- GET A GRIP: Understand what your money streams are where your income comes from and where your expenses lie. Also put together a list of all your assets, from fixed deposits to stocks. Do not put the house you live in, thats not an asset, its your home. This is your starting point.
- KNOW YOUR GOALS: Get clarity on when you would need and how much money to buy a house, pay for children’s education or your retirement and work backwards to see whether the income streams you have are adequate. If yes get going on your plan. If not, either try to increase your income or reduce your expenses. Either way get a financial planer
- PROTECT WHAT YOU HAVE: As long as your investments do not deliver an income, through rentals, interest or dividends, your most powerful asset is the income you bring home every month so buy a term policy that gives you maximum protection for your life whatever other assets you create protect them as well – a house for instance, with a householder’s policy. Finally as health costs rises be sure to have adequate health insurance for the entire family.
- MANAGE DEBTS EFFECTIVELY: When you borrow to buy an appreciating asset like a house it will work in your favor. In an inflationary environment leveraging an EMI to pay for a house is good, provided it dosent get into the way of other goals. But when you borrow to finance holidays, consumer durables or a second car, understand what you are paying for, an unpaid credit card debt means you will end up paying an interest rate upto 50% per annum.
- CREATE WEALTH: The earlier you start the better. If you invest Rs. 5,000.00 a month in an equity fund for the first 10 years of your working life and then stop putting additional funds but allow it to grow at an assumed rate of 15% per annum, you will at the end of 30 years have a corpus of almost Rs. 2 crore. But if you start 10 years later, invest double the money ( Rs. 10000 a month ) for double the time (20 years) at the same rate in the same product you will end up with Rs 1.2 crore. The biggest risk of investing is not investing.
- MAKE A WILL: Even if you are a single with no dependents but want your money to go to charity after you pass on, make a will and get it registered. If you do have dependents, divide the will according to how much proportion you want each person to get. Like wealth creation passing the wealth to the next generation must be done as early as possible – nobody can predict a meeting with death.
1/2 : UNDERSTAND THE BIG PICTURE: Given the uncertainty today here is an extra half step on how to deal with two large problems. One, inflation management. Here you need to cut down on expenses – eat out once rather than thrice a week; go for a carpool and so on. And two uncertainty. It wont hurt to invest in a new skill so as to be able to insure a downside should something happen. The big picture: over the next 30 years India’s domestic consumption and its young demographics is going to create huge amounts of wealth. Ride that story become financially independent.
Courtesy - The Hindustan Times 15 Aug 2011
