A right financial plan can set the tone for your financial goals all through your life.
We are in the last month of this year and what a year it has been. With positive news of vaccine efficacy coming in and the economy doing better than projected, it looks like the new year will have more to offer.
As we stand at the threshold of the new year-2021, this would be the ideal time to draw up your resolutions. Among all the other resolutions that you may make for the year, resolutions that help you get a firm grip on your finances should figure higher on your priorities.
These are some of the top financial resolutions you should consider making in 2021
I will build my emergency fund nest: Remember the months of April and May when news of layoffs, pay cuts, and financial distress was rife? Emergencies like COVID-19 can strike anytime, but having an emergency fund nest can help you sail through. A typical emergency fund needs to have money to cater to your obligatory expenses (living expenses, rent, EMIs, school fees) for 3-6 months. This could be parked in your savings account/ fixed deposit or liquid funds.
I will invest in life & health insurance: COVID-19 has emphasised the focus on the importance of good health. We have seen numerous instances of the young and the healthy succumbing to the virus or other lifestyle-related diseases.
Although insurance and investment are two different pillars of a financial plan, getting life insurance and a health insurance plan is nothing short of an investment. While you may consider going in moneyback or ULIP plans for their returns, a pure term life insurance plan for all earning members of your family, and a health insurance plan covering everyone (including parents/in-laws) are indispensable.
I will borrow only as much I can comfortably payback: The use of credit to meet your needs as well as wants has become commonplace over the past decade. Loans and credit cards are more easily available than before. But the onus of paying back is definitely on your shoulders.
Loan repayment can choke your finances in times of emergencies. Ideally, not more than 40-50 per cent of your take-home pay should go towards EMIs. Lenders go by this figure, but you could set a lower figure for yourself depending on your other monthly expenses.
I will no longer postpone financial planning: A right financial plan can set the tone for your financial goals all through your life. A plan ought to take into account your current income and expenses and link them to your goals. It is good to have a short-term and a long-term plan in place. While short term plans could take care of goals over the next 3-5 years, long term plans can help you reach goals over 5 years.
I will diversify my investment avenues to build wealth: As much as saving is an important part of keeping your overall finances healthy so is investing to build wealth.
While the onset of the pandemic saw the stock market crash, it is reaching new heights now. And the opposite is true of fixed income instruments. So, it makes sense to spread out your investments across different avenues to optimize risk and returns. But keeping all eggs in one basket will not help you grow wealth to meet various financial goals that you set for yourself.
But unlike many other new year resolutions that lose their charm after the 1st week/month, do not lose track of your financial resolutions. Work on it till you can check off all of them.
The author is Co-founder and Chief Business Officer, Fisdom