Top 8 Effective Financial Resolutions for 2021

Hello everyone. Wish you a very happy new year. May it bring you Health, Wealth, and Happiness.

 

The year 2020 is over. We have learned many lessons from 2020 such as the importance of health, savings, and the importance of having adequate insurance, etc. Many people had ignored this and they had to pay for this mistake.

Financial Resolutions

Now, in this New Year 2021, we have another chance to rectify those mistakes and make sure that we won’t repeat them in the future. Some of you might think that it’s too late, but it’s better late than never.

So, here are the top 8 effective Financial Resolutions for 2021.

1. Keep your Emergency Fund in place:-
  • I can’t emphasize more on this. The year 2020 has proved why you need to have an Emergency Fund.
  • Earnings of many people had stopped but necessary expenses didn’t.
  • So, it’s important to identify your emergency fund as it is different for different people.
  • Calculate your unavoidable monthly expenses such as Groceries, Rent, Insurance Premiums, Loan Instalments, Medical Expenses, etc.
  • Multiply the amount by 6. This is your Emergency fund amount.
  • Invest the amount in liquid securities such as liquid or Ultra Short Term Mutual Funds, Bank FD/s, etc. so that it is easy to withdraw.
 
2. Relook at your Health Insurance:-
  • I am sure you have opted for Health Insurance by now.
  • Make sure that the Cover of Policy is adequate and all family members are covered under the policy.
  • It is a thumb rule that at least 50% of your annual income should be your cover. However, it may increase according to the city where you live, your lifestyle, no. of family members, etc.
  • Relook at your policy conditions, inclusions, exclusions, etc.
 
3. Relook at your Life Insurance:-
  • Relook at how much is your Life Insurance Cover.
  • Go for ‘Term Plan’ instead of Investment cum Insurance policies.
  • It is a thumb rule, your Life Insurance cover should be at least 15 times of your annual income.
  • Make sure that if there are two earning members in one family, please opt for two separate insurance policies.
  • Avoid taking insurance policies in the name of your child.
 
4. Increase savings by 5%-10%:-
  • This is one of the most important Financial resolutions and must be on a list every year.
  • Our annual income increases every year. However, we forget to increase our savings proportionately and spend that additional portion that could have been saved.
  • If we intentionally increase our savings by a pre-decided percentage for example by 5% or 10%, our portfolio would be much higher.
  • This small increase in savings will make you achieve big targets.
 
5. Assessing Tax Liability & Provision for Tax Payment:-
  • This must be done at the start of the Financial Year. You can do this for F.Y.2021-22 i.e. from April 2021 to March 2022.
  • Assess your income and your existing investments (eligible for deduction). Please check whether you have any additional scope for tax saving.
  • Compute your tax liability and start keeping aside money for payment. Further, if this is done in advance, you can choose the right options according to your risk profile and asset allocation.
  • This will save you from the mess in the month of March.

 

6. Avoid taking Personal Loan/Consumer Loans for Household Items:-
  • Some people have a habit of taking Personal Loan or Consumer Loans for purchasing household items such as TV, Fridge, etc.
  • Try to avoid adding new loans this year, especially bad loans. Bad loans are generally taken for goods whose value decreases over time.
  • Home Loans, Education loans are considered good loans as they create assets or income sources.
  • The Rate of Interest of Personal loans and Consumer loans are generally high. These types of loans will gradually reduce your purchasing power and investment capacity.
  • Instead, try to save on a monthly basis for these items. Even if you can not save for each and every item, but at least start with one. You can also postpone the purchases for a few months till the accumulation of the amount, if possible.

 

7. Shift your money to Debt, if your goal is near:-
  • Imagine the scenario that you are in need of money, but due to market fluctuation, you are at loss. But still, you will have to withdraw it and book a loss as you cannot postpone your need.
  • Hence, if you are in need of money in the next 2-3 years, try to shift the amount gradually from Equity to Debt. A Debt Asset class is considered safe as compared to Equity.

 

8. Fund your Retirement:-
  • A person has many Financial goals to achieve in a lifetime. We always give priority to short-term and medium-term goals. But, we forget our retirement goal.
  • So, try to dedicate a part of your savings for retirement.
  • Whatever you are saving, remember to allocate at least 20% of it to your retirement goal.

Hope you implement these effective resolutions in 2021.

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