7 Effective Actions To Take
This New Financial Year
With the start of the new financial year, most people take a
sigh of relief and sit back thinking that they would have more in their hand to
spend, and can plan their finances better.
This is, however, when a disciplined approach comes into play
and helps in long term wealth creation. With India’s equity investing
population still at below 5% of the total population, there is a long way to go
and so is the opportunity for the related stakeholders.
The factor that keeps Indians away from the markets and Mutual
Funds is the instability and fear because of ‘not knowing’-we have stayed with
fixed interest yielding instruments for too long.
The obsession of
keeping the principal intact and earning something over and above has been
ingrained in our social financial fabric.
If we are financially literate and aware, we can easily earn
inflation beating returns as against government specified fixed but low rates.
Prudent financial planning means taking care of your expenses
and modifying your current lifestyle to take care of your future goals and
aspirations.
Here are a few rules to follow with the start of the new
financial year, which if embarked on, would be of significant help:
# 1.
Write your goals
Writing channelizes your thoughts and actions towards achieving.
Writing brings conviction - goals are otherwise, mere thoughts.
For example you might have been thinking of creating a
retirement fund with some X amount in mind. However when you write it down and
create a goal with say, INR 5 crore as corpus in 30 years, you would also come
to a conclusion about your current assets, cash flow, expenses etc and thus
this would trigger creation of a financial plan.
# 2.
Learn to be patient with equity
With instruments like PPF, Insurance and real estate, we are
very patient and sometimes, patient beyond reason. We need to learn to be
patient with our equity investments as well.
If this is an investment in which we have put in our money with
conviction, then selling it in hurry should be the last thing on our
mind.
#3.
Be disciplined in tough times
This is important because with markets showing a downtrend,
people cancel their SIPs. In fact, many take their money out completely. Those
with a disciplined approach gain by way of accumulating more units when the
markets are down.
Discipline is also the foundation to earn from the power of
compounding. Treat your SIP as a regular, compulsive contribution every month
which should be reviewed only once a year or due to a significant change in the
financial environment or due to a lifestyle change.
#4.
Invest in your financial Education
One of the popular Buffett quotes is: “The most important
investment you can make is in yourself”. The excuse that we come across mostly,
related to markets and MFs, is that ‘I do not understand these complex products
and it seems to be very risky.’ The fact is that people have become
billionaires by investing, but mostly by learning & investing
themselves.
Investing in knowledge is one of the pillars of success in the
business world. You are confident and prepared when you know what you are
getting into!
#5.
Don’t forget to execute
It takes a jolt for people to implement something that they have
been thinking of, for days, months or sometimes even years. A step by step
approach would be helpful - it is also important to note that you will have to
make amends to what you had originally thought of.
Apply the principle of ‘Elimination’ to arrive at the most
significant goal or the most important part of the larger goal. After you
conduct all the research and finish the homework, execute.
#6.
Always have a Plan B for your income
As in businesses, Plan B helps significantly in maintaining
continuity in life and in ascertaining regular income flow. Identify an area of
interest which can act as a source of income as well. The times are dynamic and
although the options are aplenty today, the harsh reality is that the
insecurity and work related stress has been rising as well.
There is a lot of talk about ‘passive income’ generation and how
it acts as a security against your primary source of income. Investing in MFs
can be the easiest Plan B - once convinced, increase your allocation as per
your risk appetite and goals.
#7.
Act today
There is no better time to invest than today. If you have 30
years for retirement from today and start a SIP worth Rs. 5000* per month in a
fund which gives 15% annualized returns, it would accumulate into Rs. 2.8
Crore. However the same SIP for a person who has 25 years @ 15% will result
in Rs. 1.38 Crore. This is a difference of Rs. 1.44 Crore for 5
years! The price for procrastination is huge in equities!
*assuming investment is done at the beginning of each month
So start investing and have a good Financial year!
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