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Jan 02, 2012, 01.31 PM IST
Just as a plant needs right mix of sunlight, earth and water, in the same manner wealth management requires an organized and disciplined approach. This New year, our financial advisor Gaurav Mashurwala provides us insight on the right mix needed for wealth management to help us grow our wealth in a steady manner.
We need to set a resolution that until we understand the nuances of our existing wealth and learn to store it appropriately we will not add more to it.
Following is the recommended calendar for the year round activity. I will be happy if readers keep sending me email on the progress.
January - March. Starting from today, please track all the banking transactions. Since childhood I was taught to write bank a passbook. I have passed on this habit to my 10 year old daughter. Every time you either deposit or withdraw money from bank please make a note of it. You can either do it in a spreadsheet (a excel file) or there are pre-printed blank bank passbook available in stationary shops. Please purchase one and fill up regularly.
Currently almost all of us rely on bank to tell us how much money we have kept in the bank. To know balance we either look at the bank statement or rely on ATM/ Internet. Imagine you have lent your money to someone and after lending forget to track it. Later you go to borrower and request him to tell you how much money you have lent. When we deposit money in bank, we are lending money to it. If we rely on bank to tell us, how much money we have in bank, it is like our borrower telling us how much we have lent.
Many individuals argue they don’t see the need. Let me share few experiences. In the first week of October, a friend of mine frantically called me up. He needed demand draft for his daughter’s school fees. He had given four school-fee cheques in his daughter’s school at the beginning of the academic year. Each was dated for beginning of quarter. Later he forgot from which account he had issued cheques. In the meantime, he bought car on loan with scheduled EMI’s from the same account. The loan EMI was scheduled to hit his account on 25th of every month, which led to decrease in balance as required for payment of school fees.. Due to this, the school fee cheque bounced back. Now had he maintained bank passbook he would have ensured there was sufficient balance.
This is the short term benefit. In the long run if you track your bank transactions on yearly basis you would be able to get all the details of your payments and receipts. For e.g. If income-tax was to question you after 4 years from where did you get the funds for purchasing a particular mutual fund in that financial year, your bank passbook will give you details. Similarly, if your bank was to make wrong entry you would catch them. These days we have several direct debits and credits in bank. Those transactions can be picked up from ATM or Internet banking account and copied. For other transactions, first write in bank passbook and later verify with bank statement.
Please make separate passbook for separate accounts. Also start a new passbook every new financial year. It is prudent to have as less bank accounts as possible. Personally I had only one savings bank account since the time I started banking which was more than 30/35 years ago.
It will take few months before you get use to this habit. In the meantime, ensure all your accounts have your updated address, proper nominations in place and wherever possible you have added your family members’ names to the account as joint applicants.
April - June. Please collate all your investment and loan related documents. Try and get them dated 31st March. These could be your mutual fund statements, DEMAT account statements, updated ULIP statements, car and home loan accounts etc. For this you will have to start making request towards the financial year end.
Once you receive them, file them in separate files. Each file for each category e.g. file for mutual fund statements, file for DEMAT account statement, file for life insurance policies, health insurance policies etc. Also keep files of each member separately e.g. all mutual fund investments where you are first applicant should be in one file, make another one for your wife etc.
Once again check if your names are spelled correctly, your bank details are updated and nomination is done.
In case of DEMAT accounts, nomination should be done in ‘JA’ form. Your DP will give you more information on this.
July - September. There will be few investments like National Saving Certificate, bonds, PPF account, bank and other FD etc. where you will not get updated statements. If you have invested in those, please collate them. Once again ensure your name, bank details. address, nomination etc is updated.
File these also in independent files for each member of family.
By this time, you would have either completed your previous year income-tax formalities or must be in process. Start making income-tax file for each member of family. File your Form 16, salary slip, advance tax challan copies, self- assessments etc.
October - December. This is last quarter of calendar year. Please start reading and understanding all your wealth related documents. Read mutual fund statements, loan accounts, DEMAT accounts etc. Call on your agents and bankers to explain terms. If their answers are not satisfactory, write to financial institutions from where you have purchased those instruments. Unfortunately media does not have shows/ columns where readers/viewers can end their query for storing and understanding financial instruments/transactions, but you may still want to try and write to them
If after all these efforts you still don’t understand it is ‘not’ your fault. Probably those things are made complicated. If possible discard those rocket sciences. There is nothing to feel ashamed about not understanding. Warren Buffet had stated once that he doesn’t make investments in industries and instruments which he doesn’t understand. He did not invest in Information Technology sector in 1999-2000 because he did not understand. When bubble bust he did not loose money. If you want to create wealth like Warren Buffet then don’t invest in instruments/sectors which you don’t understand.
Over and above these things, also do appropriately collate and store your home agreement, WILL, power of attorneys etc.
I have tried to give an abridged version of dummies guide to storing and understanding your wealth. Unless you pass out dummies version, you should move ahead towards tougher tasks like investing in stocks, mutual fund etc. First learn to understand, store, update your existing wealth and then add more to it.
Going ahead, do this exercise a on routine basis. At the beginning of the year, you may find it daunting, however if you can manage to spent around 3/4 hours in a month, then by the end of the year you would get habituated to the routine.
Bottom line, “Don’t blame wealth level to destiny, if you don’t nurture it will not grow.”
The author is a Certified Financial Planner. He may be reached at email@example.com
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