Financial Resolutions

No, this is not another set of promises that cannot be kept or ideas that are good enough to find mention in your to-do list, but are difficult to follow. If 2017 went off on back of the impact of demonetisation, the introduction of GST and advancement in the presentation of the Union budget, 2018 promises to be equally interesting. As we enter the last phase of this government’s before the 2019 general elections, expect announcements that will make you closely monitor your finances to keep abreast with the changing times.

When it comes to money, life is full of unexpected emergencies. Having extra cash on hand can help keep a serious illness, repair or other sudden need from derailing your finances. At the same time, it makes immense sense to prepare for unpredictable expenses by putting aside three to six months of expenses in an easily accessible cash- equivalent account.

Create a disciplined savings strategy to stay on track for your retirement and other goals. More importantly, save more for the future by paying down high-interest debt. Our list of promises is not how election manifestos are but a dozen of them that can make the difference to your financial lives and deserve your action. Identify exactly what you hope to accomplish in the coming year financially.

1. Status check

Know where your money goes, even if it means maintaining tedious accounts of incidental expenses. Budgets may sound like a lot of unnecessary work, especially if you are financially comfortable. However, if you are not tracking your spending, you may be surprised by how quickly it adds up, and which expenses are costing you the most. Superior money management is about keeping track of micro-details of everyday financial transactions without losing sight of the big picture of your personal finances.

Lesson from 2017: The impact of demonetisation has made it easy to know how much you have in the bank, with need for cash going down considerably.

Don’t aim for perfection; instead, work for incremental improvement.

2. Stick to budget

As 2018 begins, set a budget and work on sticking to it for three months. Track your performance and revise the budget, as needed. A little planning goes a long way: savvy shoppers make a detailed list of their shopping needs before they head out. This limits the damage from impulse purchase decisions that could overtake you in a departmental store.

Lesson from 2017: If you are not tracking your spending, you may be surprised by how quickly it adds up, and which expenses are costing you the most.

Stick to a budget when it comes to routine expenses, before embarking on other aspects of your finances.

3. Cut optional expenses

Those who stick to budgets will swear by having full control over discretionary expenses, because cutting on these comes at no impact to your financial life. Efforts towards frugality can be therapeutic at times and give you a sense of joy, which is otherwise unthinkable. One of the most common kinds of discretionary expense is to cut eating out every month at least once. For those who are heavily into watching films, it could be one less movie a month. Any such cut would translate into immediate savings.

Lesson from 2017: Just because transacting became easy with digital money, you may have overlooked on charges and many a times, the convenience overruled the impulse.

The small savings may seem inconsequential at first, but twelve times over a year and you are getting serious.

4. Creating surplus

Sticking to a budget and just being more aware of your expenses is only half the job done. Your savings must also be invested diligently. Start a systematic investment plan (SIP) in a diversified equity fund that will automatically access your savings: this will enforce the discipline of saving and investing.

Lesson from 2017: If you had started an SIP in the Sensex in Jan 2017, by the end of the year, your investments would have gained over 27 per cent.

There are a lot of diversified funds to choose from, but you will do well to start with a balanced fund or an ETF today.

5. Don’t sit on idle cash

Money that’s lying idle in your account like a beached whale is money that’s not working hard enough for you. If it’s inertia that’s keeping you from systematic investment plan (SIP) that automatically debit from rupee- cost averaging: it lets you buy more of the underlying security when the market is down, and restricts your buying when the market is up.

Lesson from 2017: The interest generated by the savings bank account gets taxed if the cumulative interest is more than Rs 10,000 in a year. If you adjust for inflation, chances are you have hardly earned anything from these deposits and savings.

Move all your idle cash to liquid funds before you make up your mind on where to deploy it. These are tax efficient compared to bank savings and fixed deposits.

6. Invest with a time frame

Create short-term and long-term goals and financial resolution you want to achieve in 2018. To get the best out of capital market investments, you have to invest for the long term, say over five years. Only then can you ride out the short- term volatility that goes with this class of investments

Lesson from 2017: Short-term money yields better returns in liquid funds than money idling in your bank account.

There are different types of funds to suit differing investment time frame, choose a fund based on the investment time frame.

7. Maximise tax breaks

Yes, the real estate sector seems to be sluggish, yet chances are that the EMI you pay on a home loan is higher than the rent you now pay. Now factor in the tax breaks, and you’ll find that for much the same annual outgo— or at worst marginally more—you’ll be creating a material asset that’s all yours. Think the same way when it comes to investing using the available tax breaks, especially when selecting a tax saving instrument under Section 80C.

Lesson from 2017: Interest rates on home loans dropped and lenders passed the benefits. If you had maintained the same EMI; your loan tenure would have gone down significantly.

Try to match tax savings with financial goals and other benefits to get the most of your money.

8. Adequate cover

Most Indians tend to put off their insurance needs and are grossly underinsured. A life insurance cover ensures that in the event of your death, your financial dependants get a monetary cushion to absorb the shock of a breadwinner. When you buy life insurance, therefore, don’t be distracted by the tax breaks and the returns: judge it principally for how much cover you get.

Lesson from 2017: The online term plans from life insurers is a must have and not as expensive as many other form of insurance are. Take an adequate cover based on your needs.

Opt for insurance needs assessment, this will tell you exactly where you stand, based on which you could decide on what steps to undertake.

9. Start early, save more

Whether you have just begun your career and are savouring the sweet delights of retirement, anything that interferes with your plans for financial revelry sounds like a waste of money. But save you must for your financial goals, including living the last quartile of your life on a retirement corpus you build in your earning years. The sooner you start saving, the more you will accumulate. There is no other shortcut to having enough when you need it most.

Lesson from 2017: Don’t wait for the opportune moment, because when it comes to savings and investments, any day is a good day to make a start and form a habit.

Get into the habit of saving first before you start spending and with time you could start investing first and spending later.

10. Get a financial plan

It is one thing to save and invest for retirement and another to get the tax efficiency in place with your financial decisions. Instead of saving for retirement, set your retirement savings goal to be Rs 5 crore when you retire to be able to make it happen. Do not make investments to save on taxes haphazardly and then get panic attacks because you did not factor its efficacy keeping your future financial needs in place. Get a financial plan in place to chart out the money course of your life.

Lesson from 2017: If you had a plan in place, you would not have reacted to demonetisation with fear or the lowering of interest rates on your bank deposits.

Before committing your finances, assess the tax implications and how these can be merged with your financial goals for optimum results.

11. Professional help

It is one thing to know about something and another to be an expert in the subject. Do not let your excitement get the better of you, leave your money in the trusted hands of professional managers. There’s a galaxy of mutual funds out there that will invest on your behalf—for a small fee. Choose a fund house with a good performance record. Likewise, look for a financial advisor who can be engaged to do your biding.

Lesson from 2017: In hindsight investing in the Sensex seems simple; however, the bets money managers earned over 36 per cent returns in 2017. It pays to seek assistance.

Look for a financial planner or wealth manager who can help you realise your financial dreams this year.

12. Start giving

There is joy in giving and sharing your wealth. As you go about getting a life this year, you might feel the urge to spread some good cheer for others less privileged than you. It is, of course, noble to give to charity, but it’s nobler to give to one that submits itself to acceptable accountability standards on its fund use. There are several credible platforms that can do it for you. So this holiday season, be charity—smart.

Lesson from 2017: You need not be very rich to start giving, make a small contribution to a cause that you like and associate with – you could also claim tax benefits in doing so.

Gift your near and dear one with savings and investments which could help them started.

(A marketing initiative by Open Avenues)

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