Victor Vaz, 37, Zonal Manager (Projects), Reliance Engineering Family (seen in picture): Wife Meenal, 35, housewife; daughter Angelica, 8, student RESOLUTIONS: 1. Will add on to existing insurance investments 2. Will sell their house and buy a bigger house to benefit from tax benefits on the principal amount announced in the recent Budget 3. Will invest in systematic investment plans in mutual funds for long-term savings 4. Will stop locking in funds in long-term debt instruments 5. Will try and change asset allocation in favour of equities

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Slick Future

New year is the time for resolutions. By that logic the new financial year (2005-06 in this case) is the time for financial resolutions. Even though most of us are adept at making resolutions and then breaking them, that doesn't take away the importance of chalking out goals and objectives so as to try and manage our finances better. After all, the beginning of a new financial year in India usually coincides with the announcement of the annual Budget, a document that influences our financial management to a great degree. And for most salaried employees it also coincides with the yearly increment. The time, then, is just right. Here are five personal finance resolutions for the financial year 2005-06 you may want to consider.

1 AUGMENT INCOME

There is a general sense of economic well-being all around. The economy is growing at 6.7 per cent, and more jobs are being created (see Jobs Galore). Salaries, too, are on the ascendant. As Sonal Agrawal, Senior Director, Accord Group, puts it: "In cases where one possesses the required professional skills, one could get a premium to normal salaries, as there is a dearth of supply. For example, for someone who has had senior level exposure to retailing, this is a good time (to hunt for) a better financial package." Take our advice then: go out and look for a change.

There is always a risk attached to switching jobs, particularly if the new job is in an emerging industry, but there is every chance that the move will prove beneficial, especially in a booming economy. Adds Agrawal: "It is also a better time to take risks by exploring newer industries or concepts, as a booming employment economy will absorb you back in the event that things don't work out, a difficult proposition in a declining market." Sign on bonuses and stock are both additional incentives people switching jobs can look forward to. There are things a job-switcher has to watch out for: work profile, compensation, the growth potential of the industry, and the reputation and stability of the company. Then, this is a fairly regulation wish-list and not too tough to keep track of.

Today's hot and happening industries include those of recent vintage such as retail, retail finance and R&D/ product development and old favourites manufacturing, IT/ITEs, pharmaceuticals and telecom . So, if you are on the lookout for an opportune moment to see your salary, and standard of living go up the growth curve, this is it.

2 SAVE MORE

We all know the importance of saving for a rainy day. With Budget 2005 having rationalised the income tax structures, you are likely to pay less tax and have more (fine, a little more) money in hand, especially if your income is on the higher side. Coupled with the general rise in salaries (remember, a switch can help this cause), the situation calls for taking a fresh look at your savings strategy. Irrespective of how much you earn, it's a good idea to start by putting down, on a piece of paper, your family budget detailing all expenditure; this will help you gauge your surpluses. That done, set short-term and long-term financial goals for the surplus. For instance, if you propose to buy a home theatre system or make the down payment for a car, calculate the amount required and save for it accordingly. Then, calculate how much you are saving. Start by targeting 10 per cent of what you earn. It may be a good idea to transfer this to a separate account, either an automatic transfer deposit account or a mutual fund account. This should protect it from any impulsive spending urges. Increase this to about 30 per cent in six months. Any bonuses, salary hikes or unforeseen gains could be directed to this account. If an urgent situation forces you to withdraw from this account, make it up in full.

Dr. Kavita Kalle, 33, Dentist Family Father Jeevan, 63, retired businessman; mother Anju, 57, housewife; brother Sanjiv, 30, finance professional RESOLUTIONS: 1. Will buy property in 2005-06 to take advantage of additional tax benefits granted in the Budget 2. Will do away with random year-end investments 3. Will invest in balanced funds on a monthly basis from April 4. Will diversify her portfolio, which has more of investment-related insurance products currently 5. Will get her finances more organised

3 INVEST IN EQUITY

Saving for a rainy day is all right, but not enough. That's because returns from savings rarely match the rise in prices of goods and services (inflation), and the value of the money you save likely goes down by the time you decide to put it to any use. That's not to say you shouldn't save. Save by all means, but not all of your disposable income. Invest part of it in equity, since historically equity has always over-performed other investment avenues, and is probably the only way to beat inflation. Says Anantpadmanabhan Sarma, Deputy General Manager, IDBI Capital Market Services: "While the investing style of a person should be based on his/her age, risk profile and financial goals, investors should start off with at least 60 per cent equity investments at a younger age and reduce the component to about 20 per cent post-retirement."

However, investing in equity is not the same as parking your money in a savings account or a fixed deposit account. It can burn your fingers, particularly in a volatile stock market such as what we have now, where too many people are chasing too few stocks. For greenhorn investors, therefore, it's always a better idea to make equity investments through mutual funds (MFs). Says Sarma, "Regular investments in systematic investment plans of equity funds irrespective of the peaks and troughs of the market would create long-term value for investors." One family that's looking to take the mf route for investments is that of Victor Vaz, Zonal Manager (Projects) with Reliance Engineering. "We don't need to lock in our funds in long-term debt instruments that we have been doing as a part of section 88. That's going to be a big relief. We plan to invest the surplus that may arise out of rationalisation of the tax structure in systematic investment plans of mutual funds for long-term savings," says Victor's wife Meenal. As to the amount that you could put in to MFs, make that about a fourth of your financial assets. And with Budget 2005 expanding the purview of Section 88 to accommodate mutual funds, it could even help you save on your taxes.

Then, not everyone wants to invest in equity the mutual fund way. For those who want to invest on their own, Sarma advises: "A maximum of 10 stocks should be enough for a retail portfolio. In such cases it's best to stick to companies that are leaders in their line of business, and have a strong management." If you have a huge portfolio, cut down the stocks to less than a dozen. As for debt investments, the anticipated interest rate rise is bad news for investors. With interest rates already hardening, long-term debt funds have become unattractive, so it is better to park a part of the debt portion of your portfolio in short-term debt funds instead. It also makes sense to switch from savings and fixed deposits to short-term debt funds, since they are tax effective.

Dr. Geeta Mishra, 35, dermatologist, and Mukesh Mishra, 35, entrepreneur Family (seen in picture): Son Kush, 5, student; daughter Rimjhim, 2.5 RESOLUTIONS: 1. Will buy a second house to take advantage of tax benefits announced in Budget 2005 2. Will look at investing in various new schemes for kids' future requirements 3. Will invest in insurance, both for cover and savings 4. Will invest in the family businesses (dermatology clinic and industrial electronics manufacturing factory) to boost incomes 5. Will keep funding home saver account (to pay off their home loan) regularly with the dual purpose of better returns and the ability to retire the debt faster

4 INSURE YOURSELF

While you're busy etching out a savings strategy and charting an investment plan, spare a thought for the future, for you and for your family. Unforeseen misfortunes can strike anytime, and it is thus imperative to insure yourself, particularly your life, against such calamities. Says V. Rajagopalan, Chief Actuary, ICICI Prudential Life Insurance: "The USP of life insurance is different from the other financial products in the sense that it protects against loss of income." Besides that protection, insurance also provides a savings and investment option, and is also an effective tax-saving tool. "Through insurance one gets pushed into savings in a more systematic way. Insurance is a must to achieve wealth management goals," says Rajagopalan. The flexibility in Section 88 in Budget 2005 will now provide elbow room to plan one's finances more sensibly, like allocation of funds for definite financial goals. Experts reckon that at a younger age you should be insured to the extent of 15-20 times your annual salary, which could go down as age advances. In your 40s, you could be insured for about 10 times your salary.

5 RECHECK DEBT

The final resolution you need to make concerns your debt. With more disposable income in your hands, it makes sense to repay older high-cost debts and rationalise your credit card liability. With interest rates on credit cards at a stunning 40 per cent per annum on an average, repaying credit card dues will take a load off your shoulders. And if you're looking for useful debt avenues, there's nothing that beats the attractiveness of a home loan. Says Sarma, "The tax sops on account of principal and interest repayments pertaining to home loans in the recent budget actually bring down the cost of the house." Adds Suresh Menon, General Manager (Operations), Mumbai Region, HDFC: "Higher-end borrowers who typically happen to be interested in tax planning will benefit a lot from the recent budget announcements."

How? A housing loan borrower will now not need to invest in instruments like PPF (public provident fund) to save tax, as he can claim the entire principal amount that he has to pay as loan instalment. So, on one hand money doesn't get locked (in ELSS or equity-linked savings schemes, PPF, etc.), and on the other you save on taxes as well (Rs 1 lakh can be deducted from income). Mukesh Mishra, a Mumbai-based entrepreneur, is planning to take advantage of these provisions. He says, "We are planning to buy a second house, which should get us full advantage of the tax benefits granted for purchase of houses in the recent budget." A smart move, considering that property is an asset that you can leverage lifelong. In addition, your EMI (equated monthly instalment) strategy also needs to change. "Earlier, lower EMIs during the first few years worked better as an overall loan strategy, but now individuals can pay more in the initial years due to the benefit of principal deduction," says Menon.

All in all, a healthy economy and budgetary benefits have combined to put more money in the hands of the individual, and it certainly calls for a realignment of financial objectives and strategies. So, go ahead, make your resolutions. And this time, try and stay the course.