Each of us will wake up on the morning of 1 January 2011 with a resolution in mind. For most of us, it will be something like controlling diet or giving up smoking or a resolution to follow the last one. Then, five days later, the New Year will be old as the last one, bringing nothing new with it.
Although every morning we wake up can be a new start, starting something in the New Year gives a feeling that maybe, this time, the commitment will last. It gives the feeling of a fresh start. So why not take this opportunity to take a financial resolution, one not like the French or the Russian revolution, which were for something, but one like the American revolution—to stand against something, to stand against the mistakes of the past year.
Money is perhaps one thing we spend the better half of a year worrying about. So, why not formulate steps that take the worry out from our thoughts and the next time we think about money, a sense of relief shall prevail?
Don’t give up on today for tomorrow: Today is as important as tomorrow. Most of us plan for the future but miss out on the present; sufficiency for old age is good but that shouldn’t leave you broke today. Don’t waste too much in your day-to-day expenses. A little extra today becomes too much tomorrow but make sure it’s not at the cost of enjoying today. It requires fine balancing between present and future.
Don’t overspend on your budget: Articulate a practical doable budget. Spend less on frivolous demands and instead invest your resources wisely, which will help you reach your financial goals without glitches. Budgets allow you to know exactly how much you have to spend and letting you splurge, too, within limits. Not everything you want is your need. We all feel like a king at the start of the month but end up owing money towards the end.
Don’t proceed without planning: Believe that not earning but planning and saving hard-earned money is most important. Sit with your financial planner and get a financial plan made. This will help you take informed monetary decisions. Do not take hasty decisions such as investing impulsively in quick schemes. Make a checklist of things that matter the most. Trust me, a written financial plan is very soothing to financial anxiety.
Do not ignore the importance of family in financial decisions: Mostly the breadwinner of the house tends to ignore the family while taking important financial decisions. They think they know the best, which might be true, but involving the family may lead to questions that reveal an ignored aspect of the decision. Also, understand that misfortunes are inevitable. In any situation your loved ones should be financially stable and they should know where they can draw money from in times of need.
Don’t get carried away by the market: Be prudent when it comes to the share market. Don’t get emotionally driven when you come out on top. Think long term rather than short term. Avoid taking impulsive decisions. In times of profit, don’t invest every penny and don’t panic even in times of loss. Keep a certain income aside each month. Say if you want to invest 30% of your salary each month, then even if the market is sky-rocketing that set percentage of money to be invested shouldn’t change. This discipline will keep you grounded in times of market volatility.
Don’t delay the retirement plan: Start a retirement fund for yourself. While you are thinking of achieving various goals that you want to enjoy for yourself and your family, it is also the perfect time to invest some resources for your future, as you cannot control what may happen. Retirement is meant to enjoy life, not worry about where the monthly expenditure will come from, thus impacting the quality of retired life.
Do not ignore the importance of health insurance: It’s appalling to know that very few people in India are covered under any kind of health insurance. You never know what type of medical emergency might occur. If you are not prepared, it might leave you ruined. Be sure to get a mediclaim policy. Your financial planner will be of help in suggesting a good health cover for you and your family.
Don’t let debts build up: Plastic money is a boon and bane alike. If used wisely, it makes life easier but if you are not careful, then the convenience backfires. Avoid the accumulation of debt on credit cards. Have a plan so as to pay off your debts in instalments without facing a crunch. Wherever possible, try paying your bills in cash.
Don’t leave your loved one on chance: Recent study indicates that people in India are shockingly under-insured in terms of life insurance. This is a shame, because insurance can help protect you and your loved ones from the costs of accidents, illness, disability and death. As such, it is an important part of any sound financial plan. If you don’t have adequate life insurance, get one for the sake of your loved ones.
Avoid the avoidable: Most expensive is not always the best. Evaluate what suits your needs and avoid spending splendidly on non-necessary items. Usually, there is an alternative that you can choose from without spending too much of your resources. In other words, do not be an impulsive shopper. Evaluate your options and know your limit.
Don’t neglect the succession plan: You may not enjoy thinking about what will happen after you’re gone, but failing to plan could cost your family and loved ones. A sound estate plan can help preserve your assets and keep them from being unnecessarily reduced by legal fees and taxes for your rightful heirs. Your estate plan should include an up-to-date will, a power of attorney, a sound nomination plan, and use of tools such as family trusts for charitable giving and joint ownership of property.
Start the New Year on a high and take control of your finances. You will suddenly experience a sense of freedom that will allow you to appreciate everything else in life.
Sumeet Vaid is founder CEO, Ffreedom Financial Planners.
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