All of us need substantial money to fulfill current and future responsibilities, but we need to achieve them by staying stress-free too. Otherwise what is the use of money if we constantly visit hospitals or have spoiled relationships? Hence the points mentioned below have proved that if implemented , a person will have a stress free and a happy life, we have tried to include all these under one article. For details on each one, you need to sit with your financial planner and have a detailed discussion. But important is to start implementing them in case you are already following them, congratulations from our side.
The rules to financial happiness 🙂 are:
1) Have an Emergency Fund of not less than 6 months to 1 year of your expenses.
Depending upon your job stability, you need to maintain this fund for emergencies like medical, financing unforeseen expenditure (eg replacing a car after burglary) or helping any family member. If you don’t have this contingency fund , you are bound to break your long term investments which hamper overall long-term financial growth.
2) Insure: Term, Medical, Personal accident and Fire Insurance for your House.
Through insurance, you can transfer the risk to someone else. Consult your Financial Planner to calculate the amount of term insurance you need. Likewise, mediclaim and asset protection insurance is a must. Do not buy life insurance to plan tax or child future.
3) Don’t use the revolving credit on your Credit Cards.
This is the worst kind of credit financially and morally. Financially, because the rate of interest is very heavy and morally wrong as the concept of making expenses this month and make payment in coming month is wrong. Credit cards are just convenience and not loan mechanism.
4) Simplify: Have two Bank accounts, one Credit Card and one Demat a/c.
One should close all surplus bank accounts to avoid unnecessary bank charges and penalties for non-maintenance. Same way just one credit card and a demat is one requires. From income tax point of view, it is better to stick to fewer bank accounts.
5) Write a will.
Young people often say it is waste of time but life-clock can stuck anywhere. It is best to redistribute your assets as per your wishes. Also, the will can be modified anytime to accommodate any future requirements. Also, people think the will is made by Lawyer but it is a misconception. A lawyer is just a service provider. You need to approach your financial planner for the will.
6) Don’t Borrow except for buying a House.
Our Vedas have also illustrated this point. Not to live life on debt and EMIs. Except for the house, all other purchase should be planned and funded.
7) Ensure the value of the house is not more than 5 times your Annual salary.
Even if you can get more loan does not mean that you should take large sums on loan and then spend your youth just repaying those loans. If you commit to paying heavy loans the family suffers on a daily basis as they suffer quality of life.
8) Create a corpus of not less than 30 times your annual expenses before considering retirement.
30 times is an estimation and exact calculation can be done by your financial planner. Retirement planning is most important thing in today’s changing world when medical cost and life expectancy both are rising and dependence on the family is declining.
9) Try to save at least 30% of your salary.
Saving should come before than expenses while planning for the month. The figure should be on the mind and should be separated once you receive your salary or income. This makes savings a regular habit.
10) Invest regularly. Invest for the long term; not less than 10 years, preferably 20 years or more.
All savings should not be kept in a bank or fixed deposit as you already have an emergency fund. It should be distributed between investments for short term and long term. The time horizon can be fixed done when you do goal planning exercise
11) Equity would provide the best return over the long run than all other asset classes.
For long term goals equity is the best asset class and investing regularly through SIP is the best medium to invest. Equity not only beats inflation but it also gives higher return with tax benefits.
12) Follow portfolio diversification. Follow asset allocation. Check and review your portfolio only once a year.
The portfolio should be divided into different asset classes, investment, and markets. This can be done by measuring your risk tolerance and then choosing the right amount of investment in each class. This is called asset allocation. This exercise is done by qualified Investment Advisors only and you should choose a SEBI Registered Advisor to carry this exercise for you. Also, the portfolio should be regularly monitored and rebalanced.
13) Do not break your SIPs
Like savings, investments should be regular and without breaks. You should never stop SIPs as markets are going to go up and down and to minimize risk SIP is planned provided it runs its full tenure.
14) Have an Advisor. The reward is worth the cost.
You should always have a qualified and registered investment professional to assist you. He is as vital as you have a doctor, a chartered accountant and a mechanic for your car. Yes, you have to pay a small fee but it is just an investment for a prosperous life.
15) More than your knowledge, it’s your behavior which matters most for success in markets.
You may do as per recommendation but keeping faith and patience is key to success. Markets, economy, media, friends and so-called expert will all try to make you develop cold feet and panic but it’s your behavior that will be crucial to a prosperous life ahead.
Share your views and comments below:
This is indeed a good list!
If we only implement these rules, it would be so much comfortable (financially) in later years of our life 🙂
Well written post – thanks!!
Thanx for liking the post Jaswinder… Yes Diwali is a real good time to revisit these time-tested rules.
Hi, very informative article.
I am a prospective investor and was looking for profitable options to invest. I wanted your views about Peer to peer lending and is it a viable option to invest?
Peer to peer lending is something that Indian investors will be talking in some months. It is quoting very promising interest rates. People need to get aware about it.
Hi, I am just working on an article on P2P. will publish it soon.