The beginning of the new year is closing in as we look back at the mistakes of the year gone by. Many of us are busy setting new goals or resolutions for 2023. While there's a lot we want to set right in the upcoming year, financial goals should be prioritised because improved finances mean less stress.
Here are the financial goals you must stick to in 2023:
Making a budget
This is the first step in working towards your financial goals. Unless you have a budget in mind, you cannot work further on your money to decide how much to save and invest for a more secure future. To start with, make a list of all your essential expenses like loan repayment through EMIs, insurance premiums, rent, frequent miscellaneous costs, travel costs, etc. Then, list the frivolous expenditures that you may do without. This will help you assess your spending in the right direction. Now that you have learned how much you have and how much more you must set aside, it will be easy to define your financial goals and start working towards them. Some experts recommend using an excel sheet to track expenses while others use apps to keep a tab on the same. One may find it difficult to continue with this tracking habit regularly. Alternatively, you may create three distinct buckets for expenditure, savings and investments to allocate your earnings every month. This will ensure that you stick to your savings and spending habits without going overboard.
Work on your emergency fund
When was the last time you checked whether you have enough to pay for your emergencies? An emergency fund is something that you must have to meet your sudden expenses. This can be anything ranging from unforeseen medical exigencies to having to suddenly pay for expenses overlooked earlier. Not many realise the need for a contingency fund that must have enough money to sustain them for the coming six months to a year. However, this does not mean that you secure all your money in the fund in one go. Take one step at a time. Allocate a fixed percentage of your earnings to this fund every month. This you can do by starting a recurring deposit account or investing a fixed amount in fixed deposits each month, thus, allowing you enough liquidity when the need strikes while continuing to earn some moderate interest on your investments. An emergency fund is intended to protect your wallet from major disruptions and to allow you to maintain your lifestyle even during an economic downturn.
Buy insurance
This new year, start with buying a term insurance plan followed by a proper health insurance policy to pay for your family’s medical needs including hospitalisation and subsequent treatment, if you haven't already. Check the amount of coverage needed or else you can choose the coverage amount based on simple thumb rules that ask you to decide on an amount equal to 10-12 times your annual salary package.
Deepali Sen, founder partner, Srujan Financial Services LLP, shared, “For first-timers, it is important to begin the journey with simplicity and understanding. Life insurance can be bought by taking a term plan. The amount should be the present value of all the goals plus liabilities minus the value of assets available for the goals. All the impending goals for self and dependents (both junior and senior) need to be considered - kids’ higher education, parents’ expenses and medical bills if they are dependents, home loan outstanding, expenses of kids and wife’s upkeep till the kids become independent. Avoid taking a unit-linked insurance plan (ULIP). The tenure of the term plan can be retirement age. For health insurance, one needs to work out an assessment of the amount of coverage needed based on self and dependent’s needs and health history. The term plan can also have riders for additional insurance due to accidental death and critical illness riders.”
Getting rid of short-term debt
Never underestimate any kind of debt. You never know when a short-term loan exacerbates into a long-term liability without you noticing it. Debt is the enemy of every free man and can trap the unsuspecting into a lifetime of slavery. Understanding how much of your earnings is spent on repaying your loan(s) is important. This will again give you a cue of how much more you are spending on the interest amount and the need to start prepaying your loan to prevent added interest outgo on the loan amount. A realistic evaluation of your debt and income will help you plan your payout well in advance though it may also make a dent in your savings for the time being. This practice will, however, save you more money in the long run.
Retirement planning
Retirement is like a long vacation that begets enough money to be looked after. You are young and energetic, which may prompt you to think that you have a long way to go before you plan your retirement.
Factcheck: Time flies and it will not be long before you regret not planning your retirement in advance. Creating a good enough corpus to secure the last years of your life will take time, which is why you must already start planning towards your retirement.
Muthukrishnan, a Chennai-based certified financial planner, said, “Not only death and taxes, but even retirement is also certain. Since it is never too early to start planning for your retirement, you may as well do it in 2023. First, arrive at when you want to retire. Once you decide when to retire, what to do for the same comes next. It would contain many steps depending on your age, health, family, goals, lifestyle and so on. The journey is going to be long and you need expert guidance. Start now in 2023.”
Early retirement planning can help you get a long way in amassing your desired corpus or ensuring a fixed pension every month. Also, you must visualise the kind of life you want to live after you retire. This will help you gauge the money that you would need to maintain your lifestyle. A well-planned retirement strategy will help you realise the amount you must invest every month to ensure continued investment, thus, enabling you to sustain the golden years of your life.
Decide on a proper asset allocation
You just do not wake up one day and decide to invest in equities. More importantly, you must refrain from planning your investments randomly into stocks and funds without understanding your risk appetite, financial goals and your short-term and long-term money needs. Also, financial planning involves a decisive asset allocation between various instruments including equities, debt, gold, real estate and more. To check where you must put your money, you must list your money requirements at various life stages like marriage, children’s higher education, buying a property, etc. Then plan your investments in sync with these goals. Establish timetables for them and plan your investments accordingly. The first portion of your income should be invested, and the remainder should be used for other expenses. You can strike a balance between enjoying today and saving for tomorrow this way.
Prathiba Girish, Founder, Finwise Personal Finance Solutions, said, “Asset allocation depends entirely on goals for which one is saving. If you are saving for short-term goals, your asset allocation should be in favour of debt, since equity could be volatile in the short term. For long-term goals (seven years and above), it should be higher towards equity.”
Deciding to learn finance
Your success in financial decisions does not have anything to do with whether you have a degree in finance or not. Irrespective of which field you belong to, understanding the nuances of finances is essential to planning your finances for a more secure future. Financial literacy is a valuable but underappreciated life skill. It's a first-aid kit. It may not be easy to read initially, which means that you must persevere to understand what this subject is all about and how it can help you, or else you can always find a trustworthy financial advisor whose approach to money is similar to yours.
The problem with finance is that one size does not fit all. Everyone rows their own boat. Following others blindly will only ruin your chances of earning and accumulating good money. Determine what works best for you and stick to it.
