SIMPLIFY YOUR FINANCIAL LIFE
1. Your bank account
· Recognise the bank account as your primary book of account in personal finance.
· Streamline your income into one or two bank accounts for explaining all income sources, understanding how it has grown over time, and deciding how to fund expenses and investments.
· Resist your employer’s demand to open an account with its bank when you change jobs.
· Use your bank account for routine payments of bills, utilities, loan instalments, credit cards, taxes and insurance by giving standing instructions to your bank.
· Consolidate the expenses out of your income in one place by using your bank statement.
· It is also possible to export your bank transactions into applications that can analyse them by setting up your spending limits for various heads, alert you when you cross the limit, and automate your monthly budgeting exercise.
2. Your cash life
· Reduce cash in your life.
· When you transact with your debit or credit card, your expenses are documented for you.
· Your bank statement or credit card bill will easily tell you how you have spent your money.
· Cash expenses only show up as withdrawals and cause mutilation, inconsistency and incorrect data.
3. Your advisers and intermediaries
· Reduce the number of advisers and intermediaries for your personal finance to simplify your financial life with better control.
· These could be brokers, financial advisors, insurance agents, loan lenders, tax accountants, fund houses, trading and demat accounts.
· Choose financial advisors who will consolidate and outsource the financial functions they cannot perform.
4. Your financial products
· Reduce the number and type of products in your portfolio.
· Holding too many variants of funds, insurance, stocks and bonds in multiple folios and certificates seriously impacts performance since your portfolio is too fragmented.
· Choose financial products of a few reputed firms with good track records, and they are most likely to have all that you need.
5. Merits of passive investing
· Choose products that don’t require constant monitoring by you.
· Pick diversified large-cap stocks, index funds, bonds of large AAA issuers, government savings schemes or deposits of well-known banks, to avoid wrong decisions.
· Choosing simple and time-tested products simplifies monitoring and decision-making.
· If you have a regular income and are building a portfolio to generate long-term wealth, pick growth, cumulative, reinvestment or accumulation options.
· If you buy a tax-saving mutual fund, there is no need to redeem when the lock-in period is over, and the money can stay invested.
· So can the deposits which get renewed on maturity, and interest reinvested on payment.
· It is a good idea to keep the money deployed, not idle, due to our inaction.
6. Your saving habits
· Align your investments to your saving habits.
· If you are a reckless spender, you can start an auto-debit facility from your bank account, which directs money to investments before it is available to spend.
· If you have a surplus before the next salary comes in, deploy the balance at the end of the month through simple electronic transfers into your investment folio.
· Take time to form simple rules on dealing with your saved money and rescue your wealth from procrastination.
7. Your documentation management
· Make a file where you note the details of all your documents related to investments.
· Inform your spouse and other family members about all financial transactions for easy access even if something happens to you.
· Mention a nominee in all financial investments to ensure that the funds are transferred to the nominee without any hassle.
· Set up reminders for premium payments and maturity dates of investments.
· This can be done through various websites, your PC and even through mobile phones.
· Give electronic transfer mandates for direct credit of dividends, interest payments and maturity proceeds into your bank account.
· Close down bank accounts you don’t use, transfer your Provident Fund to the new employer and avoid having too many mutual funds and insurance policies.
· The fewer the investments, the easier they are to track.