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A New Year is a great time to rethink your financial planning. 7 money management resolutions to help you out!
By Poornima Kavlekar
The financial markets have been up and down in 2010. Inflation has been steady on its northwards journey. Rising petrol and diesel costs, among other cost escalations, have been a burden on our purse strings. On the other hand, the stock markets scaled new heights during 2010 yielding good returns for those who managed to liquidate their holdings at the right time.
With so many variables that make the money market so dynamic, having a fill-it-shut-it and forget-it policy will take you nowhere. Constantly review your portfolio and investment philosophy and set new money-related targets. And the timing couldn’t be any better.
With 2011 just around the corner you could resolve to do a few things differently. Before that review your 2010 goals – check if you are on target to meet your long term goals. If you have made good progress, build on this success, else revise and revisit your target and approach. Fix new goals that you’d like to work towards in 2011 and budget for it smartly. Use the financial resolutions listed below as your starting point and create your own 2011 financial resolutions.
Note of caution: have a list that is manageable!
How is your current asset allocation? Does it have the correct mix of equity and debt instruments? And does it match your risk tolerance? Getting the right answer to these questions is very important to build your investment portfolio. When Sunil Kumar, 39, revisited his portfolio last week, he felt the need to introduce more debt products in his portfolio which is currently overweight on equity. He now plans to invest around 10-15 percent of his portfolio in the public provident fund.
So refresh your risk tolerance levels regularly, may be every year, based on what you have learnt in the past and also on your other financial commitments (could be a marriage, a new born or an ailing parent).
Emergencies are unwanted guests. But, nevertheless, you need to deal with them. Save around 4 to 6 months of your expenses for this purpose. Invest this in an instrument that can be easily liquidated.
For a start knowing what you want to do after retirement will make your financial planning smoother. With this in mind, you need to establish how much you will need when you retire and how much you need to save up for it at the current rate of return.
Understand your discretionary and non-discretionary expenses for this. And remember to wipe out expenses that you have today and will not have when you retire, like education or marriage expenses of your child. But factor in costs like inflation, rising standard of living and medical expenses. Once you understand your future liabilities, you can establish a realistic accumulation goal and stay on track to reach it.
Sometimes it might not be an easy task to estimate your retirement expense. You could seek some professional help here like what Ganesan Venkatasubramanyam, 44, plans to do in 2011. “I want to locate an advisor who will help me understand the retirement planning process and streamline my portfolio for the purpose,” he adds.
Reducing debt is not an easy task but an attempt can be made to make 2011 fairly debt free. Reduce borrowing as you age. While borrowings can be 4 to 6 times of your earnings when you are in your early 30s, make sure there is a drop by 50 per cent every ten years or so, so that you are fairly debt free by the time you reach your 50s. Try to keep your debt payments (in the form of EMIs) not more than 40 to 45 per cent of your income if you have a home loan and not more than 20- 25 per cent if there is no home loan.
Never invest for the sake of completing the year-end tax formality. During the last few months of the financial year, many investors take last minute decisions to buy tax saving instruments that are not really needed. Spend time to understand your tax investment needs and evaluate options that are suitable for you.
You cannot just depend on your savings and investments in case of calamities and unforeseen circumstances. Ensure that you and your family members have adequate insurance. Compare insurance policies; the quantum of insurance will totally depend on your personal circumstances.
Your child needs to understand that there is a cost to everything they buy. So start orienting them young. Introduce them to piggy banks when they are three or four-years-old. And bring in new concepts as they get older. Make children comfortable with money and let them learn to respect it. There is no right way to teach your child money, but, never make it a subject that you shy away from.
So resolve today on what your money life will be like in 2011. Work towards it and more importantly – stick to your resolutions as it is a path to a fairly hassle-free financial life.
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