8 Resolutions To Improve Your Financial Fitness In 2018

It’s that time of the year when gym memberships across the globe are likely to go up, as many of us once again focus on our health with renewed vigor. While physical health is perhaps the most important aspect of life, another facet which many ignore is the state of our financial health. To get stronger financially, you need  to re-evaluate your financial plan every year. Here are some actions I recommend you take to improve your financial well-being.

1.    Keep an eye on your Credit Score:Credit scores play an important role in your credit card or loan approval process and are increasingly being used for fixing loan rates. However, your credit report can contain wrong information caused by clerical errors or frauds. These could reduce your credit score and future loan eligibility. As reviewing your credit report is the only way to detect such misinformation, ensure to fetch your credit report from each of the bureaus at least once in year. Through regular checks you can also monitor your score and build it over time with good credit behavior. You can check your credit score online for free.

2.    Identify your financial goals: Financial goals are the money value of what we wish to achieve in our life, such as creating corpuses for your child’s education, post-retirement life, home loan downpayment etc. Take the help of online financial goal calculators to find out the monthly contributions required for each of your financial goals. This will give you a clear picture about how much you need to save each month and where to cut your expenses in case of a shortfall.

3.    Devise an asset allocation strategy for your investments: Your asset allocation strategy will help you to distribute your investments across various asset classes, such as equities, debt instruments, gold, etc according to your risk appetite and the time horizon of your financial goals. As equities beat other asset classes in the long term, invest in equity funds for financial goals maturing after 5 years. However, as equities can be very volatile in the short-term, invest in short term debt funds for goals maturing within 3 years and hybrid funds for those maturing between 3 to 5 years. Use SIP to mode to invest in these funds to avoid the hassle of investment timing while ensuring financial discipline and cost averaging during market corrections.

4.    Invest in ELSS to save tax:Most people make tax-saving investments during the last three months of the financial year. This leads many to make hasty decisions and commit costly mistakes. If you are one of them too, start investing in Equity Linked Savings Scheme (ELSS) to save taxes under Section 80C. These schemes not only have lowest lock-in period of three years among all Section 80C items, they also beat other Section 80C items in terms of returns and tax-benefits.To avoid the same mistake in FY 2018-19, find out the scope of saving taxes under Section 80C and distribute the amount equally among 2–3 ELSS schemes through SIPs for the entire financial year.

5.    Build an emergency fund:This fund acts a reserve for dealing with financial exigencies arising out of job loss, disability or other unforeseen events. Without it, you will be forced to redeem your long and mid-term investments or avail loans at high interest rates. This fund should consist of your 6 months’ monthly mandatory expenses. Park your emergency fund in ultra-short term debt funds as these generate higher returns than savings account at minimal risk. Individuals falling in 30% tax slab can consider arbitrage funds for higher post-tax returns.

6.    Take adequate insurance cover: As a thumb rule, your life insurance should equal 10–15 times of your annual income. Anything less than that makes you are underinsured. However, most confuse insurance with investment and avail life policies that provide very little cover. Instead, opt for an online term policy to cover your life at much lower premiums. Also buy adequate health and personal accident policies to cover yourself against medical costs and disability, respectively.

7.    Consolidate your debt: Increased credit access are forcing many to take multiple loans, leaving little scope for saving and investing. If you too are in such a situation, consolidate your multiple loans into a single one with lower interest rate, longer tenure and other favourable terms. For existing home loan borrowers, top up home loan and home loan balance transfer would be the best options. Others can consider loan against property, loan against securities or personal loan balance transfer according to their loan eligibility.

8.    Opt for Credit Cards and savings account that meet your needs: Having the right Credit Card that meets your lifestyle is extremely important. Not only will it help you build your credit score through discliplined usage and timely payments, but through benefits and reward points, it can help you save a significant amount of money. So, analyse where you spend your money the most and try get a suitable credit card.  For example, if you travel a lot, go for a Credit Card that offers free air miles, hotel vouchers and lounge access at airports. Similarly, do take a look at the saving accounts you hold. Close unused accounts or those which do not offer much benefits. Look for a savings account that offers a high rate of interest or other advantages like unlimited free ATM withdrawals.

Naveen Kukreja

Guest Author Naveen Kukreja is CEO and co-founder of Paisabazaar.com. He studied engineering at Delhi College of Engineering and holds a postgraduate diploma from IIM Calcutta