7 Commandments for Financial Success

Feb 24, 2015

To achieve anything in life, one needs to be disciplined and sincere. The finances of a large number of people get messed up due to the lack of an organised approach. Hence, for your benefit, PersonalFN has listed down some commandments that you must follow to enjoy a stress-free financial life.

1. Determine your financial goals: Unless you know where you are headed you won't get there. Many people are unable to achieve what they want in life, because they don't know what they exactly want. So you need to sit down and list down the financial goals with your family. Making your family a part of this exercise will lead to a synchronised effort, serving the larger interest of your family's long-term financial well-being. You see, at every stage of your economic life cycle there are several financial goals such as buying a dream home, buying a car, children's education, their marriage and your retirement; amongst host of others. But often one isn't able to quantify these in terms of the corpus and the time at which the funds will be required to achieve these goals. It is imperative that one has a clear vision of his / her financial goals. Also, while you are planning for such goals and investing in financial products, it is vital to take into account your risk profile and time horizon, to align your assets prudently. And once you have invested suitably to meet such financial goals, review them over time in order to ascertain whether you are on track to achieving them.

2. Determine an appropriate asset allocation pattern: Building your investment portfolio through optimal asset allocation is a must while you endeavour to achieve your financial goals. Prudent asset allocation can help you to earn adequate returns, minimise your risk and taxes and have sufficient liquidity in your portfolio. Hence, it is imperative that you invest as per your asset allocation and form a habit of reviewing your asset allocation pattern from time to time, to ensure that it is in line to achieve your financial goals.

3. Make planned and informed investment decisions: Investing on the basis of arbitrary 'tips' from friends or relatives can harm your investment portfolio. It is imperative that you always invest as per your investment objective, risk profile and time horizon. PersonalFN is of the view that a research oriented unbiased approach should be adopted while you build your investment portfolio.

4. Create a budget and stick to it: Analyse your monthly inflows and outflows. If your outflows leave you with very little to save and repay your debt, or worse with no money at all; then it is high time you started monitoring your spending habits. Establish a monthly budget for all your expenditures and be determined to follow it. Curtail all the unnecessary expenditures and save wherever you can. Although you cannot stop purchasing necessary items, you must be a smart customer.

   It is also imperative that from your monthly income, you first set aside a portion of the amount that is required to fulfil your financial goals and pay your bills. The amount then remaining can be utilised for your other expenses.

5. Keep your debts in check: You must be extremely careful whenever you think about buying things on credit. Being reckless while using your credit card or while taking loans from the bank, can land you in a debt trap. So, live within your means. Don't let the immediate gratification of purchasing things sway you to take a decision which can loosen your control over finances and may sabotage your long-term financial well-being.

6. Have an adequate life and health insurance cover: All the efforts that you are making to fulfil the dreams and wishes of your family and to achieve their financial goals, will go in vain if something unfortunate happens to you. It is extremely important that the life of the bread earner of the family is adequately insured with a suitable policy. At PersonalFN, we believe term insurance policy is the best while safeguarding your family's financial future and you should never mix your investment and insurance needs. Remember that, it is also important to take appropriate health insurance for yourself and your entire family, as medical and hospitalisation bills can dig a huge hole in your savings. Make sure that you inculcate a habit of reviewing your insurance needs from time to time as every individual's needs and circumstances change over a period of time.

7. Undertake proper estate planning: Many people believe that they are too young to undertake estate planning and thus leave it for later. While being optimistic in life is a good thing, it is important for you to know that if you die intestate (i.e. without preparing a will), then you would be creating a lot of mess and inconvenience for your loved ones. Thus, it is imperative that you make a will and also make sure that all your insurance policies and investments have nominees registered. Also, you must form a habit of making provisions to leave behind assets from the very first day you acquire one.

PersonalFN is of the view that if you follow the above commandments, then fulfilling your family's wishes and aspirations will no longer be a distant dream. We understand that a lot of you might not have the time or expertise to plan your finances prudently. Hence, remember that approaching an unbiased financial planner to do so will not be a waste of money and in fact reap you rich fruits.