Five Ways to Become a Money Wiz

We all want to have a better life for ourselves and our loved ones. However, we are constrained by our financial situation. We always feel we never have enough to satisfy our needs. However, whatever limited money we may have in our hands may actually be sufficient to start saving and enter the world of investments that can provide us returns which can help us break away from the arduous limits imposed by our current financial situation. What are the steps one needs to take to achieve this goal?

1) Decide an amount you can invest every month: We generally invest an amount that is left after we have deducted our expenses from our income. Now, let us flip that thesis on its head. Let us begin spending what we have left after we have made our investments. We can set up monthly investment plans that get automatically deducted from our paycheques or our bank accounts. This way we will be left with a certain amount of money which we can then use to meet our EMIs, rents, groceries, school fees, etc. The challenge is to prioritise which expenses are essential and which are discretionary. Is that new smartphone really a must have or can the current one meet all our requirements? Is that exotic vacation really needed this year or can it be put off to next year? Chances are both can be postponed without affecting our lifestyle much.

2) Set up financial goals that you want to meet: Do you want to purchase a bigger house for an expanding family? Is that new beauty on wheels absolutely a must have? Does that new exotic locale you saw in that holiday brochure too much to resist? Set up an investment plan to meet the expenditure required from these goals. It is far better to save up monthly towards a goal rather than take a loan now and pay the finance company interest, which could be better utilised.

3) Review your portfolio of stocks and MFs every six months: Once you have set up investment plans either by yourself (if you are financially savvy) or with the aid of an advisor (who is familiar with such plans) then you should follow through with them irrespective of market conditions. There will be many tempting opportunities to make an absolute killing that seem too good to be true. They mostly are. Don’t fall for them. Every six months make time to review your portfolio to ensure that your stocks or MFs are still the best investment bets in the current market conditions. If not do not hesitate to cut losses or book profits and ruthlessly switch. Do not get attached to your portfolio emotionally.

4) Insure yourself from uncertainties: Do you have dependents who would be adversely affected by your absence due to unforeseen circumstances? Insuring yourself is an absolute must. While getting life insurance ensure that your cover is at least ten times your current income. Get medical insurance for your entire family over and above what your employer or office may be providing you.

5) Try to think unemotionally and avoid the herd mentality: We all get influenced by our friends, neighbours and relatives and make certain decisions that we would not have made under normal circumstances. While taking decisions on investments always keep the big picture in mind. If a fancy stock in a fancy sector is currently giving huge profits think whether this performance is sustainable in the next three to five years. Sometimes the best decision to make is doing nothing at all. When everyone is buying the best decision is not to buy. When everyone is rushing to the exit the best decision is to quietly start accumulating.

If you can follow these tips then you will soon be able to be a finance wiz and improve your quality of life along with that of your loved ones. Happy investing!