Simplify your financial life

Implement these basic tips, avoid mistakes, and you will give a headstart to your personal finances

In the US, July 12 is observed as Simplicity Day. On this occasion, here are a few basic tips that will help reduce the complications in your financial life.

Simplifying things has dual advantages. One, what is simple and easy often gets implemented. Two, if you stick to a simple roadmap, get the basics right and avoid expensive errors.

On the investment front, have a limited set of financial goals. Build separate portfolios for each goal. Buy suitable investment products within each portfolio, depending on your risk appetite and time horizon. “First-time, long-term investors in equities should opt for low-cost index funds, where they don’t have to bother about selecting the right fund,” says Ankur Kapur, founder, Ankur Kapur Advisory. Only after you have gained experience with equities should you invest in active funds.
 

Avoid clutter. “Don’t have more than seven or eight funds. If you buy more, there will be unnecessary duplication,” says Mumbai-based financial planner Arnav Pandya. Tracking performance also becomes difficult with too many funds. Use systematic investment plans (SIPs) so that money gets debited and invested automatically. “You need to have a single, updated view of your portfolio so that at any point of time, you can tell where you stand,” says S G Raja

Sekharan, who teaches wealth management at Bengaluru’s Christ University.



The Portfolio Manager tool available at Valueresearchonline and Moneycontrol can help you do so. Buy term insurance as soon as you can afford to. “The premium amount will be low and will remain the same throughout your life. If you delay, it will be higher,” says Kapur. While it is okay to depend on your employer’s health cover initially, get your own as soon as you can.

Avoid opening too many bank accounts. Earmark each account for specific transactions: meet household expenses out of one, EMI payments out of another, and so on. Ensure that you have the requisite funds in each account at the start of the month. Use internet or mobile banking to save time.

Make do with just two or three credit cards. If you use more, you may miss out on payments by the due date. “Use the appropriate card to maximise your free credit period. A card whose billing cycle is 1st to 31st should be used to make a payment on the 5th. Another, whose billing cycle is between the 15 and 14, may be used to pay a bill on the 20th,” says Pandya.



Use the appropriate co-branded card. “One card may give you bonus points on airline tickets while another may give discount on fuel purchase. Don’t use the first card to buy fuel and vice-versa,” says Parth Pande, co-founder, Finance Buddha.

Avoid revolving credit. “If you can’t pay in full, convert the card outstanding into EMI, so that the interest comes down from 36-40 per cent to 18-20 per cent,” adds Pande.

Use net banking to pay your bills. “If you automate bill payment, even disputed bills will get paid,” says Pandya.

With the July 31 deadline for tax filing approaching, collect all vital documents at the earliest: Form 16, Form 26 AS, proof of investments, bank records, and a record of all purchased and inherited assets in India and abroad.

“If your total income tax payable in a financial year exceeds Rs 10,000, pay the advance tax by the due date,” says Amarpal Chadha, mobility leader, people advisory services at EY India.