12 Financial resolutions for the calendar year 2017

Financial-resolutions

Here are 12 financial resolutions that can improve your finances in year 2017.

As Prashant Patel sat back to assess his financial performance for the calendar year 2016, he realized that he had actually failed to live up to most of the resolutions he had made in the month of January 2016. Of course, the demonetization in November resulted in delays in payments but that was hardly an excuse. Demonetization had happened only in November 2016 and he had done precious little in the first 10 months. He therefore decided to make an early start for 2017. Here are 12 financial resolutions that Prashant has identified for the year 2017. He wants to ensure that he not only writes down his resolutions but also actions them and monitors them .The best way was to make the entire process part of his resolutions.

Financial-resolutions

 

Resolution 1: Create a budget and make a map of his finances…

This sounds so logical but so hard to get yourself to doing it. For Prashant, this will form the base for the next year. He plans to put down monthly budgets for his EMIs, routine expenses and contingencies. He also plans to make a complete statement of his investments, other assets, claims, liabilities etc. This will give him an idea of whether his existing assets are productively invested or not. It also will give him an idea if he has a hold over expenses and too much was slipping through.

Resolution 2: Set a savings target rather than expenditure target…

Prashant realized that his big flaw was that he was targeting expenses whereas he should be targeting savings. With an annual income of nearly Rs.25 lakh, Prashant must be saving much more than the Rs.2 lakh that he saves each year. The problem was his targeting. He was targeting expenses which anyways tend to spill over. The better way would be to target savings. By just cursorily analyzing his budget, he realized that he could take up his annual savings to Rs.5 lakh per year. The trick was to keep that as target savings and build his expenses around that.

Resolution 3: Get rid of your high cost debt; at least to the extent possible…

Prashant realized that he was living in a perpetual EMI syndrome. The more he earned the more high-cost loans he took and therefore the more EMI servicing he had to do. He realized that an easier way would be to pay off his high cost loans. Personal loans, credit cards and other unsecured loans appear to be quite enticing but they are all high cost loans. A home loan or a car loan is still understandable as they entail a lower cost. He realized that when he gets his next inflow, it would make sense to repay his higher cost loans and improve his savings. This will also help him to improve his credit score, which can be leveraged at a later date if required.

Resolution 4: Chalk out your long term goals and make a financial plan…

This is something that Prashant had been debating for some time but never got down to doing it. He realized that it was time to sit down and write down his short term and long term goals. Having completed the first three steps, he will now have clarity on how much money he had and how much he was worth. He also will have a clearer idea of how much money he could spare for these goals. Prashant is 32 years old and he realizes that the sooner he starts the better as it would give him more time to grow his money.

Resolution 5: Go and get a dedicated financial advisor for yourself…

Prashant realized that for too long he had been depending on his chartered accountant, his broker and the mutual fund salesperson for all his financial advice. What he was missing out was a Personal Finance Advisor who would help him manage returns, risk and liquidity. Having understood the need to identify long term goals and create financial plan, Prashant realized that he needed a professional advisor who would give him a clear and realistic roadmap to achieve his financial goals.

Resolution 6: Build an emergency reserve for a rainy day…

Prashant had not forgotten the early hours of February 04, 2013 when his father had suffered a stroke and had to be rushed to the hospital. While his father was saved on time, the treatment and the aftercare made a huge dent on their family finances. From that day, Prashant had been contemplating about creating an emergency reserve to take care of such sudden exigencies. However, he had never got himself to doing it. Prashant realizes that year 2017 could be the right time to start creating an emergency fund and build it into his financial plan.

Resolution 7: Create an Estate Plan (including a Will)…

His mother’s reaction was still fresh in his mind when his father had first spoken about writing his will when Prashant was still young. “Oh God, what is the hurry” was his mother’s immediate response. Social mores and people’s thinking had changed a lot in the ensuing years. Prashant realized that the best way to avoid any hassles in future would be to make an estate plan. Of course, assets may keep changing as time goes along but it was never too early to make a start.

Resolution 8: Check that you are adequately insured at reasonable cost…

While there was a full element of insurance that was built into his financial plan, Prashant realizes that insurance needs keep changing over a period of time. Endowments are too expensive, illiquid and do not give adequate returns. Term policies will be ideal for Prashant to mange his risk. Apart from life and health covers, he needs to look at disability insurance, home insurance, accident insurance as well as insurance against no work. 2017 will be a good starting point.

Resolution 9: Benchmark your returns on assets against the market…

Prashant realized that his approach to his investments had been too hands-off. That had not really worked for him. Some of his equity funds were earning lower than index returns. He had a lot of money in FDs where the returns were not even keeping pace with inflation. Prashant realized that it was time for him to continuously benchmark his portfolio performance. If a fund was consistently underperforming, it was time to take a relook and look for alternatives. The moral of the story was that he had to get more involved personally, if he had to get more return on his investments.

Resolution 10: Focus on physical fitness and on financial fitness…

Global studies have proven that your financial fitness is closely related to your physical fitness. Prashant realizes that he was spending too much time on the chair gorging on unhealthy fast foods. It was time for him to eat healthy food and exercise his body and mind. A healthy and clear mind dwells in a healthy body and that is essential for financial fitness. You are financially fit when you have a clear cut plan, your finances are in order and your money is working hard for you.

Resolution 11: Action all the 10 resolutions effectively immediately…

Prashant had realized this in the last 3 years that if the implementation did not begin immediately then the annual resolutions were likely to remain just that. Implementation has, therefore, been included as a distinct resolution in itself. To be more specific, Prashant has also set out dates when each of these activities will be commenced and when they will be completed. That would be the resolution to action all other resolutions!

Resolution 12: Finally, monitor your resolutions against what you set out to do…

A financial resolution is very different from other New Year resolutions. It has larger implications for your future and for the future of your family. The best way for Prashant to get serious about all these resolutions will be to monitor his resolutions against what he set out to do. Creating resolutions and implementing is one side of the story. The proof of the pudding lies in the eating and that will only happen when it is monitored continuously.

Summarizing Prashant’s Resolutions for Calendar 2017…

1. Get to grips with your budgets and your net worth. This will tell you how you much can save and how effectively you can reach your goals.

2. Provide for uncertainty. That is the biggest spoiler for your financial future. Get insured adequately, create an emergency fund and also make a will.

3. Look beyond savings and get serious about investing. Focus on getting the maximum returns for the quantum of risk that you are willing to assume.

4. Finally, proof of the pudding lies in the eating. You have to make your resolutions work, so start immediately. Above all, monitor your resolutions!

Writing down your financial resolutions for the New Year could be a good starting point. But, you must also go out and make them happen!

This article has been contributed by Right Horizons

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