It’s that time of the year again when individuals list down resolutions to make the new year more rewarding. Here are 4 resolutions to get your finances in shape this year.
It’s that time of the year again when individuals list down resolutions to make the new year more rewarding. Hence without much ado, here are four resolutions to get your finances in shape this year.
1. Set goals and aim for them relentlessly
Many individuals confuse aimless investing with purposeful investing. Aimless investing is when you have a Rs 1,000 SIP that is debited from your bank account every month because your personal banker or agent recommended it to you.
Purposeful investing, on the other hand, is when you decide that you want to target a fixed amount – say Rs 2,00,000 – over 4 years that can go towards the down payment for your next car. Then you do the math and invest accordingly in an SIP. Setting goals makes investing more focused and resolute. If you have always been ‘simply’ investing, this year invest with clear goals in sight.
2. Make equities your ally
We have all heard that equities have the ability to outperform other asset classes like fixed income, gold, and real estate over longer time-frames of 10 to 15 years.
But the last year was a rollercoaster ride, especially where equities were concerned. This was majorly because the markets adjusted and corrected itself to several known as well as unforeseen events. While the markets seemed to hit an all-time high around the months of January and February – post Feb the mid-caps started getting shaky. While there was a significant volatility in the middle months, towards December markets certainly closed on a cheerful note.
So our tip for the next year will be—don’t ignore equities, they may be inconsistent due to certain economic and political factors, but over longer time-frames, they can certainly reward investors proportionately.
3. Save more, spend less
We have all heard this so many times, but just never got down to acting on it. One reason was probably because we did not act on step 1 mentioned earlier in this note, i.e. purposeful investing. If investing is purposeful, then one is a lot more aware of financial leakages and wasteful expenditure. If you have a goal – let’s take the example from step 1 – of saving towards a car; then you are unlikely to waste money as you might have without the goal to buy a car.
With a goal, spending Rs 1,000 towards a dinner engagement will not come that easily as you are aware that this money can be better utilized towards your investment plan. Sample this – Rs 1,000 every month on dinner, movies, coffee, clothes over 3 years is Rs 36,000 in someone else’s pocket – namely the multiplex company or the restaurateur or the coffee shop owner or the mall owner. If you had instead set aside the same amount every month in an investment at 10% compounded return (CAGR), you would have had Rs 41,782 in your own pocket. Rs 36,000 loss v/s Rs 41,782 earnings – take your pick.
4. Engage an expert
Investing is a full-time activity that cannot be expected to succeed with part-time attention. It requires an expert to assess your needs, make calculations, study the investment market and then recommend a portfolio to help you realize your goals. Most individuals do not have the expertise or the ‘bandwidth’ to engage in the activity. The best alternative is to engage a competent financial planner to help you with your finances.
Have a happy investing!
(By Rahul Jain, Head-Personal Wealth Advisory, Edelweiss)