New Year is regarded as a time to start afresh. Determined to make a change, we set out with a list of promises at the start of every year. But somewhere down the line, we lose our motivation to see those promises through. The resolution to get our financial affairs in order is no exception to this tendency. Invariably, these financial resolutions meet the same fate as other goals – abandoned mid-way. This year, however, can be different.
Chances of staying true to your goals tend to be high when you do not lose the sight of what you set out to achieve. A constant reminder, like a calendar, right in front of your eyes, can help you to do just that.
January - Plan to the tee: Setting clear goals gives us a sense of direction, making it possible to utilise limited resources effectively. Be as precise as possible. Divide goals into categories like an emergency fund, retirement fund, etc, and define the timeframe for each goal. This helps in selecting the right instruments to accumulate funds required for each goal within the stipulated time.
February - Don’t give up: About 80 per cent of people fail to stick to their New Year's resolutions for longer than six weeks. Stick to the plan without getting swayed. If you need more motivation, Valentine’s Day should remind you of your financial responsibilities towards your partner. Work with your partner to make smart money choices. Ensure that your investments are in line with shared goals.
March - Tax planning matters: With financial year coming to a close, it is time to focus on what most investors dread - taxes. Develop a thorough understanding of your tax structure, various heads and benefits that you can claim. Fashion your investment choices in a way that your tax burden is minimised. While selecting a tax-saving instrument, consider the tenure, returns offered and the taxability of the returns.
April - Don’t be a fool: This month is a strong reminder of not to fall prey to pranks or hoaxes and become an April fool. Stick with the investments that you make after thorough research. The experience of friends who made profits through stock trade should not lure you to make rash investment decisions. Stay wary of attractive schemes like ‘double your money in a year’ or ‘get 40 per cent returns on investments.’
May - Plan your travel well: Most schools declare summer holidays towards May-end, making it a time for family holidays. To avoid financial stress, plan your travel well, grab attractive deals, opt for travel insurance for international trips and mind your credit card spends. If you do not have children, let this month be a cue that by planning well, you can enjoy all travel plans without compromising on financial goals.
June - Do a mid-year review: Check how you are faring with your financial goals. This exercise will help you assess your financial habits and do a course correction for the rest of the year if need be. Healthy money management habits and your commitment to your goals will take you closer to your targets. In case you find yourself lagging behind your targets, recalibrate your attitude towards savings and investments.
July - Prepare for a rainy day: If you have not been providing for unforeseen situations, let monsoons be a reminder of the need to prepare for a rainy day. Build up a contingency fund that has enough money to sustain you for at least three months even if there are no inflows. To provide for health-related emergencies, opt for health insurance.
August - Pursue financial independence: Having sufficient wealth to live on, without depending on income from a job, seems like a dream. Our freedom struggle, however, teaches us that resilience is the key to achieve any goal. Stay steadfast to your goals and include equity in your portfolio to build a corpus that generates an income stream beyond your salary. As you must have filed your taxes by now, analyse if you can plan them better next year to gain freedom from the impact of unplanned taxes on your finances.
September - Enjoy the festivities without straining financially: Ganesh Chaturthi marks the beginning of the festive season in India. It makes people more willing to spend and indulge. Be wise to enjoy the festivals without burning a hole in your pocket. Make a budget and stick to it. While shopping, don’t fall prey to advertising gimmicks. Resist your urge to spend on gold, instead go for gold exchange-traded funds. Don’t stretch yourself financially just to impress others.
October - Provide for the autumn years of life: In the autumn years of our life, most of us aspire to be financially independent. Achieve this goal through the magic of compounding. Start saving and investing for retirement as early as possible. Analyse your current and future needs. Factor in inflation to arrive at the sum you will need for a comfortable life. Invest in growth options like equities & mutual funds to amass required sum.
November - Secure financial future of your loved ones: Regard Children’s Day as an occasion to focus on building a financially secure future for your children. Look at options like equities and bonds for this purpose as fixed deposits and saving accounts alone are not sufficient. If you are planning for a child, start accumulating funds through regular systematic investment plans to be well-prepared financially. If you do not have kids, take this month to help your parents plan for a comfortable retired life, just the way they planned for their child’s financial well-being.
December - Pat yourself on the back: Congratulations! You have been working on your financial goals for a year now, making significant progress in getting your finances in order. Assess your hits and misses this year to plan better for next year. A study shows that it takes about 66 days to form a new habit. By practising mindful money management for 365 days now, you have already made good financial choices a habit. Keep up this habit daily, for the next 365 days, and smart financial planning will become your lifestyle.
The writer is MD & CEO, Axis Securities