CHECK YOUR FINANCIAL HEALTH

Commandents for better financial health

A bunch of simple, ready-to-use tips which will apply possibly to each one of us, not only in 2010, but beyond, are below:-

Pay full credit card bills on due date

Remember, if you do not pay the entire bill amount on the due date, interest is charged from the date of spending, and not the due date for payment. That factor alone can push up credit ra tes to over 40 per cent per annum; and this makes it probably the most expensive form of credit. Kill the credit with a personal loan if required - and follow the discipline of no more rollover of credit henceforth.

Close all unnecessary bank accounts

How many of us open new bank accounts with each new job, and haven't even checked the balance in the dormant ones in the past one year?

Keep one month's expenses in bank a/c


As you may have realised, the bank pays interest on your savings bank account at a rate lower than that of inflation. That's not to say that the rest needs to be invested for the long-term. I am only stating that you can earn a bit more through fixed deposits or short-term mutual funds for funds needed more than 30 days later.


Buy life insurance
You buy life insurance to benefit your loved ones, not yourself. Buy the cover that you need today - remember to get the term plans first so that the sum assured is adequate for your family's needs.

Ensure all nominations are in place
Make sure all your bank accounts, investments, insurance policies, have up-to-date nominations in place. Review this at least once a year.

Start investing early

The power of compounding is phenomenal. A 25-year old investing Rs 10,000 per month for 20 years, and then letting the money stay invested, all at 10% pa accumulates Rs 3.3 crore at the age of 60.

A person starting 10 years later (at age 35) needs to invest 2.5 times the amount (Rs 25,000 per month) for 25 years to reach t he same corpus of Rs 3.3 crore.

Invest regularly
Systematic investment where the long-term trend is upwards (as in India) is the best way to eliminate risks of investing in equity markets.

Those who continued doing so in 2008 and early 2009 when the chips seemed down and out have more than seen value in this investment philosophy.

Make a financial plan

Determine your financial goals. Locate a certified financial planner. Get a plan made to help you reach your financial goals, based on the risks that you can take; not just the risks that you wish to take.

Stick to the financial plan
Financial plans result in arriving at an asset allocation which takes into account risks, returns as well as liquidity. Ensure that the allocation is reviewed periodically and balance it so that you can cut risks when the market is over-heated and enter boldly when all others are dancing barefoot on a hot tin roof!

Review first 9 commandments regularly

Discipline is the key to managing your money better. Go over these commandments and add others. The more the merrier. I wish each one of you a very prosperous New Year.


Source: Lovaii Navlakhi, managing director and chief financial planner,
International Money Matters Pvt Ltd