The new year is at our doorstep… Every year you may make many resolutions for each coming new year but do you ever think about financial resolutions? Financial resolution is equally important as any other resolution you do.
I am sharing a comprehensive list here which can be your financial resolutions this year! You can try to fulfil as many as possible for you.
# Start investing from your first paycheque.
# Identify your financial life goals. Segregate them in the short term, medium-term and long term category.
# Invest according to goal-based investment theory. Do not invest randomly. Map your investments to each and every life goal.
# Start analysing your spending pattern curiously according to needs and wants theory. Do check whether you are spending excessively on wants.
# Prepare a monthly budget and fix the monthly saving rate.
# Follow Income - Saving = Spending formula instead of Income - Spending = Saving
# Think beyond recurring deposits and fixed deposits as investment options as they are not always inflation hedged post tax.
# The equity asset class is the only asset class which can generate inflation hedged returns in the longer-term. Do not consider the share market as a Satta Bazar. Rather consider it a place to make fortune with a calculated risk and patience.
# Stop buying real estate and gold as an investment. These are the ill-liquid assets.
# Refrain from buying a house at a very early stage in your career and committing yourself to huge EMI. First, have some base of financial liquid assets by your side then start thinking of physical assets.
# Never mix insurance and investments together. Stop buying insurance companies traditional insurance policies for life insurance needs.
# Buy an adequate pure vanilla term insurance plan with no riders attached to it for self to protect the lifestyle of your loved ones in case you are not there.
# Do not buy insurance policies on children’s name for their education purpose. Invest in mutual funds for better returns and liquidity.
# Buy adequate health cover for self and all family members including parents apart from the health plan provided by the employer. Do not consider health insurance premium as wastage of money. Take a health plan when you are healthy, fit and fine.
# Do not blindly follow the investment advice of your friends, colleagues or relatives. Things which worked for them may not work the same way for you. Make a customised financial plan for yourself as per your risk profile, investment style and requirement.
# Do not expect unreasonable returns from the equity asset class. Set a reasonable return expectation after studying the historic returns. Consider long term returns for equity performance.
# Never liquidate the investment immediately if returns are not as per expectation or if it is at a loss. Give reasonable time to a mutual fund to perform. Don’t just take a decision based on 6 months returns.
# Never stop ongoing SIP when the market is down as it is the best time to accumulate more units. If you stop your SIPs in the bear market your investment will not get a chance to average out the purchasing price.
# Always invest in the mutual fund based on its long term historical returns like 10 years or so. Don’t jump investing into it based on the exceptional last one year return only. There are plenty of other factors one should consider before choosing the mutual fund. Return is just one of the factors. Before investing check whether that particular fund is suitable and matching with your goal’s time frame as well as your risk taking ability.
# Have a long term view for your long term life goals. Don't panic with short term fluctuations in the share market. Stick to your long term plan firmly. Don’t get distracted. Do not take a short term view for long term life goals.
# Learn to prioritise your life goals. Give more importance to Retirement Planning than short term and secondary goals like vacations, buying electronics and household items as well as kids education and marriage planning. Remember you can get a loan for all the above goals but no cushion of loan for your retirement.
# Never invest in any proxy scheme for the greed of extra return. Your single mistake can wipe out your hard-earned savings. Always invest in reputed and legal trusted financial products for wealth creation.
# Analyse the features, characteristics and pros and cons of the financial products before investing. Check whether you can understand it easily or you need to rely on others to get it understood.
# Before investing, always do self-risk profiling honestly. Know your strengths and weaknesses. Don’t take investment decisions emotionally.
# Invest only according to asset allocation for the particular goal. Decide the asset mix ratio according to the time frame of that particular goal, your risk-taking ability, your age and your financial position.
# Always hedge your life risks prior to your investment process. Setting aside 6 months emergency corpus, adequate term insurance for self and health insurance cover for self and family members are important hedging tools. Start investing only when these 3 are in place.
# Have your own health insurance plan other than the health coverage provided by your employer. Don’t rely only on employer health insurance plans for a health emergency. Take 5L family floater as base insurance plan and at least 15L super top-up insurance cover to cover yourself and your loved ones.
# Consider multiple sources of income. Do not rely only on a single stream of income. Think of how you can generate passive income. Make money work for you to earn money.
# Always focus on managing the downside risk rather than always trying to maximise the returns from the investments. This attitude is very crucial to have sustainable wealth in the longer run.
# Do not overuse credit cards beyond your capacity to pay off the due. Always pay the full amount due instead of paying the minimum amount every month as revolving credit is the most expensive type of debt. It leads you into a debt trap. Important point for the youngsters.
# Be disciplined in investing. Think of long term investments. Do not increase your heart beats because of the short term fluctuations in the share market. Don’t make hasty decision based on these short term fluctuations otherwise, you will not be benefited by compounding factor in the long run.
# Greed and fear make Indian retail investors lose money in the long run and never create wealth through investing. Try to control both these emotions.
Above are some of the important tips for the new year. You can make changes in your financial status if you follow these financial planning tips and implement the correct way of investing in the year 2023.
I always believe if one gathers knowledge about personal finance and is disciplined about investing in the longer-term, he/she can create wealth and have a peaceful financial life.
Knowledge and Discipline lead you to financial peace!!!
Preeti Zende is a SEBI registered Investment Adviser and Fee only financial Planner. She is Founder and owner of Apana Dhan Financial Services, Associate of Insurance Institute of India.