FACING FINANCIAL PROBLEMS –FOLLOW THE 8 FOLD STEPS AND BE HAPPY
Demonetisation is the sweet devil making the headlines in the current economic scenario in India. You can go ahead, manage the finances in a systematic manner for various tasks like managing your daily expenditures, effective portfolio management and host of other financial tasks. The Demonetisation drive has been felt in various segments of our economy.
Let’s drive down memory lane. In the year 2016, financial matter was taking the centre stage. Certain important questions, we can ask ourselves like
«Were your finances in proper order?
«Is there any great increase in your savings?
«Have you taken any loans in 2016?
«Did you have any new expense in 2016?
1. Have A Financial Plan In Place:
A proper financial plan must be introduced early in your life. It does not matter, you are young starting your carrier, or old, that is done with the carrier. It helps in controlling your financial situations in a systematic manner.
You cannot follow a particular pattern or a formula to have a financial plan. It differs from one person to another and even situations will dictate terms. You can go ahead and hire a good financial planner to execute a plan.
You must be focused and must have short, medium and the long term goals. After setting up the goals write down the matter in a piece of paper and calculate the time taken to achieve them.
For example: You are sending your kid to a good educational institution. Making your kid join a good establishment, after 16 years would cost approximately some lakhs at today’s cost. Furthermore, you need to enter all the goals, targets in a systematic manner.
Remember, the goal, you need to achieve is attached to today’s cost. Hence you need to calculate the cost and prepare an investment plan in a systematic manner. Please do not save, unless you know the exact amount to avoid any under-investing.
The choice of asset class is essential in order to achieve goals based on their term. You need to choose equity-related products like the mutual funds that are large and average mutual funds, helping towards achieving the goals that are seven years away. To satisfy the goals with small tenures, balanced funds and the income funds can be used.
2 . Acquire A Credit Report: From January 1, 2017, the Reserve Bank of India (RBI) has ordered all the credit establishments to offer one base consumer credit information report (CIR), absolutely free of cost to people having good credit history. If you repay the loan using any credit card, or have taken loan in the past, will play a major role in taking better view of the debts. During any kind of discrepancies, best solution will be to clear all your debt, before you move forward.
3. Set Up An Emergency Fund: Due to the demonetization drive, the rate of interest on the bank deposits and the savings bank account is coming down.
You must look at various possibility, at the stage where the competitive interest rates can be utilized, without doing any negotiation on liquidity factors, because bank account are used for emergency purposes. In order to have effective management, you can keep one half of the funds in savings account or sweep-in fixed deposits, and the remaining half can be deposited in short term or liquid mutual funds.
Most of the withdrawals are said to be restricted as these kind of redemption has got withdrawal limits. Returns in liquid funds will differ, where as savings account will give guaranteed returns. Savings accounts have offered approx 7.5% over the past one year, while savings account is approx 4% in many banks. If the rate of interest is low, then the net asset value (NAV) of the liquid funds will grow up. Helps in making your money grow, with some portion still in savings accounts.
There is no rule on how much emergency cash you require. To be honest, household expense ranging from 3 to 6 months can become your emergency fund. It helps in giving you the assurance to get rid of any financial emergencies.
4. Get Rid Of Debt: If you have got any dues regarding your credit card, you need to get rid of it as early in 2017. Not clearing the dues, on credit card will increase interest rate to approx 36% per year and you will lose out on interest free period of approx 45—51 days on new purchases. One must avoid schemes like balance transfer and converting the EMI (Equated Monthly Instalments), because they come with price tag. One can use the credit cards, but please make sure you make payment on the due date.
Home loan, a productive debt, requires a sure shot plan to be closed. Imagine a situation, where in INR 35 lakh home loan at 8.6% for 15 years will have an interest of approx. INR 27 lakhs. Hence, along with the EMI, you need to make a plan to keep making partial payments towards the home loans to save interest. This move reduces outstanding principal amount and calculation of interest is on the reduced principal.
Imagine that, you take a home loan for INR 40 lakhs at 9.65% for 15 years, with the EMI of INR 42,131 will have the first year interest amounting to INR 3.8 lakhs, where as the total pay-out over 15 years will be approx. INR 35.83 lakhs, if there is no change in the rate of interest.
Take another situation, if the borrower, along with the EMI made payment of INR 10,000 every months for first three years, the interest accrued will get reduced by INR 8 lakhs. This is the place; you save the money and the tenure will reduce to 12.75 years. To be honest, the higher the repayment amount, and longer periods, amount of savings will also be very high.
Furthermore, if your home loan is connected to bank’s base rates, you can transfer to the marginal cost of the funds based lending rate (MCLR). Furthermore, one can also ask your banker to convert to the MCLR mode, coming at a small price. MCLR is more open to RBI rate cuts, than the base rates linking your plans and loans to MCLR in a systematic manner.
5. Review And Expand Portfolio: In the beginning of the year one can expand and review your investment portfolio, the mutual fund schemes. There are equity based investments, done for long term; irregular/surprise reviewing of the mutual fund’s performance can play a major role in optimum portfolio returns.
One can go ahead and look at mutual fund’s performance; you can compare the mutual fund’s return with the targeted returns. Furthermore, the policy is not able to beat its target on a regular basis should not be in one’s selection. If there are low performers, replace them with go getters, after carefully analysing the new ones. It is vital to identify over and under performers, where in you must have a longer time horizon, evaluating over 3, 5, 7, 10 years.
Furthermore,you must also take into account, the category average returns. Furthermore, the policy has exceeded the expectations by good margins; there will be good performers in the peer group. If you look at the group, the average returns always tell you how excellent/bad your mutual fund’s scheme performance against the entire group.
6. Launch Goal Based SIP: The Systematic Investment Plan (SIP) is the general word to undertake investing. You must undertake a target based investment and latch on to 2 or 3 schemes in a systematic manner through SIP. You must go ahead and link it to a specific goal, like the child’s education. Furthermore, one can also make sure that you have diversified across market limits and segments through the SIP. You must avoid the lure to redeem, in order to meet the short-term household needs or due to the market changes. Furthermore, you can also start moving the funds from equity Mutual Funds to the less volatile debt funds to preserve the amount.
7. Plan and Save For Investment: Concept of retirement cannot be ignored. Youngsters of today are saving the money big time to take care of retirement. Furthermore, if you are asking a middle aged person, nearing retirement, without a shadow of doubt he will tell that early retirement would have helped him and his family. Saving for retirement is like one day cricket, where in if you score as much run in the first 15 overs, the asking rate will come under control. Furthermore, if you start saving the amount early, money requirement for retirement purpose will be very less.
Many youngsters, to be honest are not serious towards retirement benefits. If you assume that approx 5% inflation is present, INR 50,000 monthly budget will rise to INR 1.7 lakhs a month, approximately 3.5 times. Hence you must try to look at the household expenses and not look at current costs.
The inflation plays a vital role in bringing down the purchase power of the currency. For example: One crore of money will fetch you goods and services for only INR 48 lakhs.
8. Going Cashless: There are various ways, if you are moving on to cashless transactions in 2017. Some of the steps are:
«Some people do not want to share any details. At this juncture, the Unified Payment Interface (UPI) is the best alternative.
«You can also create your Virtual Payment Address (VPA), start sending without giving bank account number, IFSC code, card number.
«Most of the situations, virtual card are a runaway hit, for people hesitating to use debit and credit cards in India. Best part is that you need not input the CVV number during online transactions. If you want to create virtual card, then you need to have internet banking facility with transaction rights. You must also have debit/credit card handy with you for the purposes.
To be honest, there is requirement of the household budgeting mechanism in place, to have superior cash management. These online tools can be used in tracking expenses and income. Furthermore also helps in cutting on unnecessary expenditures. Money is a sensitive topic, and you need to drive yourselves to set up your household budget before the actual budget is announced on February 1, 2017 by the Modi government.
TO SOLVE YOUR FINANCIAL PROBLEMS: