New Year Eve has mostly been a time for introspection. Everyone wants to evaluate what they have achieved in the past year or what they are still striving for and hence set their objectives accordingly for a fresh new year to work for them. That being the case, this year why not we start working for a better financial health, clubbed with the goal of a healthy body and mind. This New Year we can try to focus on ways on how to achieve our financial goals.
We have listed below few easy and familiar ways in which you can welcome 2018 at a more cheerful note. Consider this list as our way of wishing all our readers a very happy new year from team Capitalist. This article will also include few useful tips from popular bloggers and financial experts to help get a better perspective about personal finance management.
Let’s have a look…
1.Starting an Emergency Fund and A Retirement Fund
This might seem like a very pessimist approach to start New Year but be sure when I say that all financial experts suggest this option to be one of the main financial goals in an individual’s life. It is always better to stay prepared for unfortunate events even if there is zero chance of actually facing tough times, than believing a myth of life without ups and down. If you haven’t already started putting aside a small per cent of your income towards emergency and retirement fund, then this is your cue.
Emergency fund and retirement fund are two separate things. An emergency fund should be easily accessible in case of emergency and should cover at least three to six months of average monthly expenses. A retirement fund is nothing but your long-term savings which is used as a primary source of income after retirement.
Many people think they can start contributing towards their retirement once they are free from all kinds of liabilities like education loan or mortgage etc. but this is where they ignore the power of compounding which could have helped them generate a handsome corpus by the time they would have retired, if only they had saved even a small amount regularly since their first income. Also, the amount contributed towards PF and PPF offers tax benefit as an added advantage.
Joseph Hogue of Peer Finance 101 has well stated this fact as below: “Don’t wait to be debt-free before you start investing for your future. Pay off your high-interest debt but start putting a little away for retirement as soon as possible. Your contributions to retirement accounts are tax-deductible so worth more than you may think, especially if you start early.”
2.Start Investing In SIP and Link Them to Your Long Term Goals
Fresh starts are all about learning and growing. What else will be a better time to learn a little more about how to invest your money than New Year? In the meantime starting a mutual fund SIP will help you meet two of your goals at once– saving as well as investing. Keep updating yourself with smart ways to invest simultaneously or get in touch with a financial advisor for better advice.
SIPs (Systematic Investment Plans) force you to save regularly and at the same time help you get better returns on your investment. The easiest way to determine how much money you need to invest is to identify your financial goals and then allocate one SIP for each goal accordingly based on the future value of the amount needed to fulfil that goal. For example, buying a house or a car, retirement corpus or planning a luxury trip.
By charting out your milestones, you’ll be surprised to see that you will be motivated more to make minor consistent modifications economically which will help you achieve your dreams.
3.Don’t Neglect The Short Term Goals And Write Them Down
Short term goals are as important as your long-term goals and it will not healthy if you only want to plan for your future and do not want to manage immediate financial problems or earn much needed a reward for your hard work. Write down your short-term goals in a clear and brief manner as a New Year resolution and build an actionable plan to achieve them.
4.Setting A Budget And Start Using Personal Finance Software
Start making a budget to set your finances straight. Analyse how much you earn and categorize your liabilities and expenses. Allocate funds for each item in such a way that you are able to maintain a decent lifestyle without adding on to your debt. This approach will help you understand where your money is needed most and also will show you a clear path for your future plans.
In today’s world, data is a powerful tool. Normally, you will not be able to recollect your total expenses at once but with the help of technology this has been made much simpler. Personal finance apps are getting very popular among people who like to know where their money is getting spent. You can also easily check out these apps on your smartphones and start budgeting.
Christine Odle of Rockin Beeby has one of the best advices on how to check yourself from spending over your budget – “Anytime you have the opportunity to physically swipe a plastic card, switch to paper money! This reduces over spending dramatically. Long term you will save more money for the rest of your life.”
5.Prioritizing Your Debts
In the New Year, you might want to reduce your debt burden. That being said, not all liabilities are similar as they might have different interest rates. Start paying off your debts in the decreasing order of these interest rates. Begin with the highest interest rate and go lower.
This is important as it will make sure that you can invest more in the future rather than spending on liabilities. For example, a debt on credit cards as it is not sensible to pay extra 15% interest rate if you want to invest.
Brian Brandow of Debt Discipline share his observation about the struggle that people face while trying to pay off debt - “I think the biggest challenge people face when trying to get out of debt is the mental piece. You have to prepare yourself mentally and emotionally for the change in your money behaviour and habits to be successful. Once you get over that hurdle figuring out the math is easy, most of personal finance is common sense. Focus on a goal; a “why” for making the change and it will become easier to make the short term sacrifice for the long term goal of being debt free.”
6.Regular check-up of cover
How will you feel if you get out in the rain without an umbrella even though you had heard the weather forecast earlier and were fully aware of the probability of bad weather? Stupid, right!!
Well, now how would you insure against the things that you are not aware of? This is where insurance comes into picture while planning for financials. Getting enough term life cover life and adequate medical cover to insure against the unfortunate events should be on your New Year resolution list. If you already have a current insurance plan, then make sure to review the cover on yearly basis as per your changing requirements.
7.Make SMART Goals
We have come to the end of our list of best ways to stay on top of our financial this year and the only thing that I want to share last is that do not over stress yourself with unrealistic goals. Make SMART goals. SMART stands for Specific, Measurable, Attainable, Realistic or Relevant and Time-bound. You have a better chance of achieving your financial success if you are happy and content with your financial arrangement. Hence it is important to not stress yourself and keep it SMART.
Consult a financial planner who can guide you and motivate you to step forward in a right direction with your finances. They can help you with your goals and can set proper financial strategy to turn them into reality.
As per Hui-chin Chen of Money Matters for Globetrotters – “If you have scouted all the great personal finance tips year after year, but never really were able to implement any of them and turn your life around, you should know that you don’t need more information. What you need is a coach that can know what tips work on you and keep you accountable.”
P.S. We would sure like to know how many of these healthy financial habits you are already following and how effective they have proven for you.
Also if you have any feedback for The Capitalist, we would like to make it our New Year goal.