Seven Financial Resolutions For 2016

Don’t Overspend

While this might seem like a no-brainer, it’s probably the single most important Financial Resolution you can make for 2016! Too many of us succumb to consumerism and end up over-stretching our finances by taking on expensive credit card debts or personal loans, leveraging ourselves to the point of financial strain in the process.

As boring as it might sound, it would be smart to define a budget, live within your means and resist impulse purchases – sleep on your buying decision and decide the following morning instead. This point has been summarized succinctly by Investment Guru Warren Buffett as: “if you buy things you don’t need, you’ll soon have to sell things that you need”!

Put your goal-based savings on auto-pilot
Are you aware of your two magic ratios – namely, your “reserve-surplus ratio” and “savings-surplus ratio”? They indicate how much of your income you’re saving every month – and how much of this monthly saving you’re deploying in “auto-mode” towards your important goals. Think about it – your EMI’s are debited from your account automatically every month, so why not your goal based savings? Aim to save at least 20 per cent of your income towards your future goals in 2016.

Insure yourself adequately
Consult a Financial Planner to determine your appropriate level of life and health insurance, and take out a good “Pure Term Plan”. As a ballpark figure, your life cover should be: inflation adjusted expenses for your dependents for your remaining earning years, plus outstanding liabilities, plus the cost of achieving important future goals (such as your Children’s education). Ironically, most of us in India are heavily under-insured in spite of the widespread popularity of insurance products! Many of us do not have adequate health cover either as we tend to rely almost purely on company provided health plans, without understanding them completely. Needless to say, an unexpected healthcare related contingency could lead to significant financial strife.

Organize your investments
Do you really know where all your money is? Surprisingly, most of us don’t! Goaded by well-meaning friends or relatives (or to “save tax” in a rush at the financial year end), many of us keep piling on insurance and investment plans till we completely lose track of where our hard earned money is going – often leading to losses or sub-par growth. In 2016, resolve to get your records in one place and figure out where your money really is!

Clean up your portfolio
Resolve to purge the worthless investments from your portfolio. There’s no point in holding on to non-performing investments for sentimental reasons or throwing good money after bad. Run a thorough “portfolio health check” and determine which investments, savings plans or insurance plans are worth holding on to and which ones aren’t. Hit the liquidate button for the poor performing ones without worrying about sunk cost. A qualified Financial Planner can assist you with this “financial catharsis” exercise!

Think about your retirement
Yes, it’s a fair distance away. And yes, it doesn’t seem like a top priority right now! But with the way various dynamics have played out in recent years – inflation, the gradual breakdown of the joint family system and increasing urban lifespans, it’s imperative that you at least start giving some thought to what kind of corpus you’ll need when you retire. In 2016, aim to understand the dynamics of this important goal and at the very least, make some sort of start – regardless of your age and income.

Practice self-education on financial products
While staying glued to the financial news might in fact prove detrimental, you must resolve to at least gain a basic awareness of the various savings and investment options available. Many websites on personal finance provide in-depth and useful information on financial products, and you must dedicate a portion of your time to understanding them before committing your hard earned money to them. Resolve to become a ‘discerning’ investor who doesn’t blindly follow recommendations, but makes informed decisions after understanding the risks and various clauses involved.

We wish you a fantastic 2016!