Personal Finance Moves To Make Before 2018 Ends
As 2018 draws close to an end, many of us would be chalking out plans for the New Year and making resolutions for a better future. One of the most crucial aspects of a good life is financial health, and it's a good time to utilize this last month to review our finances. Mentioned below are some of the smart yet easy money moves that would enable you to kick-start the New Year with stress free finances and an organized financial approach:
Build and maintain adequate emergency fund: Havingan adequate emergency fund is the first step towards a strong financial plan. Before you take any step towards your varying financial goals, make sure you have an adequate emergency fund in place. This fund would assist during unforeseen financial emergencies such as a sudden job loss or severe illness, which hampers regular income inflow. Ideally, the size of this fund should be at least four to six times your recurring monthly expenses. Moreover, as factors such as number of dependents, marital status etc. also affect the quantum of your monthly expenses, make sure emergency fund’s size proportionately changes with change in your monthly expenses. You can consider parking your emergency fund in high yielding savings accounts providing 6-7% p.a. interest, or in debt mutual funds providing up to 7-8% returns for 1year period.
Ensure you have adequate insurance: A strong financial plan is always incomplete without the presence of an adequate term as well as health insurance. Before stepping into the New Year, make sure have opted for a pure term policy, as it would financially protect your family in case of your untimely demise. Without it, you may leave your loved ones in a financially vulnerable position in case you aren't around anymore. Ideally your term insurance cover should amount to at least 15 times your annual income. Moreover, this amount must keep on changing in accordance with a future rise in your income. As compared to the cover amount, the premium involved in term insurance is very low.
Even if you have already purchased a term insurance, make sure the cover is adequate, according to your annual income and number of dependents. An insufficient cover amount may pose difficulties for your loved ones to continue existing investments and debt payments. Also remember that the premium paid towards term insurance qualifies for tax deduction under section 80C.
Additionally, its prudent to purchase a reliable health insurance policy as it would assist you to cover future medical expenses, especially during the current scenario of continuous rise in health care expenses. An adequate health insurance would prevent a single hospitalization bill from eradicating your lifelong savings. Even if your employer’ provides such policy, do not remain dependent on it, since that policy would only be valid till the time your employed with that organization. Consider purchasing a family floater plan in case you have a family. A top up medical policy would also be a good choice, to cover medical costs in case of disability or accidents.
Premium paid towards health insurance of yourself, your spouse, parents and dependent children can be claimed as tax deduction under section 80D of Income tax act.
Adopt goal based investment strategy: If you haven't yet begun investing towards achievement of various life goals, makes sure you have first identified and prioritized your financial goals. You need to be clear regarding the financial goals for which you intend to invest. Chalking out an investment plan without linking each investment to a specified goal may lead to erratic decision-making. Each financial goal - whether its accumulation of retirement corpus or purchase of new car - requires a separate investment, depending upon the risk appetite and investment horizon involved. So, before you put your hard earned money into any investment instrument, make sure you are clear regarding the priority of your goals, the time frame and your risk taking ability. Only then would you be able to choose the appropriate investment avenue that would provide sufficient returns to timely accumulate the desired corpus.
Moreover, if you have already been investing, make sure each investment that you’ve made, is linked to a specific financial goal. If not, then you need to do so right away, since goal based investment strategy provides a direction to your investments.
Do not ignore retirement planning: While laying out their financial plans, a majority of working individuals prioritize life goals such as planning for child’s higher education or owning a house, but fail to lay equal importance on retirement planning. Irrespective of your age, retirement planning should always be one of the focus points of your financial planning. Shrugging off the idea of investing early for retirement often leads either to accumulation of insufficient corpus or straining one’s finances in order to sufficiently corpus the large corpus in a shorter duration, as a result of delayed start to the investment. Therefore, if you haven't yet begun investing for your retirement corpus, begin investing right away. While doing so, make sure you do not ignore inflation and longevity risk while calculating the desired corpus. One can invest in equity mutual funds via Systematic Investment Plans (SIPs) to timely and sufficiently accumulated the corpus, since equities have consistently outperformed its peers by providing inflation beating returns over the long term.
Build or improve your credit score: The growing importance and significance of credit score has clearly been evident by lenders beginning to set lending rates based upon customer’s credit score, waiving off charges for customers with good credit score, and even employers checking prospect’s credit score. A strong credit score is becoming increasingly important, especially since it helps in meeting important life goals like buying a house, where most people need to take a loan.
In case your credit score is low or you do not have one, you can use credit cards to build your score. Disciplined and regular usage of credit cards would not only ensure gradual build up of a good credit score, but also will help you manage your day to day finances better.
One of the most important aspects of credit score is to monitor it regularly. Ensure you check your credit report online from at least two bureaus every quarter. This will not only help you track your score, but will also enable you to spot any errors or fraudulent activity in your report.
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