Care for your wealth





Focus on building assets, insure before you invest and reduce costs as you go. Add a yearly check-up or audit of your portfolio and your fiscal health is assured

Plans for better health and wealth top the list of new year resolutions, and are equally notorious for being broken before long.

The nice thing about fundamental principles in managing wealth is that they work just fine at any time of the year. Let me proceed to list off like a good teacher should, a check-list for personal finance.

First, all you have are your assets, so don't take the eyes off from building them. Except for the lucky few that inherit wealth, many of us build our assets from scratch. 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, including the most quoted gurus, knows. We have still not found a sure-fire way to look into the future. There is not need to tie yourself in knots about percentage allocations, as long as your assets are spread across various categories. If you bought a house that is now 80% of your assets, spend the next few years building equity and debt, to balance that out. Every year, check if you overdid something over the others.

Third, get a grip on the income. Your assets are going to be funded by the income you make and if you end up spending all of it, or worse spend tomorrow's income today, you will increase your risks significantly. How much income is enough is open to debate, but you should be left with something in the bank after meeting regular expenses. If you find yourself squabbling at home, or getting morose as the balances drop, you are either earning too little or spending too much. It is easy to live in denial about income. Get help if needed, but ensure your income is aligned to your aspirations. `Am I earning enough?' is a question you should ask, at least once a year. Do something about it if the answer is no.

Fourth, compounding is a miracle--therefore 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 regular 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 if you don't need them; and don't redeem every now and then. Allow your money to grow with time and develop the emotional quotient to not draw it and blow it away.

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. There is no other purpose to insurance, so do not expect to earn returns from your insurer.

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. Since making a family budget has gone out of fashion, spend a few minutes looking at the monthly statement of the credit card company and the bank state ments. 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 settle down to seeing how your cash is being spent and exercise better control.

Seventh, costs matter and therefore, always 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 you will have to pay.

Before signing into the portfolio management service that looks fancy, check out what the cost would be. Every delay in getting possession of your property means the builder is using your money without compensation to you. Get a sense of costs, so you know if you are getting a fair deal.

Eighth, conduct an annual audit of your personal 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. This is the toughest of all the tasks. It involves some paperwork and consolidation of your bank accounts, investments and other tasks. But it provides valuable feedback about how you have managed your finances.

When it comes to health, the mantra is to make lifestyle changes, based on the simple principle that you should burn more than you eat, and watch both carefully. With wealth too, the mantra is to build assets by ensuring that you do not spend more than you earn. The actual products you will buy, when you will buy and how you will choose are all finer details. At a broad level, you should focus on creating assets that will earn enough over the long run, so that you don't have to work any more. Think of your assets as working on the side, along with you and ensure that you make them work hard and long.