5 Ways to Begin Your Fresh Financial Journey in 2023

As we will soon enter the new year 2023, it's a great opportunity to focus on your personal finances and make significant changes to your financial plan. If you want to save money and make prudent financial decisions in the upcoming year, you need a solid financial plan. The end of the year is the perfect time to start planning for your finances, and it is also a great time to take stock in what you've learned throughout the year so you can make changes for the year ahead. When it comes to your finances, a robust financial plan helps you stay on track to achieve your envisioned financial goals.

The persistent repercussions of the ongoing geopolitical concerns, spiralling inflation, rising interest rates, cost of living crisis, and unemployment have been causes of concern this year in various countries. The IMF (International Monetary Fund) has issued a warning about the rising risk of a global recession in 2023 in addition to the World Bank report. The domestic picture may not look that disturbed, but the distant rumblings are getting louder, and India may not be able to escape the heat.

However, it is prudent to be wiser and put certain safeguards in place to prepare financially for any eventuality. That means it's time to take action to protect your finances for the year ahead. While having a plan in place is a critical part of financial planning, you must also be able to roll with the ongoing circumstances and adjust accordingly.

It's time to evaluate your spending, debt, and investments as we approach 2023 and align them to your financial goals. The beginning of a new year presents an opportunity to reflect on the past and set goals for the future. Bottom of FormWhether you are looking to pay off debt or save more money, these 5 tips will help you take control of your finances in the New Year with a fresh perspective.

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1. Revisit Your Budget

To prepare a budget, you need to take inventory of your finances by analysing your income sources and all expenses that come out every month, like rent, utilities, groceries, entertainment, etc. This way, you will know how much extra funds will be available for saving and investing purposes each month.

Start the new year by revisiting your budget. You may assess your average monthly income, as well as your fixed and variable expenses, and determine your financial priorities for 2023 to develop the ideal budget for you. Reassessing your existing budget by tweaking a few portions is valuable now, as high inflation forces many households to allocate more for essentials like groceries or gas.

For instance, if your existing budget saves you Rs 10,000 a month now, you should account for changes in living expenses, look for spending patterns, cut back on avoidable expenses, etc., and target to gradually save more the next year. The easiest way to do this is with the help of a budgeting app or tools available online.

2. Check on Your Emergency Fund

Given the macroeconomic uncertainty, keeping an emergency fund on hand will help you weather any unforeseen circumstances. Before the new year begins, it is a good idea to double-check that you have adequate funds set aside for a rainy day.

An emergency fund can not only prevent you from liquidating your portfolio's assets at potentially low prices during times of market turbulence, but it can also help you maintain your financial stability in unexpected life events. This fund acts as a cushion during financial emergencies that can be in the form of a sudden job loss, severe illness, disability, or significant pay cut. An emergency fund can rescue you by helping you carry on with your recurring monthly expenses.

A general rule of thumb for an emergency fund is saving household expenditures of 12-24 months, including loan EMIs in a savings account or liquid funds that offer better returns than a bank account.

3. Manage Your Debts

2023 could be a great time to start repaying your debt as much as possible, especially considering paying off high-interest debts. You should aim to maintain a debt-to-income ratio below 40%; this will also improve your credit score, which will help you avail of loans in future. For example, if you're expecting a raise or year-end bonus, consider applying the extra income to pay off any debt balances with high interest rates.

If you're struggling with revolving debt, a debt consolidation or debt management plan may help you wrap several expenses into one monthly bill at a lower interest rate. Reducing the number of loans you carry can also help simplify your financial life and ease money stress. So, with recession fears looming and economic uncertainty everywhere, you should cautiously possess a good credit score so that your chances of getting a loan in future is higher.

4. Prioritise Your And Your Family's Health

The new year can be an opportunity to continue prioritising your family's wellness and providing them with a secure financial future. Evaluate your existing life and health insurance coverage, and ensure that it covers all your medical and financial requirements. The right financial protection can give you an injection of capital when you need it for any emergency.

Life insurance and health insurance coverage should be part of your financial plan, especially if your family depends on your income to cover monthly expenses. We have seen escalating medical costs over the last few years; health insurance cover assists you during highly expensive medical treatments. On the other hand, a life insurance cover safeguards your family's financial requirements in your absence (untimely demise).

Many life and health insurance options are affordable and offer you plans that cover your entire family. Remember, you have to ensure the terms and conditions of the insurance policy before purchasing for easy access to claims.

5. Revaluate Your Investment Portfolio

Since the financial markets have been on a roller coaster ride this year due to macroeconomic fluctuations and market volatility, it will be prudent to review your investment portfolio before we enter 2023. You need to ensure that it is well-diversified and generates significant returns. Investing in more than one asset class helps spread out your risk; if one performs poorly, another may still perform well and cushion the blow. Having a diversified portfolio can help you sail through during economic uncertainties such as the risk of recession.

A periodic or year-end review of your investment portfolio will help you identify the progress of your holdings, and you may consider eliminating the underperforming ones that brings down the overall portfolio returns. Rebalancing your portfolio will help you start afresh in 2023 with worthy and best-suitable investments in mutual funds and other assets.

I recommend 'PersonalFN's Mutual Fund Portfolio Review' service, which is a personalised portfolio review service designed to boost the returns of mutual fund investors by reviewing and streamlining their existing mutual fund portfolio.

On the other hand, ensure whether your investments are still aligned with your goals like retirement planning etc., since their might have been changes in the financial circumstance in the past one year. You may also consider defining new goals with priority to the upcoming year. For example, in 2022, were you able to boost your contributions to your retirement plan. In 2023, you may consider to contribute more to these or increase your investments in mutual funds. You may also consider effective tax planning since the tax season is about to begin.

In 2023, consider adding more impact to your investments while potentially generating positive returns.

To conclude...

The earlier you assess your financial situation, the sooner you will be able to may make changes towards the areas of growth you would like to focus on in 2023. Making sure your finances are in order as the year ends is the essential choice you can make.

With a few days left before year-end, these above-mentioned tips will help you stay on your path towards financial success in the coming year and start afresh in 2023. Additionally, you need to enhance your financial literacy to better understand the nuances of financial planning and work toward creating a secure financial future.

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Warm Regards,
Mitali Dhoke
Research Analyst