7 New Year Resolutions That Will Get You Closer to Your Financial Goals in 2023

Improving your finances in the coming year can benefit your overall financial wellbeing. It may reduce your worries about debt or not having enough savings to cover an emergency. It would be wise to concentrate on your financial health in the upcoming year with the aid of your new year's resolutions, given the current uncertainties in the environment. You may jumpstart 2023 by considering some financial to-dos in your New Year's resolutions.

The tradition of making New Year's resolutions offers an opportunity to modify the status quo and potentially change life in a positive way. Since the new year represents a new beginning, it seems like a great opportunity to instil good financial habits and set new goals. Millions of individuals set New Year's resolutions each year to bring about positive change, yet many fail to keep them and soon give up on them.

The primary causes of failure in New Year's resolution include setting unattainable goals, failing to track progress, making too many resolutions, or simply forgetting about them. You must make sure your resolutions are well-set and you follow them diligently.

Here are 7 New Year resolutions to help you improve your financial health in order to achieve your goals and have a financially rewarding 2023:

Resolution #1 - Set achievable goals you can stick to

Many people end up failing to keep up with their new year's resolutions simply because they are too hard to achieve. So, to remain motivated, it's important that you set S.M.A.R.T financial goals.

For instance, if you're struggling to save Rs 10,000 a month now, there's no point setting yourself a goal of saving Rs 20,000 a month, which is double the target. You will not be able to attain a higher goal if you are struggling with the existing one, and failing to reach your goal may demotivate you and you could lose track of your resolution to increase your savings.

You should stick to achievable and consistent goals that can be better mentally and for your finances. Hitting your goals is motivation in itself and makes it much more likely to follow through on your resolution.

A few examples of achievable goals you could set yourself include:

• Creating a more structured budget and sticking to it

• Saving or investing a fixed amount each month into rewarding investment avenues

• Improving your credit score this year

• Planning for your retirement, even if it means small SIP investments to build a corpus

Whatever you choose, make sure you monitor your progress. Determining your goals is a great starting point for improving your finances, and the next step is to take action.

Resolution #2 - Make sure to have an emergency fund

One of the ways that you can give yourself real peace of mind in 2023 is by establishing an emergency fund. With the increasing geopolitical concerns and recessionary risks, there is a possibility of significant risk to economic growth. It will be prudent to secure your financial stability with a contingency reserve in times of need.

An emergency fund will act as your safety net in an easy-access savings account or liquid funds, which you can dip into when unexpected expenses arise. Having money you can access if you're in a tight spot means you don't have to resort to expensive borrowing. It also means your savings, investments or pension contributions are not disturbed.

Ideally, your emergency fund should hold household expenditures of 12-24 months, including loan EMIs. Thus, this should be a part of your new year resolution and if you already have an emergency fund consider gradually increasing your contribution this year.

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Resolution #3 - Ensure you and your family is financially secure

Financial struggles may have a direct impact on your mental health, suffering from stress, anxiety, or depression due to concerns about money. This new year make a point to secure your and your family's financial future. The right financial protection can give you an injection of capital when you need it for any emergency.

An adequate insurance cover helps you indemnify the risk to your life and health. 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). Indian market currently abounds with options on healthcare plans, with many insurance providers offering family floater healthcare plans specifically designed to include senior family members. Remember that not all insurance policies are the same; check the terms and conditions carefully to ensure the insurance coverage is comprehensive to your needs.

Resolution #4 - Start the process of reducing your debt burden

With interest rates having risen sharply over the year, the cost of borrowing has become expensive. So, 2023 could be a great time to start the process of repaying your debt as much as possible. You can begin by paying off high-interest debt such as credit cards, payday loans, etc. Interest can build up quickly if you're only making the minimum payments, so making a conscious effort to pay back these debts can put you on a secure financial footing.

Avoid borrowing to satisfy your instant gratification; instead, practice delayed gratification to maintain your financial well-being. You should aim to maintain a debt-to-income ratio of below 40%; this will also improve your credit score, which will help you avail loans in future. 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.

Resolution #5 - Make worthy investments in mutual funds

In order to make the most of your hard-earned money this new year, make a resolution to embrace making smart investments that are rewarding and help you achieve your financial goals. Since the financial markets have been on a roller coaster ride this year due to macroeconomic fluctuations and market volatility, it can be difficult for investors to decide which mutual fund schemes are ideal for their portfolios.

Hence, before investing, you must ensure the suitability of the investment avenue considering your age, current financial position, risk profile, investment objective, financial goals to be addressed, and the investment horizon in hand before goals befall. This is because every investment avenue has a distinct risk-return trade-off. Always make it a point to invest in accordance with your needs rather than in an ad hoc manner or by imitating what your friends, relatives, co-workers, or neighbours do.

Systematic Investment Plan (SIP) works on the simple principle of investing regularly and systematically (daily, monthly or quarterly). SIP is a hassle-free way to invest in mutual funds of your choice as per your suitability. You can align them towards each of your financial goals, such as buying a car, house, children's education, wedding expenses or building a retirement corpus.

Along with investment in worthy mutual fund schemes, remember it is also essential to track the progress of your investments in your portfolio. The market is dynamic, and so are your financial requirements. Thus, it is important to review your investments periodically (bi-annually or annually), whereby the risk is mitigated, and the earning potential is optimised. A good review of your portfolio will allow you to eliminate the underperforming holdings and optimise diversification with proper asset allocation across asset classes - (equity, debt, gold, real estate etc.)

If you already hold a mutual fund portfolio, consider a 2022 year-end portfolio review to adjust the course of your investments and not face any nasty surprises later in the coming year.

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Resolution #6 - Engage in proper tax planning

With the beginning of the fourth quarter for FY 2022-23 in January, tax season will soon be here. Many of you are more likely to make tax-saving investments near the end of the fiscal year. To avoid the last-minute hassle, keep all of your tax filing documentation prepared in advance. Additionally, rushing might result in poor financial decisions, which could result in you paying more tax than necessary, which could have been avoided with careful planning.

Tax saving is another important part of your financial planning, and this leads to saving your hard-earned money as much as possible with the help of tax deductions on your tax obligations. Choose tax-saving avenues from the galore of investment avenues available, viz. Public Provident Fund (PPF), National Pension System (NPS), National Savings Certificate, Tax Saver Deposits, Unit-Linked Insurance Policies, and Equity-Linked Savings Schemes (ELSS) in mutual funds.

Note that the Income Tax Act,1961 has various provisions facilitating you to save tax like section 80C, so make the best use of them by engaging in tax planning right from the beginning of the New Year.

Resolution #7 - Improve your financial literacy

Knowledge and understanding of all things related to money is critical to building long-term wealth. There are several ways to improve your financial literacy, from doing research on the internet, enrolling in classes, reading financial books, or subscribing to personal finance newsletters.

Set a monthly goal for yourself to explore at least one in-depth source that will provide you with more insight into a particular area of financial planning. Start with the basics on personal finance and move towards investments and stock markets once your understanding progresses.

Financial literacy equips you with the right financial awareness and money management skills that enable you to utilise your hard-earned money effectively, make informed financial choices and effectively execute the resolutions you have set for the New Year.

Thus, in order to secure your financial future, understand the nuances of financial planning and become a financial guardian to your family, you may consider enrolling to PersonalFN's latest special initiative, the "Certified Family Guardian".

You can avail of this online course and enhance your financial knowledge at the comfort of your home. It is organised into eight modules with 24 extensive videos. The 'Certified Family Guardian' will help you with all the relevant tools and learning modules needed to get better at money management.

To conclude...

Making these types of financial resolutions on the New Year's Eve can help you position yourself for a more enjoyable 2023 and beyond. Keep in mind that you don't have to tackle everything on this resolutions list all at once. Improve your financial health by taking one step at a time and using these resolutions as a checklist to help you make some real progress toward your financial wellbeing in the upcoming year.

Happy New Year!

Warm Regards,
Mitali Dhoke
Research Analyst