How to be your own Financial Advisor

• 7 June 2016 | 1027 Views | By Mint2Save

It is quite interesting that when you approach for taking a loan, you have to deal with at least 2 people who have expertise in it and they analyse your income, your age and everything to make sure you deserve their money.

Does the same happen, when you plan your investment?  A lot of people would deem themselves to be financially expert and would keep on blurting out investment ideas into real estate and shares and mutual funds all the time, but they don’t know your money, your plans and your risk taking appetite.

Before you head and search yourself a financial planner or put questions on some financial planning question blog/newspaper column, get a brisk read to the 5 points which every financial advisor would invariably look upon while devising a plan for you.

Listed here are a 5 basic yet powerful tips that can make you your own Financial Advisor.

1. Savings Account Utility: First idea of being a financial advisor is to realise the utility of your savings bank account. Ideally, savings account should not hold more than 3 times of your gross monthly income/salary. Set this cap on your savings account and whenever it goes more than that, it means you are ready for investment.

2. Investment for every term: When it comes to investment, do not investment in same investment vehicles repeatedly and do not invest for same terms. Instead, divide your investment into three time buckets: small, medium and long. Dividing them on the basis of their term would never leave you short of funds. Depending on these terms, you can set various financial goals like purchasing a car, a house, high end education etc.

In fact, there would be a lot of mutual funds and other investment vehicles that do have a maturity bucket. For instance, for investment for 1 to 3 years, recurring deposits, fixed deposits and liquid mutual funds are one of the most recommended products.

For time buckets between 3 to 5 years, AAA and AA CRISIL rating based bonds prove to be a good investment along with fixed deposits and liquid mutual funds.

For longer term durations, equity and real estate, can be considered.

3. Necessity of Insurance: When not taken as an investment, insurance is one of the most beneficial and recommended financial advice. Protecting self and family from various financial adversities of the future is a matter of utmost importance and has to be handled with best available options.

4. Planning Tax Liability: If you are earning well and contributing to the nation’s growth, there is one more for you: the Income Tax. However, a number of reliefs and tax benefits do come in the way which can be used to the maximum, making your tax liability as less as possible. Once you have planned the tax amount you can save comfortably, you can easily file your tax.

5. Using Excel for Income and Expense Tracking: Spreadsheets are a great way for analysing your earning and spend trend. Try sparing at least minutes every night to list out all your expenses that you have incurred. Eventually, you will observe a trend in your earning-spending pattern and would know how and where can you curb your expenses.

The above 5 points may not be followed serially as you might need to take care of one point at an early stage. For instance, using a spreadsheet software like MS Excel would tell you how your expenses and income go hand in hand.

Or, when you just start earning, getting invested into a recurring deposit shows your prime importance to savings.