A new year means new beginnings, new possibilities, new opportunities and new experiences. It also means new opportunities. Things may or may not have turned out the way you wanted last year, but reflecting on the past year and having a fresh perspective is the key to a better future. And if the last two years have taught the world anything, it is the importance of financial security and the need to be prepared for life and its uncertainties.
Working towards financial stability is a process and two days of work will not make us richer than yesterday. That shouldn’t deter one from cultivating the necessary habits, and instead be one more reason to start working towards them.
Scientific research indicates that it takes an average of 66 days for a behavior to become part of your lifestyle/routine, in other words, a habit. So if there’s ever a good time to start working toward our personal financial goals and instill some financial discipline, it’s now. Here are some habits one could cultivate to achieve their goals in 2022.
Track your spending
A good first step in financial planning is to start tracking your spending. Know where your spending is going and how much. Sometimes looking at things from one point of view helps to understand them better. So take a look at your income and expenses from a broader perspective to identify what can be reduced, and then narrow your focus to optimize your spending.
In case it becomes tedious to keep track of all your expenses, expense management apps can help you. Since the apps would have a record of all your transactions, they will help you better review your spending profile and prioritize your spending. Considering that there has been a massive shift towards digital spending in India in recent years, expense management apps can be helpful for those struggling to get insight into their spending habits.
Build your savings
Saving is hard. But saving for a rainy day is essential as a solid savings foundation would give you a cushion to better handle uncertainties. A savings plan should begin at the very stage of budgeting. A systematic approach to budgeting often suggested by financial experts is the 50-30-20 rule of thumb.
According to him, an individual must allocate 50% of income to essential expenses or “needs” (housing, food and other expenses), 20% to personal expenses or “wants” (luxuries and leisure) and 20% to savings. or financial goals such as investments.
However, it is important to know that there is no one size fits all. You can come up with your own general rule of thumb after considering your income and financial goals. Set a goal and work to achieve it. If you can save more, by all means do so. And if you’ve reached your savings goal, try incremental savings. Remember: a penny saved is a penny earned.
It’s never too early or too late to start investing. You don’t have to be ‘The Big Bull’ or ‘The Big Bear’ in the capital markets to start investing. Start with small but smart investments. Try smart, practical tools like Systematic Investment Plans (SIPs). SIP has become popular for regularly investing in mutual funds. It is like a recurring deposit, but linked to the market. Therefore, it gives you the flexibility and convenience to invest the amount you choose.
Start small and then you can work towards having a diverse portfolio of various financial instruments once you get the hang of it. Look at low risk mutual funds and always keep the long term in mind.
Options such as fixed deposits, recurring deposits, provident funds, national pension plans and others are other traditional but safe bets for those with a lower appetite for risk.
Don’t underestimate the power of compound returns. Also don’t chase high returns in the short term. Slow and steady wins the race for a reason. But with that said, risk is unavoidable in market-linked financial programs. Therefore, building a risk appetite in line with our objectives is essential.
One of the most important things to remember when investing is not to get carried away by the fear of missing out. Don’t wait too long to invest, but never invest for fear of missing out. Always do your research and never rely solely on the advice of others, as the capital markets are associated with risk. Patience is a virtue.
Protect yourself and your family
The importance of health and term insurance policies cannot be stressed enough. Insurance not only protects you from unforeseen risks, but could also help you in the long run, as long as there is adequate coverage, covering your health/medical costs. Your out-of-pocket expenses will be restricted. You don’t need to dip into your savings, and they’re great tax savers too!
Having health/medical, term and/or life insurance is prudent and helps protect you and your family in times of uncertainty. And opting for insurance at a younger age will give you benefits such as lower premium rates. However, thorough research is imperative when shopping for health/medical and life/term insurance. Please read all the terms and conditions carefully, before opting for one.
Tax planning is a basic and important part of financial planning. Helps reduce tax obligations. So don’t just look for tax-saving initiatives at the end of the year or when it’s time to file your taxes. Start planning early, preferably at the beginning of a new fiscal year.
There are several ways to reduce your tax liability, such as minimizing taxable income by investing in various government schemes. Another way is to plan your tax deductions well in advance so that you can claim a reduction in taxes due. Life insurance, health insurance, mutual funds, home loan interest and others are some of the areas where standard deductions can be taken advantage of.
Financial planning is the first step toward financial security. It is important to set simple goals and start the journey. The basics can go a long way in ensuring you get off to a solid start on your financial journey.