Be An Invaluable Player

You Inc.: The Big Picture
Vision This is what a company wants to be in the future. Prominent companies have one. Infosys’ vision is to be a “globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people.” Like a successful corporate you need to have a vision statement. Yours could be achieving financial freedom or something comparable. Vision will be shaped by your values
Values Your values would be a reflection of your financial attitude. Here issues such as these are important: What do you want your money to do for you? How long do you want your values to shape and influence your finances? At what point will the values of your wife or children take over from yours? How much risk are you willing to take to achieve your goals? What kind of risks do you see impacting your money in the future? How important is tax-efficiency for you?
Mission Each company needs a mission with a vision. A mission statement mentions things that are actionable; things that it is already doing and in many cases is good at. ITC’s mission is: “To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value.” Wealth creation needs to be your mission.
Goals These are tangible targets of the company, such as being number one in terms of market share or profitability. In your case, they will be financial goals such as acquiring a home, children’s’ higher education and retirement.
Realising Your Goals hree essential things to do to ensure you hit the bull’s-eye and on time
List your goals Figure out an order of decreasing importance—in other words, prioritise
Create the infrastructure for the pursuit of goals. This involves, among other things, selecting the tax advisor, financial advisor, financial planner, ECS mandates for EMIs and SIPs.
Periodically review the progress made towards towards goals (annually for long-term and quarterly for short-term).

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What makes a company valuable? Smart marketing with popular brands, manageable levels of debt and expenses, consistently high growth of income and profitability, well-managed risks to assets and income, and wealth creation. Like them, can you, too, become more and more valuable and see your share price soar in the stockmarket of life? Of course, corporates create wealth, thanks to the large number of employees who manage the different aspects of their operations. While the top management charts out the growth path and strategy, the marketing section creates and develops brands. The risk management arm works out ways to deal with risks. However, if you were to be the CEO of your own financial outfit—call it You Inc.—you are mostly alone except for tax and financial advisors that you might engage. Despite this apparent lack of organisational muscle, you can run yourself and your finances just as well as successful corporates do.

As with them, creation of wealth through assets, including stocks, equity or other mutual funds, and others will create a large future income. With this you can meet large future expenses, be it admission of your kids to professional courses or regular retirement income. If you do it properly, you can achieve your coveted financial freedom. This edition, coinciding with India’s 63rd Independence Day, provides you a route-map to becoming a wealth creator like a successful company by following some of their essential principles and functions.

The Corporate You: Big Picture

Develop the vision of a CEO... The starting point has to be with you taking over as the chief executive officer (CEO) of You Inc. Like any CEO, you need to have a vision for your organisation. You need to visualise in which direction you want your financial life to head. In short, you will need a vision statement like those of companies. Take the case of much-admired IT major Infosys Technologies that has the vision of being a “globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people.” Another FMCG major, Hindustan Unilever (HUL), aims “to earn the love and respect of India by making a real difference to every Indian.” Your vision could be to achieve financial freedom, or something comparable.

...Shaped by your values. What and where you want to be in the future to a great extent is determined by your values, that is, what you think is right or wrong, good and not-so-good, and so on. You will have to grapple with many important questions. What would you want your money to do for you in the future? Should it be about achieving financial freedom? At what point of your life will the values of your wife and children take over from yours? How much risk are you willing to take? These will determine the choice of investment vehicles such as equities, equity mutual funds, balanced funds and gold, among other things that you invest in and the amounts that you are comfortable with. Then, there is the issue of the kind of anticipated risks that impact your finances. This will determine the risk-mitigating tool such as insurance that you take up to manage risks. For instance, if you have a family history of heart attacks, you will need to have adequate health cover early on in life.

Then, there is the issue of the importance of tax-efficiency for you. Would you like to save the last penny you can on taxes, no matter how it impacts other parameters such as returns and liquidity, or are you flexible on that front? You can see that your preferences will impact your vision of your financial future.

...Then a mission. Like corporates, you too should have a mission along with a vision. A mission statement for corporates typically states things that are actionable. What should be the mission statement of You Inc.? We suggest that it be “creating wealth on a sustainable basis”.

Formulate your goals. By having financial goals, you can translate the vision and mission you have into actionables. Companies have different goals, such as securing top market share or profitability in the industry. For You Inc., financial goals can be anything from the acquiring a house in a few years, to securing your kids’ higher education and marriage and your retired life. Once you have goals, you can work out the time when you will need the money along with the amount you will need, you can then work out what you need to do regularly to reach there.

Thereafter, you will need to prioritise them according to proximity and importance. You might feel that acquiring a home is more important than retirement at the moment and, therefore, requires an investment contribution. In some cases, you might have to scale up or scale down your goals. If a three-bedroom apartment looks difficult to buy with rising real estate prices, you might consider buying a smaller apartment at the moment and upgrading it later. After this, you will have to create the arrangements to ensure that you manage to pursue these goals. This would mean working out arrangements, such as having systematic investment plans (SIP) for your equity mutual fund investments. That’s not all. You will need to review the progress towards your goals periodically, maybe once or twice a year.

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Nuts & Bolts
The different roles that you have to don in You Inc.

Be your own Chief Marketing Officer (CMO) Ensure that you market yourself well in the job arena and build up your brand carefully.
Be a Chief Financial Officer (CFO) Like corporates, make meaningful expense allocations and control outflows.
Be a Chief Risk Officer (CRO) Manage risks, not only through insurance but also by providing funds for uninsurable events, just as corporates do.
Be a Chief Investment Officer (CIO) Deploy surpluses into assets to create wealth by balancing of key parameters.

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Being a CMO, CRO, CFO and CIO
To create wealth like corporates, you will also need to supplement your vision by carrying out major corporate functions such as marketing and budgeting, as well as expense, risk and investment management. To make your income grow at a faster clip than your expenses, you need to become You Inc.’s Chief Marketing Officer (CMO) and ensure that you market yourself well in the careers space. You need to build and develop the brand called “You”. The idea is to have the same effect as companies with strong brands and marketing functions that benefit from them with higher-than-average increase in revenues.

Not only does your income have to grow briskly, but your expenses have to be kept as low as possible without you leading a deprived life. This is where you need to be the Chief Financial Officer (CFO) of You Inc. where, like corporates, you make meaningful allocations to current or maintenance expenses while keeping enough away for capital expenses. In your case, capital expenses will be the outflow to create future wealth via investments. A critical function here would be to control fixed costs or outflows, such as loans.

Without managing risks to your life, health, income and assets such as your house, even the best-laid out plans can come to nothing. You will then have to dip into your investments before time. You will need to manage risks like a Chief Risk Officer, who not only manages insurable risks through insurance, but also with provision of funds for uninsurable ones such as a dental surgery.

You need to also be like the Chief Investment Officer (CIO) of your corporation, deploying surpluses meaningfully into assets to create wealth. This can be done through a balance of investment returns, risks, tax efficiency and liquidity.

Source:money.outlook.india