Get Your Finances in Shape in 2020 With Financial Resolutions
Here some important New Year Financial Resolutions you should make for 2020. Let’s all welcome the New Year with new planning, new strategies, new opportunities and new possibilities.
The key for making new year financial resolutions successful, is sticking to them and not just making the list. With a proper financial planning and a dedicated efforts towards its execution with the help of your financial advisor, you can set yourself up for a prosperous year.
New Year Financial Resolutions for 2020
1. Create a Budget for Life
- Review your current finances
- The first step toward financial improvement is to get the lay of the land.
- This step includes :
- Reviewing the status of all your financial accounts carefully
- Taking stock of your assets and debts
- Evaluating your monthly cash flow
- Track your Budget
- In this step, you need to track 3 things :
- After Tax salary
- Remember, 50/30/20 rule of budgeting.
- In this step, you need to track 3 things :
- What is 50/30/20 rule?
- 50% : Your needs ie. total monthly expenses including EMIs and other living expenses should be limited to just 50% of your net income.
- 30% : Your savings & Investments ie. long-term goals should equal at least 30% of the money you earn each month.
- 20% : Your wants ie. short-term goals should only take up 20% of your budget and spending.
- Emergency Fund
- How can you cope with a situation where your regular income stops or you incur sudden heavy expenses? For such times, you should build a contingency fund, which is nothing but savings parked in liquid options to be used during crises such as job loss and medical situations.
- How much is enough? Depends on various factors such as Our insurance, Stability of our income, Number of dependents and Liabilities.At least six months’ worth of essential living expenses including all EMIs should be set aside in liquid funds.
- The emergency fund can help you cover unexpected-but-necessary expenses without having to sell more volatile investments.
2. Get Out of Debt
- For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, such as a home. However, problems arise when debt becomes the master, not the other way around.
- Keep your total debt load manageable
- Eliminate high-cost debt
- Try to pay off credit card debt and avoid borrowing to buy depreciating assets, such as cars. The cost of credit cards debt adds up quickly if you carry a balance. Say ‘No’ to Credit Cards. One should set a realistic budget and have a plan and a schedule to pay it back.
- Match repayment terms to your time horizons
- Don’t take bigger loan under the assumption that your home will automatically increase in value. Historically, long-term home appreciation has significantly lagged the total return of a diversified stock portfolio.You should have a disciplined payback schedule for any type of debt.
3. Optimize Your Portfolio
- One should create a financial plan and thus build a model portfolio for you that will help you stay disciplined in all type of market volatility. You should be focused towards your financial goals.
- Focus Overall Investment Mix – Have a targeted asset allocation
- After committing to a savings plan, how you invest is your next most important decision. One should opt for a targeted asset allocation in sync with your long-term goals, risk tolerance and time frame. Build your portfolio with a overall mix of Direct stocks, Equity Mutual Funds, Debt Funds and Cash/Liquid Funds.
- Diversify across and within asset classes
- Diversification reduces risks and is a critical factor in helping you reach your goals. Mutual funds and exchange-traded funds (ETFs) are great ways to own a diversified basket of securities in just about any asset class.
- Plan your Tax Saving Investments
- Most of us do our Tax Saving Investments in last 3 months (Jan-March). As with anything else, procrastination breeds mistakes and we end up investing in instruments which may not be relevant for us.
- Based on your needs and goals, plan your Tax Saving investment today and start investing early
- One should not follow only returns of Tax saving instruments. Risk appetite, time horizon (holding period), post tax returns plays an important role in selection of right tax saving investment option
- Monitor and rebalance your portfolio as needed
- Evaluate your portfolio’s performance quarterly or six-monthly using the right benchmarks. Remember, the long-term progress that you make toward your goals is more important than short-term portfolio performance
4. Other Important Financial Resolutions
- Automate your resolutions
- The key to resolution success is to automate as much as possible.
- Auto-pay your bills and credit card outstandings
- Set up automatic withdrawals from your salary account for Rent and EMIs
- Setup Automatic transfer to various investment options – SIPs, Emergency Fund and Debt Funds
- Shoot For Top Physical & Financial Fitness
- There is a clear connection between physical, emotional and financial health. Not only are health care expenses the big cause of bankruptcy, but they also comprise a great deal of our annual spending between insurance premiums, out-of-pocket costs, gym memberships etc.
- Stress in our lives is also increasing due to many reasons. This underscores the importance Physical fitness as well. ‘Feeling better will lead to wiser financial decisions that focus on the long term’
- Make Financial Literacy A Family Priority
- Financial Literacy level in India are anemic with less than 25% adults financially literate whereas the world average is 33%.
- This is important – as it relates to our own finances, but also on how our children will manage money. Improve your own financial performance and teach your kids. Yadnya is happy to help!
- Help Other Consumers
- As a vital pert of nation’s economic system, we consumers need to stick together. It’s hard to lead a financially responsible lifestyle in this era of economic turmoil, political obstinacy and unbridled spending.
- Share your experiences with different financial products, companies and professionals. Yadnya is doing exactly this!