New calendar year has set in. This is the time of the year when a majority of us make some resolutions as regards our physical fitness but only a few make resolutions for remaining financially fit. In this article I propose some of the important financial resolutions, which each of one us should make and follow religiously thereafter.
Let us discuss those important resolutions now.
1. Prepare and adherence to Budgeting of expenses
In my opinion this is the most important of all the resolutions as all resolutions depend on successful implementation of this single resolution. For financial discipline you should prepare a budget for your monthly expenses and compare the budget with the actual expenses at the end of the month. This comparison will make you realise whether the deviation from the budget items of expenses was avoidable or not. Initially you may face some problems but within a few cycles the deviation between budgeted expenses and actual expenses will minimise and the system will fall in place. Not only monthly budgeting but also, when you go out for shopping of your monthly grocery, carrying a pre prepared list of things to buy will help you avoid impulsive buying. For meeting your day-to-day expenses avoid using credit cards except in emergency situations, but use your debit card or internet banking. This will help you spend within your limits and avoid falling in any debt trap.
2. Create an emergency fund
During the Covid-19 pandemic some have lost their jobs whereas some have been made to work at reduced salaries. Even the self-employed have experienced no cash inflow or reduced cash flow during this pandemic and especially during the lockdown. This has made many realise the importance of having a contingency fund. One needs to have a contingency fund equal to six month of outgo. This would include not only your day-to-day expenses but also all your monthly EMIs for various loans. An emergency fund would help you meet any emergency like situation like medical emergency, loss of job etc. The emergency fund has to be invested in bank deposits or liquid funds which are not subject to any volatility and can be liquidated easily and quickly. Those who do not have such emergency fund or have an inadequate fund cannot create it all of a sudden. So they can do so by starting a monthly SIP (Systematic Investment Plan) into liquid fund which then can either remain there or be put in the fixed deposit with a bank.
3. Have adequate insurance
One of my acquaintances, who was not so well off, has died due to Corona and did not have any life insurance on his life. His dependents are under severe financial strain. Likewise the wife of a friend was admitted in a hospital for the treatment of Corona, who survived fortunately but had to foot a huge medical bill. This also has disturbed his finances. In order to secure financial security of your dependent when you are not around, you need to have an adequate life insurance cover, at least 10-12 times of your annual income. In case you are not able to pay the premium of life insurance immediately, please buy a personal accident policy immediately.
Likewise you should have adequate medical insurance for each member of the family to take care of hospitalisation. Please note that though a life insurance policy has to be bought only for the earning member, health insurance has to be bough for everyone in the family without any exception. Looking at the current cost of medical treatment, each member of the family should have medical cover of at least Rs 5 lakh. In case you are not able to afford the high premium of an individual plan, then only you can take a floater policy which is relatively cheaper.
4. Invest Regularly through SIP
Compounding is the eighth wonder as Einstein, the great scientist, had said once. If you start investing early you have to start with a lower amount due to the benefit of compounding in contrast to the money needed to be saved if you delay investing. You need to start saving early to take care of your various goals. No one has unlimited income and each one has to manage within the income. So, irrespective of your income level, you can always save something for your financial needs in the future, including retirement, when your earning stops. Investing through SIP every month will help you bring in some financial discipline.
5. Do regular physical exercise
You cannot become financially fit unless you are physically fit. So, make a resolution to do a minimum of 45 minutes of average daily exercise to keep your body and mind fit.
In case you are confused or find it difficult to implement all the above financial resolutions, please take the help of a financial advisor/ planner to prepare your financial plan and provide you the financial roadmap for your future and course of action to be taken. I would strongly urge you to avail the services of a financial planner to help you implement various financial resolutions in an orderly manner.
The above resolutions should be followed religiously to make your financial life stable and peaceful.