2013 is here and it is going to be happy depending on how you handle your finances among a host of other things like family, work, health etc etc. To be true to everyone, anything you do this year is in no way different from any other year but there are a few things you might want to keep in mind while you traverse the rough waters of 2013.
So read on.
1. Think long term, not returns
It is important to understand that you need to invest your money to meet your goals, not to gain returns. There are a lot of investors who ask for maximum returns in less amount of time and that is something which is unrealistic. Follow goal based investing and respect long term investing – that should do the trick for you.
The Sensex returned 25% in 2012 so do not rush into the stock markets with bags of cash – retail investors are advised to invest via the systematic investment planning route of mutual funds.
2. Don’t buy exotic products
It is natural for investors to buy things which are introduced new in the market – it is as if the world is buying and I also should have a piece of the cake.
Well, you will be surprised but you really don’t need anything that hits your advertising hormones hard – so if Rajiv Gandhi Equity Savings Scheme has been launched, do not go and buy because of a small benefit in the short term which will lead to long term pain.
Look at how you are investing and what you are investing in – don’t buy because it is in the “in thing”.
3. Provide for your family
The last thing you want is looking down upon upon your family from the heavens and seeing them struggling to survive and making ends meet simply because when you were alive, you locked in all your money into products that gave you just 5-6% returns in the name of having taking insurance.
Each investor needs to realize why life insurance is not an investment. Do not make the age old mistake of investing your hard earned money via endowment plans, money-back plans or Unit Linked insurance plans (ULIPs). Take term insurance of an adequate amount.
4. Review your portfolio
Make sure that 2013 is a year when you review your portfolio twice if not more. There is nothing more worse than buying excellent products and not monitoring them and losing your corpus if the products begin to under perform.
Ensure you follow your asset allocation and invest in line with your risk profile for your future goals. Get with your financial advisor and ask for a review of your portfolio so that you know you are on track to meet your goals.
5. Invest first and blow away the rest
I have written this so many times now that it looks like I am beating a dead horse today. But each of us needs to understand that with the salary we get each month, we need to keep aside a small amount of money for our future.
Most of the families first spend the money and then invest when is left. How about following the opposite rule in 2013 ? Why not save and invest first and then blow away the rest ?
As a rule of thumb, invest around 25% of your net take home and use the rest 75% towards meeting your daily living expenses and paying your EMIs (Equated Monthly Installments). If you do not have any EMIs, get that 25% to 50%.
6. Avoid too much real estate
Real Estate is the in thing these days. Everybody you talk to is buying houses and land like there is no tomorrow. After you have bought your first house, pause and ask yourself why you need another one. Real Estate is an illiquid investment and needs money for maintenance year on year.
In the last 20 years, equity has returned 18% CAGR and real estate around 12%. Localized real estate can give whooping returns but then not every dog has his day and you don’t want to be one.
So put you money into equity diversified mutual funds rather than real estate if you are investing for the long term.
7. Gold is good in small quantities.
Gold has approximately given 12% returns in 2012 which is no way closer to what it delivered previously. So will you now not invest in it ? It is natural for investors to stay away from products that do not deliver expected returns.
Change this strategy and invest in gold upto 10% of your portfolio. There are many ways to buy gold but we Indians will always buy the physical form during auspicious occasions like Diwali. So to make up that 10%, buy gold ETFs each month.
For a moment, forget about what gold will give you in 2013 – curtail your love for gold.
8. Make your financial plan
First, make a financial plan for yourself. If you are a DIY (Do It Yourself) person and you think you are capable to making a financial plan yourself, please do it. It is important to have one in place than procrastinate all the months and make one in 2014 !
A plan is your blueprint for financial success – same as meeting your financial aspirations in life for yourself and your loved ones.
If you are not a DIY investor, then make sure you pay a financial planner to make one for you. And don’t fret on the fact that this is money you are paying that will make your wallet light – be clear that not hiring a planner will only make it more lighter.
At a small amount of Rs 1,500 approximate per month, you can have a plan to get you on the right track for your financial future.
9. Pay your bills with an eye on your credit score
While Indians haven’t warmed upto the concept of credit scores as much as our Western counterparts have, please be aware of the fact that delay in paying your electricity and mobile bills will now impact your credit score. And that will impact any credit or loan you want to take in the future.
A bad credit score will hurt you in the future so ensure that you take this seriously in 2013 and put automated payment mechanisms in place for your utilities and credit card bills.
You must also use the opportunity to check on your credit score, know where you stand and then correct any fallacies that can be taken care of.
10. Correct nominee information and make a will
Often a very less important and less urgent thing on our to do list, but this can bring a lot of trouble for your dear ones when you are not around. Ensure that you correct all your nominations in all your assets – be it savings bank accounts, life insurance policies, fixed deposits or other fixed income instruments, DEMAT accounts, bonds, mutual funds – ensure the right nominations in all of these.
After you have corrected this, ensure you make a will as well. It is a small pain you should be willing to take this year to ensure that your estate goes to the people who you love most.
Which of these 10 personal finance commandments are you adopting in 2013 ?
Good resolutions not only for new year but everytime.
Very good resolutions. I am trying to follow most of the above except Gold.
Its still not in my portfolio, hopefully it will be in 2013.
Equity performed better than gold in 2013 so it is always better to buy small quantities each month.
Hindsight is always perfect.
Just like a balanced meal we should have balanced investment plan with parts for equity,debt,gold etc. The proportion is dependent on risk profile and liabilities and personal preferences of the person. This falls under Asset Allocation/Diversification.
Yes that is right. Anything that has happened always looks like it could have been done better.
The 2 concepts you mention are the pillar stones for a robust financial plan. Thanks for contributing.
It is good to keep these basic things always in mind. A useful post.
Appreciate your reply Anil