FINANCE SPECIAL .....Care for wealth like you would for your health

Care for wealth like you would for your health   Focus on building assets, insure before you invest, reduce costs and add a yearly audit of your portfolio Plans for better health and wealth top the list of new year resolutions. But the nice thing about fundamental principles in managing wealth is that they work fine at any time of the year. Let me list off like a good teacher should, a check-list for personal finance. First, all you have are your assets, so don’t take your eyes off from building them. Our wealth is not defined by what we earn, but what we have kept aside and how that is working for us. Even if you intend to give away all your wealth in charity, it is helpful if what you accumulated has appreciated well, and is large enough to make a difference. Year after year, your assets should look better. Second, diversification is the common investor’s core mantra. There is no point trying to guess whether gold will do better than equity, or if real estate markets will move up or correct. Nobody Fourth, compounding is a miracle— make the most of it. Longer the time your money grows, greater is the appreciation in value. If you invested in a PPF, your money is compounding at 8% every year; in a bank deposit that is simply renewed, it compounds at the annual interest rate; in an equity fund it compounds at the market rate of return every year. Ensuring that your income is adequate to meet your routine needs, makes it possible to choose investments that will not be touched, growing into a large sum over time. Choose growth and reinvestment options, do not crave dividends; and don’t redeem every now and then. Allow your money to grow. Fifth, insure before you begin to invest. This is true for younger investors who have fewer assets and a longer future earning span compared to older investors who may have accumulated enough assets and have a shorter earning span. To insure is to provide a cushion for lack of assets, should something so wrong. To insure is to protect the future incomes from risk. To insure is to save on expenses that can eat into future income. Sixth, cash flow management is an acquired skill. Spend the energy to see what are the large expenses in the foreseeable future and how you plan to fund them. Spend a few minutes looking at the monthly statement of the credit card company and the bank statements. Being aware of impulsive spends, identifying traps that lead to large spending, creating mental budgets of how much can be spent on a given head, are all helpful. Make this a family affair. Even if it brings discord in the earlier efforts, you will see how your cash is being spent and exercise better control. Seventh, costs matter and therefore, strive to reduce them. Every financial service comes with a cost; and every product has costs that can be direct or indirect. If the making charges and wastages reduce the value of actual gold that you acquire, ask yourself if a 20% cut is worthwhile. When you decide to do online trading in stocks, be aware of the brokerage and the taxes. Before signing into the portfolio management service that looks fancy, check out what the cost would be. Eighth, conduct an annual audit of your finances. Take the time to see what you earned, what you spent, what you saved, where you invested and how those investments worked for you. It involves paperwork and consolidation of your bank accounts, investments and other tasks. It provides feedback about how you have managed your finances. When it comes to health, the mantra is to make lifestyle changes, based on the principle that you should burn more than you eat. With wealth too, the mantra is to build assets by ensuring that you do not spend more than you earn. Uma Shashikant TOI 12JAN15