The New Year is upon us… Every year you may make many resolutions for each coming New Year, but do you ever think about financial resolutions? Financial resolution is just as important as any other resolution you make.
I’m sharing a complete list here of what your financial resolutions can be this year! You can try to fulfill as much as possible for yourself.
# Start investing from your first paycheck.
# Identify your financial life goals. Segregate them into the category of short, medium and long term.
# Invest according to the goal-based investment theory. Don’t invest randomly. Allocate your investments to each life goal.
# Start analyzing your spending pattern curiously according to the theory of needs and wants. Check if you are overspending on necessities.
# Prepare a monthly budget and set the monthly savings rate.
# Follow Income – Savings = Spending formula instead of Income – Spending = Savings
# Think beyond Recurring Deposits and Fixed Deposits as investment options as they are not always hedged against post-tax inflation.
# The equity asset class is the only asset class that can generate long-term inflation-hedged returns. Don’t think of the stock market as one Satta Bazar. Rather consider it a place to make your fortune with calculated risk and patience.
# Stop buying real estate and gold as an investment. These are the illiquid assets.
# Refrain from buying a house at a very early stage of your career and commit yourself to the huge EMI. First, have a base of liquid financial assets on your side and then start thinking about physical assets.
# Never mix insurance and investments. Stop buying traditional insurance policies from insurance companies for your life insurance needs.
# Buy a suitable plain vanilla term insurance plan with no riders attached to it to protect the lifestyle of your loved ones in case you are not there.
# Do not buy insurance policies in the name of children for their educational purpose. Invest in mutual funds for better returns and liquidity.
# Buy adequate health coverage for you and all family members, including parents, in addition to your employer-provided health plan. Don’t think of health insurance premium as a waste of money. Take a health plan when you are healthy, fit and well.
# Don’t blindly follow the investment advice of your friends, colleagues or family. Things that worked for them may not work the same way for you. Make a customized financial plan according to your risk profile, investment style and requirement.
# Don’t expect reasonable returns from the equity asset class. Set a reasonable return expectation after studying historical returns. Consider long-term returns for return on capital.
# Never liquidate the investment immediately if the returns are not as expected or if you are in loss. Give a mutual fund a reasonable amount of time to work. Don’t just make a decision based on 6 months returns.
# Never stop ongoing SIP when the market falls as it is the best time to accumulate more units. If you leave your SIPs in the bear market, your investment will not get a chance to average out the purchase price.
# Always invest in the mutual fund based on its long-term historical returns like approximately 10 years. Don’t invest in it just based on the exceptional performance of the last year. There are many other factors to consider before choosing mutual fund. Return is only one factor. Before investing, check if that particular fund is suitable and matches your target time frame as well as your risk taking capacity.
# Take a long-term view of your long-term life goals. Don’t be alarmed by short-term fluctuations in the stock market. Stick firmly to your long-term plan. Don’t get distracted. Don’t take a short-term view of long-term life goals.
# Learn to prioritize your life goals. They give more importance to retirement planning than to short-term and secondary goals such as vacations, buying electronics and household items, as well as children’s education and marriage planning. Remember, you can get a loan for all of the above goals, but there is no loan cushion for your retirement.
# Never invest in any proxy scheme for extra return greed. Your one mistake could wipe out your hard-earned savings. Always invest in trusted and reputable financial products for wealth creation.
# Analyze the features, characteristics and pros and cons of financial products before investing. See if you can understand it easily or you need to rely on others to understand it.
# Before investing, always do your own risk profile honestly. Know your strengths and weaknesses. Don’t make investment decisions emotionally.
# Invest only according to the asset allocation for the particular objective. Decide the ratio of asset mix according to the time frame of that particular objective, your risk-taking capacity, your age and your financial situation.
# Always hedge your life risks before your investment process. Setting aside a 6-month emergency corpus, adequate term insurance for yourself and health insurance coverage for yourself and family members are important coverage tools. Start investing only when these 3 are in place.
# Have your own health insurance plan other than health coverage provided by your employer. Don’t rely solely on employer health insurance plans for a health emergency. Take a 5 liter family float as a base insurance plan and at least a 15 liter super top up insurance cover to cover you and your loved ones.
# Consider multiple sources of income. Don’t just rely on a single income stream. Think about how you can generate passive income. Make money work to make money.
# Always focus on managing downside risk rather than trying to maximize investment returns. This attitude is very crucial to having sustainable long-term wealth.
# Don’t abuse credit cards beyond your ability to pay what’s due. Always pay the full amount owed instead of paying the minimum amount each month, as revolving credit is the most expensive type of debt. It leads you into a debt trap. Important point for young people.
# Be disciplined when investing. Think about long-term investments. Don’t make your heart beat faster due to short-term fluctuations in the stock market. Do not make rash decisions based on these short-term fluctuations, otherwise you will not benefit from the compounding factor in the long term.
# Greed and fear cause Indian retail investors to lose money in the long run and never create wealth through investment. Try to control these two emotions.
Above are some of the important tips for the new year. You can make changes to your financial situation if you follow these financial planning tips and implement the right way to invest in 2023.
I always believe that if one acquires personal finance knowledge and is disciplined to invest for the long term, one can build wealth and have a peaceful financial life.
Knowledge and discipline lead to financial peace!!!
Preeti Zende is a SEBI Registered Investment Advisor and Commission Only Financial Planner. She is the founder and owner of Apana Dhan Financial Services, Associate of the Insurance Institute of India.
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First published: December 27, 2022, 1:06 p.m IST