The Best Financial Resolutions for 2018

 

The New Year is a great time to overhaul your life for the better. And what better way to do it is make those kind of resolutions that will act as a constant guide in that endeavor. For this, Resolutions, like goals, are best when they’re specific.

Financial resolutions made during beginning of the New Year can determine the shape of your short and long term financial objectives whether is it increasing your savings for retirement or putting aside a little extra for this year’s down payment of that property.

If getting your financial life in order is a resolution for you this year, here are some ideas that may help you get there faster:

1. Save Smartly!:It is common knowledge that

• Income -Expenses = Savings

We suggest change that equation from this year, make it

• Income – Savings = Expenses

This new equation will help create an automatic budget, and will ensure you only spend after saving.

Use automatic investment ideas like SIPs and STPs to transfer your monthly savings to dedicated investments for your goals.

 2. Have Contingencies, for everything!:

Dangers and risks are ever present. They can have sudden and significant impact on your finances if they are realized. So it’s better to be safe that sorry.

• Having a highly liquid corpus (available to you in 48 hrs or less) is one way of doing it.
• Another useful and highly critical step is getting adequately insured. While a variety of insurances are up for grab, focus on the basics first. Sufficient health cover for your family and yourself should top the list.
• Followed by insurance for specific risks such as critical illnesses, accidents and even insurance for your home.
• Another smart thing you should do is take a insurance for any big ticket loan you may be servicing, such as a home loan. You do not want to burden your dependents in the event of you passing away, do you? 

3. Have a Strong Debt Strategy:

• Home Loans / Education Loans

Not all debts/loans are equal. It is essential for you to know which loan is drawing the most interest from you. Also some loans are useful, such as home loan as you have access to an appreciating physical asset or a educational loan from which you stand to appreciate the biggest asset of them all, yourself! Plus it does not hurt that they have tax deduction benefits.

• Personal / Credit Card Loans

Personal/Credit Card loans should be ticked off at the first available opportunity, simply because they have high interest rates. If you had to choose between investing into a fixed income product or pay off a high interest loan, you should ideally opt for repayment. Interest saved is interest earned after all! 

4. Know what you want:

It is said “If you don’t know where you are going, well then, any road will take you there”. It is better to have well defined goals. A goal helps you focus because the end objective is clear. For example, it is probably not enough to say, “I will save some money for that amazing Europe vacation that I always dreamed of.” It needs a lot of planning and finances. You not only need to know the destinations you will visit, you also need to the travel routes you will need to take, how much funds you will need, where all do you intend to spend and so on so forth. The more crisp your goal is, the better actionables you will be able to achieve.

 

5. Invest in yourself:

In today’s highly dynamic world, the word of the day is “reskilling”. As a professional, now more than ever, you have to stay on top in your industry by constantly upgrading your skill sets. Therefore always ensure you have enough kitty set aside so that you can opt for those special courses which will give you that edge in your profession.

While not all resolutions can be worked on simultaneously, it is important that you start with some and even more importantly that you stick to them. Give your resolutions time lines so you know what to prioritize. And work towards strong finances and a worry free New Year 2018!

 

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IPO Under the lens -Indigo IPO

InterGlobe Aviation Ltd, which runs India’s largest airline by market share IndiGo, and its existing investors plan to sell around 10% of its equity.

Source : Economic Times

Quick facts

• First big listing after Jet: IndiGo’s IPO will be the first big listing afterJet Airways’ 2005 IPO. Jet Airways (India) Ltd, then India’s largest private airline, raised 1,900 crore in its 2005 IPO. The carrier, which is part- owned by Etihad Airways PJSC, now has a market capitalization of $494 million while SpiceJet Ltd is valued at $172 million

• Existing Shareholders:

 

• Use of Funds: According to its share sale prospectus, IndiGo will use 1,165.66 crore to retire liabilities and acquire aircraft. It will spendRs.33.36 crore for equipment acquisition and rest for general corporate purposes.

What works for Indigo

• Only profitable Indian carrier: IndiGo is India’s largest no-frills airline and has been the only profitable Indian carrier for the past seven years out of its nine years of existence. Indigo has won a reputation for its service quality and on-time performance in an industry characterized by debt and accumulated losses. The airline turned profitable in fiscal 2009 and has remained profitable in each subsequent fiscal through FY14. No other Indian airline has consistently remained profitable over the same period, according to consulting firm CAPA India.
• Order Book: IndoGo maintains largest order book of any Indian carrier. The significant volumes that they generate mean that they have much better bargaining power vis a vis other players, allowing them to keep their costs down.
• ASK (Average seat kilometers): ASK measures an airlines passenger carrying capacity. IndiGo’s carrying capacity has increase from 2004 to 2014 while in the same period for other carriers it has gone down.
• Falling jet fuel prices: Falling jet fuel prices in the last one year Fom Rs.165.6 in September 2014 to Rs. 92.24 in September 2015 will reduce the input cost for airline industry dramatically.

Risk factors

• Continuing to apply the low cost carrier model: The airline industry is characterized by low profit margins and high fixed costs, including lease and other aircraft acquisition charges, engineering and maintenance charges, financing commitments, staff costs and IT costs.

Significant operating expenses, such as airport charges, do not vary according to passenger load factors. In order for them to profitably operate their business, they must continue to achieve, on a regular basis, high utilization of their aircraft, low levels of operating and other costs, careful management of passenger load factors and revenue yields, acceptable service levels and a high degree of safety.  Some of these factors are not under their control. Therefore, profits may vary. Any change in fuel costs could significantly impact profitability.

• Production delays for Airbus A320neo aircraft: Production delays in the order placed for Airbus A320neo in 2011 could impact their expansion plans.
• Foreign Exchange Risk of depreciating Rupee against Dollar: With substantially all their revenues denominated in Rupees, they are exposed to foreign exchange rate risk as a substantial portion of their expenses are denominated in U.S. Dollars, including their aircraft orders with Airbus.

Quantitative Factors:

Comparison with industry peers

Note: The above shares have a face value of Rs.10

IndiGo is the only profitable airline currently, though Spicejet has just started to turn profitable post the change in its management.

Other Ratios (Source: Mint)

 

Recommendation

The company’s track record and focus on the basics provide comfort to investors, whilst its dividend payout strategy prior to the IPO has raised quite a few eyebrows and negative questions around governance. With India being one of the fastest growing markets for air travel, a well managed fleet expansion plan could pay off well for long term investors, especially as low cost airlines have tended to be the only category of the airline business that have made monies for investors.

Investors could look at investing in the Indigo IPO.

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Large-Cap funds best option for investors with long-term goals – Article by Shalini Dhawan in TOI

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Make a FINANCIAL CONSTITUTION – Article by Vishal Dhawan in Khaleej Times, Dubai

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Balance short term and long term goals

Plan your financial goals for safe future

The World has become a much smaller place in the past few years as we now have more access to media — internet and television in addition to print.  This exposure has also meant that our dreams have also become bigger — a foreign education for a child, a dream home or a summer vacation. As the Indian economy grows, we have started to believe that nothing is impossible.  However, a reality check is always a good idea to see if your beliefs are in line with the reality. If you are newly married or are planning to start a family, a relook at your financial goals and a reassessment of your priorities is crucial — to see if your finances are aligned to the big changes in your life.

Balance short term and long term goals —

When you were younger, you had the option of saving without any particular goal in mind. After your marriage, there are now a whole new lot of financial goals to think about — education for your children, their marriages, asset purchases like homes, and cars, parental support, annual holidays, and of course regular day to day expenses. Make a list of your goals. Put numbers to each of these goals — since each of these goals could have different meanings for different individuals. For example buying a house in Mumbai may be different from buying a similar house in Hyderabad, hence it is critical to put a number on each of these goals based on your expectations.  You may need to seek help from a financial planner to get a better idea of some of these numbers and the impact of inflation on each of these costs.

Prioritise your goals —

You will probably find that achieving all your goals may not be possible at the same time, so you need to know which goals figure at the top of your priority list.  Try to achieve a balance between short term and long term goals. Too often excessive focus on short term goals or any one of the goals tends to compromise on your overall financial wellbeing.  For example, over stretching yourself on your residential home purchase and its interiors could result in a compromise in your child’s education or your own retirement.

Don’t forget the risks

Current lifestyles could expose you to health risks. Ensure that you have adequate life and health cover to insure yourself.   Buying them early and when you are in a good state of health increases the chances of getting the policies at a cheaper cost. The gap between needs and funds can always be funded by insurance. Diversify your portfolio— use a combination of financial instruments —stocks/ equity mutual funds bonds, precious metals, real estate and bank deposits in line with your financial goal requirements and risk appetite. Put the plan into action —Ensure that you put your financial plan into action and monitor and review it regularly.

This article was written by Vishal Dhawan, CFP^CM and appeared in the Asian Age  on 16^th  April 2011 .

 

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