An interesting article from Wall Street JournalWhat do the Commonwealth Games have in common with your money?
Some might say nothing. But a closer look at problems plaguing the Games reveals that if the Organizing Committee had followed some basic principles of financial planning, it could have saved India a lot of embarrassment.
While the Games are here only for a few days and will be forgotten in some years, your financial portfolio has to last you a lifetime. So, I decided to list key lessons from the Games mess that should help maximize your wealth over the long run.
Start Early India won the mandate to host the games as early as 2003, but a majority of the work to build the stadiums and other infrastructure didn't start till 2007. As a result, the government had to scramble to complete many of the Games venues, and some practice facilities have not been completed even two days before the Games officially begin.
Moral of the story: If you don't already have a financial plan, start the preparations now. List your major financial goals, such as buying a house or paying for your children's college fees, and make an assessment of how much money you need to meet these goals. Start setting aside some money periodically into long-term investments such as stocks or stock mutual funds. The younger you are, the more you can afford to put into stocks, which are more risky than bonds, because you have time to absorb any market declines.
Build a Solid Foundation The collapse of a footbridge near the main track-and-field stadium and the cave-in of a weightlifting venue highlight the weak construction at some venues.
To avoid a similar fate for your finances, build an asset allocation for your savings and investments. In other words, divide your investments into a combination of safe investments like fixed deposits and bond mutual funds, and riskier investments like stocks that can pay higher returns over the long run.
Putting too much in any one type of investment can hurt your overall finances. A very high allocation to stocks can decimate your portfolio during market downturns, while a high allocation to bonds or bank accounts, which generally have more gradual, lower returns, could make you fall behind the inflation rate.
Think Long-Term A more sturdy foundation, with a long-term outlook, could have prevented the footbridge collapse.
Make sure you allocate your money in high-quality, and long-term investments. Don't simply follow trading tips that your broker might recommend, such as buying a stock for a few days to make a quick profit. While stocks have historically gained value over long periods of time, nobody can predict their movements over a few days or weeks. So, following short-term ideas could leave you with much less money than you started with.
Don't Over-Commit If our government had done a serious assessment of what we were capable of preparing for the Commonwealth Games, perhaps we would have had less ambitious construction plans and thus completed high-quality venues well and on schedule.
Similarly, when it comes to your personal money, don't use it to buy things that you really can't afford. If your salary and savings can afford you only a two-bedroom apartment, then for now that's what you should buy. Don't buy a four-bedroom apartment hoping that tomorrow your salary will go up, or some other miracle will happen to help you pay a large loan.
Don't Be Greedy At least two top officials involves in the Games have been suspended over corruption allegations, and media reports say the Supreme Court is quite angry over this issue.
The bottom line is being greedy can hurt. If someone suggests ways for you to make quick profits, or talks of schemes that can double or triple your money, don't simply jump at the offer. There could be a catch or scam hidden there somewhere, so make a sound analysis before making any decision.
Avoid Incompetence As if corruption was not enough, poor planning has added to the fiasco leading up to the Commonwealth Games.
Avoid this mistake in your finances, by steering clear of unqualified or incompetent financial advisers. This means that your well-meaning father-in-law or friend from college who gives you free advice about how to save on taxes, could possibly be giving you bad advice. In fact, they could well be making hefty commissions on products they tell you to buy. Instead, go to a professional financial advisor you trust.
Prepare for a Rainy Day Several rainy days during the monsoon disrupted the preparation for the Commonwealth Games, delaying construction in many cases and causing leaks and damage.
Make sure you are prepared for any rainy days that might hurt your finances. To do that, set aside a portion of your savings, ideally at least three to six months of your salary, in a safe place like a bank account or short-term fixed deposit. This money could be handy in case of a medical emergency, or if you lose your job, or for other hardships that come your way.
