However, this is now a myth. While saving is key for achieving both goals, making smart investments with your money is what makes them much more attainable in the world.

The fear that stops most of us from investing is a reasonable one, the process of investment is complicated and time-consuming. Many people face financial loss instead of financial gain, particularly in stock and commodity investments. 

When we work hard and discipline our lives to leave off spending and save, the thought of losing our hard-earned money makes us uncomfortable. As a result, most of us place our precious money away in a fixed deposit or saving certificate.

This is where the problem arises, the money we place into our safe and sure accounts is almost certain to lose value. The low-interest rates that these options offer are not even linked with inflation. This means that our money’s purchasing power falls as long as we are placing it there only.

Why you HAVE to invest

Saving and investing are two sides of the same coin. While looking to build wealth, saving is a key part of the financial process. BUT saving is important not because it produces wealth on its own, but because it creates the capital needed for investment. 

At the least, investing allows you to keep your savings on track with the cost-of-living increases that inflation causes. At the most, the main benefit of investment is the option of compounding interest or growth earned on growth.

How much to save

Given that we all enter the investor market because of unique needs, the best answer to how much to save is ‘as much as you can’. A baseline is to save 20%. As a guideline, saving 20% of your income is the lowest point to start from. In savings, more is always better, but the 20% baseline lets people build up a meaningful amount of capital throughout their work life.

The first step is to use these savings to set up an emergency fund to meet at least three to six months’ worth of living expenses. Once these emergency savings are set up, invest the funds that are not needed for specific short-term expenses. Once you make this a habit, and invested well, this will multiply your capital and help it multiply over the inflation rate. 

How investments work

To invest in any form of assets, like stocks, bonds, or other assets, you need to open an investment account. For stocks, this can be with a broker, through a brokerage account. Most people place their investment funds in their brokerage accounts and then use them to fund their trading accounts. 

Stocks are small units of ownership in a company. When a company goes from private to public, its stock is open for public trading in the stock market. A stock price is generally reflective of the value of the company, but the actual price is determined by what market participants are willing to pay or accept on any given day.

Stocks are seen as riskier investments than bonds because of their price volatility. If bad news floats about a company, people will want to pay less to buy shares, which will lower the stock price. If you bought the stock for a higher price, and the price falls, you risk losing that money.

In stocks, you make or lose money based on the purchase and sale price of what you buy. If you buy a stock at Rs. 10 and sell it at Rs. 15, you make Rs. 5. If you buy at Rs. 15 and sell at Rs.10, you lose Rs.5. 

Gains and losses are only booked or counted when you sell the asset, so the stock you bought at Rs.10 could drop to Rs.6 one day, but you only “lose” the Rs.4 if you sell the stock at Rs.6. At times, if you wait out the low-price period, and then sell the stock when it’s up to Rs. 12, you end up gaining Rs.2 per share.

How to Invest Reasonably?

Once you know how investing works, it’s time to think about where you want to put your money. In general, younger investors with years before retirement can afford to have riskier portfolios. 

A long time frame gives investors more years to face the fluctuations of the market and during their work life, investors are usually adding to their investment accounts and not taking money out.

If you have started investing late, and are near retirement, you are more exposed to the volatility of the market. This means that you opt for lower risk and volatility options like bonds and fixed return options. 

A higher-risk portfolio would ideally have a higher proportion of stocks and fewer (if any) bonds. As young investors grow older and need to reduce their risk profile, the investment in stocks should decline and investment in bonds rise.

One of the most important steps to take is to make saving automatic. Have your bank automatically transfer a portion of your paycheck into an account specifically for saving. This guarantees that you save constantly instead of making an active choice to set money aside.

This saving should stay in a low-risk option like a bank account and should remain in cash form.   This means that you have access to cash for emergencies whenever you need it. 

How to Build Up a Portfolio of Investments

The first step is to decide what percentage of your funds you want to place in riskier options like stocks and what percentage you want in safer assets like cash and bonds. This distribution will depend on your risk tolerance. Somebody young and working should invest in stocks entirely, while somebody near retirement age should have a larger allocation to bonds.

The primary purpose of investing is to grow your savings. Investors can achieve this growth through investments in stocks, bonds, and other less common options. Experts invest in commodities like oil, gold, and even crops and can earn huge gains.

In any investment form, you should make it your goal to have a diverse spread of investments.  In case you are just starting on your portfolio building journey, you have to make sure that you include options that include both stocks and bonds. Doing this will allow your portfolio to cover both high and low-risk investments.

For someone just starting to invest, take a look at mutual funds or ETFs (both are a collection of stocks, bonds, and other investment vehicles) instead of individual stocks. ETFs and mutual funds are safer options for building a diversified account.

Diversification (which means owning a set of different assets) is important because it reduces the risk of loss. Diversification means that there is a lower risk that your whole portfolio will lose value in a market decline. You will have to look for funds with solid track records and reasonable fees; plenty of popular press and dedicated research sites l will provide this information.

Depending on your financial strength and risk tolerance, you can consider investing in precious metals, commodities, and real estate, all of which are available for investment in the market. All these investments can be effective means to achieve portfolio diversification and manage risk.

A well-constructed portfolio should cover different types of assets (like stocks, bonds, etc.) that do not move in tandem. This reduces the volatility (and risk) of a portfolio without necessarily lowering its return (income) potential.

Save vs. Invest Checklist

The checklist below will help you understand if you need to save or are ready to invest:

1. Do you have a cash cushion that can cover three to six months of living expenses? If not, then start saving.
2. Do you have other short-term goals requiring quick access to cash (like travel plans)? If so, start saving.
3. Are you on track toward reaching your retirement goal by your desired age? If not, start investing.
4. Do you understand the risks involved in investing money for a long-term goal like retirement? You may not be able to access it until age 60  without taxes and a penalty. If so, you may want to start investing.
5. Do you feel comfortable with your current split of saving and investing every month? Where does it feel like you’re falling short?

Is It Better to Save Money or to Invest?

The answer to this depends on your risk tolerance, financial requirements, and when you need to access your money. Investing has the potential to generate much higher returns than savings accounts, but these higher returns come with risk, especially over shorter time frames.

If you are saving up for a short-term goal and will need to withdraw the funds in the near future, you’re probably better off parking the money in a savings account. If your goals are longer-term, you’ll generally find you can obtain more satisfactory results from investing.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post Stop saving, start investing: How to make more money from your money? appeared first on Smartchoice.pk.

Mutual Funds are a good option for new investors because of the following advantages:

• Mutual funds are designed to make investing low-cost and straightforward. You can begin investing with as little as Rs. 5,000.
• Investors are not burdened with the decision and research involved in selecting the stocks and bonds to be purchased in the funds or the daily management and safekeeping of the chosen investments.

What are Mutual Funds

A mutual fund is a selection of stocks, bonds, money market instruments, or any similar assets bought by the investors’ money. A mutual fund can be different combinations of stocks, stocks & bonds, or any other variety of securities combined under the mutual fund as a single investment pool.

This combination is specified in the mandate of the mutual fund, and they cannot deviate from the set mandate.

Mutual fund investments are managed by Money or Fund Managers, who make the investment decisions and manage the funds to ensure that capital gains are maximized for investors.

Mutual funds are run by Asset Management Companies (AMCs), usually public limited companies. A Trust (and Trust Deed) is established by the Asset Management Company under which a mutual fund is launched. The Trustee acts as the custodian of the fund’s assets while the Fund Manager makes the investment and related operational decisions regarding the fund. Asset Management Companies can launch and manage multiple mutual funds with different or overlapping, or entirely distinct mandates.

Why Invest in Mutual Funds:

Mutual funds offer an optimized investment option to yield competitive returns to meet long-term or short-term financial goals. The investor can invest with the long-term financial goals of arranging funds for their child’s higher education or retirement savings or child’s marriage etc. An investor can also have short-term financial goals like saving for a vacation or buying a new car or a new home.

Before investing in mutual funds, all investors need to know their investment objectives. This will help determine the risk and return profile, investment timeline, and target goals. Understanding these questions will allow an investor to make more effective investment decisions.

By investing in mutual funds, the investor gets the advantage of exposure to different securities under a single investment package. They allow the investor to develop a diversified portfolio of assets while enjoying financial management by professionals.

Another key advantage of investing in mutual funds is that the investor can avail tax credit.

Types of Mutual Funds:
There are two primary forms of mutual funds. These are

1. Closed-Ended Mutual Fund:  These funds are traded on the Secondary Market after their launch through an Initial Public Offering.
2. Open-Ended Mutual Funds: These funds are issued in the form of Units to investors, which can be redeemed (sold back) based on their Net Asset Value (NAV) at any time. These funds can be purchased and redeemed through the Fund Management Company, which daily announces their offer and redemption prices. These funds can also be listed on the Stock Market.

Categories of Mutual Funds:

Mutual Funds are of different categories. These categories are based on where the fund invests, its risk profile, and the investment strategy. In Pakistan, the following mutual fund categories are approved by the SECP.

1.     Money Market Fund

These funds invest in short-term fixed-income securities like government bonds and certificates of deposits, and commercial paper. Their aim is to maintain high liquidity by investing in low-risk instruments that are generally safer.

2.     Income Fund

These funds generally invest in market securities, term finance certificates/sukuks, commercial paper, and spread transactions. They aim to generate a regular stream of income for their unitholders.

An income fund is generally seen as less risky compared to an equity fund as it is not likely to be affected by market volatility. The probability of capital appreciation is also limited.

3.     Equity Fund

These funds invest in stocks and grow faster than money market or fixed-income funds. This means they carry a higher risk as they are exposed to market volatility.  An equity fund aims to provide exposure to listed equity securities and capital appreciation over the medium to long­ term.

4.     Balanced Fund

A balanced fund offers exposure to both growth and regular income by investing in equities and fixed income securities. Regulations require that balanced funds keep 30% to 70% of their net investments in listed equity securities.

The other remaining can be invested in other certified investments. Balanced funds are exposed to both risks of fluctuations in equity markets and interest rate variations. Balanced funds can be risky like equity funds but are less risky than equity funds based on asset allocation.

5.     Asset Allocation Fund

These funds can invest in any type of securities subject to conditions to diversify their assets across different types of securities and investment styles as written in their offering document. Asset allocation funds are generally considered high-risk funds due to their potential to be fully invested in equities at any point in time.

6.     Capital Protected Fund

This type of fund makes investments in such a way that the original amount of investment is safe to ensure positive investment returns. This fund keeps a significant part of its net amount in a bank in the form of a term deposit. At the same time, the remaining is invested in accordance with the authorized investments stated in the offering document. Unlike other funds, the capital-protected fund has a fixed maturity period specified under the investment period or tenure.

7.     Index Tracker Fund

This type of fund is designed to carry out the activities of a particular index and show the probable tracking in the offering document. Investment of at least 85% of net assets is required in the securities that constitute the selected index or subset.

8.     Fund of Funds

This fund holds other mutual funds in its portfolio rather than investing directly in any security. However, each fund of funds will have its own category, for instance, equity fund of funds, income fund of funds, etc.

An investor can invest in the fund that suits his investment strategy, the investment time horizon, how much risk he can tolerate, his cash flow requirements, or any other investment objectives/ requirements.

The Mutual Funds Association of Pakistan has a very helpful website http://www.mufap.com/ with comprehensive details and comparisons of fund performance.

Key Terms:

Some key terms used in mutual funds investment that you should know are as follows:

Net Asset Value (NAV): 

Net Asset Value is the market value of a mutual fund’s assets after deducting its expenses and liabilities on a particular day. The per unit NAV is the Net Asset Value of the funds divided by the number of units/ certificates outstanding on the Valuation Date. The NAV shows the performance of a mutual fund.

NAV = (Current Market Value of all Assets – Expenses – Liabilities) / (Total Number of Units Outstanding)

Expense Ratio: 

Expense Ratio is the fund’s annual fund operating expenses, expressed as a percentage of its average net assets. An Expense Ratio of 1% p.a. means that 1% of the fund’s total assets will be used to cover expenses each year. Expense Ratios are essential to consider when choosing a category of mutual fund as they can significantly affect returns.

Redemption: 

The units of open-end mutual funds can be partially or fully redeemed at any time from the Asset Management Company that manages the funds.

Fund Manager Report

This is a monthly report produced by an asset management company in which information on the composition and performance of the mutual funds is presented.

How to Invest in Mutual Funds:
The documents needed for opening a mutual fund account are as follows:

1. CNIC Copy
2. Application/ Account Opening Form/ Purchase of Units Form
3. Zakat Affidavit (Optional)
4. KYC Form/ FATCA Form
5. Cheque/ Pay Order/ Demand Draft (payable to the respective Trustee)

Fees & Charges:

You must keep in mind that there are charges involved with investing in mutual funds. Some of these charges are as follows:

1. One-time Fee: This fee is paid for investment/ divestment in an open-end fund. Details of these fees are disclosed in the offering documents.
2. Front-end Load: This is charged on the purchase of units of the fund.
3. Back–end Load: This is charged when an investor redeems his investment in the mutual fund.
4. Contingent or Deferred Sales Load: This is charged only when there is no front-end load. This load ischarged on redemption of investment. However, funds can reduce it progressively if an investor holds an investment for a more extended period.
5. Management Fee: This is the fee charged by the AMC for the management of a fund.
6. Trustee Fee: This is the fee charged by the Trustee to provide trusteeship and other services for the fund’s assets.

Benefits Of Investing In Mutual Funds:

Asset management companies manage mutual funds. They evaluate investment opportunities by researching, selecting, and monitoring the performance of the securities purchased by the fund. These tasks are done by qualified financial professionals who make calculated investment decisions on your behalf.

Diversification

A mutual fund can help reduce investment risk if a company or sector fails by spreading its investments over other securities and investment sectors.

Affordability

Mutual funds are ideal for investors without a lot of money to invest. They have relatively low Rupee amounts for initial purchases and subsequent monthly purchases. For example, you can add funds at set amounts of, say, PKR 1,000 to 5,000 per month or other intervals. This is not difficult to set aside for savings or investment purposes.

Liquidity

Mutual fund unit holders can easily redeem their units into cash on any working day. They will receive the applicable value (NAV) of their investment within six working days. Investors do not need to look or wait for a buyer. The fund buys back (redeems) the units at the current net asset value (NAV).

Well regulated

The SECP continuously monitors all mutual funds through reports that the mutual funds are required to file with the SECP regularly.

Transparency

a mutual fund’s performance is reviewed by different publications, rating agencies, and the SECP. This makes it convenient for investors to compare the performances of different funds. Unit holders also receive regular updates, like daily NAVs, fund’s holdings, and the fund manager’s monthly strategy report.

Tax benefits

Investment in mutual fund schemes entitles the investor to avail tax credit that enhances the overall return on their savings

Things to Know Before Investing In A Mutual Fund

Before selecting an appropriate mutual fund for your savings, you must identify your investment objectives. Your financial goals are determined by your income, expenses, financial independence, age, lifestyle, family stage, etc.

Here are some questions that you should ask yourself and likely answers that will help you select an appropriate mutual fund.

• Why am I investing?

I need some side income, need to save up to buy a home, fund a wedding, save for higher education, or a combination of all these needs.

• What is my risk tolerance?

I am unwilling to take any risk, or I accept that to earn long-term gains, I may book short-term losses.

• What are my cash flow requirements?

I want to multiply my assets for the future and do not need periodic cash flow; I need a regular cash flow, or I need X amount to meet a need in X years.

• What is my time horizon?
• I need some money in under a year (short term), or one to five years (medium-term), or five years or more (long time)

If you answer these questions honestly, you will have clarity of what to expect from your investment.

This will help you determine an appropriate mutual fund investment strategy.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post All you need to know about Investing In Pakistani Mutual Funds appeared first on Smartchoice.pk.

Investing in the stock market is one of the most common means of investing all over the world. There is a whole science to it and for someone looking to start investing for the first time, it can be confusing. This article will help introduce you to the technical world of stock investments.

What are stocks and how can you earn from them?

Stocks or shares are units of ownership of a company. Companies issue shares for the money that they raise. People that buy shares become shareholders of a company. Companies that are established, pay their shareholders some portion of their net earnings. This payment is called dividends if it is paid in cash. Sometimes a company pays its shareholders more stock if it doesn’t have the cash to distribute. The additional shares are called bonus shares.

Types of Shares

Shares can be preferred or common, which yields different returns for shareholders. They are traded in the stock market by specialized vendors called stockbrokers or stock traders. Many people invest in stocks by buying companies’ stocks and hope that the company will pay good dividends. People that purchase stocks for an extended period are known as investors. This type of investment is called passive investment.

Most people investing in stocks are passive investors; however, some people buy and sell stocks regularly. These people are known as day traders or active traders.

Active traders trade in stocks over a short term of maybe a day or up to a month, just to capitalize on the share price fluctuation. A basic rule of thumb is to call investors that trade shares at least ten times a month an active trader. These people try to benefit from rising share prices, buying a share as it rises and then selling it as it reaches the expected peak price. These people usually base their decision on information about the share, the company’s anticipated results, or some other information.

For the average person looking to invest in stocks, bear in mind that it is best to keep things simple. If you do not know the stock market, it is best if you dabble in a mix of low cost, indexed funds to get the most out of your investment in the stock market.

How To Trade In The Stock Market?

To start on your investing journey, you must open a brokerage account. This account can be linked to your bank account for fund transfers.  The most common way to trade shares in the stock market is by trading through stock exchanges. Stock markets are where buying and selling forces influence the trading price of a stock. Through a stockbroker, you can buy shares from existing investors who wish to sell them and vice versa.

Stock market transactions can be of two types, primary and secondary market transactions.

Primary Market

When a company first releases its stock, it is called an Initial Public Offering, usually called an IPO in short.  Since there are regulatory requirements that companies must follow, the IPO must be registered, and the company decides which banks it wants to issue the IPO through.

An IPO specifies a fixed number of shares for a specific price. You must subscribe to the shares through the bank’s IPO offering documents. At times, an IPO can be oversubscribed, which means that more people have subscribed for the IPO than there are shares to be issued. Similarly, an IPO can also be undersubscribed, which means fewer people are looking to buy the stock than there are shares.

In most cases, primary market issues are much lesser in number compared to secondary market trades.

Secondary Market

Stock is traded on stock exchanges in secondary sales. Trading in stocks has to meet specific government regulations. Most of these regulations are in place to protect investors from fraud. Over the long run, stocks usually give better returns on the money you invest in them than other investments.

Brokerage

An investor must trade stocks through brokers or brokerage houses registered with the stock exchange. This does not require the direct involvement of the company. Each stock exchange has a number of brokers and brokerage houses registered. Registered Brokers/brokerage houses are allowed to engage in the execution of trade on others’ behalf as per the laws, rules and regulations. The following points are of key importance if you are opting for trade.

• For protection against fraud and misrepresentation, an investor should trade only through registered brokers/brokerage houses and agents.
• Make sure that the brokerage house, broker or agent you pick is authentic. You can check their registration on the SECP’s uploaded list of registered Stock Exchanges brokers and agents on its website. Remember that the registration of all the brokerage houses/brokers and agents are valid for a period of one year. this registration is renewed annually.
• If you find an unregistered broker or agent, report them immediately to the SECP as it is in the general interest of other investors.
• The list of registered brokerage houses/brokers and agents can also be found on the respective websites of the Exchanges.

 Trading Platform

When assessing a brokerage house or agent to invest in the Stock market, make sure to see how you like their trading platform. An online trading platform helps its users to assess the market through pricing charts and indicators that track stock prices and behaviours. A comprehensive trading platform that is easy to use and understand is essential to place orders on the stock exchange.

Research

Availability of research into industries, sectors and market behavior can be helpful in making informed and sensible decisions about shares in your portfolio. Having market information is important to successful stock trading. Having informed market research and other information is useful.

Steps to open a brokerage account

You need the following to open a brokerage account:

• CNIC
• A Pakistani bank account.
• Salary slip; if you are self-employed, provide a bank statement. This helps in having swift credit history checks.
• You must research which brokerage will work for you and then visit them physically once.
• Once you finish all the paperwork and admit all the documents, you will have to wait for 1-2 weeks.
• After the verification and account processing is done, you will be granted access to trade with stock exchange issued stocks.

Once the account opening formality is completed you will not need to visit your brokerage firm as the majority of dealings and trades will be handled online on the platform.

Benefits of Investing in Stocks

At times, the stock market over or underprices shares based on market and industry trends. Similarly, the stock market undervalues shares based on negative news and events. These events and news could be directly related to the company or could impact it indirectly by being connected to the industry that the company works in.

This can be confusing for investors as while the company’s financials and valuation are the same, the market price is affected by different news or events. An example would be shares prices falling after a poor World Cup performance.  Unrelated and related events can influence prices for the short term but this is not relevant for passive investing we discussed above.

In spite of the challenges, investing in shares has some benefits to offer:

1.    Capital Gain

A strong fluctuation in stock prices can give you a better gain from your investment than a simple long term investment. As stock prices change every day, this makes stocks a sound long-term investment.

2.     Dividends

Established and well-performing companies in the shareholder market offer dividends and bonus shares to their shareholders at the end of each financial year. This allows for capital appreciation if you continue to reinvest the dividends you receive. The more shares you own, the more profit you will earn at the end of each financial year.

3.    Liquidity

Investing in shares is a liquid investment. Most shares can be easily bought and sold on any working day on the stock market

How to Trade in Stocks

The underlying concept behind investing is simple, you know the price of something and the predictions or forecasts for the price. Ideally when it’s available for a lower price in the market, you buy it. This is kind of like buying a product on sale. It’s the same product, but you buy it for less. This means that you save money while investing in something worthwhile

Bear in mind that it is better to see the financial analysis on the company’s financials, keep an eye on its dividend payouts, revenue, cash flows, events related to the industry, its brand target market, and its competitive edge.  This is where your broker’s research should be useful.

The more information you have, the more reliable your buying decision is going to be. The process of analyzing a company’s financials as well as non-financial components is known as intrinsic analysis.

Since such analysis involves multiple factors, many investors make mistakes in their stock valuation.

Why All Investors Should Be Careful of Stock Prices

As an investor, you should realize that the stock market is complex and unpredictable for even the most seasoned investors. If the market is rising, it is time for any investor to sell off their short-term holdings and gain based on the rising market.

Most newbies and even some seasoned investors get excited by rising trends and buy specific stocks rising daily. Investors’ buying interests usually drive such rises, and there is no guarantee of how long such rising trends, known as rallies, would continue.

When you go to a mall, you don’t walk into a store and buy just anything. You usually have a list or know what you want to buy and which shops to go into to browse. The same should hold for investing in the stock market.

You should have a list of sectors, stocks, and performance history to know which stock performance and valuation fits into your investment preference or risk appetite. Ideally, you should also know which stock should be bought at which price range and sold off at what level.

Some basic rules to follow before you start investing in a new stock are:

1. Always research the company you are planning to invest in. What is their business, and which products do they sell? Do the products have a steady demand? Is the competition strong? Does the company have the muscle and capacity to supply the product?
2. How long has the company been in business? Does it have a good stock performance record?
3. Does it have sound Corporate Governance policies?

The stock market is all about news and perceptions. It is fueled and runs on the information. But should you invest in shares based on the news? A hot tip from a dealer or your broker should be taken with some healthy scepticism.

A golden rule is to buy on the rumour and sell on the news. Institutional investors would already be aware of the rumours, and jumping onto the buying bandwagon will only reduce your margins if there are any left. For instance, if market rumours claim that a company is due to get a big contract, its share price would start rising and would cross its intrinsic and fundamental valuation.

People begin to buy based on the rising trend, and the price would increase further. Once the rumour is proven to be false, everyone who bought during the rise would stand to lose money. However, if you had already purchased before the rumours and sold during the rise, then you stand to gain from your investment.

Buying based on rumours and news means that the stock price has already risen to accommodate the rumour prices and would be priced higher than its actual prices. You need to bear in mind that the stock market is fluid; it cannot remain high or low for an indefinite period. You have to follow market prices and pick up stocks when they are at low points.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post All you need to know about investing in Pakistan’s Share Market appeared first on Smartchoice.pk.

This is particularly true with the growing inflation that makes money fly out of our wallets. Inflation rose to 11.5 percent in November 2021, compared to about 9 percent in October.

This state of being broke at the end of the month is not the norm, and it can be avoided by having some discipline in your spending patterns. To do this, sit down and acknowledge that you have a problem. Once you do this, you are ready to build your budget around your income.

Budgeting is the basis of every savings plan. Whether you earn six figures or live paycheck to paycheck, you are likely wasting money somewhere you shouldn’t be if you don’t budget your income. Unlike the common misconception of pinching expenses and not doing anything fun, budgeting is just a process of keeping track of your income and going.

You can download many of the free budgeting apps available online for free to plan your budgeting campaign.
Words of caution, getting your spending habits on track and following the budget pattern can take time. You will have to follow it and keep following it regardless of failing initially.

Ignore the fails and keep on following your plans to achieve financial success. There is a step-wise process that you can follow to financial independence.

Steps to Financial Freedom in Pakistan

1. Set quantifiable financial goals

These are not the ‘mein bara aadmi banoon ga’ type of goals we all have as kids. This step is about consciously setting aside a fixed amount of money and giving up on some of your unnecessary spending to achieve it.

The amount should be realistic and possible to do. For instance, if you earn PKR 70,000 per month, saving PKR 20,000 may be difficult now if you are running a 4-member household with no other income.

Your goal should be achievable and realistic. Maybe try to save 10,000 but be prepared that a maximum of 5,000 may be used up in emergencies and month end money crunches.

The more detailed this goal is, the more possible it will be to work (and save) towards it. Break your goal into numbers to see how much you need to get there.

2. Split up your income into different bank accounts

Now that you have set a goal to save up a fixed amount every month, you should invest in opening two different accounts.
You already have a salary account to pay your bills, utilities and draw money. If you don’t get paid through bank transfers, open an account ASAP to deposit your salary as soon as you get it.

Having different buckets, or in this case, accounts, to keep your cash in will help to follow a financial plan.

You need to have separate accounts for the following purposes:

1. An account for your daily and fixed monthly expenses. This can be your salary account if you have one. Ideally, this account should have good online banking services and an efficient ATM network. It should also allow for automated monthly transfers.

2. An account for your savings. This should ideally be one WITHOUT any ATM or online banking support for withdrawals. You can have your savings amount directly debited via automatic transfer from your salary account.

The next account may seem to be a little extra, but it is for those who have multiple goals to save up for and don’t know how to prioritize or want to have different heads to organize their savings:

3. An account for your savings. Ideally, this should also be without any ATM or online banking support for withdrawals. You should be able to automate the savings amount transfer from your salary account. If you want to save up for a car or your kids’ higher education, or a house, have separate accounts for these heads setup.

3. Budget your spending to less than 50% on necessities

Now that you are clear about your goals and what you want to do with what you save, it’s time to deal with the practical stuff. If your take-home salary is Rs. 50,000, try to restrict your spending to PKR 25,000 on necessities.

A well-made financial plan can help you keep track of your spending habits and help you identify where your cash is going. Documenting all spending heads can expose areas where you are spending more than you should. Maybe you spend more on groceries because you go somewhere that charges more. A budgeting exercise would help you identify where you free up additional cash.

Now necessities are the groceries, utilities and rent that you pay. If your take home pay is Rs. 50,000, living in a rented place of PKR. 25,000 doesn’t make sense unless you share rent with others and save on commuting expenses.

Similarly, lunching out regularly or fancy coffees from expensive cafes do not make economic sense. If you have children, their school fees and van expenses are necessities. Outings to Sindbad and fancy tablets do not count as necessities no matter how much social media tells you otherwise.

Keeping to this 50% necessities rule means 50% of your earnings on savings and non-essentials.

4. Limit non-essentials to 20% of your income

Keep 30% of your income for savings and investments. At the same time, the balance of 20% should be used for hobbies, non-essentials like clothes, shopping, and entertainment.

The challenge here would be restricting yourself to stay within the 20% amount you get each month. This amount can be spent on high end clothes, tech gadgets or saved up for a vacation abroad, and it is entirely up to you. All you must focus on is to stay within the budget of PKR 10,000 (20% of Rs. 50,000).

Now, supposing you want to travel to Dubai, you will need to save at least Rs. 100,000 for your trip. This means that you must put aside some money from your 10,000 a month to save up for this holiday.

5. Save the remaining 30% by investing in high return accounts and investment options

Those who continued to get a paycheck during the lockdown in 2020 and 2021 are extremely lucky. Those that were laid off and had to rely on their savings would know just how important it is to have a sizable amount saved up for emergencies.

Ideally, this 30% of 50,000 (PKR 15,000) should be saved up in a high return savings account or other investment options like mutual funds, stocks or insurance policies. All options should be such that withdrawal can be possible at a week’s notice. Deposit interest rates in 2020 were 7.47%. The same deposit will earn you over 11% if placed in Defense Savings Certificates as of December 2021.

The charm of this is that you can diversify your savings into multiple heads. A fixed deposit for emergencies, a savings plan for children’s education or marriage, your marriage, and another long-term plan for retirement or health emergencies like disability.

• The emergency fund

The emergency fund can be used to save up money to get enough to make a down payment on an insurance policy, car, or even a home. This is also your backup funds in case of job loss, or medical emergency, or any other unexpected sudden expense like a microwave burnout or UPS battery replacement.

A basic rule to follow is to have 6 months’ salary or living expenses always saved up in this account. Anything over that can be placed in short-term investments. If you are in a stable and well-paying job that will give you a severance package if they fire you, keep up to 3 months’ salary in this account and invest the rest.

• Insurance or savings plan

If you get medical coverage from your employer, count yourself lucky. If you don’t get coverage from your employer, you need to invest in good medical insurance to cover medical consultations, investigations, and procedures.

Getting insurance is particularly important if you have dependents like your parents or children. Take a policy that offers payouts to dependents on your death or yourself in case of a disability or health issue that stops you from working.

Deciding on an insurance policy will require research into mixing and matching policies. You can visit our insurance guides or book an appointment for our insurance advisors to guide you on your insurance plan.

• Investments

Investing in higher return plans for long-term and retirement goals is a smart financial decision to make. You can opt for stocks, property, unit trusts and savings certificates.

Starting this early and saving up a little every month is key to keeping your investment growing. Compounding will do the rest for you.

Final Advice

According to the break-up detailed above, you can manage your money well by following the 50-20-30 rule. The rule is a standard for savings globally and should stand by you well.

In the case of dual-income households, the rule should apply to both incomes, or break up should focus on more savings and less spending on luxuries. Having more income will mean that you can save up more and have an effective savings plan lined up for your future wellbeing.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post Managing Income in Pakistan: A Guide to Budgeting Money and Expenses appeared first on Smartchoice.pk.

The reason: Inflation. Their families simply could not cope with the rising prices and uncertainty of income to allow them their entrepreneurial indulgence. They were comfortable, upper-middle-class households, which, one would assume, are not hurt by the rising prices of milk, eggs and fruits.

Inflation has manifested in the middle-class households in areas other than the bare necessities. The cost of education from pre-primary to college-level has soared. Not only are private colleges and schools seeking exorbitant fees, but most families also incur additional expenses on coaching, crash courses, extra study material, tests, subscriptions and books.

The cost of buying a house across major cities of Pakistan is beyond the reach of most. They either pay a very high rent or have taken loans to buy a house, mostly in the big cities like Karachi, Islamabad and Lahore a rent or a home loan instalment is the biggest draw on a family’s income.

The next big drain is in the form of transportation expenses to commute to school, work and social outings with the ever-increasing congestion of the roads and the long hours spent stuck in traffic, fuel is also a major concern. Several maintain multiple vehicles, from cars to a bike per adult family member.

The rate of inflation that applies to just these three major costs of Indian households is not the rate that the government publishes.

It is far higher, and in many cases, higher than the rate of growth in household income. The proportionate share of these expenses in the household budget is increasing with inflation, leaving less for other expenses and, importantly, for saving and investment. Worse, households end up spending tomorrow’s income today, taking loans to fund these expenses.

Since the assets they buy on loan do not contribute to their income, at least not immediately, they find themselves in a debt trap. They live in anxiety about the adequacy of income to meet increasing expense levels.

The underlying cause for the uncontrolled inflation in the key consumables of the household is the failure of the government to do its job. Providing good quality public transport, ensuring that real estate markets are not skewed in favour of developers and builders and other elites of the country.

You can think about inflation in a way that, If you knew someone was coming to rob you, what would you do? Shrug off the threat, or take precautions to protect your interests?
Unfortunately, inflation robs us all.

It’s a silent thief that whittles away the value of our money, making each dollar worth less and less over time. However, it’s also part of a healthy economy. It’s important to unravel the mystery of inflation and understand how it affects you so you can use it to your advantage and protect yourself against its potentially negative impact.

A basic question we want to know is,

What Is Inflation?

Say you went to the store in 1990 and spent Rs40 for two packs of gum. Today, Rs40 might only get you one pack. Inflation caused your money to lose some of its purchasing power, meaning your rupees have become weaker.

The big danger of inflation isn’t some arbitrary number in the economy; it’s that the money that you have to spend every month increases. What if you could lock in some of your expenses?

The Bureau of Labor Statistics (BLS) in the US defines inflation as the process of continuously rising prices or put another way, the continuous decline in the value of money. It’s caused by numerous factors including exchange rates, increases in the money supply, and national debt.

Governments measure inflation to determine how prices rise over a set period, generally on an annual basis. They also monitor the costs of select goods and services that average households purchase, such as food, energy, and rent, all while discounting temporary price spikes.

Paying more for the same stuff may not sound ideal, but inflation is interpreted as a sign of growth in a healthy economy. The flip-side is periods of low inflation or even deflation, in which prices fall.

During those times, money retains more value and consumers get more value for the rupee. However, that’s not always a cause for celebration, as low inflation and deflation typically cause wage freezes.

inflation that surged to a five-year high at 7.3% in the last fiscal year due to upward revision in electricity and gas prices and 32% depreciation of the rupee in one year.

Against the annual target of 6%, the average inflation in the fiscal year 2018-19 surged to 7.34%, reported the Pakistan Bureau of Statistics(PBS)

It was the highest average rate in the past five years. Previously in the fiscal year 2013-14, the rate of inflation was 8.6%, the point from where it had started receding. The rate of inflation was more than double the annual economic growth of 3.3% recorded in the last fiscal year. (Source: Express Tribune)

Effects of Inflation and How to Protect Yourself

Since inflation impacts the value of money, it can have tangible effects on various aspects of our lives. It’s important to factor inflation into your financial decisions to ensure you’re making smart choices both in the short- and long-term.

You may be unable to stop inflation, but that doesn’t make you powerless against its effects. Understand how it affects your purchasing power and you can start building effective strategies to protect your finances. Here are just a few ways you can prepare yourself for the barrage of higher prices brought about by inflation.

Self Protection from Inflation

Are you ready to outline your inflation protection plan?

Cost of Living

Inflation’s most obvious effect is that it raises the cost of living. The amount you spend today won’t buy an equal amount of goods and services in the future.

Eventually, you’re going to pay more for food, electricity, healthcare, electronics, and so on. Keep a check on your lifestyle what you spend today if it’s a luxury or a need, can it be done in a lesser amount, if yes save money for tomorrow when things won’t be priced as they are today.

But inflation can be tricky, as it does not impact the cost of all goods simultaneously; meaning not everyone and everything is equally affected. When inflation is on the rise, do your best to keep all sources of income, such as salaries and investments, growing as fast as (or faster than) your expenses. During deflationary periods, as prices decline, try to increase your savings instead of spending more.

Salary

Inflation often drives wages higher because companies are willing to pay more when the economy is growing and the cost of living for employees is on the rise. If possible, shoot for a raise that’s higher than the rate of inflation to ensure you outpace it.

Sometimes wages increment is not directly proportional to the inflation and not all things are directly attached to inflation. For instance, people are happy to pay for a few things even if the prices are on the rise. For instance eating out, buying grocery, school fee and expenses etc.

When pay increases lag inflation (or you don’t receive raises at all), problems arise. For example, workers earning Rs10,000 in 2015, would not be able to support their family if in 2019 they are still earning Rs.10,000 as their purchasing power would be lost due to inflation.

Working unskilled jobs and odd jobs raises your risk of being victimized by inflation. Some of these jobs pay less and are often unreliable for a longer period. They are not constant and may be available at some point and unavailable at some which create instability and panic in your life. So when you working always have the habit to save some percentage of your income each month the ideal percentage of saving from your salary is 30% that will help you in your rainy days, when you are low on your income.

Another method to save from your salary is a very simple yet effective method, take few envelops and designate each envelope for each expense and put the money as per your household expense, this simple activity would give a clear idea of your earning to spending ratio.

A good way to boost your chances of maintaining a salary that keeps up with or outpaces inflation is to pursue skilled positions and continuously increase your skillset as well, there are relevant in the current economy. And during inflationary periods, negotiate more aggressively for larger raises.

Employment

Generally, inflation is good for the labour market. When the economy is growing, people earn more and spend more, and companies are more likely to keep workers employed and hire others to meet growing demand. However, low inflation and deflationary conditions have the opposite effect without growth, companies find little or no need to create new jobs.

According to the Foundation for Economic Education, when prices deflate faster than wages, it can cause a surge in unemployment.

This happened in the US in the latter half of 2014 after oil prices plummeted. USA Today reports that tens of thousands of layoffs per month occurred in oil-producing states as oil companies struggled to cover costs with declining revenues. The best time to look for work is during inflationary periods when unemployment and, therefore, competition for jobs is lower.

Debt

Credit and loans are usually cheapest during low inflation or deflationary conditions because creditors are pressed to spur consumer demand. Some creditors even offer interest-free periods, which provide the opportunity to borrow money for free. Then, as inflation rises, interest rates tend to follow the suit and increase with time.

It’s best to borrow during low inflation or deflationary periods, assuming interest rates given by the bank and creditors are favourable. Repaying debt becomes easier if your earnings outpace inflation because your current debt burden will consume less of your income over time.

If your work cycle or remuneration cycle is not constant then don’t take too much loan which you are unable to pay back on time.

Government Benefits

Retirees and disabled people are especially vulnerable to inflation. Many rely on a fixed income, such as pensions and the savings kept in their accounts that serve as their regular source of income although limited. If prices rise too quickly, they may have difficulty covering living expenses, leaving them with little or no disposable income.

If you’re 25 or 35 years old and your salary isn’t cutting it, chances are, you can get another job. It isn’t as easy to find new sources of income when you’re elderly or disabled.

Government benefits such as pensions don’t change as in response to inflation but the interest rates might change sometimes better or worse for the customers. For example, State bank determines the rate of interest that should be which shall benefit the customers.

To prepare for potentially decreased buying power in your later years, establish savings and contribute to a retirement fund during your working years. Those funds can complement your government benefits (pensions) as they lose value due to inflation.

Savings

In a growing economy, saving is a loser’s game unless you get a rate of return on your money that’s equal to the rate of inflation. And even then, you’re only keeping up with inflation. To beat the battle of the eroding value of the rupee, you need your money to grow faster than inflation, and that growth is especially important for your retirement savings.

When interest rates are attractive, you can beat inflation by stacking your money in a savings account or money market account, or by investing it in certificates. For example, if your bank pays you 5%, but the inflation rate is only 2%, you’re getting a decent return with limited risk. If there is no healthy balance between the two, then it seems you are on a pace which isn’t going to beat inflation.

Learn the Art of Investing

Investments are among the best ways to insulate your life savings from the effects of inflation. By taking the plunge and putting your money in a diverse portfolio of stocks and bonds, you can grow your worth more quickly than if your money was idling in your bank account. Start paying more attention to financial news and trends to uncover where smart investments lie.

Stock-Market

Historically, one of the best places to beat inflation and get attractive returns has been the stock market. Granted, investing in stocks means taking on numerous risks and investing with a correct understanding of things, with all your cards properly placed that ensures that you shall/will not face any loss.

Prize Bonds

Another way to save money is to buy prize bonds, these bonds are of multiple price range starting from Rs.100 going up to Rs.40, 0000 each, each varying in its prize money that varies from the price of the bond. For example, 40,000 Rupees prize bond if you win the first prize you can win seven hundred million.

Buy Gold

Gold has already significantly run-up in price since 2010 with the expectation of inflation along with a low-risk, bunker mentality among some conservative investors. But if inflation takes hold, this dollar-backed commodity could soar even higher. If this turns out to be the case, don’t be tempted by mining companies. Your best bet is to buy gold through a reputable source that you can trust.

Keep Your Options Open

As the motto of the Boy Scouts goes, be prepared. Always have a Plan B (or several) in the wings when things take a turn for the worse. Budget your income wisely and build an emergency fund. Look into inflation-proof assets like real estate, commodities, and income sources with steady cash flow. Maintain a clean lifestyle and find a good health insurance plan to counter the rising costs of medical care.

Real Estate

Real estate can be a great inflation hedge. Over time depending on the part of the country that you live, as Properties in Karachi and the other metropolitans are very expensive ass compared to in, plus you may have noticed that home prices have increased dramatically since the ’70s, the ’80s, ’90s, and 2000s and so on.

Desirably, if you own rental real estate you may get rising rents in an inflationary environment. That ability to increase your future cash flow gives you an inflation hedge if your cost of living commensurately increases.

Look for fixed rates

When it comes to inflation, time tends to be your biggest enemy. As prices grow across the board, so too do the regular dues and fees that come with most transactions.

A fixed interest rate prevents your regular payments from ballooning along with inflation by keeping your interest proportional to your actual savings. Whether it’s on a personal loan, a savings account, or a future investment, you must find a deal that guarantees fixed rates for its duration.

Buy a home

And by “home” we mean an actual house built on a plot of land in your name. Owning a property means that you will have a concrete asset you can pass down to your descendants or use for a different purpose later down the line. If you can’t afford to buy a property with cash, you can shop around for a home loan at terms that agree with your current budget.

Insurance

Insurance can be your protector in good and bad times, your saviour during the period of inflation and deflation, as the insurance plan swings the risks from you to the insurance company and saves your money in a time of need or emergency. Ensure your assets e.g.: your car, home etc. for any known-unknown risk and circumstances.

Live thriftily

As inflation often has an immediate effect on prices, one no-brainer solution you can try is minimizing your spending. Keep frivolous spending to a minimum. Save on gas by carpooling, taking public transport, or even working from home. Be more strategic about how you use your credit card, keeping an eye out for exclusive discounts, and use rewards programs.

Things to Avoid

One of your biggest expenses in retirement may be real estate, your mortgage on your home, or other fixed loans such as a car payment. Fixing the rate of interest on your liabilities is a way to hedge against inflation because you are no longer are subject to rising expenses.

If your mortgage is fixed or your car loan is fixed you know, with certainty, what your expenses are going forward regardless of the inflationary environment at least on that part of your spending.

Spending too much on Luxury items

Always be prepared for the rainy season and avoid spending too much on luxury items, remember always be penny wise, “A penny saved is a penny earned”. Keep that in mind and avoid any such situations.

Avoid Debt

If you believe or are concerned about heading into an inflationary environment or if you don’t have some certainty around your spending levels for your retirement, avoid the debt, don’t take any kind of lending from the bank as it will lead to stress and strain on your monthly financial budget.

Final Word

While some of these tips are simple enough for you to incorporate into your regular spending habits, others may require greater involvement in the long term.

The good news is that financial literacy is the gift that keeps on giving, and can better prepare consumers for any future upheavals in the financial market. Get a head start on your finances today, and save yourself from a world of trouble tomorrow.

Take a lesson from businesses, which use these forecasts to guide their short-term and long-term decisions. If you’re negotiating a salary and inflation is projected to rise, make sure you factor in the likelihood of higher costs of living so that if can uncertain situation arises, you are financially protected and able to cope with the situation.

If you need to make major purchases, such as a car, consider whether prices and interest rates are likely to rise or fall to determine the best time to buy. As with anything related to personal finance, always do your research and plan.

Khurram Zahid

The post A Definitive Guide to Inflation Proof Your Life appeared first on Smartchoice.pk.

You can become a money management expert even with a limited amount of earning. Implementing the idea on your day to day life will help you become a better and independent person in lesser time. The world is full of people who are not good at handling their money and end up in financial hardships. Today we will be talking about the most common mistakes that lead to the financial hardships in Pakistan.

The aim of this article is to highlight the most common financial mistakes people make that lead them to financial crises. If you are already facing financial crisis excluding these habits this articles will help you in some way.

1. Excessive Spending:

It is not a big deal to have a cup of mocha coffee a pack of cigarette or dine out or order food to watch a movie at the cinema once a week. However, if you are doing such expenses,  now and then it will lead you to no benefits. Spending more than PKR 2500 means that you are spending PKR 130,000 per year. If you want to stay safe financially, then this is not a good idea to spend that much money every week. Such spending habits may lead you to bankruptcy and other financial crisis like debt.

An average person in Pakistan is either registered in a gym or has to pay the lease payment for a car or a property in the latest housing society. Apart from such periodic expenses, every person, in the modern world has to pay utility bills or mobile recharge etc. Handling all these financial matters in-time is the key to stay secure in future. At first, if you have a limited income, recommended is to avoid any such luxury and focus on the basic needs of life. However, if you can afford any of these, recommended is to go with the flow. Pay all the bills on time, and never skip paying the monthly installments.

Just like owning a car on lease, using credit cards is also a common trend in Pakistani society. Many people are using credit cards for shopping and paying for other luxuries of life. These cards are also used to pay bills including restaurants bills, shopping, phone bill and Petrol etc. In most of the cases, people are seen having issues with spending more than their earnings.

Avoid making such mistakes, spend a limited amount of money that you actually have. Do not buy anything or go for any activity in your life that your bank account does not afford.

2. Living From Paycheck to Paycheck:

One of the most common mistakes the job person make is that they live from pay-cheque to pay-cheque. Such mistakes are based on some specific habits. These people do not pay attention to managing their expenses, making a budget and following it, understanding and differentiating between needs and wants and trying to save money from each salary they get. At the same time, we can find many employees who do not pay attention to their deductions and consider using the bonus wisely. Such habits lead to an empty bank account at the end of each month.

Such habits are surely not good for a person who is looking forward to becoming independent, financially.

3. Not Investing:

There are many people who are good at making budgets or have the ability to control their expenses but only a few of them have the idea of using this saved amount in a way that they can earn some benefits on it. Let’s say a small investment that can earn them profit in long run. There are a number of investment companies including banks that offer investment opportunities. You need to be careful while making a decision for investing in these plans as there are many different types of investment scams, people become a victim of. If you can deal with the matter efficiently, you can earn a profit on your saved amount.

People who are good in saving but are not working with any kind of investment plan also end up facing financial issues in their hard times. For this reason, it is not necessary to have a big amount to invest, you can look for small investment idea and opportunities that can earn you benefits in hard times.

4. Not Having a Plan:

A plan in life is a must. Today the world is full of opportunities and if you are not focused on what you want to achieve and which way you must go, you will end up facing issues in your life. To perform well, in terms of financial benefits, you must formulate and stay stick to a proper plan. This plan must help you in achieving your long-term goals. Setting up the aim and working on it with a plan will help you to stay consistent and productive.

5. Spending Too Much on Living:

Just like a car, a house is the core necessity for a person. However, better is to stay focused on basic needs and do not fall for luxuries. Bigger the house more the expenses including utility bills and maintenance. Go for a house according to the size of family you are living with. Do not focus on borrowing a big amount to buy a house. There are many options offered by different housing societies. They can offer you homes with easy installments, you can choose any of the offers you find suitable for your needs and do not become a victim of financial issues.

Monitoring your expenses is of core importance to remain financially independent in your life, It is also important to define what exactly your needs are. Another important thing is to focus on your savings as they are the only best friend that can help you through your hard times.

Khurram Zahid

The post 5 Mistakes Pakistanis Make that Result in Financial Hardship appeared first on Smartchoice.pk.

However, one of the latest modifications in our way of living is done by the introduction of digital currency. This digital currency is normally named as the cryptocurrency. And here is a guide to how does cryptocurrency work and how to invest in it from Pakistan.

What is Cryptocurrency?

Cryptocurrencies in other words known as virtual currencies are very famous these days. These are the currencies or money that we cannot touch or carry with us physically like we do as of our Pakistani currency notes or coins.

Bitcoin or Ethereum the most appreciated investments these days. More and more people are investing in it. These cryptographic coins can be exchanged, sold or purchased and are unquestionable. They are also a secure form of investment and no one can rob them from you while you are walking at night in the streets of Karachi. Plus you can use it in and from anywhere in the world.

Difference between Fiat and Crypto

However, here an important thing to keep in mind is that there is a difference between the Crypto and Fiat. Fiat money is actually the currency that is declared as a legal tender by the government however it is not supported by any kind of physical commodity. The value of the Fiat drives from the connection between the demand and supply rather than the value of the materials of which the money is made of.

While on the other hand a crypto is not backed by the central government or any banking authority. It is decentralized as well as global and works more in the form of a bank credit card. Another point is that crypto is represented digitally and is controlled by an algorithm that deals with the management of the supply of the currency. Also, this currency is not tax bound and you do not need to pay any taxes if your own any amount of cryptocurrency.

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The advocates of cryptocurrency are seeing some amazing future of the currency and are also expecting that it will replace the Euro and Dollar in coming days.

Cryptocurrency Mining and how it Works?

The traditional money we use is created by the central bank and then circulated to all other parts of the country and the world. The same way Bitcoins are mined by the BitCoin Miners.

Bitcoin miners are the people who deal with some extra tasks other than buying and selling of Bitcoin or other cryptocurrencies. These miners manage the order of the transactions and include them in the Bitcoin block they hunt. This arrangement helps the user to use a single Bitcoin again and again.

Bitcoin mining demands some high-level professional skills with specific hardware and cheap electricity and big data centres. To be a minor one needs to be highly dedicated and spend time in dealing with the matters efficiently and expertise in data management.

Cryptocurrency Market in Pakistan- An Overview

Although appreciated for a long time; the Bitcoin has gained a huge value since 2011. For those who understand the potential of the investment, today is a perfect day to make an investment.

The crypto-currency is nothing like a normal investment. The instabilities in the cryptocurrency market are far much different than other markets or even in the stock exchange. It can also be unregulated and there is a risk that it might get outlawed for some time. So better is to invest from the amount that is kept on a side in the name of saving.

There are three many reasons you must invest in the crypto-currency. These are all followed; because;

1.  You want to keep a safe end to your net worth, at the time when the value of Dollar falls (that is believed by many to fall this way or that, sooner or later).
2. You are an advocate and supporter of the social vision being this currency. This vision says of having hard and free money for the world.
3. You are fond of technology and understand the pattern it works with.

Top platforms to invest in Pakistan

For those who are interested in investing in Bitcoin in Pakistan, the good news is that there are a lot of opportunities to invest and earn in Bitcoin in Pakistan. Here are the two most appreciated methods to invest in Bitcoin in Pakistan.

UrduBit:

It is a Bitcoin exchange that is completely functional and is a comprehensive marketplace to buy and sell Bitcoins instantly. The platform is focused more toward serving the customers who are in Pakistan but anyone from anywhere can sign up and trade Bitcoins from the platform.

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If you are making an account on the UrduBit, you will need to deposit Pak rupee and withdraw in Pak rupee into any of your local bank accounts. You will also need to verify your account for which you will need to submit the utility bills and a picture of your with your CNIC.

Due to Know Your Customer and the Anti-Money Laundering Laws, it is important to confirm your identity on UrduBit. If you do not confirm your identity, you can still trade, buy or sell the Bitcoins but you will not be able to withdraw money from any local bank.

The LocalBitcoins.com

This platform works like a classified web portal. There are a number of people on the platform who are buying and selling Bitcoin in Pakistan. The website offers some filter setting to set your personal setting to see advertisements for a specific area only. If you do not set a specific area for advertisement you will see traders from all over Pakistan. On the Bitcoin exchange, the trades can be done fast but on any classified website like LocalBitcoin.com trades are to be done manually. For this reason, it takes some time.

On such websites first you need to talk to the seller, confirm the price and then transfer the amount, once you have transferred the amount successfully, you will then get the Bitcoin to your address.

At LocalBitoins.com every seller has different requirements so better is to check their demands carefully. Also, different sellers have different payment options as some deal in cash while some prefer to use Easy Paisa. Some may ask you to send the amount to their bank accounts. You can use money transfer services like a western union or skrill to transfer the payments as demanded by the seller.

Building your profile in Pakistan

Building your cryptocurrency profile is an easy thing to deal with. You need to create your account on one of the most appreciated websites. It will allow you to process the buying and selling of Bitcoins in Pakistan and around the globe.

However, before you proceed to buy or selling any cryptocurrency, you need to verify the identity that is mostly done with the CNIC of you claiming that you are a Pakistani citizen.

Once you are done with the verification process, you can proceed as an active user in the cryptocurrency market.  However, to stay secure and make sure that your money is secure as well, you need to check all the details about the service providers.

It is also a must to know your seller and their preferences before making a deal. Remember, every seller can deal with a limited amount, check for the limit of your seller. By checking their limit to do business will help you understand if they are able to fulfill your request or not.

To make sure that you are safe or not, look if they have a good feedback from other clients. Check reviews of people who have worked with them in the past. If the reviews are good you can trust the dealing and business sense of the person.

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The Bitcoin market is witnessing some major ups and downs with each passing day. Only a few people in Pakistan have an exposure and understanding to what the market is, how it works, and what potential does it hold. If you are looking to earn yourself some amazing opportunities, and proceed with a safer Bitcoin buying and selling, you need to consult the professionals only and find what tips and tricks they hold for you. Explore amazing future for you by investing in Bitcoin today.

Khurram Zahid

The post How Does Cryptocurrency Work and How to invest in it from Pakistan? (A Simple Guide) appeared first on Smartchoice.pk.

Related Read: 5 Tips To Save Money Using Your Credit Card!

DOMESTIC LEVEL SAVINGS

One must start from the lowest level to attain large amounts of yield and so the effort starts from the very basic organization that a salaried person needs to save a considerable amount of money.

1. Eliminate debt

Focus on putting your saved money to paying off debt firstly so that you may later save the money going in debt and use it on your own self.

2. Everyday savings

Try to use less money each day and save up the extras on daily bases. When the daily savings add up at the end of the month, the amount is often considerably large and substantial.

3. Sell things not in use

Appliances, extra cars, computers, books etc. are often kept at houses just for the sake of it, adding up to the money that had been spent on them, going to waste. Sort these unused things out and sell them for as much money as possible to save yourself the resent of spending money on useless items.

4. Make a budget

A salaried person always finds it hard to decide where to spend the limited amount of money that he/she earns. At the end of it all, savings get the lowest importance or no importance at all, to save yourself this trouble, develop a well- organized budget.

5. Set saving goals

While developing a plan for your savings, first decide what are you saving for so that it may become easier for you to divide your money according to the amount you need saved and the time at which you might need the saved money.

Related Read: Credit Card options for Salaried Employees

STAYING IN BUDGET

6. Put aside the savings first and then form the budget

If not put aside in the very beginning, it may get used up and besides the daily savings there would be no other alternative of saved money left.

7. Keep a count of the budget that is spent

To keep a check on whether the budget is being followed or not, count the money used daily.

8. Psychological preparation for self-frugality

This is perhaps most important for an average salaried Pakistani because a lot of psychological effort is required for saving earned money.

9. Keeping a bit out for emergency

Keep some extra money out in your budget for emergency use. If the money is not used up at the end of the month add it in your monthly savings.

10. Annualized Spending

If you eat a 20 rupee snack daily at some point of the day, it means you spend a definite 7300 rupees every year on one particular snack, so it can be saved if required.

MINIMIZING LUXURIES

11. Cooking food at home

Make yourselves healthy economical food every day to meet your financial needs instead of spending money in restaurants and canteens.

12. Vacationing near home

Instead of spending excessive money on outstation trips, prefer vacationing in your own vicinity, spending as little as possible.

13. Minimize utility without resent

Efficient utility of the in-budget necessities can be very helpful for low waged employees. No resent helps in staying positive and saving up energy for more and better work for better earning, ultimately increasing the amount of savings.

14. Shop effectively and only for necessary things

Branded clothing in seasonal sales attract a lot of customers. Buying such items is a waste of money.

15. Spending only on absolute necessities

Oftentimes we get distracted by the allure of fancy products in the market which we have no need for. Try to save your money by only buying what is necessary.

PERSONAL INVESTMENTS

To save money on a larger-scale, people in Pakistan typically make the following investments on their own:

16. Property

People buy properties and then sell them when they require their saved money. A plus point about this is that the cost hardly ever reduces and there is no loss.

17. Gold

Buying gold is risky in the sense that its price fluctuates daily. However, it is a popular way of saving money because the amount of money that is not sufficient for property is always sufficient for gold.

18. Renting properties

People often rent out their properties and then save money that they receive as rent.

19. Side businesses

Like the above-mentioned investments people invest money in various businesses, hoping to receive more and meet no loss, this way is also unreliable.

20. Committees

Committees are formed at community level and the members submit a fixed amount every month to the head. The total is then given to one person of the committee each month.

LARGE-SCALE SAVINGS OFFERED AT INSTITUTIONAL AND GOVERNMENT LEVEL

21. NIT units

National investment unit trust offers certificates to people who want to invest and their money becomes a part of the units’ fund. They then distribute the money amongst the investors.

22. Shares In stock exchange

Different factories need investments and they sell shares, people buy these shares and the yield of the factory is distributed amongst the shareholders.

23. Prize bonds

Government launches certified prize bonds of different amounts. People buy these bonds, the money received by the government is used up and the profit is sent out to buyers through ballet system.

24. Qaumi bachat scheme

A scheme offered by government similar to prize bonds. They sell out special saving certificate, defence saving certificate etc.

25. Insurance policies

Insurance companies receive money from people who mean to save it and insures them their required money at the time of need. Different types of insurances include health, life, education, marriage etc.

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The story of savings starts from the basic level to a large-scale level. It is not difficult even for employees with low wages to save money if they follow the recommended options efficiently and without break.

Khurram Zahid

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