The new year (2015) will be like the old one if you keep on doing the same old things. The New Year is a time to reflect on the changes we want or need to make. Here is a list of the top 15 Personal Financial Resolutions for the NEW YEAR 2015.
15 Personal Financial Resolutions for the NEW YEAR 2015.
1) Need Vs Wants – Make a Monthly Budget
Do not create a NEED out of a WANT. Be very clear about your MUST Haves and the purchases that you can postpone.
Is something horrible going to happen if you don’t have those LED Curved TVs which may cost you several Lakhs of rupees? Today you may have the purchasing power but do not buy (by cash or credit) just because you can afford to. This phenomenon of increasing your spending when your income goes up is called as LIFESTYLE INFLATION.
Make a monthly Budget. Track your monthly fixed and variable expenses. Try to plug the leaks. Like a diet, a budget is only as good as how well you stick to it. Try maintain and track your BMI (Budget Monthly Index) 🙂
You may resolve yourself to stop IMPULSE BUYING. Before buying any costly items, do some research and compare the prices/features of the products.
“If you buy things you do not need, soon you will have to sell things you need.” – Warren Buffett
2) Calculate your net-worth
Calculate your Networth if you have not done so already. (Networth is your Assets minus Liabilities). The New Year is as good a time as any for knowing what you are worth ‘Financially’. By doing this exercise, you can assess your Financial Health and can plan well for your Financial Goals. The resolutions you need to make will become more obvious after making this calculation. Recalculate your Networth each year.
“Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.” – Benjamin Franklin
3) Family Inclusion
Take a firm decision to involve your family members (especially your parents/spouse/grown-up kids) in your Financial decisions. Let them know what,where,when and why are you investing? Teach your kids (if married 🙂 ) about money management and the importance of investing in right Financial products.
4) Prioritize your debt
List our all your Debts (home loan(s), Personal Loans, Education Loans, Credit Card Dues). Identify the loans which have very high interest rates. You can use idle cash or bonuses to clear off high cost Debts first.
Keep an eye on your CREDIT SCORE. Do check your credit score atleast once in two years (if you have loans (or) planning to acquire more loans in future).
“Interest on debts grow without rain.” (You may like visiting my post on “Do you have Good Debt or Bad Debt?“)
5) Automate your Personal Finances
Be it Spending or investing, try to automate them as much as possible. You can book SIPs (Systematic Investment Plans). Create alerts for your periodic Bills and credit card dues. Submit Auto-Debit (standing instructions) instructions to pay your Insurance premiums. You can book Bank Fixed Deposits and Recurring deposits online.
6) Track & Re-balance your Portfolio
Do not just invest and forget about your Investment Portfolio. Maintain a portfolio tracker and re-balance your portfolio (if required). Re-balancing is very important because Financial Markets are very dynamic. Also, your financial and economic position may change every year.
7) Get rid off unwanted insurance
This is a very important point. Analyze your existing Life insurance coverage and be aware of the benefits of existing insurance plans. If you think your are under insured, make sure you buy sufficient Term Insurance coverage. And get rid off bad insurance policies immediately
“If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.” (But buy a right insurance plan)
(You may like reading my post on “How to get rid off bad insurance?“)
8) Maintain an emergency fund
Ideally, you want enough in cash reserves to cover necessary living expenses for at least 3-6 months. Invest these monies in short term bank Fixed Deposits or Liquid mutual funds. You may also consider Sweep-in Bank accounts. The investment objective should be the safety of the capital and liquidity. You should be able to redeem the investments and get the cash in 24 to 48 hours. I have seen people taking Personal loans to meet unforeseen contingencies. Do not go for high cost loans. Instead accumulate emergency fund.
“Into each life some rain must fall, Some days must be dark and dreary.” “save for a rainy day” – American poet Henry Wadsworth Longfellow
9) Do not postpone (Cost of delay)
When it comes to making investment decisions the rule seems to be to postpone it to another day. This applies not only to future financial decisions but also to going back and evaluating the past/current investments.
Also, waiting to begin your savings plan can have a huge impact on your results. A delay of even a few years could cost you Lakhs of rupees. You may get away with this inaction because you may not immediately see the consequences of delaying your investments/savings plan. You would feel the effects only when you need funds to meet your goals and you find that you are falling short because you did not give enough time for your investments to grow. The earlier you recognize the problem and deal with it, lesser will be the pain.
“You may delay, but time will not.” – Benjamin Franklin
“You cannot escape the responsibility of tomorrow by evading it today.” – Abraham Lincoln
(You may like visiting my post on “How much should I save for my Kid’s Education?“)
10) Link your investments to a Financial Goal
Do not blindly chase the Returns. Identify and set realistic financial goals. Identify the time-frame (short/medium/long term). Once, you are clear about your goals and time-frame, link your investment decisions to these goals. By doing this, you will end up investing in right Financial Products.
“The new year stands before us, like a chapter in a book, waiting to be written. We can help write that story by setting goals.” – Melody Beattie
11) Close In-operative Accounts
This new year, go ahead and close all those dormant, unwanted and inoperative bank or demat accounts. Banks and financial institutions charge fees for everything under the sun. Why should you pay penalties (like for not maintaining minimum balance etc.,) when you do not need them anymore. A penny saved is a penny earned.
12) Write a Will
Are you too young to write a WILL? Think again. Writing a Will is not dependent on your age. It is essential and important if you have Assets to leave behind. Accumulating assets/wealth may be important, but it is equally important to ensure that your inheritance is passed on smoothly to your heirs.
“Where there is a WILL there is a way. Certainly when there is a WILL there is a less confusion for your legal heirs.”
( You can read my post on “How to write a WILL online?“)
13) Be aware of basics of Income Tax
Many of us treat Income Tax as Rocket Science. Try to invest sometime this new year in understanding the basics of income tax. Analyze your salary structure, form 16 etc., Understand how your taxes are calculated and different ways of reducing your tax liability.
“Death and taxes are certain.”
14) Avoid the herd mentality
Avoid mob mentality. Each family finances are unique. The quantum of risk that you can afford can not match with your friend’s or neighbor’s risk profile. Also, try to diversify across all asset categories.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett
15) Donate a percentage of your earnings
One of the most effective ways to realize the value of money is to Donate. This new year, go ahead and donate, do some charity work. You will be more happy to have started the year by putting others’ happiness first.
“It’s not how much we give but how much love we put into giving.” ― Mother Teresa
Which of these actions will you resolve to do? Do you have any other Personal Financial resolutions which are not on this list? My resolution is to ‘write a will’. What is yours? Do share your comments. Merry Christmas and Happy New Year 2015.
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)