#hacks

Tanvi has been a full-time personal finance journalist and now leads a multi-faceted existence as a wife & mum, and now a Certified Financial Planner and wine sommelier.

6 Financial Resolutions You Should Stick To

Financial Resolutions… not meant to be broken!






artical img

Just like promises are meant to be broken, so are resolutions, aren’t they? There is an inherent fallacy when you make promises or resolutions that they tend to be unrealistic. For instance, if you haven’t even looked at the gym all year long, what makes you think that you are going to hit it every single day this year and lose 20 kgs? Can you really give up your chocolate addiction or your love for that fantastic bottle of pinot noir? Well, we aren’t here to debate what’s good for you and what’s not, but with the beginning of the new financial year, we can surely help you make a few financial resolutions that are realistic and achievable!

Financial Resolution #1: Make a budget

Yes, this is perhaps the hardest one – resisting temptation. The easiest way to do this is to think about all the things you have bought in the last one year, that you don’t really need. Now we’ve got you thinking, haven’t we? Budgeting does not necessarily mean cutting down on your expenses, it is simply about putting your money in all the right places. There is nothing you can do about your fixed expenses like rentals, monthly groceries, transport to and from work or your staff salaries. It is the variables that you can change. Do you really need to eat out thrice-a-week? If only you saved on that one meal out, that cost you ₹2,500, it could be added to your holiday fund! It’s never too late to decide on the sum of money you will spend every month, either as a percentage of your income, or as a lump sum. Make sure you review it every 15 days, so that you can still get back on track.

Financial Resolution #2: Keep an emergency fund

Remember that time when you needed some money urgently and had to borrow it from multiple friends? Well, avoid it! The next time, people might not be as generous. Always maintain an emergency fund for yourself, which constitutes of at least 2 to 3 months of your earnings, and is available to you immediately. This way, you won’t have to scramble if you are met with an unexpected big-ticket expense, or an unexpected job loss. We are not saying you must do it today, but gradually start saving some amount every month from your salary, or from any windfall you may get through tax returns or an inheritance or interest or dividends. Just call it an ‘SOS’ fund and do not touch it unless absolutely necessary.

Financial Resolution #3: Avoid the end of the year tax planning frenzy

Tax planning is typically a last-minute exercise done in March, when you are forced to show some investment proof to save on the taxes being cut from your salary. Well, if you did it at the beginning of the year instead of the end, you will not only save on tax, but you can also plan those investments well enough to reflect your risk taking ability as well as your end objective. For instance, investing in a 5-year fixed deposit just because it qualifies for a tax deduction seems like the easiest option, but did you know that the returns on fixed deposits do not even beat inflation, and the interest received thereon is taxable? Furthermore, if you are young you are able to manage additional risk, you can invest in riskier instruments like tax-planning equity funds. These not only qualify for a tax break but also offer higher returns, as well. Well, you won’t know all this until you start planning for it from the beginning. So, meet with your tax planner today.

Financial Resolution #4: Take advantage of automation

Cash is passé. When everything is going digital, why won’t you? Your bank account can be linked to everything from paying your bills to making your investments online. By linking your account for bill payments, you will not only ensure that your bills are paid on time, but there is also a tab on every expense made. Plus, monthly auto-debit mandate from your account towards investments will ensure that you save in a disciplined manner, your money is not squandered away and you have a statement of all transactions made at the end of the month. Digital India is real!

Financial Resolution #5: Insure, insure, insure!

We cannot harp enough on why you need insurance. Read our many, many articles on the need for insurance. If you have a family who is dependent on you, it is the best financial security you can provide for them. According to Gaurav Mashruwala, a well known Certified Financial Planner, “As soon as you start working, the first thing you must do is buy a health insurance plan.” Health care costs in India are increasing by 15% annually, to say the least. A heart surgery can cost you anything upwards of ₹3 lakhs, not to mention, the additional post-operative care costs. Without insurance, these expenses could wipe out your salary. Once your health insurance is in place, you can graduate to a life insurance policy thereafter.

Financial Resolution # 6: Plan for your dreams

If you don’t plan for your dreams, they won’t come true. It’s as simple as that. In investment parlance, these are known as your financial goals. For instance, if you want to buy a car two years down the line, you must plan for it now, everything from the amount of down payment you need and your ability to pay the monthly instalments on the car loan. If a back-of-the-hand calculation says that you can afford your car after 2 years, then start saving for that down payment today! Similarly, list down all those things that you want in life – a house, an annual vacation, a holiday home, fulfilling your children’s education, etc. This list can be long, but you can only start working on it once you pen it down. Take your time; perhaps start working on your first dream today.

Disclaimer: The views and opinions expressed in this article are for informational purposes only. The authors and publishers are not responsible or liable in any manner for any actions you might take relying on the contents of this article.

Subscribe

Get unlimited investment tips.

Free Forever.