Coming from an Agarwal (traditional merchant community of India) family, financial management for me was a part of childhood learning at home. How regular savings - no matter how small - can make a profound impact on your portfolio was understood by me by looking at money management of my father. I learnt the magic of compounding by noticing how his regular albeit small savings in the form of monthly investments ensured that I could afford my university education, without any financial obligation like education loan on my young shoulders, unlike many of my friends, who ironically had much better family background than I had.
Thanks to these habits of my father , I could manage MBA from one of the Top 10 colleges of MBA in India and eventually landed as Senior Wealth Manager with the largest Wealth Management player of Indian market, before joining a Dubai based bank as a Wealth Manager for portfolios of their client-ale which consists of motley nationalities and ethnicity.
We Indians are known the world over for bringing the best synchronization of traditional habits with modern knowledge. I feel my own experiences and learning of financial management are a shining example of the same capability of us Indians. The financial discipline that was inculcated into me since childhood along with portfolio management practices learnt during my job as Senior Wealth Manager has brought huge level of confidence in my personal finances. Almost all clients give me some learning or other as far as money matters are concerned.In case you wish to go through my journey of Financial Planning, you can click here.
Below is my holistic framework for a robust financial planning , which I am sure is relevant for everyone of us , irrespective of our earnings, expenses, job, business or any other parameter.
- Adequate Insurance - At first, life and health insurance seems totally unrelated to portfolio management, but once you take into view the fact that medical expenses are the biggest factor which prevent people from moving out of poverty , you do feel the importance. Many of us believe that health insurance provided by the employer is sufficient for taking care of our family medical needs, but in an era of minimum job security and towering medical costs, having a dedicated medical insurance for the family makes lots of sense. Unfortunately in India, endowment policies of LIC has become synonym with insurance, which has resulted in twin harms of under cover and less than satisfactory returns on investments. Here is my article which gives you a scientific procedure of planning life insurance. Click Here to understand how Life Insurance ensures continuity of the family fiances and what are different types of Life Insurance policies.
- Portfolio Management - While it may sound a very fancy term to most of us, Portfolio Management is the most fundamental and foremost principle followed by seasoned investors. It is preceded by Risk Profiling, which is a psychometric analysis of your attitude and standing in respect to various investment avenues. Understanding Risk of various investment products is a prerequisite for a sound investment portfolio. Only after these two steps, one can go for Portfolio Management.
- Proper Tax Planning - Every penny saved, is every penny earned. More so in case of Income Tax. Nobody likes to pay income taxes. Still like many other things, ignorance inflicts a heavy damage to this field, where otherwise we can make huge savings.You can refer this Ready Reckoner as a checklist for ensuring that all tax savings has been availed before the close of financial year. Also investing in products like Life Insurance policies, Fixed Deposits and Post Office schemes, not only brings down the returns, but also hampers liquidity of the portfolio. On the other hand , non traditional tax saving instruments like ELSS and Debt Funds scores heavily on both liquidity and returns.
- Avoiding Mis-Buying - Thanks to hefty commissions and less awareness, many of the investors end up buying investment products which are not only irrelevant to their needs and goals , but are also in complete contradiction to their own stated objective. National Pension Scheme is one of them. While it is marketed as a Tax Saving scheme, it is in reality just a tax deferment, which means you will end up paying tax in your old age instead of young age.
- Proportionate Asset Allocation - A good asset allocation means proportionate percentage for all kinds of assets , based on relative concurrence of the asset class with the expectations of the investor. Typical example of wrong allocation in India are too much exposure to real estate, no allocation to mutual funds, over-allocation to FDs etc. While REITs provides more liquid (more on liquidity , in this article ) and better managed channel of investing into real estate, Debt Funds are better and more tax efficient channel of investing into secured debt assets as compared to fixed deposits. Here are details of some of the other investment instruments , which though are not as prevalent as FDs , but are very unique in their characteristics and are better in many sense as well -
- Not Committing the strict NO-NOs - Some money mistakes committed early in life wreaks havoc to finances for rest of the life. We all have seen how financial bankruptcy has destroyed Greece, similar implications for personal finances can be avoided by following these rules.
- Employing Debt - While for most of us loan is something which is worth abhorring, in reality it provides a very good opportunity for not only meeting expenses but also in a very efficient manner. If you still feel otherwise , read this article on the benefits of Home Loan, which busts many a myths.
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