Dates that come around every year help us measure progress in our lives. One annual event, New Year's Day, is a time of reflection and resolution.” – Joseph
B. Wirthlin (an American businessman and religious leader)
All of us look forward to every New Year with a ray of hope, with some element of positivity. We resolve to lead a healthier lifestyle.
We resolve to adopt financial discipline, and invest to keep our financial health in the pink.
But how many truly follow it, or be the change they wish to see.
This New Year, while you pen your New Year resolutions, take a pledge to diligently follow them.
Here are 10 New Year Resolutions we insist you keep and follow to lead a healthy financial life:
- Resolution #1: I will increase my savings every month
The best way to figure out how much more you can save every month is to look at your expenditure and see what can be rationalised.
Expenses can be classified under buckets such as:
- Housing (which includes: rent, society dues, house maintenance, white goods, etc.)
- Utilities (which includes: electricity, water, cable, phone, newspapers, gas connection, etc.)
- Food (excluding dining out)
- Clothing and apparels (for self, spouse, children, dependent siblings and/or parents)
- Leisure & lifestyle (which includes: dining out, movies, shopping beyond basics, holidays, etc.)
- Healthcare (which includes: regular health checkups, doctor’s fees, hospital fees, etc.)
- Loan obligations (home loan, car loan, personal loan, credit card dues, etc.)
- Insurance Premiums (life insurance, mediclaim insurance, home insurance, vehicle insurance, etc.)
Take a close look at each of these buckets, and see how you can best save your hard-earned money. A prudent budgeting exercise can help you save more.
When you save enough, the money can be deployed productively into various investment avenues to generate wealth and accomplish financial goals.
- Resolution #2: I will set a financial plan
We all have financial goals, viz. buying a dream home, a car, providing the best education to children, getting them married in pomp and style, going abroad on a leisure trip, and live the golden years of life in bliss. A financial plan
provides a roadmap to achieve these financial goals. And to make your dreams come true, investing your hard-earned money in accordance to your financial plan is imperative.
Remember that, making ad-hoc investments and opting for unsuitable products can jeopardise your family’s long term financial well-being. Every individual has a different risk capacity, investment objective, investment horizon, financial
circumstances, and goals, which warrant a need-based investment approach.
- Resolution #3: I will start SIPs to achieve my financial goal(s)
For systematic wealth creation over the long-term, Systematic Investment Plans (or SIPs) offered by mutual funds are a good mode. SIPs, like a bank recurring deposit, work on the simple principle of investing regularly.
SIPs also enforce discipline as your hard-earned money gets parked (debited from the bank account) either daily, monthly, quarterly in a respective mutual fund scheme. But unlike bank RD, SIPs in mutual funds are exposed to market risk.
Here are 5 key benefits of SIPs:
- Lighter on the wallet (you can invest as low as Rs 500 per month)
- Make market timing irrelevant;
- Enables rupee-cost averaging (help manage volatility of the market);
- Supports in compounding; and
- Is an effective medium of goal planning
Make sure you select best or winning mutual fund schemes in congruence to your needs to accomplish the envisioned financial goals, and in the interest of long-term financial wellbeing.
- Resolution #4: I will review my existing investments
Make it a point to review your existing investments recognising the market undercurrents and ascertain if you are on track to achieve the financial goals you’ve envisioned. It will also become clear if you need to invest more (as
per you risk profile) to achieve financial goals.
A thorough review will enable you to:
- Cull out underperforming or inappropriate investments;
- Reinvest in better alternatives;
- Consolidate the investment portfolio;
- Optimise diversification; and
- Rebalance your investment portfolio
In short, it will facilitate taking appropriate investment decisions.
- Resolution #5: I will ‘protect’ my family’s financial future
Life insurance is fundamental to financial planning and financial health. Meaning, you just cannot ignore it. As a bread winner of the family, ensure you are optimally insured and safeguard the financial future of your family.
To safeguard the interest of your loved ones and dependents, assess your ‘Human Life Value’ (HLV). HLV is a scientific calculation that takes into account the factors mentioned below to determine your insurance needs:
- Life expectancy of your spouse
- Number of children
- How old the children are, and how many years they’ll be dependent on you
- Total number of dependents
- The financial goals you’re addressing for the dependents
- Your monthly household expenses (excluding your personal expenses)
- Lifestyle expenses
- Total expenses of dependents
- Contingency reserve (if any)
- Current insurance (if any)
- Outstanding loans
- Cost of inflation
- …and more!
A pure term insurance plan is by far the best to indemnify risk to life, given the core objective of insurance.
Likewise, as the cost of healthcare is getting dearer, make sure you have sufficient health insurance (commonly known as mediclaim) even if you may be in pink of health today. As one grows old the number of physical ailments increase. If you do
not have optimal health insurance coverage, it could drain your finances and derail the objective of achieving financial goals. Hence, sensibly buy a mediclaim policy today and enjoy tax benefits on premiums paid under Section 80D.
- Resolution #6: I will maintain enough contingency reserve
Contingency Reserve is the amount which you should always keep in your savings bank account and/or liquid funds for any emergency or unfortunate event. Exigencies such as loss of job, medical emergencies, impact your personal finances. Hence,
it is prudent to maintain a contingency reserve.
It is best to maintain a minimum 6 months of regular monthly expenses, including Equated Monthly Instalments (EMIs), and on a very conservative side a maximum of 24 months, as a contingency reserve. This will enable you to be prepared and
cover expenses during hard times.
Resolution #7: I will attempt to maximize tax saving
Engage in prudent and holistic tax planning, consciously right since the beginning of the financial year; don’t keep it for the eleventh hour. Tax planning is a holistic exercise that you, the tax payer, engages in by accounting for
all payables, permissible exemptions, deductions, and reliefs available under the provisions of the Income-Tax Act.
And mind you, there’s more to tax planning under Section 80C of the Income-Tax Act, 1961. So, take assistance of a tax expert and legitimately use the provisions of the Income-Tax Act. Clearly avoid procrastinating and resorting to sub-optimal
utilisation of tax saving options.
Such an approach to tax planning, will not only ensure long-term wealth creation, but also result in efficient use of capital.
Resolution #8: I will minimise debt
All of us avail of loans at some time or another in our lifespan. Some of these loans such as home loans are considered good, because it leads to creation of an appreciating asset and you also enjoy tax benefit on it.
But while loans get you access to a huge sum of money, over time you should attempt to rationalise or they could prove detrimental to your financial health. Moreover, they may have a bearing on your credit score and future borrowing capacity.
Hence, endeavour to minimise your debt obligation as far as possible.
Reducing debt can aid you to save more and invest wisely to live a comfortable life.
Resolution #9: I will handle all paper work prudently
We understand that handling paperwork, is often a tedious task and it is thus put off to another day. Today even if you are transacting online, documentation is essential; you just can’t ignore it.
Therefore, meticulously maintain records and categorise your document into:
- Personal documents [PAN Card, Aadhaar, Passport, Voter ID, Driving License, etc.];
- Estate documents [Purchase agreement, sale deed, leave & license agreement, stamp duty and registration receipt, rent receipts, , share certificate, loan statement, loan re-payment statement, acknowledgement letter from the society
- Investment, insurance, and banking related documents [Mutual fund account statements, insurance policies, fixed deposit certificates, bank passbooks, acknowledgement from banks etc.]
- Taxation related documents [Form16s, bank statement, loan statements, HRA supporting documents, charity receipts (to claim deduction under Section 80G), tax saving investment proofs (to claim deduction under Section 80C), health insurance
premium receipts (to claim deduction under Section 80D)]
- Certificates [birth, marriage, death, domicile, school leaving, and education]
File these documents efficiently and regularly (monthly or quarterly), plus rearrange them carefully if need be. And in this exercise, involve your spouse or your family member; because life as you know is uncertain.
Often, it pays to seek the opinion of experts, be it any facet of life – including personal finance. The “I know all” approach could prove detrimental in the absence of correct know-how and resources.
Experts possess sharp insights and thus can guide you astutely and correct you. Don’t get dithered by the fees, as long as it is in the interest of your wellbeing. Remember, that it won’t do you any good to be penny wise and pound
“No one's ever achieved financial fitness with a January resolution that's abandoned by February”, says Suze Orman an American author, financial advisor, motivational speaker, and television host.
Therefore follow these New Year financial resolutions conscientiously to lead a healthy financial life and achieve your financial goals.