MONEY PERSONALITY

Money personality speaks about a person’s money attitude, money instincts and habits. It is more about knowing yourself on perception about money.

Let us know about your money habits through the following exercise. In each of the questions select the options (a,b,c,d) and take the highest number of letter which appears in your answer and compare it will the answers given below:

Q1. You Can’t afford a new phone and your old phone works. You will.

a)     Tweak your budget to accommodate it.

b)     What budget? All will work out right.

c)     Think hard before spending the money.

d)     Buy it whether or not you can afford it.

Q2. You got a Bonus of Rs.1 lakh. You will..

a)     Figure out how to optimize returns.

b)     Not take any hasty decisions.

c)     Immediately put it somewhere safe.

d)     Spend it on things you want

Q3. What do you do if family member is hospitalized and you need cash ?

a)     You have put aside some money but it may not be enough.

b)     Hope for the best as you don’t know if you have enough saved.

c)     Not worry because you have saved for emergencies and also have health cover .

d)     Borrow because you never have enough.

Q4. Your friend wants to borrow money from you. You will..

a)     Not mind lending at a good interest rate.

b)     Not be sure whether you can afford to lend.

c)     Be tense till it is repaid as you never lend.

d)     Not have any extra to spare.

Q5. How do you handle tax planning?

a)     You know how to minimize your tax bill.

b)     You hate it and want to get over it soon.

c)     You file returns well before the deadline.

d)     You always scramble to file your returns.

Q6. You would apply for a loan to :

a)     Invest in a business or some high-yielding opportunity.

b)     What loan? You don’t borrow money as its easy to lose track of repayment.

c)     Make essential repairs, pay off debt, or increase future security.

d)     Go on vacation or buy what you really want

Q7. What you think about the future:

a)     You know it will be fine. You plan to earn plenty of money and make it grow

b)     You hope the future will take care of itself.

c)     You feel reasonably confident, since you have saved systematically for years.

d)     You are concerned .Its hard for you to save.

Q8. Your primary financial objective is :

a)     Earn and grow your money as much as possible, as quickly as possible.

b)     Unclear.

c)     Save enough for retirement and other financial goals.

d)     Earn enough so that you can buy whatever you want

What the answer means: 

Mostly As: AMASSER

„ You equate money with self-worth and power. Lack of it leads to depression. You are the happiest when you have money to spend, save and/or to invest. You like investments with high rate of return.

„ Suggestion: Keep a track on your investments and wealth generation. Keep rotating funds if previously selected funds are not performing well.

Mostly Bs: AVOIDER

„ You find it tough to balance your cheque book, pay bills or file taxes timely. You don’t know how much money you have, what you owe or how you spend. You avoid investing money, even if you have some.

„ Suggestion: Setting aside money. Have a target % you want to save depending upon your requirement. 

Mostly Cs: HOARDER

„ You like to save money. You like to prioritize financial goals. You have a hard time spending money on luxuries. If you invest, you tend to be concerned not with liquidity but with future security.

„ Suggestion: Start exploring investment options, Eg: MFs, equity shares. 

Mostly Ds: SPENDER

„ You enjoy spending for your immediate pleasure. You have hard time saving money. It may be difficult for you to put aside enough money for future oriented purchases and long term financial goals.

„ Suggestion: Set aside money. Give yourself a restriction on spending.

Take Away

„ Increase Net Worth (Asset- liabilities): You must always look to appreciate your net worth i.e. all assets after considering the liabilities. Lower the liabilities the better individual feels.

„ Saving= Earnings-Spending

„ Spending= Earnings – Savings- Spending Should always be after savings

„ Planning for contingency fund- 3 months’ salary-Liquidity Eg: Flexible RD

„ Keep a track of spending- Budget Planning- Helps in time of need w/o stress on Finance.

WHY YOU SHOULD START INVESTMENT IN APRIL

In the earlier article we had understood the difference between savings and investment and also the importance of financial goals in life.

Keeping all this in mind, it is important that you start investment in April

1.     Plan your year ahead: At the end of march/beginning of April, you have some sense of salary structure. This means you will know how much income you will earn. At same time, you will have an idea about major spends as well as tax liabilities. So start planning early and quickly.

2.     Spread out investments:If you spread out investments, it will not be a big pinch in to your pockets.  Avoid investing in big sum in a single transaction. Through SIP, you can invest in small bits every month.

3.     More time to invest: If you start investing in April, you will get more time to invest rather than when you start investing in mid-year.

4.     Understand with example: If you have to invest Rs 1,50,000 for the year, if you start investment from April, then you will invest Rs 12,500/ month. However, if you invest say from August, amount will increase to Rs 21K/month.

5.     No Pressure on Liquidity: Small amounts of investment every month does not affect liquidity. You can manage your regular monthly expenses without worrying on how much cash is left.

6.     Target becomes achievable:  If investment is started early, it is easy to achieve the target without much pressure on pockets.

7.     Better Prepared for emergencies: In a span on 12 month period, you can achieve your investment and still have more money in hand for regular savings and expenses. This can be handy in case of emergencies.

So if you have not started investing early, start before it is too late and make the best use of time.

FINANCIAL GOALS

All about Financial Goals

Q. How to set financial goals

List your goals between needs and wants. Prioritize the essential and non-essential goals. Then, ascertain the present value of goals. Factor the increase in cost due to inflation, the number of years and then arrive at a future value. Excel sheet and financial calculators may help.

Setting Financial goals

è Why You need goals- Without a set goal in mind, you will not have a decent plan worth carrying out.

è Set the deadline- Decide how soon you want to reach your goal. This affects how much you should invest and the returns you need

è Assign a figure- Every goal needs to have a fixed quantity of money assigned to it like Rs 3L for US trip or Rs 10Cr corpus by the age of 60.

è Where do you stand: You have fixed the idea of your future; now, look at your present- how much money do you have already? How much more you can save?

è Chart your path:Now that you have your start and end points, decide how you will go about with achieving the goal by figuring out your monthly, annual investments as well as assets.

è Is this achievable:It could happen that your goal may require more investing than you are capable of. Think of alternative ways of achieving this dream, or else your goal may not be realitically possible.

To be successful in financial goals, it is necessary to write down goals. Written goals are more successful than unwritten goals. 

Q. What factors should I consider while understanding my risk taking ability?

A. The following factors are to be considered a) Life stage factors like age and number of dependents b) Income and Loans/ Liabilities. C) Time duration of your goals d) Job or career stability e) Awareness of the upsides and downside of the investments

Q How do I time my investment?

A. For an individual investor, the time in market is important and not the timing. Stick to investment discipline. Ups and downs cycle are inevitable in the equity market. So make the investments work for your money. Don’t get emotional SIP would be a good choice. 

Q What after setting the goal? How do I get above investing?

A. Decide on the lump sum or monthly amount of investment that you would like to set aside. Consider investing in MFs for their professional fund management, transparency and to beat inflation. They also offer wide options to reach your various goals. Take the help of financial advisors to complete the investment process.  A periodic review would help you stay the course and reach the destination in time. 

How to Diversify Your Investments –Go for variety, not quantity

When it comes to investing, savvy money managers advise that you spread your money around -- that is, "diversify" your investments. Diversification protects you from losing all your assets in a market swoon. The sharp decline in stock prices in recent years are proof enough that putting all your eggs in one basket is a risky strategy.

But in order to diversify correctly, you need to know what kinds of investments to buy, how much money to put into each one, and how to diversify within a particular investment category.

Investments in each of these different asset categories do different things for you.

• Stocks help your portfolio grow.
• Bonds bring in income.
• Real estate provides both a hedge against inflation and low "correlation" to stocks -- in other words, it may rise when stocks fall.
• International investments provide growth and help maintain buying power in an increasing globalized world.
• Cash gives you and your portfolio security and stability.

Diversify Within Investment Categories

Once you've diversified by putting your assets into different categories, you need to diversify again. It's not enough to buy one stock, for instance, you need to have a lot of different types of stocks in that portion of your portfolio. That protects you from being ravaged when a single industry -- say, financial services or health care -- takes it on the chin.

Balancing Risk and Return

Though diversification protects you from devastating losses, it also costs you in average annual returns. That's because risk and reward go hand-in-hand in the financial markets. So anything that reduces your risk will also reduce your return.

Give yourself permission to take a little risk, unless you're close enough to retirement that the additional security is particularly valuable. 

Is your financial freedom at risk?

Financial freedom means you are able to do what you enjoy without worrying about how it might impact your finances.

Give yourself points on the following basis for the questions listed below and then add up the total score from all the questions given below:

a)    1 point b) 2 points c) 3 points d) 4 points

Q1 How much health insurance do you have?

a)    Don’t have health insurance

b)    Less than Rs 2Lakh

c)    Between 2L to 5L

d)    Over Rs 5L

Q2. How much life insurance cover do you have?

a)    Don’t have life insurance

b)    Less Than 24 months income

c)    Equal to 2-4 years income.

d)     Over 4 year income.

Q3. Have you ever withdrawn from your PF,PPF and other retirement options?

a)    Several Times

b)    A Few times earlier

c)    Just once on an emergency

d)    Never Withdrawn

Q4. How much of your income do you save for retirement?

a)    Haven’t started yet

b)    Less than 10%

c)    10%-15%

d)    Over 15%

Q5. If faced with financial emergency, you will ….

a)    Sell some assets

b)    Take a loan

c)    Liquidate investments

d)    Withdraw from contingency fund

Q6. How much of your income goes into EMIs?

a)    Over 50%

b)    30%-50%

c)    10%-30%

d)    Less than 10%

Q7. Have you rolled over your credit card bill in the past 12 months?

a)    More than 5-6 times

b)    2-3 times

c)    Just once

d)    Never

Q8. What kind of share do you prefer to invest in ?

a)    Penny stocks that can be bought in thousands

b)    Low priced small caps

c)    Mid caps that are quoting at reasonable prices.

d)    Blue chip companies even if they are high priced

Q9. When investing in bonds and FDs, what is most important?

a)    The rates of interest offered.

b)     There is no TDS

c)    Reputation of issuing company

d)    Credit rating of issuing company

Q10. Which of these do you use for online transaction?

a)    Cyber café or public device

b)    Acquaintances computer

c)    Office computer

d)    Own Computer, own network

Please find the evaluation of the scores given below:

Score Card

Over 36 points

You have ensured financial freedom by taking the right steps that will cushion against losses.

     28-35 points

You are doing well and have a good chance to be financially free if a few corrective steps are taken

     20-27 points

You could lose your financial freedom if you don’t act now. Start saving more and avoid reckless spending.

     Below 20 points

You are not financially free and can stay enslaved if you don’t drastically change your spending habit

Based on the scores, you must take appropriate steps and plan the financial goals to be financially free, else it would impact your finances not only in near future but also in long run and during contingencies.