This year was quite eventful on domestic as well as
international front. In 2016 we have witnessed many unexpected events. This
year will be known as the year of Amma, Trump and Modi or in short it will be
remembered as the year of ATM. Now when we are entering in 2017, as always every
New Year brings with it a new start, a reason to begin again, a time when we
promise ourselves to do something different. That's why we make resolutions. We
all care about our money after all we spend a significant portion of our life,
and a considerable amount of efforts and resources to earn it. So it makes
sense to make some resolutions on our financial life as well!
As a rational investor we should keep the following
factors in mind before making any financial decisions in the year to come:
1. Save more money
Saving can be
viewed as the practice of paying oneself first this money is used for our future
needs like marriage/education of children and our own retirement etc. Most
people save money, but how much remains an individual choice. We must draw a
plan for our financial needs and figure out exactly how much we want to save
and how it will be allocated on different kind of savings (cash, equity, gold,
etc.). Many tools are available online and for proper planning an expert’s advice
should be taken.
2. Spend
less cash/ Use Technology
This year we have
learn that cash can also be risky investment. So let’s have a digital wallet -
We are moving towards the digital era from smart tv, smart watches, smart
phones to now smart wallets lets be part of the cashless economy. The next
phase is the digital economy. We should keep an eye on upcoming technology
which is set to change the face of the financial world. A digital wallet is a
necessity, not merely a luxury. It can be net banking on your smart phone. Debit/credit
cards or services like PayTM we should learn the new things so as to live comfortably
in changing time
3. Start
a budget
Budget is very
important to have a disciplined financial life. We should create our own budget
which will meet your financial needs without stressing your income level. There
are many tools/apps available in the market which can guide on spending and
investment.
4. Invest
Smartly
We should not
just save but the money saved should be invested smartly so that it can give
good and tax efficient return. We should invest in those assets which have high
growth potential. Growth assets are typically those assets that have the
potential to give capital appreciation over the long term, as against
generating current income. Examples are equity shares, equity mutual funds,
real estate etc. These assets help in building wealth. Generally a balance of
income assets and growth assets would be required for an investor at any life
stage, but the asset allocation will differ. The role of proper asset
allocation for achieving investment success is very important, so avail of some
of the many tools online or take the help of an expert to get the right mix of
assets class. Here are some quick rules of thumb:
5. Mapping
Investments with Goals
Financial Goals
|
Types of Asset Class
|
SHORT- TERM GOAL (1-5 YEARS)
|
|
Buying a Car
|
Debt & Money Market
|
Foreign Vacation
|
Debt & Balanced funds
|
MEDIUM TERM GOAL (5-15 YEARS)
|
|
Buying a House
|
Balanced & Equities / Diversified Mutual
Funds and move to Debt and Cash when goal is nearby
|
Child's
Education
|
Equities / Diversified Mutual Funds and move to
Debt and Cash when goal is nearby
|
Child's
Marriage
|
Equities Diversified Mutual Funds & Gold and
move to Debt and Cash when goal is nearby
|
LONG TERM GOAL ( 15 YEARS +)
|
|
Retirement
|
Equities / Diversified Mutual Funds and move to
Debt and Cash when goal is nearby
|
Wealth Creation
|
Equities / Diversified Mutual Funds & Real
Estate
|
Inheritance
|
Equities / Diversified Mutual Funds & Real
Estate
|
The chart given
above is for illustrated purpose only, while choosing the asset class the
actual time from and risk appetite is major factor. How long a person can let his/her
investments compound is a major factor in determining how large they grow. So
it's good to follow the old thumb rule that says INVEST AS EARLY AS POSSIBLE, AS OFTEN AS POSSIBLE...AND AS MUCH AS
POSSIBLE!
And
Finally…
Much like India's
freedom struggle, achieving financial independence is also a slow process and
one cannot hope to reach it overnight, over a few weeks or even a few months.
However, every step taken in that direction will bring us closer to our goals.
As always, before making any investment decisions please consult your financial
advisor.
On the threshold
of the New Year, we wish that 2017 brings you the needed discipline for a happy
financial life!
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