10 New Year Resolutions to Make in 2022 in the Interest of Your Financial Wellbeing
January 1, 2022 Mutual Fund
As we await the beginning of a new year, many of you must have started making New Year resolutions – be it your personal lifestyle and professional lives. But it would be wise to make even certain resolutions crucial to focus on your financial wellbeing as well.
The year 2021 went from hope to despair: we saw the COVID-19 cases receding (with improvement in inoculation rate) after the second wave of the delta variant, and then again from mid-November, the new virulent Omicron variant shuddered hopes and imbued uncertainty. It appears that the early part of the year 2022 may be challenging and could affect your financial wellbeing. Therefore, you must resolve to prepare yourself financially and put your house in order. Essentially, the financial new year resolutions should be the hard lessons the COVID-19 pandemic taught you. The start of the New Year is a perfect time to make changes in your existing financial habits for a bright and healthy financial future.
Are you wondering what should be the financial new year resolutions you should make? Well, here’s the list…
Resolution #1: I will save more spend less
We all endeavour to save money, right? One of the best ways to do that is to consciously spend less, particularly avoiding splurging on things you do not need. Your every penny saved will be a penny earned.
In this regard, follow the pearls of wisdom of legendary investor, Warren Buffett: “Don’t save what is left after spending, but spend what is left after savings”. Thus, set up automatic transfers between bank accounts, maintain a separate savings account where you manage to save first, and spend the rest on certain unavoidable expenses. Doing this may leave you with a higher investible surplus that can be deployed wisely in suitable investment avenues for a bright financial future.
Also, imbibe the good habit of making a budget and following it diligently. A budget would help you understand your cash-flows (inflows and outflows) and show ways to reduce certain discretionary spending.
Resolution #2: I will aim to increase my income
Apart from savings and cutting back on your expenses, you should also consider increasing your income. One of the most important lessons the pandemic has taught us is the importance of being financially prepared to weather any unforeseen events, and having multiple sources of income will aid in your financial well-being. You aren’t fully reliant on one source of income when you have a additional stream of income.
Starting a side hustle is a smart option to increase your income these days, and there are various side hustles that you may get started on effectively. For example, freelance work is ideal for individuals who have a certain skill to offer. Increasing your income will allow you to expand your savings, which you may use to make worthwhile investments and achieve your goals sooner. If you lose your primary job due to a pandemic or any uncertain event, having a secondary source of income can help you stay afloat financially.
Resolution #3: I will maintain a contingency fund
“Nothing is more imminent than the impossible…what we must always foresee is the unforeseen,” said Victor Hugo (a French poet, essayist, novelist, playwright, and dramatist).
The last two years have been tumultuous for most of us. So, one of the most important financial new year resolution an individual should make is to maintain an emergency fund (also known as contingency fund or rainy day fund). Your emergency fund should ideally be 12 to 18 months of regular monthly expenses, including the Equated Monthly Instalments (EMIs) on your loans.
The emergency fund should be kept in a savings account, short-term deposit, and/or in a pure liquid fund/overnight fund. Further, this money should be accessible to your spouse and dependent family members to deal with unpleasant surprises.
If you already have an emergency fund, make it point to review it so that it is sufficient enough in the current times. If you have used a portion of your emergency fund, take immediate efforts to reinstate it. Holding an emergency fund would offer you the required peace of mind and not imperil your financial wellbeing. Holding an adequate sum of money as a contingency fund is based on the premise: Hope for the best and be prepared for the worst.
Resolution #4: I will make smart investments
This New Year, embrace making smart investments that are rewarding and help you achieve your financial goals. There are many different types of investments to consider, and it can be difficult to determine which ones are best for your portfolio. This is because every investment avenue has a distinct risk-return trade-off.
Hence, before investing, you must ensure the suitability of the investment avenue considering your age, current financial position, risk profile, investment objective, financial goals to be addressed, and the investment horizon in hand before goals befall. For example, if your risk appetite is high, have vital financial goals that are many years from now (more than 3 years), to create wealth and achieve the envisioned goal/s; the Systematic Investment Plan (or SIP) in the best equity mutual funds can be considered. But if your risk appetite does not permit, and/or have goals to fulfil a couple of years down the line (less than 3 years), then perhaps invest in traditional investment avenues such as fixed deposits. Remember, thoughtful diversification is the key!
Always make it a point to invest in congruence with your needs, rather than in an ad hoc manner or copying what your friends/relatives/colleagues/neighbours do with their investments. “When it comes to investing, there is no such thing as a one-size-fits-all portfolio.” – Barry Ritholtz (an American author, newspaper columnist, and equity analyst).
If you are well-versed with the world of finance and investment, it is advisable to consult a SEBI-registered investment advisor who would handhold to make smart investments and accomplish the envisioned financial goals. Alternatively, if prefer doing it online, you may consider a creditable robo-advisory platform that carries out your risk profiling, understands your broader investment objective, investment time horizon, and then accordingly recommends investment avenues.
Resolution #5: I will conduct a periodic review of my portfolio.
Your investment portfolio consists of various instruments some are market-linked which can be affected by changes in market conditions and economic undercurrents. It is essential to periodically (at least annually or semi-annually) review your investment portfolio. This will give you an idea of your portfolio performance, identify any underperformers or if any rebalancing in asset allocation is needed.
Conducting a portfolio review at periodic intervals would ensure your investment portfolio is on track to achieve your financial goals. Reviewing your investments on time will give you sufficient time to make changes if required and prevent any future losses.
Resolution #6: I will pay off my debts
In today’s scenario, debts are a common part of an individual’s life. There is nothing wrong with having a loan or debt, repaying them on time is essential. Your New Year resolution should be to reduce your debt to zero or at least reduce it to the best possible level.
Here are a few tips to help reduce your debt (if it is high)…
– Repay your existing loans on time and if possible ahead of schedule (by repaying more than the EMI).
– Utilise windfall income to prepay certain high interest-bearing loans.
– Engage in debt restructuring with your existing lender.
– Refinance debt from another lender charging a lower interest rate.
– Avoid frequent spending on credit or debt that may potentially pull you into a debt overhang situation.
– Pay off your credit card dues every month in full.
– Increasing your net monthly income by finding an additional legit source/s of income (by renting out second house property, negotiating for a salary hike, finding a part-time job, monetising certain hobbies, etc.)
Ideally, your outstanding monthly debt obligations should not exceed more than 40% of your net monthly income or Net Take Home (NTH) pay. If you timely repay your loans and keep debt obligations under control, it would reflect well on your credit score.
Resolution #7: I will ensure an adequate insurance cover
Insurance is aimed to help you tackle the ‘uncertainty’ impacting your life and health. When you have family members to look after, having an optimal life insurance cover is a must. To determine the optimal insurance coverage, follow a scientific approach by calculating your Human Life Value (HLV). For this take into account your family’s expenditure (household and lifestyle), number of dependent family members, their age, the proportion of your income spent on dependents, the financial goals of dependents, the amount you require to fulfil those goals, the inflation rate, the returns offered on risk-free securities, outstanding loans (if any), and your existing life insurance coverage, among a host of other factors. Does it seem complicated? No worries, use PersonalFN’s Human Life Value calculator to determine your optimal life insurance coverage.
Similarly, as the odds of facing some or other disease or medical conditions are high these days; hold adequate health insurance cover. If you do not hold adequate health insurance coverage and there is a medical emergency, you may be left with no choice but to liquidate investments assigned for other vital goals. It is necessary that you take into consideration your family’s medical history, pre-existing diseases, the state and city you reside in, the network of hospitals under the respective health insurer, and read the terms and conditions of the health insurance policy. If your sum insured is sub-optimal, consider increasing your health insurance coverage in the New Year.
Resolution #8: I will focus on my tax planning
Many of you are more likely to make tax-saving investments near the end of the fiscal year. Choose tax-saving avenues from the galore of investment avenues available viz. Public Provident Fund (PPF), National Pension System (NPS), National Savings Certificate, Tax Saver Deposits, Equity-Linked Savings Schemes (ELSS), Unit-Linked Insurance Policies, etc., whereby you can complement tax planning with investment planning. Note that the Income Tax Act has a galore of provisions facilitating you to save tax; make the best use of them by engaging in tax planning right since the beginning of the New Year.
Do not keep tax planning for the last hour. Tax season is coming and there is no need to stress about it. Getting your tax-saving investments done early in 2022 can help put your mind at ease. Proper tax planning not only reduces tax liability but also enables you to save to achieve the envisioned financial goals. A penny legitimately saved from tax is a penny earned.
Resolution #9: I will start with retirement planning
Retirement is a vital financial goal and an inescapable truth of life. If you wish to live the golden years of life in bliss, without worrying about how you would meet your expenses, make sure you engage in prudent retirement planning.
Saving for your retirement early in your life probably sounds like the least exciting thing that you can do with your money; but the sooner that you start, the more secure you will be when you finally retire.
Retirement planning begins with evaluating your retirement goals and how much time you have to meet them. The key is to rationally determine how much corpus you require to live a comfortable retirement life and then develop a plan to achieve your goal. To scientifically determine your retirement corpus, use PersonalFN’s Retirement Calculator. It is an online tool that would help you draw a roadmap to plan your retirement making justified assumptions.
“As in all successful ventures, the foundation of a good retirement is planning.” – Earl Nightingale (the famous American author and motivational speaker).
If you have not yet considered planning for your retirement, this New Year, resolve to invest for your golden years of life. Stocks, mutual funds, NPS, PPF, fixed deposits, and gold, are some investment avenues to plan your retirement.
Resolution #10: I will enhance my financial literacy
New year new year are made to improve your life and lead a better future. If you want to enhance your financial life and maintain your financial wellbeing, you must make a financial resolution to empower yourself with the weapon of financial knowledge.
Investing to improve your financial literacy will lead to making informed financial decisions and maintaining your and your family’s financial wellbeing. “An investment in knowledge pays the best interest,” said Benjamin Graham. Simple steps such as reading financial articles, books, listening to finance podcasts, using financial tools, finance apps, etc. may help sharpen your financial knowledge over time.
To Sum-up…
When you make these financial new year resolutions, ensure you diligently follow them. “No one’s ever achieved financial fitness with a January resolution that’s abandoned by February” , says Suze Orman (an American author, financial advisor, motivational speaker, and television host). Make sure you are following a persistent approach in the interest of your financial wellbeing.
In 2022, resolve to invest in yourself and become a ‘Financial Guardian’ for your family guide them in making informed financial decisions in these uncertain times.
This article first appeared on PersonalFN here
