Most people in this world do not care about asset allocation, diversification, liquidity, risk tolerance, large-cap, small-cap, mid-cap and neither did I for a long time. And when I did, I procrastinated a lot about topics related to personal finance but couldn’t push myself enough to actually start investing. And that perhaps was one of the biggest mistakes I did with respect to handling my finances. If you have to remember one thing out of all the things that I’ll be talking about, it would be to – Start Early!
It’s important to understand that finances enable you to live the life you wanted. So before you start planning your finances, think about what you want to do with your life. Understand who you are and where you are with respect to what you want to be and what you want to do with your life. Know your habits and your means.
A wise person should have money in their head, but not in their heart
Ask yourself some hard questions –
- Will your family be financially okay if something happened to you?
- Is your children’s education more important than your retirement savings?
- How much will your spouse contribute when he or she starts earning?
Also, be prepared for changes in life. You would be dumb to not plan for lifestyle changes when you are starting a new relationship, or have to suddenly support a family. You don’t want to aim for what you cannot achieve but you can surely plan for that dream life you have always wanted to live and pivot your plans as you go on with your life.
Make a rainy days fund. Some call it an emergency fund. The idea of it is to put some of your money, into liquid instruments which are as safe as your grandpa’s lap. It can be a combination of a secondary saving account, good old FDs, RDs, and my favorite, a liquid or a short-term fund. Don’t look at returns here. Look at liquidity. Look at safety.
Be insured. Emergencies do not knock before coming. Make sure you get appropriate insurance for yourself and your family. Term insurance and a good health insurance should do for most people.
Know how much risk you can take and appropriately distribute your asset among debt instruments and equity. If the volatility of the stock market scares you away, stick with mutual funds. If you trust the country’s economy, stay put with your SIPs on an index fund and you should be good.
There is no reason to buy gold other than if you actually like to wear gold and show it off. If you don’t wear gold and would want to own gold for some reason, go for SGBs. Period.
Understand inflation. And what it is not. What you know of as the current inflation rate declared by RBI may not necessarily be your inflation. Do you buy the same aata that falls into the basket of goods used for calculating inflation or do you buy Aashirwad Aata from the mall? Your actual inflation is most often than not, much more than the government inflation rate as it depends on the kind of lifestyle you have. Make sure you account for it by investing your corpus in assets that give you a return better than your inflation rate.
I believe in cryptocurrency. If you don’t, understand why it exists in the first place and that might change your mind. As the Indian government figures it out, developed countries have already adopted it. Do your research and see if it fits your bill. You might not want to miss out on what many pioneers call Internet 3.0.
Stay away from relatives selling you policies of some blah blah Jeevan yojna. This generation is smart enough to do their own research and understand that in a world where most businesses are run on the internet, it’s just a matter of clicks or taps to get an insurance plan. Cut off the middle man for God’s sake.
Lending money to friends or family is great but do understand that there is a cost associated with it, the cost of the money not appreciating. You also do not want to be that asshole who doesn’t help a friend in need when you do have a surplus of moolah. Understand that relationships are often worth more than the money but be wise about it.
And most importantly, invest in yourself. Buy that gardening toolset that you always wanted to buy so that you could start gardening. Subscribe to that online learning course which would help you to hone your craft and be better at work. As much as you invest in yourself, also do invest in others as well. Guide them, help them when in need and to reach their goals, and build a foundation for a strong relationship. These will give dividends you never expected and often in times when you actually need it. There is no perfect portfolio and no perfect mantra to investing. It’s all about being in control of yourself and investing in things that help you build a happy and fulfilling life.