There are individuals who have so much money that they don’t
really know what to do with it. While these individuals may attract the envy of
many, we believe owning money and not knowing what to do can be quite an
unenviable situation. On the other hand, there are small time investors, who
don’t own a great deal of surplus money, but are in complete control of their
finances. These individuals seem to be in the driver’s seat where finances are
concerned and should in fact be envied.
While most would find it a little to digest that there are
investors out there who have the money but don’t know what to do with it that
is the truth. Don’t believe us, look around and see the number of people with
the latest gizmos, mobiles, cars, clothes and consumer goods. What’s wrong with
that? Nothing at all! It’s a free world and you can own anything and everything
that your finances permit you. Do this small test – when you see someone
flashing his latest mobile or some gizmo, ask him if he has planned for his
retirement, or whether he has a financial plan in place to pay for his child’s
college fees 10 years down the line. Chances are that person will be more keen
on discussing ‘relevant’ points like the features of his latest mobile rather
than dwell on the ‘irrelevant’ issues raised by you.
To be sure, these issues are anything but irrelevant. But money
has that effect on people, it makes them want to rush towards the immediate and
ignore the future. So you have more mobiles being bought than financial plans
being prepared. So while it’s a good thing to have money, it’s equally
important to know what to do with it. We list 5 most critical tasks individuals
must accomplish with their money.
1. Do your Tax Planning
If you are liable to pay tax, tie up your tax planning exercise.
As a law-abiding citizen paying taxes is most important so investing promptly
in the right avenues to save tax assumes importance. An individual can save tax
up to Rs 100,000 (Rs 1 lac) by investing in tax-saving investment avenues.
These avenues range from the traditional Public Provident Fund (PPF), National
Saving Certificate (NSC) and life insurance to the more dynamic (read
market-linked) tax saving mutual funds (Equity Linked Saving Schemes - (ELSS)).
These avenues not only help in tax planning but if selected well can also help
individuals achieve their long-term financial goals.
2.
Plan for your
retirement NOW
A common regret for most of us in our twilight years (apart from
not having exercised enough) is our poor savings and investment track record.
Most individuals wish they had saved either better or more. Planning for
retirement is one thing that individuals across age groups must take up on
priority. Of course, if you start at an early stage it’s even better, but the
fact is it’s never too late to set aside some money for retirement.What makes retirement planning so important for us to list it
second in our ‘to do’ list? To answer that question in a single word –
inflation. Inflation is what usually leads to a rise in prices of goods and services.
If you are wondering why oil, the gas cylinder, toothpaste, eggs and even idly
sambhaar costs a lot more today, than what it used to even 5 years ago, blame it on
inflation. So planning earlier on in your life is a solution. Calculations show
that even a 5-year delay in investing (Rs 10,000 annually at 10%) can make a
substantial difference (as high as 60%) to your retirement corpus.
3.
Get yourself insured
Life today has become a lot more uncertain than ever before.
Therefore, taking life insurance is another objective that should rank high in
the priority list of all individuals. Simply put, the purpose of life insurance
is to indemnify the nominees/dependents of the insured against an eventuality.
So life insurance must form an integral part of the individual’s financial
planning exercise. In addition to life insurance, individuals should also be
equipped with adequate medical insurance. Note that we haven’t mentioned life
insurance while discussing tax planning in an earlier point. This is because it’s
time insurance got its due as an independent entity unlinked to anything but
your life. Our advice is don’t mix the two; don’t chase tax benefits while
taking a life cover, let alone returns.
4.
Prepare yourself for
contingencies
Contingencies/emergencies
never announce their arrival. But that does not mean we close our minds to the
possibility of their intrusion in our lives. As always, the best way to deal
with such a situation is to provide for it well in advance. Such situations
could possibly arise out of an accident/operation that is either not covered by
mediclaim or exceeds the mediclaim limit or it could be another expense that
you have provided for (like a buying a house) which actually falls short at the
time of purchase. At times like these, having a contingency fund can prove to
be a boon. How do you know how much to save for contingencies? While there is
no formula for the same, having 10%-15% of your entire portfolio in low risk
investments should arm you adequately during a contingency.
5.
Get Professional
help
We go to a doctor when we fall sick. We go to a Chartered
Accountant for tax advisory services. Why? Simply because they are experts in
their respective fields. Similarly, we should seek out the services of a
Financial Planner to help us realize our long term financial goals. We may be
prone to bias if we try to do it ourselves. Your children’s’ education/marriage
or for that matter your retirement corpus is too important to be left to
chance, or government.
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