7 MinsFeb 1, 2022
A New Year is the best time for new beginnings. This year, along with resolving to eat healthy, exercising more or pursuing a hobby, also make positive changes to your existing financial habits.
And just as with any other New Year resolution, be persistent in your approach. As Suze Orman, American author and financial advisor, says, “No one's ever achieved financial fitness with a January resolution that's abandoned by February”.
Here are 10 New Year resolutions that can help your financial well-being:
I will save more
Savings is a function of how you utilise your money. If you spend money only on things you need, you can save more. This is not to say that you should totally avoid dining out, ordering food, holidaying, shopping, etc. But be judicious in how much you spend on such discretionary expenses. This will leave you with a higher investible surplus, which you can then invest towards achieving your financial goals.
I will diversify my investment portfolio
Savings alone has never made anyone rich, but wise investments have. When you invest, diversify across asset classes (equity, debt, gold, and real estate), investment avenues (bank fixed deposits, mutual funds, bonds, debentures, small-saving schemes, gold ETFs, REITs, etc.), and even across geographies. This will help reduce the risk to your portfolio, free you from timing the market, earn inflation-adjusted returns, and ensure adequate liquidity of the portfolio.
I will invest as per my financial goals
We all have certain financial goals, viz. buying a home, a car, children’s higher education and wedding expenses, going on a family vacation, retirement, etc. So, don’t invest in an ad hoc manner or copy what someone else does with his/her investments.
Make investments in line with your risk profile, investment objectives, financial goals, and the time to achieve the goals. Remember, the financial goals you set must be S.M.A.R.T (Specific, Measureable, Adjustable, Realistic, and Time-bound).
I will invest regularly and systematically
To achieve your financial goals, invest regularly and systematically. A one-time or lump-sum investment may not be enough.
For short and medium-term goals and to earn fixed returns, you may consider a bank Recurring Deposit. To calculate the maturity value and interest on your bank RD, use Axis Bank’s Recurring Deposit Calculator.
Similarly, an Auto Fixed Deposit that links your existing Savings Account to a Fixed Deposit is a meaningful way to invest regularly. The savings portion will address your liquidity needs, while the FD portion will earn a higher interest rate.
For long-term goals, invest via Systematic Investment Plans in equity mutual fund schemes. Preferably, make your salary day your SIP day. Using SIPs you can invest smaller amounts, (as low as Rs 500 per month), avoid timing the market and address the volatility of the equity market.
I will engage in sensible tax planning
The Income Tax Act, 1961 offers various provisions for saving tax legitimately. Start your tax planning at the beginning of the financial year, and complement your investment planning with tax planning. If you can take some risk, choose between market-linked instruments such as ELSS (Equity-linked Savings Scheme), ULIPs (Unit-linked Insurance Plans), Pension Funds, NPS (National Pension System). On the other hand, if you are risk-averse, consider the 5-year tax-saver bank fixed deposit, Public Provident Fund, Sukanya Samriddhi Yojana, etc. Similarly, when you have availed of a home loan or an education loan, make it a point to utilise the tax benefit under Section 80C, 24(b), and 80E. Ensure that you take these into account when assessing the net taxable income and filing your Income Tax Returns.
Also Read: [5 Things You Need to Know About SIP Investments]
I will hold an emergency fund
Life throws curveballs or unpleasant surprises at us –– and it is better to be prepared for it financially. Ideally, you must hold around 3 to 6 months of regular monthly expenses, including EMIs on loans in a separate savings bank account and/or a Liquid Fund as an emergency fund. To this amount, you may add another 5%-10% for a medical emergency, if your family members have a medical history and take into account the health insurance cover held.
I will buy optimum insurance
Insurance is one of the important elements of financial planning. If you are main earner of the family, buy a term life insurance plan to ensure the financial security of your loved ones in the case of an untoward event. To determine the optimal insurance coverage, use Axis Bank’s Life Insurance Calculator. Axis Bank offers Life Insurance policies by insurers like Max Life Insurance, Bajaj Allianz Life Insurance, and LIC of India, all under one roof.
Similarly, having adequate health insurance coverage for yourself and your family members is equally important. If not, a sudden hospitalisation could drain your savings investments and jeopardise your financial goals. Axis Bank has tied up with leading health insurers such as Aditya Birla Health Insurance, Tata AIG General Insurance and Niva Bupa Health Insurance for offering a range of health insurance plans.
I will reduce my debts
A loan is not bad as long as you can repay it comfortably. Borrowing can help you fulfil some of your goals, viz. buying a house, a car, etc. sooner. Ideally, your outstanding monthly debt obligations should not exceed more than 40% of your Net Take Home pay. But if this ratio is higher and you are struggling to repay your liabilities, then reduce your debt burden. You could refinance the loan at a lower interest from another bank/lending institution or pay off the loans with a higher interest rate first. You could also utilise any windfall income to part prepay or fully repay your loans.
I will review my investments regularly
Over time your financial circumstances or your risk profile may change. You may perhaps have new financial goals to address, or you may be approaching your goals. You also need to account for inflation. Hence, it is necessary to review your investments.
A comprehensive portfolio review will help in the following ways:
- Align the investments as per your risk profile, investment objective, and the time in hand to achieve those goals.
- Cull out the duds/underperformers and replace them with promising and appropriate investment avenues.
- Keep you on track to accomplish the envisioned financial goals.
I will organise my paperwork
Even in this digital age, proper documentation is essential. Therefore, meticulously maintain records and categorise your documents into:
- Personal documents - PAN Card, Aadhaar, Passport, Voter ID, Driving License, etc
- Certificates - birth, marriage, death, domicile, school leaving, and education
- Investment documents - Bank account statements, Mutual Fund statements, Loan account statements, etc
- Insurance policies
- Property related documents
- Rent receipts
- Taxation related documents
- Taxation related documents
These resolutions will be easier to follow if you involve your family members. Rope in your spouse and children when you draw up the budget or when you list down your goals. And keep them informed about the documents regarding your investments, insurance, etc, to be used in an emergency. Remember, many hands make light work!
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.