Financial Strategies with Life Stages

On your way to developing and maintaining good financial health, you are determined to accumulate emergency funds for a rainy day. A good financial plan often begins with saving three to six months’ worth of income, and progresses into developing the capacity to meet your personal financial goals in the short term, as well as the long term.

A solid financial plan can play a big role in building financial security for you and your loved ones. And yet, are you regularly reviewing your finances? Doing so becomes particularly important whenever you reach a new life stage. New additions in your life such as a spouse, homeownership or the birth of a child make reviewing your financial plans a necessity. You may need to give your finances extra consideration upon reaching the following milestones:

First job. When you obtain your first “real” job you may be presented with employer-sponsored retirement savings plans. It is never too soon to begin saving for retirement, and taking advantage of your employer’s retirement savings plan as soon as possible will give your account the maximum amount of time and potential to grow. The combined effects of time and compound interest are powerful, and the sooner you start, the better. Try to contribute enough to your fund to take full advantage of any employer-provided matching contributions.

Also, learn about the insurance provided by your employer’s benefits plan including health, life and disability insurance. If your employer’s plan offers insufficient coverage, or if a plan is not offered at all, consider obtaining coverage independently. If you change jobs, pay attention to the benefits. Benefits will often vary greatly from employer to employer, and changes in insurance coverage and retirement options must be factored into your personal financial plan. For example, funds in your retirement plans might need to be rolled over as you continue to save.

Marriage. Weddings are special occasions that become cherished memories long after the bouquet has been tossed and the rice has been thrown. They are also events that bring about financial changes. After getting married, you may consider opening a shared bank account, owning property jointly, as well as sharing  medical insurance. You may also want to begin saving toward the purchase of your first home and start preparing to raise a family.

Obtaining and/or updating life insurance plans to reflect a name change, if applicable, as well as including your spouse as your beneficiary will help to ensure that financial goals will continue to be met. Review retirement plans and goals to establish a savings plan that aims to fulfill your retirement needs. Getting married will also most likely affect your tax situation. Think about the most effective tax strategies that will help with annual filings, as well as your long-term goals.

New home. Buying a first home is a happy event. Now, the money you may have spent on rent will build equity in a place that you own. Whether you are a first-time homeowner, or are looking to refinance, research the various mortgage types available to find the one that best suits your needs. In addition, you will have to find a homeowners insurance policy that will suit your coverage needs. This is also a good time to review life insurance policies to assure that mortgage obligations will remain covered.

Children. With the added joy and responsibility of a child comes the need for extra financial security. Update your medical plans to include the child. In addition, review your life insurance policy to ensure you have adequate coverage amounts, and include the child on the beneficiary list.

For an infant, college or university is 18 years away, yet the sooner the family starts saving, the better. An education fund that has many years to earn interest and contributions is ideal. Children may also change your estate plan. Writing or reviewing your will becomes especially important to make sure the child will be provided for and suitable guardians will be named.

Starting your own business. If you leave your old job to start your own business, you will have to assume responsibility for previously employer-sponsored benefits. It is important to maintain retirement, medical and life insurance plans as you continue building financial security.

Retirement. Now is the time to enjoy the fruits of your labor. You may be considering relocating to a cooler climate, and are anticipating all of the adventures you will have there. However, your funds will still require attention as you continue to manage your money. Remember to maintain adequate health care coverage, and know your long-term care options. Proper planning can help protect your hard-earned assets from being spent on potential medical expenses.

Perhaps one of the most comforting feelings in life is knowing that you are financially secure and are prepared for whatever may happen. Through annual checkups, you can assess financial goals, provide for your loved ones and build for the future. As you approach each new life stage, you will find that additional consideration and planning are well worth the effort.

whichever life stage you reach, a financial discipline is of utmost importance and a written financial plan can make a lot of difference to your life.

Staying Out of Debt Trap

Sound debt management is a practice that is always “in style,” whether economic times are good or bad. Effectively managing your debt prepares you to weather tough economic times, as well as to capitalize on a healthier economy. Here are some tips to help you get out, and stay out, of debt

·        Cancel all credit cards except one, and pay the balance off monthly. If you don’t have them, you can’t use them. By limiting yourself to one credit card, you prevent yourself from maxing out several cards.

·        Use a debit card instead of a credit card. A debit card offers all the convenience of a credit card, without adding to your indebtedness. The cost of a purchase is immediately deducted from your bank account. Since you can’t buy something unless you have the funds to cover it, using a debit card can help you live within your means.

·        Avoid using credit for items that depreciate or have no income-producing potential. Buying on credit for items such as clothing, dining out, groceries and vacations may cost you more in the long run. These goods don’t grow in value, and may end up costing you even more if you don’t pay off your account each month and finance charges are added to the balance.

·        Limit monthly installment payments to 10 percent of income. Credit may derail your budget if it exceeds amounts that you can repay. A good, general rule of thumb is to limit payments on monthly installment debt (excluding a home loan) to 10 percent of income.

·        Comparison-shop for the lowest interest rate. Even a small difference in interest rates can make a big difference in the total interest you will pay over time.

·        Set aside a cash reserve. A cash reserve can actually help you pay down your debts. Each time an emergency arises you won’t need to borrow additional funds ¾ you can use your savings to handle the crisis.

·        Be cautious about using your savings to pay off debts. Although it sounds reasonable to use low-interest savings to pay off high-interest debt, delaying a savings program will cause you to lose the benefit of months or years of compound interest. A better approach may be to continue to pay down your debt in regular monthly installments, take on no new debt, and retain your current savings.

·        Beware of debt consolidation loans. You can’t borrow your way out of debt. Debt consolidation loans reduce your total monthly payment by spreading your debt over a longer term, but you will end up paying more interest in the long run.

·        Use credit wisely. Not all credit is bad. Wise uses of credit are those that help you prepare for the future by purchasing assets that appreciate, or by contributing to savings vehicles that produce an economic gain or a return that exceeds the interest rate on the credit.

One of the chief causes of financial failure is credit abuse. Easy, accessible credit may tempt many people to “buy now and pay later.” Credit card purchases that offer instant gratification with “no money down” will sink any ship if you lose track of spending. Reining in excessive spending habits may be difficult, but a little fiscal discipline can help you clear your decks of debt and prepare for smooth sailing into a sound financial future.

Questions to ask Your Financial Planner

If the world of investment looks overwhelming and you are looking for professional assistance; but wondering how to choose one, don’t worry -- you are not alone! It is very difficult to choose a planner today; due to the plethora of options of investments and due to the number of “planners/ advisors” in the industry. Here we try to simplify this process by asking some right questions:

·          What are your qualifications?

Qualifications are very important when it comes to managing money. It means the person you are trusting with your hard earned savings, is qualified to manage money and make it work for you. Expertise is essential when managing money. Try and ask questions about various asset classes to the planner to see his comfort level with different assets. After all, you will need diversification. The planner should be updated with latest happenings in the world and how it may impact your investments.

·          What is your background?

Ask for the planner’s background- is he just trying his hand in various industries or is he stable and has been in the business of managing money for long. Check for the company’s credentials as well.

·          What kind of back office support do you have? How many clients do you interact with?

What is the kind of software used, how many clients does your Relationship Manager/ Planner interact with - this determines how much of the planner’s time is spent on analysis of your investments and on your relationship. Is he is going to be available for you or will he be too busy for you? The initial period of hand holding takes time and then as the relationship progresses, the time spent will gradually reduce bringing it to a mutually accepted level in about a year’s time.

·          What is the employee turnover ratio? What is the qualification of the staff in the company?

A company that pays attention to clients, also pays attention to employees. If people are leaving the company too soon or if too many people are leaving the company- something is wrong. The staff in the company including the back end staff whom you may never meet - is also responsible for your investments. Are they qualified to do their work? If not, your investments may suffer - directly or indirectly.

·          What level of service should I expect?

It is good to set expectations right in the beginning of the relationship. Ask him clearly what to expect - how many phone calls in a month, how many meetings in a quarter, frequency of reports, what happens in case of extra ordinary events etc.

·          How does your company make money?

The planner is in the business to make money as well. How does he do it? Is it a profitable business, does he spend on infrastructure, software etc. This will determine how your service can be improved in the future.

  

·          What is the type of existing clientele?

If all existing clients are millionaires and you are going to be their only “small” client, you will not get enough attention. The profile of the clientele should be like yours, so that you are treated with equal importance.

·          Give me a couple of references whom I can speak to about you?

Take at least 2 references of people who are similar in profile to yours and are existing clients of the company/ planner and speak to them about their experience with the planner.

Mind Over Money or Money Over Mind

"How Could I Have been Such an Idiot?" if you have never yelled that sentence at yourself in a fury, you are not an Investor.

The findings suggests that much of what we've been told about investing is wrong. Theoretically, The more we learn about our investments, and the harder we work at understanding them, the more money investor will make.

In Practice, however, these assumptions often turnout to be dead wrong. Investors habitually are their own worst enemies, even when they know better.

• Everyone knows that they should buy low and sell high- and yet, all too often buy high and sell low.
• Everyone knows that beating the markets is nearly impossible- but just about everyone thinks he can do it.
• Everyone knows that panic selling is a bad idea- but a company that announces it earned 4 rupees per share instead of 5 rupees per share can lose 5 billion of market value in half a minute.
• Everyone knows that market strategist can't predict what the market is about to do- but investors still hang on every word from the financial pundits who prognosticate on TV.
• Everyone knows that chasing a hot stock is a sure way to get burned-yet millions of investors flock back to the flame every year. many do so even though they swore, just a year or two before, never to get burned again.

we all know that it's hard to control the impulsive behavior, many investors also know that faster they chase their financial dreams, the faster they go absolutely nowhere but still unable to learn from their mistakes.

Ideally creation of wealth is very simple, it needs 

• Realistic and achievable objectives.
• Calm and patient investing.
• Investing according to the Risk profile.
• Use the news and tune out, Ignore the noise in the market.
• Give time to the investments instead of timing the investments.
• Appropriate asset allocation and timely re-balancing of Portfolio.