In exactly the same fashion if you are a serious player in the wealth creation business, we must be particular about the record keeping of your income, expenses, investments, taxation, etc.

Record keeping is necessary (nay, compulsory) for 3 main purposes:

1. Tax returns filing
2. Investment performance tracking
3. Goals monitoring

All the 3 are critical and let us start in the same sequence as mentioned above.

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing (pun intended!) experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IT department select your return for examination (in official lingo called scrutiny). Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, share transactions, and business or rental property — should be kept longer.

In most cases, the IT department does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your tax return:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs for those claiming reimbursement of car expenses from the employer

Investment records – those which have helped you claim the deductions
• Cancelled, imaged, cheques or any other proof of payment

• Any other records to support deductions or credits you claim on your return.

Good record-keeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

Nothing lasts forever, but you wouldn’t believe it by looking at some people’s record-keeping systems. People insist on keeping every scrap of paper, just in case. And when it comes to tax paperwork, folks are even more adamant. These documents will save me, they argue, if the IT department comes visiting.

But that’s not necessarily the case, say tax and organizational experts.

When it comes to tax-related documents, you should keep those that help you identify sources of income, keep track of expenses, determine the value of property, prepare tax returns or support claims made on those returns. However, common sense — as well as storage space — should be your guide.

The rule of thumb for tax papers is hold onto them until the chance of audit passes. Usually, this is three years after filing. But if the department suspects you underreported your income, it gets seven years to check into your tax life.

That’s why most accountants advise taxpayers, even those who are meticulous filers, to keep tax documents for six to 10 years.

Some items, however, have a longer shelf life. These generally are assets that a taxpayer will eventually sell, triggering a tax bill. So if you have a pension plan, an endowment plan, own a home or invest in the share market, tax pros recommend keeping these records indefinitely.

For most taxpayers, the biggest asset — and potential tax bill — is a home.

While the rules for home sales have changed in recent years, meaning sale profits don’t automatically face Capital Gains, any paperwork relating to a residence should be kept for as long as the home is owned. Inherited homes, homes broken down and reconstructed, etc. are all potential areas of tax confusion and should be taken care of.

Fast on the heels of home sales as tax triggers (and record-keeping headaches) are share transactions.

“A decade years ago, it was harder for people to invest so a lot were more conservative and went to a bank for a fixed deposit,” says Rohit Mehta a stock broker. “But with online trading, people are investing more. Keeping track of a FD or PPF wasn’t that difficult, but when you move on to shares, the tax record keeping becomes critical.”

Investment account statements contain financial data that a taxpayer will need as long as the share or mutual fund is owned. On the share side, there may be splits (bonus, rights, change in face value) that change the value of the holding and, therefore, the eventual worth of the share, which is used to determine the taxable cost.

Retirement record requirements

And then there are all those retirement savings plans, with all those different rules.

Contributions to PPF are tax free. But pension plans are tax-deferred. But sometimes already-taxed money goes into these accounts, too.

Business considerations
If you operate a small business, from a moonlighting job to a small operation with several employees, dealing with records becomes a bit more complex.

The Income Tax generally focuses on self-employed travel and entertainment expenses, scrutinizing returns to make sure all the expenses are really related to the business and can be proven. In these cases, complete and accurate — but not overdone — contemporaneous records need to be kept until the audit threshold passes.

Unlike personal bank statements, business financial account records should be kept permanently. Similarly, anyone who has employees should hang onto employment information and related tax returns for as long as the business is running. And don’t shred articles of incorporation, company bylaws, shareholder minutes, and trademark and copyright applications.

Pick a system, any system
Once you’ve identified critical records, the next step is to decide how to keep the data. Electronic bill paying can help keep track of your financial and tax life, but so can a plain old check register, as long as expenditures are entered faithfully. Do you need the computer and the world wide web to do it? Yes and a no. For repetitive, boring and accurate work the computer is a far better ally. The human mind it horrible in record keeping. Try calculating how much you spent on food in the past one month. Software programs (with faithful data entry work) can do a far, far better job.

It doesn’t matter if it’s a filing cabinet, cardboard boxes or a complex computer program. The key, is to find your record keeping comfort level, pick a system and stick with it. Myiris plus is a convenient way of aggregating your financial life and keeping it organized. It helps you know exactly what your net-worth is, when your bills are due, how much of cash you withdrew in the past 43 days, how your mutual funds are faring, which income tax form to use while filing your return, etc., etc. Ranjan Verma was also working on an accounting system – I have no clue on what stage that is now. Surely other financial practitioners also must be having some system which works…check them out too. 

Once you start down the path to investing, one thing that you’ll notice is that the paperwork piles up fast. You’ll get a confirmation every time you buy or sell a share or mutual fund, and every time you move money into or out of an account. And each of those account statements will probably include a couple of transactions, such as dividends you’re received or interest that’s been credited to your account.

If you invest using dividend reinvestment plans, or SIP (Systematic investment plans) you’ll have another set of statements to deal with, for each SIP and for each transaction. Every time you buy a mutual fund, you’ll receive a statement in the mail. Shares you own will send you quarterly and annual reports.

The bottom line: You’ll be swimming in paper if you don’t get organized. Besides the advantage of keeping your desk or dining room table clutter-free, myiris plus (www.m3.myirisplus.com) provides two some other important benefits:

Your CA will have all the up-to-date details in one location.

In case of you are physically (or mentally) disabled (or dead) the next person will find all the details in a well organized manner.

You’ll be better equipped to know how much of your investing profits you’ll owe to the tax, and can make better decisions regarding the tax implications of any investment decision. Tax planning (which happens much before tax filing)

You’ll be better equipped to figure out how well your portfolio has been performing and what problem areas you might need to address.

The biggest advantage of myiris plus to me comes from GOALS tracking. Most of us earn money to spend – on our selves, our families or charities. If this is so all the monies are earned towards meeting some goal. Goal tracking means checking whether your investments that you made towards a particular goal are going on track. Myiris plus, going forward will help you set milestones and check whether the direction and speed of your investments are appropriate of whether it requires any change – in the direction or the speed. This to me is the biggest advantage of record keeping – it helps your Track your goals.

After all Tracking is the last word in being SMART!

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A friend who is an investment adviser has a brother who is a builder – and at any point of time he is my CASH of first call! Other than this, you could keep your cash in the following places:

1. Your mattress/ cupboard / rice container: in an absolute emergency the only cash that you can really access is the cash on your hand. Decide where you wish to keep it!

2. Savings bank / Current account: This may not earn much interest but is available by just inserting the atm card whenever you wish to have the money. However, please remember that there could be a limit of say Rs. 20k per DAY.

3. LIQUID FUND: Money not immediately required can also be kept in Liquid funds instead of a savings account – the net return on investment is surely higher in a liquid fund than in a SB account (net of tax).

4. Bank Fixed deposit: More liquid than a liquid fund, but less than a savings or current account.

5. For the bigger people gilts, etc. could also be an alternative.However my recommendation is smaller investors should stick to alternatives 1-4 and leave alternative 5 to the more adventurous investors.

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“JP Morgan Chase & Co. and Morgan Stanley have collectively agreed to return over $7 billion to investors who purchased auction rate securities under a settlement announced by New York State Attorney General Andrew M. Cuomo.

The agreements settle allegations that JP Morgan and Morgan Stanley made misrepresentations in their marketing and sales of auction rate securities. “JP Morgan and Morgan Stanley marketed and sold auction rate securities as safe, cash-equivalent products, when in fact they faced increasing liquidity risk,” according to a press release by the AG.

You have similar stories of Citibank, and some of the other biggies…..

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Simple, it does not mean a thing!

IRDA has stipulated that the illustration should be made with 2 projected returns: 6% and 10% p.a. growth.  This leads most prospective buyers of life insurance to believe (erroneously, of course)  that the policy will pay  at least 6% per annum.

The illustration makes assumptions on mortality charges (in some cases it is not guaranteed), fund charges (normally not guaranteed to stay there), stickiness (all customers will continue to be with the company), death values (valid), tax structure, etc. while making the projections.

Though there is nothing wrong with 6% and 10% as assumptions there should also be a lower expectation – why not an illustration with a 0% assumption? Look at what happens if there is NEGATIVE return like say Jan 08 till date. No illustration making NEGATIVE return assumptions is created by the insurance companies. Why? Well this question has not been asked for far too long.

Actually why is a life illustration made? Well it is for you, as a customer, so that you can compare the costs and charges across fund houses.

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It is not uncommon for intelligent, competent people who have been successful in business or an academic environment to try their hands at trading on the markets. If I have been better than my peers in academics, I should be better than them in investing is it not?

In essence, because they have managed to outpace the competition in the business or university sector, they think they can do the same with investments. However, while this logic may be appealing, it does not always pay off and many of these individuals lose money for a variety of reasons.

If in a small incident like being “first” in a lunch queue happens by luck, or rather you are willing that it happened by luck, why will people not admit that they got a good share by luck? I do not know maybe a doctor can answer this question!

Speaking of doctors, they make excellent investors – ask the bank RMs who deal with them J.

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However, I do few, very few transactions in a year. That is why I realised the great pleasures of inaction. I normally use only equities or cash – am too lazy to move in and out of liquid funds and FMPs. Like preparing for a war can take a long time, and the war itself a short time – remember Field Marshall Sam Manekshaw  told the  then Prime Minister Indira Gandhi  it  would take him  6 months to prepare for the war?  Well Indira  Gandhi wanted the war in  September,  Sam  said  December, and  Dec,  1971 it was.

Similarly preparing a portfolio, construction, asset allocation, goal oriented investment planning, creating an investment strategy, drafting the investment policy statement / strategy statement etc. are the things which take time. Trading / doing the transaction takes very little time. So spend time on all these and little time in trading. It will help.

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“The biggest suggestion I have is to avoid credit cards. Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke…. So if I had one piece of advice for young people generally it would be to just avoid credit cards.”

In the Indian context the percentage is more like 38 to 42% – so If Warren Buffett would have been broke at 18-20%, imagine what such rates can do to your finances!

Warren Buffet had to say this…and he is quoted on the CNBC site…

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The basic needs of man are food, clothing, shelter and circus (entertainment?). However, most of us have today graduated from needs to wants and luxuries.

However, when the headline inflation numbers hit 11.9% there is a serious worry about people not being able to meet even their basic needs – and that is a worry.

While shopping at a discount store instead of the mall generally takes care of the clothing issue, and living in a small apartment instead of a huge house, if you can live in a less fashionable area – like Vikhroli instead of Powai, can address your housing situation. Rising world food prices can lead to some significant challenges in the food department!

Everything from rising transportation costs to the development of biofuels, push up the cost of food and put a pinch on consumers’ wallets.

While reducing your eating to one meal a day is good for yogi’s and is a good way to cut down costs, that is not what I am suggesting. Instead, I am suggesting something much simpler.

1. Eat at Home
Eating out is expensive. Apart from food even coffee made at home is inexpensive. And you get the added benefits of nutrition, hygiene, etc. Small numbers do add up – if you are spending Rs. 200 a day eating out, and it costs you Rs. 50 to eat at home – you save Rs. 150 a day. A systematic investment plan of Rs. 150 a day done for 30 years can give you returns in excess of 5 CRORES! Toast butter, vegetable sandwich, Tea, coffee, curd rice, salads – are really simple to make

2. Know what you are buying
You need a plan for almost anything you do! Shopping is not very different – if you stumble around the grocery store and fill your cart with everything that catches your eye, chances are you will spend a lot more money that you needed to spend. Plan your meals for the week ahead, and make careful note of what you need to buy. Once the list is made, purchase only the items on the list, and avoid impulse buys.

3. Buy what you need and then put on Blinders!

Stores are designed to make you go through a long walk to get to the most basic items you need. ON the way you will pick up a lot of things that you do not need, and in quantities that you do not need. Though there is no research in Indian conditions, clearly people do not use all the things that they buy – refuse to be bullied into buying! Most necessities and basic cooking items are found along the outside perimeter of the store, start there and work your way around the edge of the store.

4. Shop on a full stomach

On a hungry stomach you are likely to pick up a lot of things that look like food! You might also pick up a lot of food – which is perhaps un-necessary. On a full stomach on the other hand, you will most likely
be tense and pick up unnecessary stuff.
6. Do you really need bottled water?

A water filter works far cheaper, compared to bottled water in terms of costs.

7. Shop sans the Kids
Hungry, tired, cranky kids increase the amount of time it takes to get your shopping done. Kids can really bug you into buying things which are bad for your health and for your purse – leave the kids at home / crèche / school before you venture out shopping.

8. Buy in Bulk
Bulk buying can save you a significant amount of money. Pay attention to the prices and pick up the family size package if the per-unit cost is lower and you have a place to store it. However, you need to realize that bulk buying has a dark side too! If you are not a big user of any particular product, and storage is an issue be careful of bulk buying – the Indian weather does require refrigerators for most products.
9. Use Store Reward Cards
If the store that you visit most frequently has a reward card, sign up. In some cases, stores raise their prices when they offer reward cards, and without the card your bill will certainly be higher. If the reward card offers other benefits, such as a preferred (or free) parking, some free schemes, etc. be sure to maximize your benefits before they expire.
10. Buy Local products
Whenever I step into a big branded store, they do try to push “American grapes” – I fell for it once, and realized only on billing that it was Rs. 400 a kg! The Indian variety is normally available for Rs. 40. Locally grown or produced food is often available at a cheaper price because you don’t pay for long transportation costs. In the place I live I also see farmers coming and holding an exhibition / sale of seasonal vegetables and fruits – common to see a mango mela or a fruit and vegetable exhibition. You cannot do your weekly purchase here but you get a good price indication.

11. Choose unbranded goods!

There is a huge, huge cost difference between a branded product and an unbranded one. Even in case of “expensive” items like dry-fruits if you buy it from a wholesale-retail shop you will find a 20% price difference. Some branded foods like cornflakes, hold your breath – are more expensive than dry fruits on a per kilogram basis J. If you thought potatoes were selling at Rs. 12 a kg., you are correct, but when it gets converted to branded chips, it becomes a little expensive – about Rs. 300 a kg!

12. Men are bad shoppers?
It is not so much a gender issue – but men do not have much patience and that shows while shopping. So if you are a man, realize that shops know and understand this. So things are arranged in such a way that when you are in a hurry you will find the most expensive items. So look in the corners, look at levels lower (and higher) than just at the eye level. To find less expensive items, look down. Also, looking around your brand-name food can find you a cheaper generic alternative.

13. Avoid Checkout Temptations

Normally you have some high priced crackers, chocolates, shaving blades – and the cheaper alternatives are just a little further away, so walk a few steps. Picking up things at the check-out counter surely spoils your health – like the chocolate that you eat on the way to the car! Most of the times it also spoils your wealth.

14. Compare Prices and Stores
I personally do not compare prices and stores but my wife has a doctorate in this! She knows which shop is good to buy vegetables, which shop for branded goods, and which shop for unbranded goods. And she plans her shopping accordingly.

15. Sales offers
In Indian conditions September to December are what we call “Festive season” when most of the buying happens. Surprisingly, Hindus, Muslims and Christians have some festivals for which they buy new clothes in this period. So shop keepers do a pre-festive sale in July-August and a post-festive offer in January. Use these sales to build your wardrobe – you can get good deals.
16. Shop less frequently
The lesser the number of trips you make to the shop, the lesser the things you will end up buying! So if you are making more trips to the store, it is time you reduced the trips.

17. Pay In Cash

When you buy your day-to-day requirements with your credit card, and do not pay off in full, you pay interest. Apart from this, when you see cash go out of your hand, you tend to be more careful about how much you spend. So paying by cash is a good option.

18. Check Your Bill
You should check all the statements which have a financial implication – whether it is your credit card statement, you mutual fund statement, your bank statement, your insurance statement or even your bill at the Store where you buy. Scanners are fine, but sometimes there could be a mistake. There could be one item scanned twice. Sometimes the prices are not changed – maybe carelessly but you MUST see the bill before you pay. Or go home, check and then scream if things are wrong.

19. Buy leather goods in monsoon and umbrellas in Winter!

During the non-season prices of goods are lesser. If you are in a monsoon area check out for sale of leather goods. There must be one going on somewhere near your office / house. Be alert to such offers. If you are buying things for your kids this is more true. So be awake.

Keep watching this space, i will keep adding points here….

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If you tell a real estate broker you are looking for a house for 6 million, be prepared to shell out 9 million!

All of this is easy – because there is a huge push to make you think in EMI language – not full price language! Sir a Merc is available for “only” Rs. 54,000 p.m. as EMI!

What are the indicators that you are living a little beyond your means? They are as follows:

a. Your cheks are bouncing! This is perhaps the worst indicator that you are issuing “rubber” cheques…so this is not a good idea.

b. Your credit score (currently in India you do not have a copy of this) is falling and the people who have lent or wanting to lend to you are hesitant about default and are increasing the interest rate..

c. You are saving less than 15% of your salary!

d. You are charging everything to your credit card and are paying only a part of the amount! I hope you noticed Hdfc bank has raised the interest charges to 3.25% p.m

e. You have 4 credit cards and you are borrowing from one card to pay the other 3!

f. More than 30% of your earnings are going towards EMI payments

g. You have no emergency fund, losing your job is one of the nightmares you go through regularly, one small repair like having to replace your car tyres can create hell for you!

h. you are happy visiting your parents for 10 day vacations because you can save some living expenses

i. if you will touch your parents’ kitty for your purchase of car, bike or your marriage expenses

if you have any of the above mentioned problems, you need to set your financial house in order. TODAY.

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Cnbc? Ndtv Profit? Zee Business? …

Well what about Animal Planet?

O.k. Okay…I am wrong, but please read ahead especially if you are asking me …

Will watching Animal Planet help me answer the following questions?

Will inflation touch 17% six months from now?

Where will oil be six months from now?

And where will the sensex be?

What about real estate?

Fact is, investors who try to time the market are fooling themselves. Jumping in and out of the market isn’t a reliable strategy for wealth creation, and it isn’t successful – period.

Fact is, you are trying to fool yourself by hoping to get answers to these questions by watching the business channels.

You cannot get an answer to these questions by watching Television, or by doing a PhD in Finance. So stop attempting to answer these questions. Period.

Generally in any sport or in real life activities you win by controlling your emotions – not by succumbing to them. So unless you are really made of steel you will succumb to the emotions of the TV analyst. Just remember the channel makes money if you watch. You make money if your portfolio does well. I have still not seen proof that watching television (or reading the pink papers) can create a good portfolio. I may be wrong, but I still have to say it!

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