Words of wisdom

Couched in excessive jargon and terminology, financial knowledge seems intimidating. However, good monetary management requires little more than common sense. Here’s how you can squeeze simple adages to derive economic ingenuity and explain financial rudiments.

One of these days is none of these days
This is the reason financial planners suggest that you start investing as soon as you begin earning. The power of compounding, which increases Rs 5,000 invested every month to a mammoth corpus of Rs 3.25 crore in 35 years (at 12% annual growth), is a powerful tool and works on this principle. It’s good to work hard to earn money, but it’s better to make your money work harder for you.

All that glitters is not gold
Great advertising makes dreary old policies seem like shining new prospects and new fund offers or IPOs like manna from heaven. So, instead of trusting mutual funds that are backed by consistent performance, you are tempted to buy ‘cheap’ new funds. If only you understood that a lower NAV is no gold standard. It only means more units of the fund, not higher returns.

A stitch in time saves nine
It’s only December, so why should you bother about the 31 March deadline and investments under Section 80C? You keep dithering till the end of March only to realise that you have to scrape and scrimp to meet the Rs 1 lakh exemption limit. This is why tax planning must start well in advance. One option is to invest via SIPs in equity-linked savings schemes (ELSS). By putting in a lump sum you lose out on 11 months of earning from regular investments. Also, what if you invest a chunky Rs 50,000 in the markets and they tank the next day?

Variety is the spice of life
Hence, the change in cuisines, clothes and careers. But when it comes to investments, you cringe at diversification. You would rather be loyal to the one instrument/stock/fund that has paid rich dividends in the past. The truth is that it makes your portfolio bland. A variety of assets, technically termed asset allocation, ensures safety, higher returns and optimal utilisation of income.

A rupee saved is a rupee earned
You may have been called a cheapskate, Mr. Scrooge, or worse, but budgeting is the first step towards an efficient financial plan. Especially when inflation in essential commodities like food is giving you sleepless nights. Your grandmother was right; spending less means saving more. Just make sure you complete the sequence by investing what you save.

Better safe than sorry
It is a rule that you follow unconsciously each time you go for a swab test, or keep an alternative presentation ready in case the boss doesn’t like your plan. Why not be safe about your investments too? Read the fine print, ask questions and double check with the agent or broker. Do not be impressed by claims of free rewards or quick returns. If it sounds too good to be true, it probably is. Also check for additional or renewal costs. After all it’s your money that’s on the line.

Cut your coat according to your cloth
In the world of EMIs, it’s tempting to keep splurging, because you can repay tomorrow, or day after. Without realising it, you keep piling on purchases (and bills) till you end up in a debt trap. Don’t live beyond your means—overleveraging is dangerous, not just while buying a new car, but also while investing in the markets. Calculate the amount of loan you can afford without straining your finances. Because in this case, tomorrow always comes.

Where there is a will, there is a way
And where there isn’t, your heirs might encounter hell. Making a will is an integral part of financial planning. It ensures that your beneficiaries don’t waste precious time and money in legal disputes and the distribution of assets is according to your choice. As a bonus, the process forces you to make a comprehensive inventory of all your assets, something you might be too lazy to do otherwise.

Nothing is permanent except change
Stiffness is a sign of rigor mortis, and you certainly don’t want a dead portfolio. As your circumstances change, so should your finances. For instance, life insurance is not a concern when you are footloose and fancy free, but is essential when you have dependants. As you grow older, health insurance becomes increasingly important. As with relationships and waistlines, embrace changes in financial planning too.

Genius is 1% inspiration and 99% perspiration
Whether it is building your career, starting a venture or investing in a portfolio, it’s your own hard work and dedication that count. Successful people have gumption and are willing to take risk for what they believe in. So, if you want to grow in your job, keep acquiring new skills. If you want higher returns, research your investments. Don’t follow your financial planner’s advice blindly or depend on your career mentor completely. Your greatest asset is the effort you put in.