in fact that is not the whole story. Investments decisions are mostly subjective; dependant on the amount of risk we take.

The Three Types of Risk Takers

Broadly there are three types investors based on how each of them view risk. They are Mr. Thakurji the conservative risk taker, Mr. Gabbar Singh the aggressive risk taker and Mr. Jai the balanced risk taker.

Mr. Thakurji is a soft spoken gentleman who wishes to make a quite living without making much noise. He prefers low risk investments and do not wish to take any risk. He invests only in assets that give a steady flow of income even if the returns are very small. He lays low and loves to live a peaceful life. His investment portfolio will surprise you with the absence of even a single high risk instrument.

His motto is not to lose even one penny of your principal.

Mr. Gabbar Singh, on the other hand, is the exact anti-thesis of our above said gentleman. He loves to live life on the edge. Taking high risks is second nature to him. He prefers to attack with all that he got. His investment kitty is full of high risk instruments that could either turn him in to a millionaire or a beggar overnight.

His motto is to spend every penny you got in order to make more pennies to spend.

Mr. Jai, our hero is a go-between when compared to Thakurji and Gabbar Singh. Jai loves to stay at home when needed and lives within his means. However he also loves the good things in life and is ready to take small amounts of risks if it promises a good return. He may go for high risk stakes but he never gambles. Finally he knows exactly when to quit. His investment kitty will also surprise you with the right blend of low-risk and high-risk instruments.

His motto is simple: spend your each penny wisely.

Now let us see what 2012 has in store for our three gentlemen when it comes to investments.

How Our 3 Gentlemen Must Invest in 2012

The coming year is very crucial from an investment point of view. This is because the effects of 2011 will be played out this year. The weakness in Euro zone is still haunting us and risks another recession spreading out this year. Back home inflation rate is pretty high, value of rupee is dropping, and the deficit is still huge, not to mention high corruption and weak political stability.

In such troubled waters how can our three gentlemen make some dough?

For Mr. Thakurji, our perennial risk averter, making investments in debt instruments and more in fixed deposits can bring stability and income. With inflation hovering high, interest rates in India are bound to stay up making bank investments a good option.

Traditional tax free investment options such as NSC, ELSS, home loans etc. that came under 80C is going to lose luster as they will be taken out of 80C from April. Therefore it is wiser to move your investments in to other tax saving investment options.

Infrastructural bonds are a good bet given its triple A ratings and the returns they are giving. However, it would be wise to re-think investments in Gold because it is at an all time high. If the present crisis shows signs of abating this could burst the bubble in gold prices.

Mr. Gabbar Singh will have many opportunities to gamble this year too. Markets will be volatile considering the weak global financial situation. We can expect huge fluctuations to either side of the chart; therefore, what Mr. Gabbar Singh must realize is that the market can go either way. It would be wise if Mr. Gabbar Singh be ready to make money both in the bull market and bear market too.

With phenomenal rise in gold prices it is hard to predict where it will go from here. If there is recession around the corner then it is going to shoot up again. The risk is pretty high, which is what Gabbar Singh is exactly looking for. However don’t forget that there are other commodities too. A weak global market might bring down the base metals.

As for Mr. Jai, it is better you invest more towards the low-risk options. This year is slippery and only cautious investments are going to take you to the other side. So walk slowly and steadily. To satisfy your limited risk taking appetite buy stocks that have gone below its intrinsic value. Make sure to buy it for on a long time basis. However it is wise to keep stocks to 10% of your portfolio.

Don’t invest in Gold thinking it helps to tide over inflation. Gold is fast changing its role as a store of value during inflation to more of an investment asset. Inflation Indexed bonds are the best solution to tide over inflation. However, invest in it if the government gives the green signal for it to be introduced into the market this year.

Well, hope our three gentlemen got the idea about how to invest in 2012 and good luck to them all. However for you let us say it is better to follow Mr. Jai because at the end of the day your assets must be secure and provide you with a steady flow of good returns. So invest wisely, stay secure and make lots of money.

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Think again.

There are many people, who are able to not only meet their expenses but also save a small fortune, while earning a low income. This is possible only if you have the determination to do so.

Here are some easy ways to save on your small income. These steps will help you to cut down on unwanted expenses and save money for a rainy day.

Nine Steps to Start Saving

Step#1 – You could start by preparing a budget. Knowing where to spend and how much helps you in keeping unwanted expenses at bay. Budget could be prepared for the fixed expenses like rent, food, bills etc. Try to stick to the budget and try to put aside a little money for personal expenses as well.

Step#2 – Keep a track of your monthly expenses. If you feel that the expenses are going to be high, trim the extraneous areas or if possible, postpone them for next month. Always try to save more than what you think you can.

Step#3 – Buy non perishable grocery items like cereals, canned stuff in bulk.  Bulk prices are much lower than regular ones. The difference could add up to a decent saving.

Step#4 – You don’t have to buy branded stuff every time. There are many options instead of the branded ones which are as good as the branded ones. They are much lighter on the pocket too.

Step#5 – Look for the best bargains. By putting in a little time and research, you can find out the stores which offer the best bargains, clearance sale etc. This could help you save a tidy sum!

Step#6 – Avoid taking the car for small distances, start walking. If possible get your friends together and start a car pool. You could go to office, parties etc. this way. Both the ways help in saving fuel which will ultimately lead to savings.

Step#7 – Start using public transport. You will be surprised at how much you can save this way. Incase you find public travel boring, make up for it by taking along books or games.

Step#8 – Learn to do everything on your own. Learning to bake, plumbing, electrical works, making your own coffee and packing lunches; all these can help in cutting down your expenses. You can even make gifts and cards at home. People receiving it will appreciate them more and you will be saving a small sum each time.

Step#9 – Avoid using your credit cards. Because credit cards make you spend more and this is bad if you want to save. Besides, Credit Card dues if not paid on time can result in bigger debt because of high interest rates.

These steps won’t make you rich, but it will definitely help you live a happy life in the long run. Saving doesn’t mean that you have to avoid all pleasures. There is nothing wrong in indulging yourself once a while; just be careful not to spend beyond your earnings.

So start saving and always remember the saying, “A rupee saved is a rupee earned.“

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Well the recipe is simple for any one to cook this retirement kitty. All you need is the ability to invest Rs. 1000 every week, an asset that promises 10.50% return, a lot of will power and a small dose of perseverance.

The Power of Compounding

I know you are killing your self with curiosity by now. So don’t go overboard with this. The strategy is nothing but compounding.

For beginners compounding means (according to Investopedia) the ability of an asset to generate earnings, which are then reinvested in order to generate more earnings.

That means, every earning from an asset is re-invested back in to the asset itself so that the final earning will be compounded.

So how does one work with compounding?

If  I just add up Rs. 1000 every week for 30 years I would end up with only Rs. 15.60 lakhs (1000 *52* 30 = 15,60,000) and certainly not with the Rs. 1 crore I promised. Now how am I supposed to come up with the rest of Rs. 84.40 lakhs?

Suppose that I change my investment strategy a bit and decides to reinvest my earnings back into the asset. Then we can see the magic taking place. My investment increases every year and the returns increase exponentially!

Compounding Explained with an Example

I will explain it with an example. Imagine you are investing Rs. 52000 every year (or Rs. 1000 / week) in an income generating asset which gives you 10.50% per annum.

Now after the first year your returns will be Rs. 5460. Suppose you reinvest this amount next year then the total amount you can invest is Rs. 52000+ Rs. 5460 = Rs. 57460.

You add this Rs. 57460 to the second year’s investment of Rs. 52000. Now you have a corpus of Rs. 109460. This amount is invested in the same asset giving you 10.50% yearly return.

Therefore at the end of that year you have earned Rs. 11493. Now for the next year you have an amount of Rs. 109460 + Rs. 11493 = Rs. 120953 to invest.

Likewise every year your corpus grows and every year you reinvest it making your investment snowball into a huge amount.

With a table I will show you how your money multiplies through compounding in 30 years.

Table Showing How Your Money Will Grow in 30 Years

Please note that for ease of explanation I used an annual return model. The returns would be better if we calculated the values on a month-by-month basis.

Now who wouldn’t want to retire with Rs. 1 Crore in bank deposits? Well, now that you know how to do it, start investing as soon as possible. It is very clear that if you start investing by compounding from an early age you will end up with a huge amount at the time you retire.

Now go and use the power of compounding to your advantage!

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