No hot tips. 2016 is about building a money box

We don’t do tips. We don’t do ‘best bets’. We don’t tell you ‘winning’ stocks or how to multiply your money overnight. In short, we don’t do bulls and bears or what comes out of them. We don’t insult your intellect by giving you the winning tip this year. Look at the data in the chart below (Each year has a new winner); there is no consistent winner in different asset classes year on year. If gold outperformed equity, debt and cash in 2011, it was the turn of equity to be the winner in 2014. Chasing last year’s winner is a strategy that we don’t follow. Predicting next year’s ‘winner’ is a job we leave to the speculators and traders in the market to worry about.

Don’t get me wrong. Traders and speculators perform the very important job of providing liquidity in the markets, but what works for them will obviously not work for you or me, people who are professionals engrossed in their work and family with limited time to spend on money decisions. You don’t need to train to be a race car driver to be able to drive a car. You don’t need to train to be a deep sea diver to enjoy a daily swim. And you don’t need to learn at a fancy academy to cook your daily daal chawal.

Mint Money brings you a fill-it-shut-it-forget-it approach to your money in 2016. Think of your financial life as collapsing into a money box. Visualise it either as a traditional tijori or a new steel safe. Imagine opening it. What do you see inside? A tangled mass of paper, metal, coins and jewellery or a neat box with well-defined compartments? The compartments each have a logic for being there and every product in each compartment fights for its place—it needs to justify its place in the box in terms of utility, efficiency and cost. The first box we fill in your money box is that labelled ‘cash flow’. Unless you have an efficient system for removing your savings from your income, you will never know where your money goes. Read the cash flow story to find out more (http://mintne.ws/1Sqbgl4). Next, you create an emergency fund. Most people leave money liquid in a savings deposit to take care of an emergency. Don’t do that. Salt away at least six months’ monthly spending in a near liquid form. Find out how to create this fund here http://mintne.ws/1ZEMgbS Next, we protect our assets and life. Remember that savings and assets are built by postponing current consumption. It means starting over again if a medical emergency or a loss of life causes the existing assets to get depleted. Read the stories here http://mintne.ws/1kxESPx and http://mintne.ws/1MKINz6 on what to buy and how much to buy.

Now the money box is ready for investments. Notice that the investing conversation is coming at the end of the process and not at the beginning. You need parts of different asset classes in your portfolio—debt, real estate and gold, and equity. Each has a logic and each has a place in your box. Read the stories here http://mintne.ws/1YVnZMz and http://mintne.ws/1ZEMwrd to find out more.

Remember to not over-allocate to fixed return products—they don’t protect your money against inflation. Over-allocation to real estate exposes you to high transaction costs and illiquidity. Gold is best kept for marriages in the house. Giving your money equity exposure is the biggest boost you can give to your financers.

Here’s wishing your money a sensible 2016.

Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India.