2021 is over and we have stepped into the New Year 2022, but the pandemic is still raging everywhere. It has, however, also taught us the importance of creating a solid financial plan, saving more and obtaining proper coverage of insurance, among others, to ensure better financial health.
Here are a few New Year resolutions that can help you make your life better.
Identify your financial goals
The first and foremost thing to ensure a healthier financial life is to identifying one’s financial goals. Financial goals, in fact, are the numerical value of one’s life goals, such as creating corpuses for post-retirement life, child’s education, home loan down payment, etc. “One should take the help of online SIP calculators to find out the monthly contributions required for achieving each financial goal. This will provide a clear roadmap on how much to save each month and where to cut expenses,” says Gaurav Aggarwal, Senior Director, Paisabazaar.com.
Then, use the SIP mode to invest in equity, debt or hybrid funds as per the risk appetite. The SIP mode will save the hassle of investment timing, ensure financial discipline and help in cost averaging during market corrections.
Start saving more
The pandemic has taught us the importance of saving more and more. For this, you should start setting aside some cash each month. It might not seem like much, but if you’re consistent with this habit, you’ll soon build up quite a bit of saving. Once you’ve saved up enough, you could use the money to pay off bills or start investing.
“One of the quickest ways to save money is to spend less i.e. to stop buying things that aren’t really necessary. This is easier said than done though! But you can start taking small steps. Remember, saving plus investing equals financial freedom. You should always try to keep at least 10% of all your earnings as savings,” advises Abhinav Angirish, Founder Investonline.in.
Investing is one of the best ways to make your money grow over time. Investing means putting your money into something that will give you an income or benefit in the future. The best way to invest is by buying shares in companies, but it doesn’t have to be just shares. If you don’t understand stocks or find them too intimidating, you can also invest in mutual funds. There are lots of different types of investments out there, so do some research before making any decisions.
Build an emergency fund
You must have sufficient money in your emergency fund or savings to handle at least 3-6 months of living expenses in case of job loss, health emergency or any event that unexpectedly stops your monthly flow of income or puts an extra financial burden on you.
“It is a good rule of thumb to keeping aside 3-6 months of funds based on your current expenses and foreseeable risks. This is one of the most important steps in your overall personal finance planning. Currently it has become even more important as the Covid-19 pandemic poses both health and employment risks. Hence, we must be financially ready to cover any unpredictable situation,” says Adhil Shetty, CEO, Bankbazaar.com.
Debts are scary. They can weigh you down and make it hard for you to focus on other important aspects of life. However, if you want to get ahead financially, you need to tackle your debts. “Start by getting a handle on what you owe and how much you need to repay each month. Then work out a repayment plan that works for you. Once you’ve got that sorted, start paying back your debt as quickly as possible. The sooner you pay it off, the faster you’ll free yourself from its grip,” says Angirish.
Regularly Track Your Credit Score
Developing good credit habits is important to financial stability, and knowing your credit score each month is one such habit. Whether you are taking a loan for a buying a house or car or planning to get your child married or send him outside the country for education, your credit score plays a crucial role in getting financing.
“If you have been using any form of credit, know where your score is by availing your free monthly check. This is especially important if your score has been harmed in the last two years due late loan payments or loan restructuring,” informs Shetty.
You need to remember that lenders consider the credit score of loan applicants while evaluating their credit card or loan applications. Many lenders also factor in credit scores while setting the interest rate. Checking credit reports at regular intervals allows consumers to track their credit score and take necessary steps to improve it.
“Moreover, credit reports can contain wrong information due to clerical errors made by the credit bureau or lender or due to fraudulent credit activity made in his name. Such errors can adversely impact one’s credit score and thereby, future loan eligibility,” says Aggarwal.
Take adequate insurance cover
The pandemic has taught us the importance of insurance. Both life as well as health insurance have become an indispensable part of life. Insurance is very important because, without it, you wouldn’t have any protection left over when you retire. “Without proper protection, you could lose everything in a few short years. Look for term insurance instead of endowment plans. Not only the premiums will be lesser, but you can also invest in the surplus and build a decent corpus,” says Angirish.
Ideally, one’s life insurance cover should be at least 10–15 times of his annual income. However, many consumers mix insurance with investment and end up buying ULIPs, endowment policies, money back policies that provide very little cover. “The best way to buy such large life insurance covers at affordable premiums is to buy online term insurance policies. One should also buy adequate health and personal accident policies to cover themselves from hospitalization expenses and loss of income caused by disability, respectively,” Aggarwal.