New Year is the time to make resolutions and since 2020 has been a year of lessons for everyone, we hereby list out some financial tips to be adopted and adhered to, to be able to maintain sanity and balance in our financial lives.
First and foremost being, have a plan about and around your finances. Being clueless and aimless doesn’t help and indeed only pushes you further back making your life’s financial journey a difficult and challenging one.
Second, because a plan without numbers is mere day dreaming, you need to assign numerical values and define time frames in your plan. Doing this gives your plan a soul and gives you a reason to think and delve deeper with respect to the important financial commitments you need to make.
Third, be clear about your inflows (income from salary/ business/ rent or any other source) and outflows (expenses; fixed and discretionary). Also, take into account your committed savings and premiums if any. In simple terms, have a clear cut & well etched out budget.
Fourth, bring together your existing investments and insurance covers and align them to your plan. If these investments have been done ad-hoc, it may help to review and rebalance so that you earn above average returns on these.
Fifth, in whichever life stage you may be in, make it a point to save at least 20-25% of your net family income. This becomes the starting point to savings and is a broad guiding rule. As you take a more mature financial planning approach, you would know exactly how much to save and invest and across which avenues.
Sixth, when investing, follow a prudently devised asset allocation in line with your risk tolerance and time horizon for your important goal spends. The investments should be reviewed on quarterly basis and rebalancing should be done, if need be on annual basis.
Seventh, returns are important but so is holding liquid money in bank savings a/c and liquid mutual funds. Maintaining adequate emergency reserve is highly important and this has been one of the greatest learnings from the pandemic, never to be forgotten. Start with a reserve equivalent to at least 6 months of expenses and slowly take it up to your annual expenses.
Eighth, when investing in market linked investments such as shares or mutual funds, make sure you understand them and their return risk measurements well. Do not get panicked on hearsay or because of short term volatility that is inherent in these investments.
Ninth, have the necessary risk covers in place for yourself, your health as well as your assets. One untowardly incident and you could see your life long savings and investments getting depleted in absence of these important and adequate covers.
Last but not the least, do not underestimate the importance of being financially fit. Ultimately, for any other form of fitness, this one does have a role to play.