A wonderful year has just ended. Some of you might be happy with the progress you have made in this year. Others would want to do better in the coming year. For both sets of people, financial discipline is more important than income generated. Because, we have seen time and again that wealth can be created by discipline rather than higher income.
Here are five simple rules to follow in the New Year so that financial discipline is created in your portfolio:
1) Do not invest in Investsurance schemes
Financial experts have been re-iterating this for so long. Staying away from schemes which mix insurance and investment will be a very good step to start off with. This opens up your investment opportunities and also saves you lot of money going forward. Agents will try to lure you by weaving their magical marketing tactics. But, beware of all these and increase the usage of word NO. On the other side, have a term plan and health insurance in place immediately so that any unforeseen event would not destroy your financial life.
2) Do not expect easy money from Stocks
There is great myth among people that stocks are here for us to make easy money. This is totally false. Equities, whether stocks or mutual funds, are a risky asset class and reap benefits only when you have patience in them. If you have invested in the stock market expecting your money to double or triple in 1 year or lesser, you might never come back to invest in stocks again. Make sure you have at least 7-8 years for getting proper ROI on your investment. Also, do not shy away from stocks. Invest in it slowly as per your goals instead of worrying about timing the market.
3) Create a Financial Plan
Without a plan, most of the things would go wrong. The same applies to financial life as well. Without a financial plan, you set to make random investments worth random amounts as and when you like. If you have your goals written, you tend to work on them and then invest only what is needed to take you there. You also need to review this plan every year so that you can make changes, if any.
4) Have an emergency fund in place
This part would be missing in most of the portfolios. Even if it is present, it is shorter than the amount required. Whenever there is an emergency, you tend to rush to your friends/relatives/neighbours or run for a personal loan which digs a big hole into your financial life. Recovering from this could take really long. Hence, have at least 6-8 months of expenses as an emergency fund. Half of this can be in a liquid fund and rest in savings bank account.
5) Prefer investments to tax saving
Quite often, we see people running in the last minute to save tax. This urgency is never shown when making investments. I would say, forget tax saving and start investments. It doesn’t matter even if it means you need to pay some tax to the Government. You would more than compensate this by investing in proper investment products. Only after you have set aside amount for your goals, look for options to save tax. Some of the tax saving is automatically taken care by EPF, PPF and Home loans.