Your new year investment resolutions!

New Year brings with it new beginnings and optimism. A lot of people like to usher in the New Year with resolutions that they eventually end up breaking. Many of these New Year resolutions revolve around personal finance since financial well being is an important aspect of life. A lot of people usually fail to maintain such New Year financial resolutions because they over complicate their resolutions making them hard to maintain.

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Before making your resolutions for 2014, the most important thing you should do is to review your current financial status. Here is a quick check for making a simple and achievable New Year resolution for anyone irrespective of earnings and expenditure. Apart from improving the overall financial health, this can help you take smarter financial decisions in the long term.

Review your investment portfolio: Reviewing one’s investment portfolio by the end of the year is one of the best steps for taking a good investment related resolution. While reviewing the overall investment portfolio, one must ask some basic questions as to how risky the investment portfolio is and explore the adjustments where required. If you are single and have started working only recently, you can afford a riskier portfolio compared to married people with families. One thing that is common while evaluating your personal investment portfolio for the year is to always maintain a balance between long term goals and any emergency requirements for a rainy day.

Pay off Debt: Paying off old debt is one of the best ways to usher in the New Year. Budgeting and paying off old debt might not be as difficult as it may appear and only require a principled approach. One can set up accounts to automatically deduct monthly expenses. Get out of the old debt trap to increase the chances of improving your financial health in the coming year.

The best approach is to start by paying off the debt with higher interest rates like credit card des and personal loans. If you have some surplus cash, you may also consider paying off loans as pre payment instead of paying EMIs. The best way to resolve pension debts is to keep a lookout for better interest options in the market to reduce the total term of the home loan thereby saving on the interest cost.  You can use the additional pay outs you received this year like bonus, incentives, LTA etc for paying off unwanted debts.

Invest in an Emergency Fund: In this day and age of increasing inflation, sudden job loss or a sudden illness of any family members can damage your finances. Therefore, it is imperative to consider investing in an emergency fund. Most financial experts are of the view that such emergency funds which also known as contingency fund, must hold finances that can sustain the dependent members of the family for a minimum period of six months. If you have not given due though to have an active emergency fund, make plans to start it this New Year. Make regular investments in your emergency fund which can gradually help you a build a corpus that is liquid with the ability to earn handsome returns.

Protect your family’s Financial Future: Protecting your family’s financial future is an essential step that needs to be a part of each financial resolution. A lot of people explore life insurance but totally ignore medical insurance for dependants and immediate family members. If you are one of those who have neglected medical insurance of your dependants, plan for a good package by this New Year.

For people seeking life insurance as an investment, one needs to understand that life insurance helps your dependants in case you are not around. Considering insurance purely as an investment vehicle is a bad financial decision that must be changed.

Improve Credit Scores: Another great New Year resolution is to improve your overall credit score (CIBIL). Many people are stuck with bad credit score due to their own financial mismanagement. Take a call before this New Year to cut out on unwanted credit cards and loans so that you do not end up spoiling your credit score in the coming year. If you are planning to avail some loans in the coming months, make sure that you keep a minimum gap of six months between the two loan applications. Pay your loans and credit cards on time avoiding late payments.

courtesy : Bank Bazar

Its better to invest in Fixed Deposit

In Hindu mythology, Bhasmasura was a demon who, after praying to Lord Shiva, received a boon that anyone whose head he touched with his hand would immediately turn into ashes (bhasma). Shiva granted this request, but Bhasmasura , the ungrateful demon that he was, attempted to touch the head of Shiva with his hand. Shiva fled and somehow managed to reach Lord Vishnu for help.

Lord Vishnu took up the disguise of Mohini, a beautiful dancer, and appeared in front of Bhasmasura. Mohini was so exceedingly beautiful that Bhasmasura immediately fell in love with her. Bhasmasura asked Mohini to marry him. She told him that she was very fond of dancing, and would marry him only if he could match her moves identically. Bhasmasura agreed and they started dancing.

Bhasmasura matched the disguised Vishnu’s move for move. Smartly then, Mohini struck a pose where her hand was placed on top of her own head. As Bhasmasura imitated her, he was tricked into touching his own head, and immediately turned into ashes. So, how is a mythological story connected to a common man like you and me?

Think about Bhasmasura as the equally deadly, moneyburning inflation. Like Shiva who granted the boon to Bhasmasura, who gives inflation the power to rise? You and me! Inflation is the result of more money chasing fewer goods, leading to a demand and supply disparity. All of us, with our new-age salaries are spending more than ever, leading to a rise in prices and thus a rise in inflation. This inflation eats away our purchasing power. So, all that you can buy for . 10,000 today will cost more tomorrow.

Inflation eats away a major part of the returns that your investment generates. So, if your fixed deposit (FD) gives a return of 8% and the rate of inflation is 8%, you are actually earning nothing on your investment. Then, how can we defeat this Bhasmasura named Inflation? Shiva turned to Vishnu for help, whom do we turn to for safety? Vishnu in our case is equity /stocks of the same companies that make these goods that we are buying. Let us see how. Say, you love the soaps manufactured by a particular company and so does everyone else you know. The more people buy that soap, the higher the profits for that company.

These profits the company shares with its shareholders in the form of dividend. By buying even a single share of that company, you can take home a part of this profit. Look at a bank, if it is offering good rates for lending and deposits and more and more people are flocking to it, chances are that it might generate handsome profits. Buying shares of this bank will ensure a share in profits for you by means of dividend.

Inflation currently stands at around 8% (March 2011 inflation forecast as per RBI is 8%), whereas equities have typically given 18-20 % returns in the long term. Even if you take inflation at 6%, 20 years from now something that costs .Rs10,000 today will cost Rs 32,071! If you invest the same Rs 10,000 in a fixed deposit at 8%, 20 years from now it will be Rs 46,610. Wait, before you run to the bank, just hold on for a minute while we deduct taxes from those returns. If you fall in the highest tax bracket of 30%, the figure of Rs 46,610 shrinks to Rs 29,736 – less than what inflation did to prices .

So while you thought you will beat inflation, in reality, you lose your capital. Now, if you choose to invest this Rs 10,000 in equities today, 20 years from now that money could turn to Rs 1.63 lakh, even at a conservative 15% return! Very few investment options have the capacity to generate such inflation-crushing returns . And this is the Mohini avatar that will help you kill the Bhasmasura of inflation.