The Telegraph
Monday , February 25 , 2013
Since 1st March, 1999
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Money management

We may be approaching the close of the fiscal, but the new year has just began. Among the many resolutions you have made for the year ahead, you may have promised yourself to be a more financially sound person. But it requires more than a resolution to be one. You need to set a few rules for yourself to emerge wiser and richer at the end of the year. Here are a few tips you can follow in your journey towards financial prudence.

Buy peace of mind: Before anything else, please ensure that you have adequate risk cover on your life so that your family can enjoy the same standard of living in case you are no longer there to support them. The cheapest way to do this will be to buy a term insurance on your life. You can contact your agent or simply buy these plans online directly from the insurance company.

Health is wealth: The next thing you need is adequate medical insurance. Instead of taking standalone policies or individual covers within a family policy, it will be cheaper to take a family floater policy. If you need a higher sum insured, you can buy a top-up policy. Having a proper medical cover protects you from having to sell your investments or face liquidity problems in a medical emergency.

Will power: Make that will, irrespective of the fact that you may be young. Wills can be changed from time to time as your situation changes. It is very simple to make a will. It can be done on plain paper. It is necessary to ensure that your assets are inherited only by those who you intend to bequeath them. In case you pass away intestate, all your natural heirs have a claim on your property.

Borrow wisely: Do not stack up debt you cannot repay, especially credit card dues, since you pay the interest at astronomical rates. Try to spend with a debit card instead of a credit card to check overspending and impulse buying. If you take car or home loans, make sure you have budgeted for the EMIs within your monthly expenses. Avoid borrowing for consumption needs.

Plan your taxes: Do not leave tax planning for March every year. Plan your tax saving investments in advance so that you do not have to make last-minute investments to save tax without proper study. Also, make sure you invest according to your tax bracket. For example, if you are in the highest tax slab, buying a 7.75 per cent tax-free bond will be better than investing in a 9 per cent taxable bond or fixed deposit.

Stay liquid: Keep at least six monthís income in a contingency fund. This money should be invested in liquid funds or bank fixed deposits, so that you can access it immediately in case of any emergency. This can also be helpful if you have to spend a few months between jobs.

Start early: The day you start earning is the day you should start investing for retirement. The more you delay, the higher amount you will have to put in to make up for the lost time. Moreover, when you are young, your risk appetite is better and, thus, you can opt for higher yielding investments such as equities, although with higher interim volatility.

Watch them grow: Kids grow up before you know it. Start planning for their education and marriage at an early age. This will ensure you will not be burdened with huge financial responsibilities at a later date, or have to compromise on their future.

Prepare a budget: Create a monthly and annual budget at the beginning of the year. Plan for expenses and investments. Make sure you have adequately provided for both. It is not possible to curtail your lifestyle and save. The idea is only to get disciplined enough to be able to maintain your standard of living as well as put money aside for the future. Check each monthís expenses against your budget. This will help you find out where you have overspent. If this expense cannot be avoided, make adjustments for the same in the future budget. Otherwise, you know where you have gone overboard!

Priority to saving: Plan your investments such that they are made before you start spending any money for the month. Otherwise, by the end of the month, you will always have less to invest than required. The best way to make sure that your investment plan stays on track is to transfer your planned investment amount into a separate account and make these investments from this account at the beginning of the month.

Spread your risks: Invest your money in various asset classes in pre-decided proportions as per your risk taking capability and time horizon. Do not get swayed and put all or most of your money in asset classes that may be doing better than others at present. In any standard portfolio, you should have a right mix of equities, fixed income instruments, gold/other precious metals, real estate and insurance, along with any other asset classes.

Make money earn: Remember to invest such that your investment portfolio is able to beat inflation. Then only will your money grow in real terms. Otherwise, the purchasing power of your money will reduce. Therefore, make sure that you have a proper equilibrium of riskier yet higher yielding investments as well as safer, although lower return on investments in your portfolio.

Stick to the basics: Investing is not rocket science. All it requires is proper knowledge and discipline. If you are not an expert, donít try to time markets and act on hot tips and advice. Consult a duly certified financial advisor. Spread your risks, stick to your asset allocation and let your portfolio earn for you.

The author is a certified financial planner and CEO of Dalmia Securities Pvt Ltd. He can be reached at