With the year end almost upon us, it is time to cherish the memories of 2022 and take out the new year resolution diaries for preparing the to-do list in 2023. New year resolutions are always easy to note down but difficult to follow.
Personal finance or financial planning quite often occupies the last spot of the to-do list for the majority of millennials or even adults. The importance of personal finance cannot be emphasised enough, yet it is overlooked by many until they arrive at a critical stage of their life.
Even if someone wants to plan for the future, lack of information or simply procrastination averts them from having any financial planning. For once let us change the approach and welcome 2023 with a renewed confidence about your present as well as future. Let us check out some of the must money resolution you should adopt:
Stop following the herd: Humans have a natural tendency to follow their friends, relatives or sometimes even unknown people's advice without knowing the true purpose of it. Every individual possesses different dreams, needs, dependents and income. There is no single pill for all the disease, moreover there are different pills for different individuals for the same illness.
Likewise, a financial plan may be good enough for some but entirely a bad option for others. Therefore, each individual requires a customised plan to achieve his or her financial dreams owing to his financial condition.
Set realistic dreams: Objective for day 1 in gym cannot be to come out with 6 packs abs, similarly, owning a sedan within 6 months may not be possible if your savings aren’t capable enough. Investment and achievement of goals is a long-term process, which comes on account of determination and grit.
It is nearly impossible to save 100% of your income, therefore with the help of budgeting, you may set aside certain funds to achieve those dreams. However, if there is a huge gap in savings and your financial objective, the result would be redundant.
Steadily increase your savings: Savings and investment go hand in hand in achieving any financial objective, however the results may be delayed in case you do not increase the quantum of savings and likewise investments. Financial objectives are often achieved within a period of 5, 10, 15 or in case of retirement an even longer period of time.
During this time the cost of your objectives keeps on rising on account of inflation and thus reducing your purchasing power. Therefore, one way to achieve your objectives within time is to steadily increase your savings and thereby increase your investments.
Control and keep reducing debt: An iphone of today might deter your car of tomorrow. Attractive sneakers might be too good to resist, however if you think of our financial objective the resistance might be futile. Sticking to your budget and not entering into any debt trap is a financial objective half achieved.
Debt always comes with interest payments, therefore prioritise the high interest rate debt and pay them off. While paying off the debt it is important not to increase it from the other end by availing new ones. For a healthy financial planning it is important to keep the debts below 40% of your income.
Insurance: Brain wash yourselves with the importance of medical as well as life insurance, because they must have an item in any financial planning. Medical expenses remain sky high in our country and with the unhelping lifestyle habits, any illness can knock your health doors.
Moreover the same cannot be denied about your dependents, therefore not just any medical insurance, but the one which suits your as well as your family needs must always remain in force. Likewise with life full of uncertainties, life insurance must also be a top priority, as the show must go on with or without you.
Build an emergency fund if still not made: Being insured is not enough, because diseases are a risk to your life, recession or war might pose risk to your job. Therefore having an emergency fund is necessary to have that self-security in case of any job losses or unplanned expenses like house maintenance or repairs. In addition to that, skipping or late payment of EMIs can hamper your credit score and may also result in an increase in rising interest rates on account of it.
Tax planning because it is necessary: Running away from it will not help, instead embracing it might save you some money. We may feel comfortable avoiding it, but it hurts when our income is literally slaughtered in the name of TDS. Therefore better late than sorry, plan your taxes in order to keep your income tax safe. Lack of knowledge is fine, but hiding is not therefore asking the experts and understanding how to plan your taxes better.
New years are always about excitement for the upcoming year. Uncertainties make our lives exciting and full of thrills, however in financial planning it is better to keep the thrills away and have a safe, be it dull but secured future. Therefore let 2023 be the change in your financial planning and catalyst for your upcoming years.
Viral Bhatt is the Founder of Money Mantra - a personal finance solutions firm