Everyone I know is trying to get into shape these days, right from my neighbour to my great aunt.
The fun part is everyone is an authority on don'ts.
~ Don't eat sugar.
~ Don't even think about carbs (carbohydrates).
~ Don't snack in between.
So on and so forth. People like me get confused and you can't blame me for it!
Thankfully, getting into good financial shape is fairly straightforward. Unlike physical fitness, financial fitness does not have an exhaustive list of rules.
Eight simple don'ts can totally change your financial health.
1. Don't even think credit
Credit cards are to financial health what cream is to physical health. Ideally, stay away from them totally.
But if you must use them:
~ Keep them for emergencies only. Switch to your debit card for regular use.
~ Never keep more than one credit card.
~ Most important, never revolve. Pay your bill in full and on time. No minimum payments, no delays.
Reader Yogendra Malik violated all these rules. He used two credit cards from two different banks. Lack of attention to payments took his bill to Rs 30,000.
He used his bonus to pay off the outstanding and lost out on investment opportunities which could have led to increased tax cuts.
2. Don't delay investment
The first rule of successful investing is start early. It is simple math.
Two friends started investing Rs 10,000 per year. Smita, at the age of 30, and Varun at 35.
A return of eight per cent compounded yearly got Smita a nest egg of Rs 12.23 lakh (Rs 1.2 million), while Varun lagged behind at Rs 7.89 lakh (Rs 789,000), by the time they both touched 60!
An investment of Rs 40,000 translated into a difference of Rs 4 lakh (Rs 400,000) to their end corpus, all thanks to the power of compounding over a longer period.
3. Don't ignore inflation
Inflation creeps up silently. Picture this: you have listened to my advice and start investing early. You put your money in a bank Fixed Deposit and congratulate yourself for your good sense.
But hang on. For a three-year term, the bank may offer you an interest rate of seven per cent. But if the average inflation in this period was at six per cent, the real value of your maturity amount will be next to nothing.
4. Don't be careless in the market
You might think the solution to beating inflation is stay away from bank FDs and invest in equity markets instead!
But flirting with equity demands caution and, most important, diversification. I have lost count of the people who have burnt their fingers by putting their eggs in one basket. Allocate the right proportion between debt and equity.
Now that you are ready for the markets, don't spoil the party by attempting to time your investment. No data or technical indicator can predict which way it is headed.
Mutual fund Systematic Investment Plan is a safe, sensible way to invest.
5. Don't dip into that retirement fund
I know what you are thinking: who is growing old in a hurry? Take your time growing old, but give time to your money, too. Once you build a corpus, make sure you keep it for your retirement.
There will be numerous occasions when you will be tempted to use it for your kids' education, that exotic holiday or the dream car. But this is not the place to look.
Believe me, you will need every penny when old age creeps in.
6. Don't cash in your EPF
You may curse your Employee Provident Fund every month because it reduces your take-home pay. But when it is time to say goodbye, this chunk of money will come as a windfall.
If you are itching to grab it and splurge, it is an invitation to disaster.
Make sure this money moves with you to your new job.
EPF will build up nicely till the last working day of your life. Don't cash it because you don't need it.
7. Don't ignore tax saving tools
There are two things you cannot avoid -- death and taxes. While you can't run away from both, you can surely make taxes pinch less.
Make the best of tax saving investments such as Public Provident Fund, National Savings Certificate and many more that are offered by the government.
They go a long way in reducing your taxation amount, but some investments -- insurance or a pension policy -- will serve you well in the long run, too.
8. Don't economise on insurance
Insurance is not only a tax saving device. It is a lifeline for you and your family as well.
My colleague, a 35-year old father of two, puts aside Rs 25,000 for insurance after making all other tax saving investments. He opts for endowment insurance and is now congratulating himself. He has saved maximum tax and got himself insurance and investment.
He does not realise his choice has given him a risk cover of just Rs 5 lakh (Rs 500,000), which may not even protect his family for a year!
Now, if only it were that simple to get rid of the weight!
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