10 tips to manage your finances

[Kalyan]

10 tips to manage your finances

Check out the ideal strategy one should follow in order to manage finances in crisis.

We are all aware that we are in the slowdown phase, where almost everything that we look at is moving at a sluggish pace. Economies world over are in a crisis situation, overall demand has slowed down, corporate growth rates and overall economy's growth rates have melted, returns from almost all kinds of investments have bottomed and almost everyone seems to be guessing – what next.

All that we are seeing is not a domestic phenomenon, but has its origins from some of the most developed states in the world.

This crisis has spared none, though the intensity of loss and damage caused definitely varies depending on the approach followed and reviews done.

One subject relevant to almost everyone is the effect of the ongoing economic downturn on our personal investments and overall finances. In the last five years ending in January'08, earning great returns was no art. Any fund that one put his / her money in would yield a CAGR of 35-40% but now times have changed. Now, there is a definite need to follow a strategy, sharp & clear for every extra percentage of return earned.

So, what should be the ideal strategy or exact pointers that one should follow in order to manage their finances effectively in these tough times. We have a few of these clearly defined for you and these are as follows:

courtesy : economic times

[Kalyan]

a. Cash Flow and Budgeting – Measuring and managing inflows and outflows attains critical importance at this juncture. Making space for the essentials (necessary expenses) and foregoing the discretionary (miscellaneous expenses) is recommended so that the surplus month on month can be maximized.

b. Targeting a set amount of savings – More often than not, one tends to follow a residual approach as far as savings are concerned. So, you earn 'x', spend 'y' and save 'z' that is equivalent to the difference between x and y (z = x - y). Now, what we need is that with a given income (x), we fix our savings level (z) and based on this, plan our expenses (y).

courtesy : economic times

[Kalyan]

c. Deploying savings efficiently – Just saving is not enough. Deploying the same efficiently is even more important as it determines the probability for one to meet his commitments and goals in the years ahead. Do not invest ad-hoc, invest smart in consultation with certified experts and planners.

i. Asset Allocation & Diversification – Follow the model portfolio as most suited to your needs and goals. Do not concentrate investments in any one asset class; diversify across asset classes based on detailed study of correlation amongst asset classes and expected growth potential from them.

ii. Set your investment time horizon based on your financial goals and invest accordingly - It is essential that you earmark investments in tune with your financial goals defined as immediate goals, short term goals, medium term and long term goals and invest accordingly. This way, the effect of macro disturbances on your personal investments will be minimized.

iii. Choose the right investment avenue within each asset class – Even if your asset class distribution is accurate, the whole planning exercise shall be futile if the final financial product so chosen is not proper. Make sure that this end step too is prudently followed towards successful completion of this investment planning exercise.

courtesy : economic times

[Kalyan]

d. Set target portfolio returns: Set your target investment returns and as the target is achieved, book profits and re-balance portfolio accordingly. Buying and holding can cost heavily in times like these.

e. Stagger investments in equity and equity oriented avenues: It is best to not invest lump sum in equity in such times. It is best to stagger investments across time lines so that risk on the overall investments is minimized and the cost of your investments gets averaged out. Systematic Transfer Plan (STP) and Systematic Investment Plan (SIP) can prove to be boon strategies in times like these.

courtesy : economic times

[Kalyan]

f. Keep enough cash in hand – It is usually recommended that one must maintain an emergency cash fund at all times. In times when the economic disturbances are widespread and there is confusion all around, it is best to increase the size of such cash fund. So, if one maintains a reserve equivalent to 3 months expenses, it is best to increase it to at least 6 months -1 year of expenses.

g. Track past investments – It is essential that one takes a detailed look at the investments done, when the times were better and take a note of loss in value therein. For investments where one expects the returns to stabilize in times ahead, it is best to attempt averaging out the cost of purchase towards optimizing returns.

courtesy : economic times

[Kalyan]

h. Periodic Portfolio Review – Regular portfolio review attains greater importance here. It is best to monitor investments in the light of changing economic conditions so that corrective action can be taken, if required.

To sum up, a well followed Comprehensive Financial Planning approach gains further prominence in times like these and stands as a one-point solution towards managing one's finances effectively and efficiently and ensuring complete peace of mind for oneself.

courtesy : economic times

Original Source : reuters

[pradeep prem]

this ideas gives more useful thing
it can easily manage our finance with this tips