New Year Resolutions That Can Help You Lead a Healthy Financial Life in 2021

The year 2020 was filled with unprecedented global events; a raging pandemic replaced the New Year with 'New Normal' for us. This has undoubtedly changed the dynamics of how we live life. Today as we enter 2021, the resolutions you are going to make will be a reflection of resilient and strategic measures in these trying times.

New Year is an ideal time to turn over a new leaf, one that will lead to positive change. Most recently the news of India's Finance minister having chaired pre-budget meetings for budget FY2021-22; has infused hope of a new beginning we all are looking forward to. And hopeful with the Emergency Use Authorisation (EUA) for COVID-19, we would slowly go back to normal in a few months if the infections go well-controlled.

As you pen down your New Year resolutions to lead a healthy life, let a renewed focus on your financial health be at the top of your list. If 2020 and the pandemic have taught us something, it is the importance of being financially prepared. The pandemic took everyone's finances by surprise and you want to avoid a possible reprise.

Resolutions are like pressing a reset button to start over fresh. However, keep in mind the words of Suze Orman (an American author, financial advisor, motivational speaker, and television host) - "No one has ever achieved financial fitness with a January resolution that's abandoned by February."

While every year you make multiple resolutions, you must follow them diligently to make a positive and profound impact on your life.

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We know that when it comes to making resolutions, we re-evaluate some life choices. This is the time to use the year-end resources such as annual bank statements, credit card summaries, etc. to review your spending and engage in a prudent budgeting exercise right since the beginning of the New Year.

We have listed down some financial resolutions you must keep in 2021 in the interest of your financial wellbeing:

Resolution #1: I will increase my savings every month

Whether you recently drained your savings during a financial crisis or you are just getting started with savings, the best way to increase your savings is by engaging in a prudent budgeting exercise. Take count of your income and expenditure and see what rational measures can you take to save more.

Preferably, classify your expenses as avoidable and unavoidable, as this will give you a clear perspective of which expenses you can rationalise or curb to increase savings.

It should be your conscious endeavour to save when managing your personal finances.

As far as possible, follow this pearl of wisdom: "Do not save what is left after spending, instead spend what is left after saving" expressed by legendary investor, Warren Buffett.

Saving more will leave you with a larger surplus to invest.

Resolution #2: I will set a financial plan

"A goal without a plan is only a dream," says Brian Tracy (a Canadian motivation speaker and self-development author).

A financial plan provides a roadmap or a comprehensive picture to fulfil your envisioned financial goals by devising a strategy.

Your first step to financial planning is to set S.M.A.R.T (Specific, Measurable, Adjustable, Realistic, and Time-bound) financial goals which may be family-oriented (viz. buying a dream home, a car, a children's education needs, their wedding expenses, a family vacation, retirement, etc.)

Thereafter to achieve these goals, lay out a strategy and make productive investments. Note that it is pivotal to invest as per your financial plan and not make any ad-hoc investments or opt for unworthy financial products that could jeopardise your and your family's financial wellbeing and future.

Financial planning guides you on picking the investment avenues suitable for your risk profile, investment objective/s, financial goal/s, and the time hand (called investment horizon) to achieve those goals.

If you are financially conscious, you can make a financial plan for yourself or consult a financial planning professional.

[Read: Everything You Need To Know About Financial Planning]

Resolution #3: I will start investing in SIPs

To create wealth and achieve the long-term financial goals, Systematic Investment Plan (or SIP), comes to the rescue.

SIPs work on the simple principle of investing regularly and systematically (daily, monthly or quarterly). SIP is a hassle-free way to investing in mutual funds regularly, wherein your hard-earned money gets debited from the account and deployed in respective mutual fund scheme/s of your choice.

Remember the axiom, "Little drops of water make a mighty ocean."

Here are five key benefits of SIP-ping into mutual funds:

1. Lighter on your wallet (the minimum investment required is as low as Rs 500 per month).

2. It makes the market timing irrelevant (disciplined investing over long-term).

3. Enables rupee-cost averaging ( help mitigate the volatility of the market to some extent).

4. Benefits from the power of compounding.

5. It is an effective medium to accomplish vital financial goals.

Having said that, you must select scheme/s sensibly by paying attention to a host of quantitative and qualitative parameters in the interest of your long-term financial goals.

Use PersonalFN's SIP Calculator to know how hard-earned money will grow.

Resolution #4: I will maintain a sufficient contingency reserve

The year 2020 taught us one thing that anything can happen at a moment's notice. Many people in established jobs can lose their positions, liquidity can become an issue, a profitable business might completely shut down and more.

To be financially prepared against such exigencies, an emergency fund or rainy day fund is imperative. You must hold at least 12 to 24 months of regular monthly expenses, including EMI on loans, as an emergency fund or rainy day fund; which can be accessed whenever a contingency strikes.

Although saving and investing your hard-earned money must be your top priority, putting aside some cash-and-cash equivalents for emergencies is also necessary. Contingency planning is based on the premise: Hope for the best, but at the same time plan for the worst.

If you do not hold a sufficient contingency reserve, you may have to utilise the money set aside for some other important life goals. This could therefore derail achieving the envisioned financial goal/s. So, start slowly but steadily building an emergency fund.

In case, you already have an emergency fund, review its sufficiency. If you haven't created one, do so in the New Year so that any financial contingency would not threaten your financial health or plans.

Resolution #5: I will safeguard my family's financial future

Ensure you have optimal life and health insurance coverage to indemnify for the risk to life and health. This would safeguard the financial future of your loved ones and dependents.

While health insurance takes care of healthcare costs -- which is on the rise globally - life insurance would indemnify risk to your life and provide financial security to your family when you pass away. That said, it is important to optimally insure yourself, both for health and life.

It's vital to assess your 'Human Life Value' (HLV), a scientific measure to determine your insurance needs. Use PersonalFN HLV calculator to know your HLV.

A term insurance plan with an optimal insurance cover is best suited to address your life insurance needs. The coverage under the term plan is more vis-a-vis the premiums you pay.

Similarly, when you approach health insurance policy, assess...

• Your current personal health

• Your family's medical history

• Your pre-existing diseases, if any

• The state and city you reside (to assess the healthcare facilities and cost)

• The network of hospitals that have a tie-up with the health insurer

• If cashless hospitalisation facility is available

• The coverage for pre-existing diseases

• The coverage for pre and post hospitalisation expenses

• If day-care procedures are covered

• Exclusions from the policy coverage

• Whether medical expenses arising out of a pandemic, war, riots, terrorist attack are covered

• Sub-limits on room rent

• Is there is co-pay clause (a clause in health insurance plans that requires cost-sharing by the policyholder)

• How much would be the No Claim Bonus

• How much is the annual Premium against the features of the policy

• Claim settlement ratio of the health insurer

Remember, insurance is an important facet of financial planning.

Resolution #6: I will review my existing investments

The year 2020 has been dramatic when for your market-linked investments. The market-linked investments were in red when the financial year started. However, since then the equity market recovered swiftly and now is at an all-time high.

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 while you endeavour to accomplish the envisioned financial goals.

Similarly, a good review of your investments will allow you to:

• Cull out underperforming investments avenues

• Optimise diversification with proper asset allocation (across asset classes - equity, debt, gold, real estate etc.)

• Reinvest into much better alternatives

• Create a robust investment portfolio

Reviewing investments will also give you sufficient time to adjust the course of your investments and not face any nasty surprises later.

Resolution #7: I will reduce my debts

In today's scenario, debts are a common part of an individual's life. There is nothing wrong with having a loan or debt, repaying them on time is the essence. Some debts can be beneficial as they provide easy funds for your financial obligations or to accomplish certain goals sooner at the same time offer tax benefits.

But if you default on any loan, not only will cause you heavy interest but also hampers your credit score and future borrowing capacity. Within no time you may be pulled into a debt trap. In the New Year take a pledge to pay all your debt obligations on time and keep your debt-to-income ratio lower than 40% of your net monthly income. Be a prudent borrower!

Resolution #8: I will attempt to maximise my tax-savings

The Income Tax Act, 1961 offers a variety of provisions to legitimately save tax. One such provision is Section 80C that offers deductions up to Rs 1.50 lakh for making tax-saving investments.

There are galore of option available both for risk takers as well as risk-averse investors. If you are a risk-taker and do not mind earning market-linked returns, consider ELSS (Equity-linked Savings Scheme), Pension Funds, NPS (National Pension System) for tax-saving in the New Year. Whereas if you are risk-averse and wish to earn fixed returns, consider avenues such as the National Savings Certificate (NSC), Public Provident Fund (PPF), 5-year Tax Saver Bank Fixed Deposit, Sukanya Samriddhi Yojana (to plan your daughter's future needs), among others.

Make use of the exemptions and deduction available to enjoy the benefits available under different Sections of the Income Tax Act. Complement investment planning with tax planning.

Proper tax planning not only reduces tax liability but also enables you to save to achieve the envisioned financial goals. Do not keep tax planning for the last hour.

Resolution #9: Invest in yourself

To attain financial nirvana, having good financial knowledge is also the key.

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

This New Year, resolve to invest in yourself and become a 'Financial Guardian' for your family. It's time for the concept of "New Year new you" and to secure your family's financial future in this new normal world.

Having a 'Financial Guardian' in the family who understands the nuances of financial planning, helps to fulfil New Year resolutions effectively.

And in case you are wondering how you can become that financial guardian for your family, PersonalFN's latest special initiative, the "Certified Family Guardian", offers you an exclusive opportunity to learn the finer nuances of money management.

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 and making informed financial decisions for your family's secure future.

It also offers a host of other benefits to help you make informed investment decisions. Read here for complete details.

So, if you wish to achieve financial fitness for the year 2021, then make your New Year resolutions a reality by Enrolling for "Certified Family Guardian" course today!

Happy New Year!

Warm Regards,
Mitali Dhoke
Content Writer

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