ew Year resolutions are made to be broken.
I know this cliché, so do you and so does the whole world.
But this has never stopped me from making New Year resolutions year after year. And why not? The temptation to get rid of some of my current habits and cultivate new ones for some apparent betterment is irresistible.
As is the lure to dump them a few days into January. And, if I am particularly strong-willed, I can stretch that to a few weeks...
This year is going to be different.
I have come to realise that one reason why resolutions are broken is that they are positive assertions -- 'From now on I will do this or do that...' types. Any psychologist will tell you negative reinforcement ('I will NOT do this...') is far stronger and therefore has a reasonable chance of survival.
So my resolutions are a list of '5 don'ts' as far as managing my money is concerned.
1. DO NOT write down daily expenses
The sight of a new diary or planner, combined with an acute guilt of being a spendthrift, makes me assert every New Year's eve that I will faithfully jot down my expenses everyday. I will analyse them at the end of the month. And I will take prompt action.
I cannot think of anything more pointless.
No one has succeeded in curbing unnecessary expense by simply jotting it down. And I certainly don't want to waste precious time in trying to recall insignificant expenses incurred during the day.
After a few days, I am convinced that jotting down expenses will become a purposeless routine.
At the month end, I cannot imagine myself going through all of my expenses with a magnifying glass.
So I have now come up with the radical idea of cutting up my credit cards on New Year's Day and throwing them into the bin. Once my anxiety subsides, who knows, I may pick up one of those which have no annual fees (there are a number of them going around now).
2. DO NOT save for my child's higher education
Blasphemy, isn't it? At least that's what my wife thinks.
Think about it.
Saving for my child's higher education seems to be an outdated idea for several reasons. The concept of education over the next two decades will undergo such changes that my child could be attending Harvard University's online classroom from a corner of India. 'Campus' will mean something completely different.
More important, banks and institutions will be vying with each other to fund education with extremely flexible and consumer-friendly repayment options. Few parents will have to write cheques for their wards' college education.
Now, don't point fingers at me. This does not mean I plan to be irresponsible and blow up the money I would have otherwise saved for my child's education.
For one, I plan to channelise it to provide her with a good school education (and extra-curricular activities) right now. I might probably even save enough to be able to provide her with the start-up money when she decides to start her very own business after college (If you think your child will look for a job, you are living in the past).
3. DO NOT diversify
Conventional wisdom says your wealth should be made up of all kinds of assets. You should have stocks, gold, bonds, real estate, mutual funds... a little bit of everything. Well, I do and I can't see myself any richer than earlier. In fact, I am sure this is a surefire strategy to perpetuate poverty!
This year, I am going to be focussed. I am going to identify a few stocks or bonds or property (after some solid research). Then, there is no shying away. I am going to back it with my full might.
Makes sense, doesn't it? If I am confident of my own analysis, why would I needlessly diversify and buy stuff I don't believe in? What is wrong in putting all your eggs in one basket when you know that it is the best place to keep your eggs?
All my wealthy friends have done just that (at least that's what they say). Buy a few stocks or one piece of land or back a single great entrepreneurial idea. That is the way to make money.
Diversification is no virtue.
4. DO NOT invest in government-sponsored schemes
The government runs several popular saving schemes like Public Provident Fund, National Savings Certificate and so on. Most of these offer tax concessions of some kind. Tax incentives are used as a bait to woo investors to these schemes, which offer average returns.
Of course, your friendly neighbourhood PPF agent will try to convince you that these are government-run schemes and hence there is no risk.
Really?
I beg to differ.
I am of the strong opinion that they, in fact, carry huge risks.
Imagine the government just deciding to withdraw its tax incentives or lower the interest rates. Worse still, perhaps not even having the money in the kitty to repay when it is time for you to collect money back from the government.
Hey, don't write me off.
There have been several instances in the past when the government has done all this and more. In some cases, it has simply printed another IOU (not cash) and handed it over to investors when they came to collect the money they had invested.
The government can simply create a law to justify any of its actions. In short, the government can do anything. You are completely powerless against the might of the state.
Why would I extend my state of helplessness to finance?
5. DO NOT invest in gold
In the recent weeks, the price of gold has been shooting up. I, for one, am not seduced by the sheen of the metal.
In fact, I can come up with several irrefutable reasons as to why gold will have to lose value in the future.
There is more gold below the earth, waiting to be mined, than above it with people. The supply of gold will outstrip any demand, howsoever persistent.
Gold is losing its value in industrial use. Central banks (banks that control a nation's finances like our Reserve Bank of India) all over the world are sitting on piles of gold. Many, in fact, are now selling gold in the market since they see no reason hoarding it in vaults.
So why should gold be sought after?
Well, most people buy gold; they do not invest in gold. This means they buy gold in ornaments for keeps. These are, at best, passed on from generation to generation, but seldom sold to make a profit. So I will buy gold to surprise my wife. But invest in it? Banish the thought.
I have eagerly leaped into 2005! I am sure it will be great for my finances.
What about you?
The author is a personal finance columnist. These are his views and he does not recommend anyone to follow suit.
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Illustration: Dominic Xavier
