It is the end of the year, and you need to clean up. You may do a lot of work in your house putting everything in order. Your finances deserve equal attention.
Take a pause and review your money decisions thus far. You may notice things that could make a difference to your long-term finances.
There could be some unnecessary subscriptions that you may want to discontinue or investment opportunities that you could have easily used to generate an extra return.
Your spending or expenditure
The first step in this exercise is to look at your spending for the year. If you have a credit card or a savings account with a technology-savvy bank, you can use their mobile app or website to analyse your spending.
There are consumer surveys that reveal a difference between the amount people ‘think’ they spend and the amount they ‘actually’ spend. The convenience of using your smartphone for payments means your spending would be substantially higher than you think. If that is the case, you may want to know the truth. Most of you have multiple credit cards or bank accounts. You may want to use a credit card with a lower limit or a bank account with your designated money for spending. That way, you can curb your urge to spend efficiently.
The other important thing is to check your credit score. You may want to do a course correction if you have missed making loan repayments on time. Do not let it fall; otherwise, you would end up paying more interest on your loans. Your credit card statements for the year would make interesting reading on relevant and irrelevant expenditures. Try to highlight them and think hard. Ask yourself questions about their need and ensure mistakes are not repeated in the New Year.
Your income
It is time to take stock of your sources of income. Everybody wants more income to fulfil their dreams. However, your existing job or business may not be adequate to help you realise your financial goals. Many Indian households invest in real estate to generate a rental income. That works as a second income for many. However, you need to figure out the cost-benefit of owning a property and the adequacy of your rental income.
If you have invested in more than one property, you may want to consider holding more financial assets. Some stocks pay a higher dividend every quarter. These are usually bluechip companies that have a consistent profit record. The valuation of these companies does not matter if you are a long-term investor.
The other option is to look at mutual funds with a monthly dividend pay-out and offer returns linked to the market. You need to weigh the benefits of the rental income from the additional properties you own with the ease of owning financial assets and generating a dividend income. It is good to speak to a financial advisor to understand the nuances.
Your investments
It could be a good idea to rebalance your portfolio. The year 2022 could be a year of rebalancing. The world has enjoyed the benefits of easy money, where interest rates have hovered around zero for a long time. However, things are changing rapidly. The US is witnessing an inflation rate never seen in 52 years. That could push the US Federal Reserve, the central bank, to raise rates sooner than later. The year 2022 could see rich countries raising interest rates. In India, that could mean a lot of things. First, the stock markets could witness an upheaval.
As the US dollar strengthens, money could flow out of India and other emerging markets. Second, a strong rally for over 18 months could mean institutional investors resort to churning portfolios. They would move out of sectors sensitive to interest rate movements and move into new industries solving problems through technology.Digital transformation is a buzzword in boardrooms. Companies that provide products and services that enable digital transformation would attract more money.
(The author is editor and publisher at www.moneyminute.in)