Money Management- Paths To Follow And Landmines To Avoid

 
Like most things, personal finance or money management can be simple or complex, depending on how it is presented to you. This article hopes to provide some simple tenets to follow while nurturing your life and money. 

The most important purpose of financial planning is to avoid turbulence in the life of senior and junior dependents, if their provider passes away in a hurry,but at the same time, the financial planner needs to ensure that the provider should have adequate funds if he were to live a long life. The financial planner needs to strike a unique and dynamic equilibrium for his clients between the money they earn and/or inherit on the one hand and the money they spend, invest, or will away or donate. One would largely home in on the goals if one were to follow some simple pointers 

Deepali Sen Founder-Partner of Srujan Financial Advisers LLP

Build An Emergency Fund
1. A provider can never run short of funds
2. Set aside 4-5 months of expenses in a liquid/ultra-short fund.
3. Replenish it to the same level after it gets used.
4. Do not use it for expense overrun 

Take adequate life cover 

1. Take a term plan for the amount of present value of all your forthcoming goals as your dependents could be leaning on you
2. Add the amount of loan outstanding to it
3. Adjust the value of assets owned
4. The house which is owned by you and where you stay will not be counted
5. You could add riders like premium waiver (on disability or diagnosis of terminal illness), critical illness cover and additional sum assured for accidental death 

Buy A Medical Cover 

1. It should cover all your dependents
2. If you always have a cover through the company you work for, please incorporate it while computing your medical cover needs.
3. Do review the family history of past illnesses while evaluating the appropriate product to choose from 

About money management, Billy Graham says it bang-on, "If a person gets his attitude towards money straight, it will help straighten out almost every other area in his life." 

Nurture your money well 

1. Money is one of the highest forms of energies, it's raw power in a most liquid form
2. It's a huge blessing.
3. About money, Stephen Richards has this to say, "Though money cannot acquire you happiness, it does not mean that both money and happiness cannot exist together."
4. The following three quotes say a lot about how critical this point is,
i) "Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time." - Johann Wolfgang von Goethe ,
ii) "A simple fact that is hard to learn is that the time to save money is when you have some." – Marsha Sinetar and, "When I was young I thought that money was the most important thing in life; now that I am old, I know that it is." - Oscar Wilde
5. For effective nurturing, you need to ensure that your money is more than self-sufficient- for that it has to be ahead of inflation (lifestyle inflation for so many of us) and taxes, else it could be just standing on a treadmill. 

Plan for your goals 

1. List down your goals, plan your inflows and current corpus in such a way so that the negative surprises are minimised when the goals come knocking.
2. In this process, you might need to budget your expenses, prioritise some goals, delay few, shrink their size or completely write off few of them
3. Ensure that your money is more than self-sufficient- for that it has to be ahead of inflation (lifestyle inflation for so many of us) and taxes, else it could be just standing on a treadmill.
4.While planning, be clear that money for short term goals need to be parked in short term assets, medium term goals in medium term assets and long term goals in long term assets. Avoid lane crossing. 

Execute the plan 

1.Without action, a plan is a mere piece of paper
2..Action defines priorities and eventually sets in the change needed
3.Mutual funds are one of the most versatile and robust vehicles for building one's investment portfolio. They allow investments in short term debt (commercial papers and treasury bills) instruments, medium term debt instruments (like bonds and government securities), long term equity investments, gold and even real estate.
4. In addition, mutual funds are professionally managed, liquid, transparent in their portfolio, easy to transact and tax effective 

Review it periodically 

1. Goals may change, cashflows may change and so may the performance of funds over a period of time.
2. Portfolio review and course correction can work towards keeping the family's personal finance on track 

Raise money-conscious kids 

1.To me, this is one of the most important tasks. It needs to be emphasised to them from a very early stage that money is not an entitlement, it is earned on the sale of goods or services.
2.While money may be an unlimited resource universally, it may be a limited resource for most of us.
3.It needs to be spent prudently and kids from a young age need to discriminate between need and want. This helps them to strive for things in life, in the process building resilience and thus character. 

Hire a financial planner
80% of a financial planner's job involves managing client's behaviour- his attitude towards risk, the impulse expenses, his emotions while making big purchases.It is worth mentioning here that the skill-set required for earning money is different from those required for nurturing it. It is best if you hire a financial planner to create this money-life balance effectively 

I can't end this article without mentioning few things which can make or mar a family's financial well- being, some of them are: 

Evaluate extensively before buying real estate for investments 

They can suck away at least 15-20 years of cash flow for an average mega city dweller.

Remember that loans are easy to get into, but tough to get out from. 

1.Adam Smith says beautifully, "What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience"?
2. Thomas Fuller goes one step ahead by saying "Debt is the worst poverty".
3. Take loans when it is really needed, and try to pre-pay them at the earliest. Loans are like heavy back-packs- it is tough to catch speed while lugging a heavy load 

Nurture things which money can't buy 

1."You aren't wealthy until you have something money can't buy." – Garth Brooks
2. Earn love and respect for yourself in the society by contibuting your time and money for fulfilling causes.

The writer is a certified financial planner, Founder-Partner of Srujan Financial Advisers LLP and author of "Why Greed is Great"