Amy Fernandes
1) Track it!
Write down every deposit and withdrawal in a notebook or on an excel sheet. It may sound foolishly simple, but this crucial step is programmed to make you aware of your financial habits. Within three months you will see a pattern emerging in your billing and salary cycles; how much you spend and what you spend it on, and more importantly, what’s leftover at month end.
2) Need money for jam?
All of us want to make a lot of money, but few of us articulate what we are saving for. Imagine you have an old mobile handset in fairly working condition and Rs. 30,000 lying idle in your account. What are the chances you will upgrade your handset if an exchange offer emerges? Huge. However, if you have already earmarked that amount for a house makeover, your chances of splurging on the handset are slim. In the absence of linking funds to goals, we keep money idle, spend aggressively, or end up with unwise investments.
3) For that rainy day
Whatever your monthly mandatory expenses, multiply that by three and keep only this much for contingencies. If your monthly expenses are Rs. 50,000, your contingency fund should not exceed Rs. 1,50,000. This is enough to tide over any financial turbulence. Anything more, should have you itching to invest. In the absence of this exercise, you will either have a fortune lying idle in your bank or you will blow it on a vacation and return with barely a fortnight’s contingency in your account.
4) Ensure you insure
Invest in yourself first. The importance of health insurance cannot be underscored enough. If your office, or your spouse’s, is not insuring you, buy yourself a medical policy. Ask for woman-friendly products, that factor in pregnancy, hospitalisation, accident benefits, etc. If you are the sole bread-winner, a single parent or have dependent parents, get life insurance too.
5) Pay off Debts
Do you have outstanding education, wedding or other loans? Once you are insured, are monitoring your money and allotting funds, it’s a good time to pay off debts or plan for their clearance.
6) And now, Invest
Now that you’re debt-free, it’s a good time to turn your thoughts to investments. All the financial efficiency steps this far were solely in your hands. However, you will now need the expertise of a financial investor or banker, if you don’t have a financial background. At this point, you are more in control and are in a position to take aggressive calls. Go to an adviser armed with the groundwork you have done.
7) Long or short term?
If your financial goals will realise in two to three years, choose debt-based SIPs, recurring deposits, or fixed deposits. Your interest may lose to inflation at present, but your principal remains intact. If you want to save for eight to 10 years, choose equity as an asset class, either as direct equity in stocks and shares, mutual funds or equity-based SIPs, depending on your confidence level. Equity does not offer linear returns, and the returns are not constant, but will pay off over the long term. Investing in equity is fine if you’re skilled in the matter. If not, get help. Ask questions and more questions.
8) Seriously, retirement plans?
The earlier you develop a retirement plan, the happier you will be when you get there. If retirement is more than a decade away, choose equity. If you’re closer to retirement invest predominantly in debt instruments with fewer equity components. Gold is an asset in any portfolio at any given point.
9) Yes, even at 30, make a will
It might seem premature, but the day you create your first asset, is the day to make your will. The day you invest in your first fixed deposit, somebody stands to inherit it, when you pass away. More so, in the case of women, because there could be a husband and children in the picture. Who gets what?
10) Stay flexible
None of these laws is cast in stone. Even if you don’t follow some of them, at least be aware of what you need to do. If a certain financial product is not working for you, have no qualms about moving to another. The idea is to make your money work for you.
Gaurav Mashruwala spoke to Amy Fernandes
Let us know which of these tips worked for you.