The year 2022 is coming to an end. I am sure you had a lot of fun, and learning, and gained new experiences throughout the year. I am so excited to welcome the new year. Many of you must have thought about your new year’s resolution. I am here to add a few more to your list for a healthier financial life in 2023. Here are eight resolutions that can help increase your financial fitness and hopefully inspire you to stay committed to them in the new year.
1. Create your contingency fund
A contingencies fund or contingency fund is a fund for emergencies or unexpected outflows, mainly economic crises. You should always keep some amount aside in your savings account for any unfortunate events such as job loss, medical emergency, unavoidable home repairs, pandemic, etc.
Its main goal is to enhance your financial security and safeguard your financial plan in the event of contingencies. Thus, it provides a strong cushion for your finances in case of a crisis.
While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb are to put away at least three to six months’ worth of expenses in your contingency fund.
2. Get a health insurance
Medical emergencies can occur without any warning. Given the huge cost associated with good quality healthcare, any major medical condition can ruin years of your savings. It is always better to be prepared.
This new year, buy good health insurance for yourself and your loved ones. While it is easy to get confused with so many available options, here are some of the key factors to keep in mind while selecting your insurance plan:
- Claim Settlement Ratio – the higher the better
- Claim Process
- Diseases covered
- Network hospitals
- Maternity benefits
- Sum assured vs yearly premium
- Exclusions/Limitations
3. Start a SIP
A Systematic Investment Plan (SIP), more popularly known as SIP, is a facility offered by mutual funds to investors to invest in a disciplined manner. Regular investments play a vital role in helping you get one step closer to your financial goals. The nature and ability of SIP are such that it adds discipline throughout your investment journey. With the power of compounding, SIP generates wealth slowly and steadily. Some of the benefits of starting a SIP:
- Manages the risks associated with market volatility
- You can start with a very low initial investment
- You can adjust the SIP amount as per your capacity
- Makes you a disciplined investor
- Compound your wealth over time
You can invest in both stocks and mutual funds using the SIP approach. Do some research and find out some good funds/stocks to start your SIP. If you need any help on your investment journey, you can reach out to me anytime.
4. Reorganize your investment portfolio
You worked hard to build your investment portfolio; however, our work does not end there. You must constantly monitor and review your investments to benefit from them. Owing to market conditions, however, some of your investments will do well at times, while others will not.
As an investor, your risk profile, financial conditions, investment objectives, and overall market conditions may change over a period. Rebalancing ensures that your portfolio does not become overly dependent on either the success or failure of any one investment or asset class at any given time. You should monitor the performance of your portfolio and restore its original balance at least once every year.
Make sure you are aware of the companies you invested in, market dynamics, competitors, and financial figures. Also, you should diversify your portfolio with multiple asset classes/business sectors so that your risks are minimized.
5. Pay off your credit card bill
Be very responsible with your credit card. While all the banks try to convince you to carry their credit cards, you should use them carefully. Whenever possible, make payments using cash /debit card or UPI. Credit cards can be a lifesaver in some situations, but if you miss to repay the due amount or delay it, it can turn out to be a high-interest loan (interest can be as high as 35-40% per year).
So, if you have any outstanding amount to be paid towards your credit card, let’s commit to paying it in full before using it for your next purchase.
6. Manage your debt
Getting a loan is not always a bad idea. You can think of it as a tool. For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, such as a home. But problems can arise when debt becomes more of a burden than a tool. Some thumb rules to help you:
- Avoid borrowing to buy depreciating assets, such as cars
- Not more than 35-40 percent of your monthly income should go toward your EMI/Credit card bill payment
- Draw a clear picture of how much you owe and make a budget plan for every month
7. Start planning your retirement
Retirement might sound so far away, but the sooner you start saving for your retirement the better return you will enjoy when you retire. One of the most common ways to start saving for retirement is through an employer-sponsored 401(k) plan. Many companies offer them, and for many employees, this is their sole retirement savings account. You can also choose to contribute to EPF, EPS, and low-risk mutual funds. You can invest 5-10% of your monthly income towards your retirement fund.
8. Make informed investments
Gain financial literacy, learn the basics, and make your own investment decisions. Don’t believe in any quick money-making schemes. Before investing in any stocks, make sure you are doing your research, which includes going through their balance sheet, profit loss statements, market dynamics, shareholding pattern, past performance, peer performance, etc. Invest for the longer term, diversify your portfolio and reduce the risk with SIP.
I hope this new year brings you lots of joy, happiness, success, and prosperity. If you need help with any of your financial decisions, feel free to drop me a note. Wishing you a happy new year.
