Today is the last day of 2020 ; a year that has been difficult for us on multiple fronts. While most of us are ready with our list of resolutions to improve our physical, mental and professional well being, more often than not we leave out making financial resolutions and take unplanned wealth decisions. This leads to unnecessary money drain and last-minute investments in suboptimal avenues. Well, it’s time to change that! It’s time we focus equally on our financial wellbeing and sow the seeds now for a cushioned future. So here are Top 6 New Year financial resolutions that you need to jot down in your reflection journal right now for a wealthy 2021. Read on!
Resolution # 1: I Will Be Conscious About My Spending Habits
2020 brought unprecedented changes financially. While most people went through the motions without trying to think too much about it, one thing became evident – most of us can boost our finances by keeping track of our expenses.
So, your first financial resolution for 2021 should be to create a place where you log all your income and expenses every month – a personal balance sheet. This will help you stay on top of your finances and make informed decisions.
If you are someone who is clueless about where their money went and repeatedly find yourself staring at a dismal bank balance, it’s time to exercise financial discipline. Here’s where the famous rule of budgeting, the 50-30-20 rule can come to your aid.
This simple rule tells you to divide your post-tax salary in such a way that 50% is spent on needs which are the bare essentials like food, rent, clothing, maintenance, etc. 30% is spent on wants like the occasional movie outing, shopping, travel, hobbies etc and the remaining 20% of the money is saved and later invested.
Going by this rule, you would be able to discern the right use of your money and bring a certain amount of discipline. Nowadays, there are so many apps available in the market that you can use for smart budgeting.
You don’t have to deprive yourself of all the goodies that money can buy, but be judicious with your purchasing power. Just pause and think before you buy something; is this an impulse purchase or do I really need it? Whatever it takes, stick to the 50-30-20 rule as much as possible. This mindfulness regarding your money will make you feel empowered and in control of your financial life.
Resolution #2: I Will Not Delay Investing
The mistake most people commit is trying to wait for the right moment to start investing. However it’s impossible to time the market and so, with each year you delay, you stand to lose a lot in terms of wealth creation opportunities.
Instead, you can start investing in the financial product of your choice at regular intervals and let compounding do it’s magic. For instance, if you are considering equity mutual funds, then you can start investing via the SIP route to build wealth steadily.
Platforms like Groww have made investing a cakewalk, by removing all entry barriers that would have stopped you before. So make use of such facilities and don’t wait for the right moment.
Remember, it’s the time in the market that will generate wealth. Stop procrastinating and start investing today!
Resolution #3: I Will Reduce My Debt
We live in times when ‘buy now – pay later’ is a norm. From costly purchases like a home or a car, to electronic appliances and clothes, etc. everything can be purchased on EMIs. Credit cards have made getting debt as simple as swiping a card. In such an environment, most of us have some debt hanging over our heads.
The primary issue with debts is that the easy repayment facilities make us complacent and we tend to be satisfied paying the EMIs even if it means paying interest in the long-term. While the interest amount does not feel much, in the long-run, this can be a major source of money leakage in your personal finances.
Here’s what you can do; make a list of all ongoing debts and loans you have and arrange them according to the interest rate they accrue in descending order. For instance, plan ahead to clear off your credit card debt in one go.
Similarly, you can direct resources to other important debts when you get a salary hike or a yearly bonus so that they are reduced faster. Going forward, avoid indiscriminate use of credit cards. Keep the debt levels in check and it will save you a lot of stress.
Resolution #4 : I Will Become Financially Literate
The more you educate yourself about the best ways to grow wealth the more equipped and in-control you will be. The first thing to do is to read. Educate yourself about the various investment options available.
Get familiar with investment jargon. Read books of famous investors, listen to money podcasts, stay abreast with the latest happenings in the world of finance and economy, check out the various financial management tools.
In short, don’t shy away from learning about effective ways to grow wealth and be fully aware of the risks and rewards associated with investing in certain avenues. This will empower you to make prudent financial decisions.
Resolution #5 : I Will Focus on Diversification
Portfolio diversification is an effective way to minimize investment risks. If you are just starting, focus on creating an investment portfolio that is diversified across asset classes and within each asset class too.
Also, consider choosing investments that have a low (even negative) correlation with each other. If you feel your portfolio is tipping towards a particular asset class too, take a look at your portfolio and rebalance if needed.
Resolution #6: I Will Invest In Myself
Invest in yourself to upskill yourself in the field you are. It may seem counterintuitive, but spending money on yourself can ultimately lead to better job prospects as well as open doors to create alternate sources of income.
Hence, the return on investment would be high if we look at the long term wealth creation prospects of having a diverse skill-set. So go ahead, do that short term skill enhancement course you have been hesitating to take.
To Sum Up
Apart from the ones mentioned above, make sure you have adequate health and term insurance cover as well as have an emergency fund with an amount worth six months of expenses.
This will ensure your other resolutions don’t suffer and your family is cushioned financially. And finally, believe that you would be able to achieve all of these goals. At the same time, don’t be too hard on yourself if you are not able to finish any goal completely. The seeds you sow for your financial well being this year will bear very sweet fruits in the future for you to enjoy.
Here’s Groww wishing you and your loved ones a Happy and Prosperous New Year!