New Delhi: As the year draws to a close, its time to pull out those party shoes and play host to the New Year. It’s also time to review mistakes and resolve not to make them in the coming year.
It's time to pause and retrospect on the year gone by, review mistakes and resolve not to make them in the coming year.
While you may have already made your New Year resolution, here are some must-haves on the list, at least money wise.
1. I will prepare a budget for the year 2006
A budget is not something you must wait for the finance minister to announce on the 28th of February every year. A budget is a blueprint of your own financial plans. Chalk out a budget for the next year. Certified Financial Planner Gaurav Mashruwala advices, "This is good time to start even if you have not done in past."
Estimate your income from various sources – your salaries, rental income, dividends, interest and so on. Plot the estimated expenses. This will help you make prudent investments.
For example, if there are any major expenses in the family, for example, child’s higher education, marriage, you will need to liquidate some of your equity holdings and park funds in floating rate fund till event takes place.
Another planner, Lovaii Navlakhi summarizes, "The only item on my checklist is that everyone must get a financial plan done and start working on executing it."
2. I will rebalance my portfolio
2005 has seen the equity markets burgeon beyond everybody’s expectations. In that background, Mashruwala says, "Calculate your debt equity ratio. If your equity component has gone up, liquidate some portion and invest in debt."
He also suggests that it maybe the best time to sell off dud stocks. "Markets are at historical high. If there are 'dud' stocks in your portfolio liquidate them."
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3. I will resist the temptation to make quick profits
Investment advisor Sanjay Matai cautions that since real estate, stock market, commodities (especially gold, silver) have appreciated considerably since 2003 and more so in 2005, the opportunities of easy, quick and high profits have shrunk. Investors will have to be very selective, more patient and also tone down their return-expectations in 2006.
4. I will invest in equities but only systematically
Ask financial expert Sandeep Shanbhag, and he cannot emphasize this fact enough. "If I am asked to name three investment instruments that should be the mandatory in anyone’s portfolio for the next year, I would say equities, equities and equities."
But take that with a pinch of salt he says. The times are tough and the debt markets are as bad as the equity markets are good. Under these circumstances, he says, defensive investing is called for.
For diversification and spreading of risk, one could be better off investing in a diversified equity fund than taking direct exposure to equity.
"Take care not to commit all your investible funds, invest prudently only to the extent of your risk appetite. Also don’t commit all your funds allocated for equity at one go. Buy piecemeal at every drop," he beckons.
5. I will repay high cost loans
If you’ve piled up too much loan on depreciable assets like your car, your consumer durables or simply run up a huge credit card bill, its time to clean up your act. Interest costs on these loans are high and only a healthy equity market can earn you more than the interest you pay.
Mashruwala has a simple solution, "If you have borrowed funds for any of the depreciating assets than repay those loans from equity profits."
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6. I will review my insurance
There’s no better time to review your insurance needs. If there’s been an addition to your family or if you have taken more loans, you need to protect your family. Look at how much insurance cover you have and how much more you need. Fill in the gaps.
7. I will not wait till the last moment to make tax saving investments
Given that you have time till March to make those tax saving investments. But there’s no reason to wait that long. Start making investments in your provident funds, post office savings, ELSS, insurance and so on.
For the year ending March 2006, make your investments now while for the year after, start setting aside funds for investing when the year starts in April.
8. I will prepare my retirement plan
Do we hear you say it’s too early? It’s never too early for retirement planning. You cannot depend on your provident fund money to pay for your retirement.
Chances are that it’s just not going to be enough. With interest rates lying low and inflation running high, you will need a big corpus so that you can maintain your current lifestyle post retirement.
Don’t wait for the pension reforms to set in. Review your retirement plan and get started in that direction on your own.
9. I will read the fine print before I sign on any dotted line
Enough has been written about the devil being in the fine print. Its time for some action now. All banks, financial institutions, mutual funds and insurance companies are there to make money.
And they will most likely do it through the fine print. Its one thing to demand responsible selling of financial products and another to be a responsible buyer.
Keep your eyes open for any catches in the clauses, be they on your floating rate loan, your unit-linked insurance expenses, your mutual fund IPOs or new fund offers or your credit cards bills. Make informed decisions.
10. I will follow the above 9 resolutions
Now that your resolutions have been made for you, all you need to do is execute them. Get cracking and we hope the New Year rings in the sound of cash registers for you.
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