Resolutions for 2012: Is your financial life on track?

Lovaii Navlakhi

Time flies, especially these days. January is already gone and it feels like yesterday that 2012 started. Human beings are lucky that we have the intelligence to introspect and to plan ahead. An important part of the beginning of a New Year is to give us a fresh start and a new look at the potential of a bright future. Let's resolve in 2012 to get our financial life on track.

1. I will get sort out my financial data.

Most people fall into two categories when it comes to maintaining their financial data - one category would have filed each and every possible piece of paper, such that relevant information is never easily attainable; the second would have no such problem, since there would not be much, if any paperwork to go through to find what's required. Which category do you belong to? In hard copy or soft, file and label clearly only relevant financial data. Assume somebody besides yourself, like your spouse will be going through this to find something. Keep copies of your insurance polies with your spouse or a trusted friend/relative, with the originals in your locker.

2. I will set financial goals

Begin with the end in mind. Without aim, there is no achievement. Sit with your spouse, outline what you want out of life and put these down on paper with numbers.

3. I will continue/start SIPs in equity mutual funds

Equity as often proved is one of the best performing asset classes in the long term. So keep the SIPs in mutual funds going. It is when the markets are down, that you should continue and if possible increase your SIPs as for the same amount of money you get more number of units now. It is the best way of taking advantage of equity and its volatility.

4. I will be careful with my credit card

Spend what you can afford to pay fully before the due date. Don't fall into a debt trap by paying only the minimum amount due and racking up the outstanding balance with the high interest that credit card companies charge.

5. I will start planning for retirement

While far away, retirement is something that you should start planning for, at the earliest. If you are 30 now, and wish to retire at 55 with an income of Rs.40,000 a month, assuming that you live till 80 and an inflation and rate of return of 6% and 7% respectively, you will need a corpus of 4.5 crores, 1 crore in today's value to spend your retirement independent of anyone's help. Do you have that kind of money today?

6. I will get insurance.

Imagine you were no more tomorrow, and think of what you have planned for your family, your child, the basic living style your family is used. Can all of this continue as is without your income? If even one of these things is not possible without your income and existing insurance, then you require more insurance. Don't look at it as, I pay premiums continuously and get nothing in return - what you get with a pure insurance plan protecting your future income is peace of mind that your family is secure. Isn't that reward enough?

7. I will get financial knowledge

While having financial advisors and planners looking after your financial affairs helps, your knowledge of financial products, operations issues, risk/return tradeoffs, markets conditions affecting, ecomony etc will definitely make the quality of your decisions that much better. Get to know about what's new - products, markets and new legislation, ask questions and do research. Empower yourself.

Do this and see financial discipline become a habit!