This could have been your story last year. You got a hefty bonus for a job well done, went on that dream vacation, indulged your children with the latest gadgets, and your investments in shares kept rising for the fifth year in a row. So, all in all, you were in the pink—but how did you feel at the end of it? It is only the second month of 2008 and you are likely running around making investments to save income tax. You may also have loans and outstanding credit card bills to pay off from last year. So you just might end up managing on a shoe-string budget in February and March, and hey, it’s the same every year. Here are five ways to make a smooth and easy transition to the new financial year.
1.Don’t covet your neighbour’s goods
The stock markets may have helped you double your investments in 2007. But your colleague might have dabbled in stocks of small companies, invested less, and still managed to make much more than you. This year, you resolve not to feel left out of the party. Karthik Jhaveri, a Mumbai-based financial planner, says that no matter how much time he spends reassuring clients that the money they made is good and that they have taken proactive steps to meet their financial goals, they still feel that others have done better than them.
Whether it’s a white-collared techie or simply a novice, people tend to think that the grass is greener on the other side. There was a time when planners such as Jhaveri had a tough time convincing clients that it was important to exercise caution in exposure to equity markets, that there were risks associated with buying stocks aggressively. The steep market fall a few weeks ago has changed that. “People who were overconfident about making money have realized that the party doesn’t continue forever,” says Jhaveri.
2. Don’t take personal loans for lifestyle needs
Gaurav Mashruwala, a Mumbai-based financial planner, is helping a young couple overcome the stress caused by credit card bills. Between them, they earn more than Rs30 lakh per annum. Last Diwali, they gifted each other Rolex watches worth Rs12 lakh. All was well until a few months later, when the credit card statement showed a huge outstanding, and they couldn’t manage the repayment.
Mashruwala says the trend of taking a loan to feed lifestyle needs is on the rise. ‘Buy now, pay later’ seems to fuel a consumer mentality where plastic is the preferred mode of payment. Personal loans are not bad in theory, but the end use should be monitored. Ask yourself why you need the loan—to fulfil a need or a desire? Remember that a personal loan taken for spending doesn’t create an asset, unlike a home loan.
3. Track investments/ bank accounts carefully
Take stock of your investments across shares and mutual funds and your various bank accounts regularly. Automated teller machines (ATMs) have indeed made banking easier. But do you really have to wait to go to the ATM to check your bank balance? Mashruwala observes that some of his clients do not get their bank passbook updated for several months. Also, if you are managing your investment portfolio on your own, then maintain a record of your demat account or mutual fund statements.
4. Stick to a plan
Don’t be tempted by those great bargain and exchange offers if you don’t really need them. Make sure that the expenditure is accounted for in your monthly budget. Stick to what your financial planner has drawn out for you. Buying groceries on your credit card at the end of the month can be avoided if you stick to the budget.
5. Set up mechanisms to reinforce your goals
Resolving not to spend too much, not to indulge in sudden splurges, is not such a difficult task. List out your resolutions and post them on your desktop, refrigerator, and even on your mirror. Tell your family, friends and relatives about it—they may help to nag/remind you about it.
According to surveys on New Year resolutions, financial goals top the priority list of people worldwide. Getting out of debt, saving money for retirement or saving for a rainy day are the other resolutions.
A survey by CNNMoney.com, the financial portal, found that paying debt and saving for retirement tops the to-do list for those who participated in the survey.
TD Ameritrade, a US-based brokerage house, conducted a survey among Americans and found that 69% of respondents plan to save more money in 2008, while 57% hope to reduce their debt, and 46% want to reduce their spending.