Get Wealthy by Priya Sunder

…in 2015. Priya Sundar shows you the sensible way forward.

Commitment. All of us fear the word. At the beginning of 2014, I committed to run the half marathon, which was to take place later in the year.  I hired a personal trainer, went on a diet plan, bought expensive running shoes, yoga mats, water bottle, fit bits, weights… And I was all set! …Two months into my hectic schedule, and I was plagued by monotony and began thinking of excuses to give my trainer. I let go of my trainer and sank into my happy, low/ no-exercise routine. That’s exactly what happens to long-term financial planning too. You tend to lose steam somewhere along the way. So the mantra here is, make a commitment to keep your resolutions in 2015.

And Now, The Financial Resolutions...
Here are some financial goals that can be on your hit list this year.

Make a budget: Put down all your sources of income —  salary, rent, fixed deposit interest etc. Now write down every item of expense incurred in the last three months. Examine your credit card statements, ATM withdrawals, credit card insurance premiums, rent and EMIs. Average this amount and figure out your monthly expense. If you are spending more than 80% of your post tax income, cut down on your expenses. Keep 20% of your income for creating an emergency fund and for building your long-term goals.

Automate the tracking of your expenses: Several free software tools help you accomplish this. The ‘My Universe’ app helps you track expenses across categories. So set budgets and monitor expenses effectively. Don’t be too hard on yourself initially while curbing expenses. Give yourself the flexibility to indulge in shopping, eating out or other entertainment — else you will find it hard to sustain a tight budget.

Build an emergency fund: It is a bad idea to live from paycheck to paycheck. Create a buffer of at least three months of expenses in your savings account or a money manager fund so you can meet sudden emergencies such as medical expenses, home repair or unexpected layoffs. Building your emergency fund in a money manager account will not only offer you quick liquidity, but it will also grow at a higher rate than a savings account. The best way to build an emergency fund is to set up a recurring deposit or start a monthly systematic investment plan (SIP) in a money manager mutual fund.

Create a plan to pay your loans: None of us like to live in debt. If you have outstanding credit card balances, car loans, personal loans or home loans, make a significant dent on those loans this year. Start with the loan on which you pay the highest interest rate and get no tax benefits, such as credit card loans. Next, close any personal loans or car loans. Close your home loan or education loan the last since you get annual tax benefits on these two loans. Start by investing a part of your income in a short-term debt fund and redeem the amount at regular intervals to bring down the loan.

Start planning for a long-term goal: For most of us, goals such as children’s higher education and marriage are non-negotiable. The cost for these goals can be quite intimidating. Thankfully, most of them are 10-15 years away, so we have enough time to plan for them and ensure that they are met comfortably. Commit to start investing right away, or you may find that you committed a blunder by not planning early!

Managing risk: Ensure you have adequate life and medical insurance. You should have a life cover that is at least 14 times your annual expenses and a medical cover of ` 15-20 lakh for the family. A high life cover will ensure that your dependents maintain the same lifestyle even after your time and that education, marriage and retirement goals are adequately funded. High medical costs in our country may bite you a few years later if you are not adequately insured. With a low cover, you may find yourself liquidating assets to meet medical expenses; thus jeopardizing your future wealth creation goals.

Stick To Your Goals
The key to successfully sticking to your goals is threefold:
1. Create strategies that run on autopilot.
2. Identify few goals and see them through successfully.
3. Reward yourself frequently along the process.The reward mechanism is very important if you are to stay motivated through your journey. If you have lost a kilo, reward yourself with a meal in a nice restaurant on a weekend. If you’ve paid down a chunk of your loan, reward yourself with
a short holiday. If you’ve stuck to your monthly budget and invested 20% of your income, buy yourself some nice clothes. Even the tiniest and silliest rewards can make a difference because those are the little milestones that will help you reach the bigger ones.

Happy planning and investing in 2015!

Priya Sunder is  Director, PeakAlpha Investments, an award winning wealth management company. www.peakalpha.com