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Six tips for a New Financial Beginning this Dusshera

7 MinsOctober 07, 2019

The tenth day of Navratri observed as Vijayadashami or Dusshera is celebrated to commemorate the triumph of good over evil. It is considered an auspicious day to make a new beginning and/or conquer our inner demons or bad habits. In the interest of your financial health, here’s a quick read to overcome bad money habits this festive season.

Dusshera

Save before you spend
When followed diligently this simple phrase will help you gain better control over your personal finances. Engage in a prudent budget exercise, whereby the focus will be on saving your hard-earned money first. When you make a household budget, involve your family members to seek their views, and see how best a collective effort can be made. This will help cut expenses wherever possible, leaving you with a better investible surplus to address long-term financial goals.

Using your debit and credit card, on things you need, during festive times is perfectly alright. But make sure that you are saving via the best deals/offers and using your cards in a disciplined manner.

Update your savings bank account passbook regularly, or download the latest statement of accounts and monitor your cash inflows and outflows. Likewise, keep a track of your credit card statements.

Don’t just save, invest prudently

Saving alone has not made anyone rich. Hard-earned money saved needs to be deployed in productive asset classes and investment avenues that can counter inflation effectively.

So, recognising your liquidity requirements, deploy the money in wealth-creating investment avenues such as mutual funds, stocks, bonds, debentures, bank fixed deposits, etc, whereby the vital envisioned financial goals can be achieved. These could include your child’s higher education expenses, wedding expenses, your retirement need, etc.

Your financial goals need to be S.M.A.R.T. - they need to be Specific, Measurable, Adjustable, Realistic, and Time-bound. And once you do that, plan your investments taking into account your risk profile, investment objective, financial goals, and the time horizon to achieve the goals.

Avoid the mistake of investing in a silo or ad hoc manner or simply mirroring the investment portfolio of your friend, next-door neighbour, or family member. Unfortunately, not many investors follow this. Investing is an individualistic exercise. Therefore, the investment choices you make need to be in congruence with your suitability.

When you get your Diwali bonus, utilise some to shop for yourself and your family. Buy simultaneously, strengthen your contingency fund (also known as rainy day fund). Also, invest part of the bonus to maximise the wealth creation process.

Here’s some special care to take when you invest:

  • Recognise the cost of investing
  • Understand the tax implications
  • Don’t speculate; it can be hazardous to your wealth and health
  • Never invest with borrowed funds; except in case of real estate
  • Never use your contingency fund (also known as a rainy day fund) except for exigencies
  • Don’t get emotionally attached to your investments
  • Track & review investments sensibly and take timely corrective actions

[Also Read: Start Fresh with Investments This Diwali]

Make sure you select the best investment avenues basis your investment objectives (such as saving tax, investing surplus money, etc.), risk profile and financial goals. In order to achieve this, we offer you the opportunity to invest in a range of Mutual Fund schemes from leading asset management companies online and without any paperwork.

Additionally for guaranteed stable returns choose from Fixed Deposits that offer competitive interest rates and the option for premature withdrawal in case of an emergency.

Do not ignore insurance – Given the lifestyle we lead today, certain health issues are unavoidable ––more so as age progresses. So, while you may indulge your sweet tooth as part of the festivities, subscribe to a disciplined health regime – in whatever form you like to practice.

Even if you are in the pink of health and your family has a good medical history, you simply cannot ignore insurance. The very purpose of insurance is the indemnification of risk from an untoward event. Hence, make sure to optimally insure yourself for both, life and health.

A term life insurance policy is a must to provide for your family’s needs in your absence and comprehensive health insurance is a must, given the rising medical inflation and the unpredictable nature of medical emergencies.

Build an emergency fund – In every avatar of the Goddess, she is depicted holding various weapons, prepared to fight if a situation arises. Similarly, in life, you should be able to handle exigencies such as a layoff, critical illness of a family member, and unexpected expenses (house repairs, fixing a car breakdown). Otherwise, these events could drain you financially and emotionally. Hence, holding a sufficient amount as an emergency fund (also known as contingency fund or a rainy fund) is an absolute must. For this purpose, set aside money for at least 12 to 24 months of regular monthly unavoidable expenses, including EMIs, in a separate savings account.

Be prudent in borrowing – Debt is helpful when you need money, but borrow only within your means. To borrow money for specific purposes such as to purchase a car, property, for higher education needs, or even for any personal reason is not bad as long as you have the means to service the debt obligation and are repaying on time. Likewise, with a credit card: if you are repaying the credit card dues in full and on time, not a problem.

However, if you have been borrowing continually to pay one debt with another, swiping credit cards impulsively, and not repaying the outstanding dues on time; it could lead to a vicious cycle of a debt overhang, which negatively impacts your credit score and affects your ability to apply for loans in the future. Loans must always be repaid in due time, or it could endanger your and your family’s creditworthiness and long-term financial wellbeing.

Improve your credit score – A credit score reflects your creditworthiness and credit behaviour. If your credit score is low, it does not reflect well on your financial strength. This could limit your access to a loan when you need it the most. Hence, make a genuine effort to improve and maintain a good credit score.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.

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