Question

In this unit, we worked on finances with the primary focus on financing issues and concerns for your business. However, in Appendix D the topic is managing personal finances. This is important because if you can't get control of your personal finances you will have problems financing your business and focusing on your business.  

Discuss the following, in an essay and not simply by answering the questions:

1. What are the steps you can take to control your finances? How can you start to implement those steps now?

2. What steps should a person follow to build capital? What steps will you take?

3. Why is real estate a good investment? Do you want to or do you own real estate? Do some research. How might you get started investing in real estate? Even though real estate in Southern California is expensive there are lots of programs to help potential buyers. See what you can find.

Answer 1

Solution

a.Yes it is of out-most importance to get control of your personal finances you will have problems financing your business and focusing on your business.Firstly,prepare a estimate of your income and expenses for a month and then arrive at an estimate on how much saving would be left with you.Secondly,right from the beginning of the month,try to track all your expenses and income using an application on your phone.From the following month,try to invest your savings first and then try to live with the remaining amount.Start building an emergency fund by contributing some amount every month which is typically equal to your 5-6 months of your expenses in order to take care of your liquidity needs.Plan your investment of your surplus.Diversify your investments based on your goals,risk-taking ability and time-horizon into debt and equity components using different vehicles like mutual funds,fixed deposits,treasury bonds,real estate,gold etc.,.Track your portfolio once in at least 6 months and make changes if required.

b.A person should invest in vehicles like equity mutual funds,stocks which are riskier when compared to debt instruments like fixed deposits,treasury bills / bonds.He/she should take advantage of tax-saving instruments which normally have a lock-in period.They should also opt for growth-option instead of dividend option as in the case of former the dividend yielded would be re-invested back for future growth.So,the power of compounding works and ensures capital building

3.Real-estate is a good investment since Land is limited but the human needs are growing owing to rapid growth in population.I want to own real estate.

I would get started by investing in funds that invest in real estate i.e., funds that invest in developer companies,real estate consulting companies,companies that provide allied / support services etc., as investment through this mode is considered to be less risky when done with due diligence as our investment will have the advantage of diversification and also our investment will be managed by professionals in a sophisticated manner ensuring returns which beat the markets.It is also beneficial to take this route specially for retail /small investors who will have comparatively lesser amount to invest.

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