Often you make New Year’s resolutions which end even before they have begun. If that is the case, how can you make this New Year a special one. Though you can set a vague financial resolution such as ‘save more money’ or ‘pay back all loans’, the same need to be converted into attainable and realistic. Here are some ways to make sure that you should keep your financial resolutions which should work for throughout the year.
Keep a separate account
Even if you start saving Rs 10 per week in the first week of January, R20 in the second and so on, at the end of 52 weeks, you will have saved a total of Rs 13,780 in the bank as principal. Transfer atleast one-third of such unexpected incomes extra income like bonus or incentives into savings.
Build your winning portfolio
A portfolio is essentially the sum of all of your different investments across different asset classes. These asset classes will include shares, corporate bonds, government bonds, mutual funds, and so on. Building a winning portfolio is dependent on a number of factors, but it is important to remember that your portfolio should be designed according to your needs and goals.
Keep your investment costs low
Look for the lowest cost options to implement your asset allocation based on your time frame and risk tolerance. For instance, when you compare similar mutual funds, low costs are a much better indicator of future performance than that of looking at past performance alone. Index funds that are simply the replica of the market index generally have the lowest fees and trading costs.
Save with tax saving options
Look out for investments which provide tax savings options. For instance, equity-linked savings schemes are eligible for tax benefits. Public Provident Fund is an all-time favourite asset class across the investors because of tax rebate.
Adjust your portfolio
Once a year, you need to to revisit your goals and re-run your calculations based on your actual investments, savings and returns earned.
Also check whether the tax laws have changed and adjust your portfolio accordingly. If your investments are making loss, is not a reason to change them as it will be a part of the cyclical nature of investing. Instead, try to see is there any opportunity to purchase more shares at a lower price. The same is true if you have a mutual fund that’s under-performing other funds. Unfortunately, no fund consistently outperforms all the time but you will maximize your odds by keeping your costs as low as possible.
Wise use of credit card
Though our initial goal is to pay back all loans, we often end up paying a higher interest on credit card. Using a credit card is a good strategy as long as you repay on time. For those who already have a credit card debt, make payments every month that are tied to when you get paid which will avoid unnecessary interest charges on the same. Follow the above to step up your savings and reduce your loans for the New Year
The writer is associate professor of finance & accounting, IIM Shillong