For financial well-being in 2013 and ahead

Jan 01 2013, 10:29 IST
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The first step in creating financial prosperity is to state the goal in financial terms. (Reuters) The first step in creating financial prosperity is to state the goal in financial terms. (Reuters)
SummaryThe first step in creating financial prosperity is to state the goal in financial terms.

Though it has become customary that we take stock of what we have done in the year just ended and come out with plans for the New Year, such an exercise brings progress in physical, mental and financial well-being. Let us explore the ways to make progress in our financial well-being in 2013 and ahead.

Set goals: The first step in creating financial prosperity is to state the goal in financial terms. For instance, one can say that he would like to have R1 crore as his wealth by January 1, 2023. This statement has clarity in it compared to saying, “I would like to earn as much as possible”. As the management literature says that goal is obtainable only when it is specific, measurable, achievable, and relevant and time bound (SMART). The personal financial goal of accumulating R1 crore by January 1, 2023, through savings and investment is certainly a very specific, measurable, achievable, relevant and time-bound goal.

Write personal financial statements: Do we know the components of our financial statements? Do we understand why we borrowed R10,00,000 from a bank while our revenue had grown by 20% over the previous year? Do we have an understanding of our return on equity, profit margin, interest cover, liquidity and solvency position? Most often, our answer to these questions is a “no”. So, after setting the goal, we need to take stock of our present financial performance. Such an understanding enables one to maximise the surplus. In fact, the personal statement of a person would make it clear to him about the relevance and feasibility of the achievement of his goal. In addition, the personal financial statements enable us to arrive at the means of improving the topline and bottomline numbers.

Understand wealth generation horizon: Rome was not built in a day. Same is true for wealth creation. It is always a long-term process. If one wants to accumulate wealth in a short span of time, then such a hasty effort would end up in riskier investments, which are vulnerable to huge amount of losses. Hence, short-run horizons are not suggested for a sound and sustainable wealth creation goal. Desire to achieve the results faster leads to greediness, which, in turn, acts an obstacle for rational decision-making. The world has seen so many debacles of corporate houses, which have adopted unfair means to achieve their wealth creation goal. The rule of the game is

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