Good Money Habits
Useful tips to make your plans in the new financial year sustainable
IT'S THE RIGHT TIME for a new year resolution or two, from a financial planning point of view. Look at them as a promise to yourself, a promise that needs to be honoured. Most resolutions are made in euphoria-when you get an increment, or after reading a self-help book. The charm dies down, and so does the enthusiasm. Here are some tips that will help you stay the course all year through.
Take baby steps. The other day a colleague walked up to me and said, "I have decided to wake up at 6:30 a.m., starting tomorrow." I asked when she usually woke up. "At 8:30," came the reply. Two hours is a tall order. After a few days I asked her how she was progressing. Her disheartened smile said it all. I suggested that she set her alarm for 5 minutes before her regular time. "That's too simple," she said. If she had considered pushing the clock by 5 minutes every 10 days, she'd reach her 6:30 a.m. goal in eight months-that's a lifelong benefit. Get the drift? Now simply replace time with savings.
Tell apart a resolution and a habit. We make resolutions with a conscious mind, habits are cultivated so that eventually they are dealt with by our subconscious mind; and they stick. So don't be in a rush to invest your money. Go with a systematic investment plan (SIP) of a mutual fund or start a recurring deposit (RD). A client did just this: he started with Rs 5,000 per month, and because he did not feel the pinch, he wished to increase it. We suggested he up the amount by 10 per cent every year. If you want to inculcate this habit in your child too, ask him to put Rs100 in a post-office or bank RD. As human beings, we want to progress. Once a habit is formed, we want to move ahead and will most probably increase the investment amount without any prodding.
Get your family's buy-in. It's a good idea to involve your family in your financial plan. If your daughter knows that she can only eat out one weekend a month because you're putting money away for a European trip in 2017, she will be much more cooperative and feel she is a part of the decision. Plus, you're inculcating a habit that will stand her in good stead in the years to come.
Give your goals a meaning. Link your investment to a particular financial goal; your commitment to it will be stronger. Instead of opening an RD for a random period, think of a goal before you make the decision. A client had an SIP in equity funds, but she seemed directionless about the investment-it was just there. Once we suggested that she link it to her daughter's education fund, she immediately wished to increase the amount she was investing. When you name your investment, the goal takes on a greater meaning.
Plan in advance. Earmark any incoming funds for a purpose. For instance, if you know you will get a Diwali bonus of Rs 1 lakh, call it the "Renovation Bonus" if you'd like to do up your house, for instance. If you know this well in advance, you are less likely to buy an expensive mobile phone on an impulse.
Gaurav Mashruwala is a Mumbai-based financial planner, and the author of Yogic Wealth: The Wealth that Gives Bliss!