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The 4 Laws of Money Management

The 4 Laws of Money Management

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Published by kuldip1951
MONEY MANAGEMENT
MONEY MANAGEMENT

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Published by: kuldip1951 on Sep 03, 2013
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The 4 laws of money management

Sudhanshu N | July 07, 2005 | 08:48 IST

oney! Money! Money! Every single day, our lives revolve around it. Either we spend it, trot to the ATM to withdraw it, look at credit card statements and bills (ouch!) or consider borrowing it. If this ongoing, perennial activity of yours is being done on a muddy path, you are going to slip and fall, and fall bad! On the other hand, you can get by with intelligent concise placards and stride comfortably into your financial habitat. 1. Maintain a healthy credit snapshot Smart money managers think about tomorrow. Remember, life isn't about today or yesterday. It's about 20 years from now, 20 years of making, needing and spending money. A great step in that direction is to build an impeccable credit reputation. A good credit record is an integral part of your financial strategy. It will tell future lenders about your track record when it comes to handling money and your ability to repay the debt you are seeking to incur. It will also give them an indication of how much money they can trust you with. So, if you are used to erroneous spending habits followed by consequent default on utility payments, you could be in trouble. It's time to do a rethink. Thanks to the booming financial landscape, organisations like the Credit Information Bureau of India Limited will now monitor your payments, audit your detailed financial history and sniff out any delinquent record. Yup, there is now a 24-hour financial hound offering these very appealing repayment and transactionbased morsels to a vast array of lenders across the country. The impact could be a direct translation into a not-so-attractive credit rating!?In fact, these very credit scores/ ratings will be one of the primary tools a creditor uses when determining the risk in lending money to you. Basic credit-building blocks     Live within your means. Be committed to your monthly budget. Pay your bills on time. Don't go overboard with debt.

2. Appreciate the time value of money Instead of investing on lotteries or game shows, wherein your chances of winning are a zillion to one, make your money work for you today.

in the long-run. be realistic. All your friends may be investing in the share market. a peek at the other side of the fence. When you invest. you will need to keep a larger balance than a single person roughing it out! Thumb rule: A sum equal to three or four weeks of your family's income should help you to sleep soundly at nights. When you borrow. It?depends on your overheads and personal circumstances. How much risk do you fancy? Risk appetite. you are actually paying 26. but are you sure you are up to it? The returns could be fabulous. 4. Remember. you will either need to borrow from someone or sell an asset -. though. Here's how it works. if you are married with a home and a family. The lesson is this: every day that your money is invested is a day that your money is working for you. Whatever you do.it can work for you or against you. So your choice of investing products (it could be stocks. and if you will be able to sleep at night knowing that your principal amount may not make it back home. A good hedge against such eventualities is to always keep sufficient funds in a savings?or?fixed deposit account.Leverage the power of compounding.and then reinvest those earnings as you receive them. but do remember that stock prices plunge. To put it succinctly. you have to assume a fair amount of risk. you are not paying just 2% per month in interest cost. To earn the highest rewards. insurance.8% per annum!!! So choose which side you want to sail on! 3. gold. your goals.both of which can lead to a?poor deal. fixed deposits. mutual funds. If you minimise your exposure to the perils of investing. like ‘beauty’ lies solely in the eyes of the beholder (or investor in this case). real estate. It's about discipline and self-restraint. it pays off big-time! Illustration: Dominic Xavier . How thick should your nest egg be? You are the best judge. etc) should? depend on when you will need the money. Financial success is a lot about giving yourself some breathing room and moving beyond a paycheckto-paycheck lifestyle.?The snowball effect can be astounding over the long term. You put your money in an investment with a given return -. it works for you. Cash is hip Life is often a roller-coaster ride and you have to be ready for sudden plunging dives. when you are in financial distress and need to raise money. remember that compounding is busy working against you. Risk is an integral part of our lives and you cannot wish it away. Now. Do remember. companies go bankrupt and indices go haywire. Believe me. every time your credit card payment is overdue. then you have to accept lower returns. it works against you. Obviously. that this is a double-edged sword -. When you borrow.

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