Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
How to Take Care of Your Financial Health - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

How to Take Care of Your Financial Health
Dec 1, 2015

By their very nature, Indians are a race of "savers". Very early in life, we are encouraged by our parents about the importance of saving. Remember the piggy bank you owned and the joy of listening to the jingle of the coins in it? It was wonderful, wasn't it?

But with the escalating cost of living today, savings alone won't help us achieve our financial goals.. You ought to make money work for you so that goals - such as buying a dream home, a car, children's education, their marriage, travelling abroad, your retirement, etc. - can be achieved within the time frame you have in mind.

In the rat race we are part of today, we need to pay extra attention to our financial health. While maintaining a 'piggy bank' worked earlier, now it's time to venture out and invest that money, because the inflation bug can erode the purchasing power of your hard-earned money.

Did you know the principles of healthy living can also enable you to maintain your finances in pink of health? Here are some pointers that lend you a holistic perspective:

  • Start Early: Richard Whatley, an English rhetorician, logician, economist, and a theologian said,
    "Lose an hour in the morning, and you will be all day hunting for it."

    If you've noticed, getting up early not only rejuvenates you but leaves you with ample time in hand to complete the daily tasks as well. Likewise with investing, starting early gives you a longer time horizon to comfortably achieve your financial goals.

    An early birds gets the bigger piece of the pie

    Current Age Annual Contribution (Rs) Investment Return Retirement Age Years left for retirement Retirement Corpus (Rs)
    20 100,000 10% 60 40 44,259,256
    21 100,000 10% 60 39 40,144,778
    22 100,000 10% 60 38 36,404,343
    23 100,000 10% 60 37 33,003,949
    24 100,000 10% 60 36 29,912,681
    25 100,000 10% 60 35 27,102,437
    26 100,000 10% 60 34 24,547,670
    27 100,000 10% 60 33 22,225,154
    28 100,000 10% 60 32 20,113,777
    29 100,000 10% 60 31 18,194,342
    30 100,000 10% 60 30 16,449,402
    31 100,000 10% 60 29 14,863,093
    32 100,000 10% 60 28 13,420,994
    33 100,000 10% 60 27 12,109,994
    34 100,000 10% 60 26 10,918,177
    35 100,000 10% 60 25 9,834,706
    36 100,000 10% 60 24 8,849,733
    37 100,000 10% 60 23 7,954,302
    38 100,000 10% 60 22 7,140,275
    39 100,000 10% 60 21 6,400,250
    40 100,000 10% 60 20 5,727,500

    The table above highlights the benefits of starting a retirement plan early in life. A 20-year old investing Rs 100,000 per annum will accumulate Rs 4.43 crore, vis-a-vis a 40-year old who will accumulate Rs 57.3 lakh within the same time frame. This is because the time horizon a younger investor enjoys effectively facilitates better compounding for his investments. So, remember, an early bird gets a bigger piece of the pie.
  • Exercise Regularly: There is no substitute for exercising. In order to maintain and see positive results in health, one has to exercise regularly.

    Similarly, if one wants to see positive results in wealth, invest regularly.

    Slow and steady wins the race

    Years SIP of Rs. 1,000 per month
      5% 10% 15%
    5 years 68,006 77,437 88,575
    10 years 155,282 204,845 275,217
    15 years 267,289 414,470 668,507
    20 years 411,034 759,369 1,497,239

    Investing regularly increases your wealth through the power of compounding. Albert Einstein has said, "Compound Interest is the eighth wonder of the world. He, who understands it, earns it... He, who doesn't, pays it". Investing regularly also helps combat inflation, because it's always the rolling stone that gathers no moss.

    Consequently, higher the rate of interest and longer the number of years you invest, greater the wealth you accumulate.
  • Have a balanced diet: An ancient proverb in Ayurveda has succinctly put the importance of a balanced diet to our overall wellbeing, "When a diet is wrong, medicine is of no use. When the diet is correct, medicine is of no need".

    While investing as well, a balance diet is vital and connotes diversification. Diversification helps mitigate the risk to an investment portfolio emanating from a respective asset class. It is one of the basic tenets of investment planning. Nevertheless, this needs to be done prudently to accrue the benefits. Ideally, factors such as age, income & expenses, assets & liabilities, risk appetite, financial goals, nearness to financial goals, and investment time horizon should be considered before diversifying your portfolio into various asset classes such as equity, debt, and gold.
    Particulars Goal < 3 years Goal > 5 years Goal > 10 years
    Equity 0 55% 75%
    Debt 100% 35% 10%
    Gold 0 10% 15%

    As per the table above, if you have a goal to achieve that is three years away, there's no point having exposure to equity since it's highly risky for short terms. Only for goals that are 3 - 5 years away or more, equity can be considered along with some allocation to other asset classes such as debt and equity. If the financial goal is just 5 years away, your asset allocation can be 55% into equity, 35% into debt, and 10% into gold.

    Depending on how skewed your portfolio is towards equity, a portfolio is classified as: aggressive, moderate, and/or conservative. A greater composition of equity makes the portfolio aggressive, while least or none of that asset class makes it conservative.

    As far as gold is concerned, it commands a place in any portfolio, be it aggressive, moderate, and/or conservative. It is an asset class that has shown a secular uptrend and has an inverse relationship to equity thus providing stability to your portfolio. During times of economic uncertainty, gold is looked upon as a safe haven or a hedge.
  • Avoid Anger: 'Anger is one alphabet short of danger' goes the famous axiom. Anger is a very powerful emotion and if it's not managed appropriately, it can have destructive results on you and those closest to you. Doctors and health experts advocate being calm and exercising patience.

    Patience is a virtue to be practice in the world of investments too. Avoid seeking immediate return on investments; else you could lose sight of your financial goals. Warren Buffett puts it beautifully, "The stock market is the device for transferring money from the impatient to the patient."
  • Have enough liquids: Joan Koelemay, a dietician for the Beverage Institute, an industry group says that, "Think of water as a nutrient your body needs that is present in liquids, plain water, and foods. All of these are essential daily to replace the large amounts of water lost each day".

    On the investment front too, having enough liquidity is vital to address any unforeseen emergency. It is advisable and a prudent practice to keep aside 6 - 24 months of regular expenses (including EMI payments) to handle any contingencies.
  • Get adequate sleep: Most of us ignore the importance of catching on sleep. Some believe that sleeping for more than 5 - 6 hours is a sign of laziness. However, Dr. Eric J. Olson, M.D. of Mayo Clinic, USA states that a person's immune system can be drastically affected by the lack of sleep. He goes on to add that, "People who don't get quality sleep or enough sleep are more likely to get sick after being exposed to a virus, such as a common cold virus. Lack of sleep can also affect how fast you recover if you do get sick".

    Similarly, most of us ignore the importance of having the right risk cover. Having an optimal insurance cover is an integral part of one's financial planning, as life is surrounded by uncertainties and untoward events occur when we least expect them. While many buy a life insurance cover recognising its importance, the schemes they opt for and/or the Sum Assured that they are covered under are sub-optimal most times. Our experience reveals that most people hold insurance-cum-investment plans in the endeavour of killing two birds with one shot; but what they fail to understand is that they are sub-optimally insuring themselves. Ideally, you should determine the optimal sum assured based on "Human Life Value (HLV)" and purchase the right term insurance policy that takes care of your family financial needs once you've passed away.
  • Seek professional help: It goes without saying that we take the advice of a professional whenever we need help in specific areas, whether it is the stock market, buying a property, or a medical emergency.

    Similarly, one should consult a practicing financial planner who can help with formulating an asset allocation strategy based on your financial goals, the time frame, and the risk taking appetite.
  • Review: We've heard, 'Prevention is better than cure', and it's vital to get a health check-up regularly. This helps us arrest diseases and illnesses at an early stage, which may be a cause for concern going forward.

    Similarly, on the investment front, we have to regularly review the portfolio to assess if investments are aligned with our financial goals. Any deviations should be taken into consideration immediately and quick changes have to be implemented.

Follow these simple steps and be assured that by healthy living and wise investing, you can build up your health and wealth.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "How to Take Care of Your Financial Health". Click here!

1 Responses to "How to Take Care of Your Financial Health"

garikapati chandra kumar

Dec 29, 2015

Have to know more

Equitymaster requests your view! Post a comment on "How to Take Care of Your Financial Health". Click here!

More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

How to Avoid a 90% Loss Suffered by This Super Investor(The 5 Minute Wrapup)

Jul 12, 2018

Blindly following super investors is a dangerous game to play. Here's how you can avoid such mistakes.

The Answer to Your Wealth Worries: Small Caps (Especially Now)(Profit Hunter)

Jul 10, 2018

If you're worried about the markets - you are on the wrong track. This is opportunity - put your wealth-building hat on, instead - Richa shows you how...

The Multiple Problems with the Minimum Support Price (MSP) System(Vivek Kaul's Diary)

Jul 11, 2018

The price signals that MSP sends out, creates its own set of problems.

ICICI Pru Mutual Fund Tarakki Karega! - The Unethical Way?(Outside View)

Jul 11, 2018

PersonalFN explains how ICICI Prudential Mutual Fund flouted the norms of related party transactions while subscribing to the IPO of ICICI Securities.

PPF v/s Mutual Funds: Which Is Better?(Outside View)

Jul 10, 2018

PersonalFN highlights the key points of distinction between PPF and mutual funds.


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms