Financial Resolution for the New Year, 2019

Financial Resolution for the New Year, 2019

Every year, the week between Christmas & New Years Day has a strange duality about it. Year endings are about mellow acceptance of the failures in the year gone by and the excitement about new beginnings. This is the time when you hope and pray for a better future and there is also a slight trepidation about renewing life’s challenges.

A New Year brings is the time to formulate new financial goals. Start 2019 by making financial resolutions that you can stick to like spending less, saving more, and managing your money better.

Most people we have met recently plan to make a money resolution for 2019. According to a Fidelity Investments survey,  48 percent of people are planning to save more, 29 percent aiming to pay down debt and 15 percent are aspiring to spend less.

Remember that it is important to invest responsibly.

Here are 12 financial goals or resolutions to focus on in 2019—one for every month of the year. You don’t actually have to do one in January, one in February, and so on. The point is, these are 12 crucial financial goals that deserve your attention in 2019. You don’t need to get to them all in the first week, but if you get to all the applicable goals by the end of 2019, let me assure you, you would have made great strides in your financial life.

Evaluate last year’s financial mistakes.

Take an honest look at your financial performance last year. Did you overspend, took on Credit card debt, borrow in excess,? Reconsider your financial mistakes, and strive to perform better this year.

Assemble your financial team.

If you’ve been meaning to see a new tax and accounts consultant, financial advisor, estate planning attorney, insurance broker or another financial expert, set time aside this year to assemble your financial A-team. Let January be the month where you have your Financial Team to support you firmly in place.

Identify financial goals.

Before you can make progress toward any financial goals, identify what they are. Are you hoping to earn a degree? Buy a home? Repay your auto loan,Plan for your children’s needs, build your retirement corpus. To increase your chances of success, you have to be specific with your requirement at today’s cost and future cost and specify a timeline as to when you will require the funds.

Check out our blog on the subject:

Cut back on bad money habits.

Identify a bad financial habit – eating out too often, paying full price for clothing, splurging on your pets – and promise to eradicate it this year. Enlist a friend or significant other to support you.Enlist a friend or partner to commit to one “no-spend weekend” or “no-spend day” per month. Make that a day when no money leaves your hands or bank account – you’ll eat at home, find free entertainment and skip shopping.

Strictly follow the Financial hierarchy of Needs.

The first level of financial goal is safety. The Next level is providing for all the life Essentials. Now that your basic financial goals are taken care of and planned, move onto your Aspirational Goalsandfinally you are ready for creating your 

Don’t start planning for your retirement or other financial goals till you have a contingency fund of a minimum of 6 months expenses in place. Next comes your insurance, Health, personal accident and term insurance to take care of any exigency and/or mishap, so that the family is covered. Next is planning for Children’s Education, your retirement corpus etc. Then comes the time to create your dream, follow your passion and finally what you want to leave behind for the family or to your favourite charity.

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Better Tax Planning

A giant killer of your investment corpus is Tax. 

They say, “a Fine is a tax you pay for doing wrong & a Tax is a fine you pay for doing right.” 

In addition to profits from selling investments, you’ll pay tax on any interest, dividends, or rental or other income you receive.

Apart from reducing the corpus directly, it also affects in many other ways. Most investors I have met, will compare the returns of FD with the returns of other asset classes without taking any tax implication into account. A healthy comparison of Apples Vs Apples can only be of post tax returns of different asset classes.

The recent introduction of a 10% tax on LTCG (long Term Capital gains) in the last budget means your investment plans have to increase either the investment amount by 10% or the expected return by 10% to achieve the desired goal.

Hence the first guiding principle of any financial planning has to be that your target for Post Tax investment return should beat the projected practical inflation estimates and not the Government sponsored figures of low single digit inflation, or you will end up compromising on your child’s education or be left to the same old dependence on your children for a “comfortable” retirement. 

A better return can be obtained not only after a higher risk but also better tax planning and intelligent investing.

Check out our blog on the subject:

  1. Take Stock of your Insurance Needs

Life is uncertain and not everything can be left to God and the government. You need to take care of the family through adequate health Insurance to ensure coverage of medical costs. Next comes the need to provide for the family in case of the loss of the earning member due to permanent disability or an unfortunate fatality. In present circumstances, Term Insurance is best suited to meet any unfortunate happenings. The amount of term insurance has to cover the cost of any present Debt and a minimum of ten to twenty years of your annual expense, based on the age of your dependents and the number of years required by them to make a fresh independent start. 

A one crore term insurance for a forty year old can cost as little as the cost of one dinner at a fancy restaurant every month for a family of four. Set your priorities and before going out for your next family dinner, ensure their dinner for the next twenty years.

Focus and Rebalance your investment portfolio.

Market volatility, new money goals, financial hurdles and other unanticipated changes can impact how you should balance your investment portfolios. Commit to sitting down with your financial advisor or re-evaluating your investment statements with fresh eyes this year to determine whether your portfolio still matches your goals.

From our childhood we are trained to be focused to achieve the higher productivity. It works the similar way with any wealth creation tools. Too much of diversification is difficult to manage and keep a track of. However, be it debt, equity, real estate or any other medium giving adequate attention gets difficult. It is advisable to focus on the less diversified portfolio which is adequate and manageable. This year, diversify your portfolios adequately but not unnecessarily. 

Do Preventive Maintenance.

Whether it is personal health or house maintenance, do it this year. Don’t delay your Fillings with the Dentist and avoid a Root Canal later, Do a Preventive health check up and remedy rather than pay for an expensive ailment.

Similarly, Aim to save money in the new year by doing preventive home maintenance, such as changing air filters, patching leaks, getting your house painted, regular servicing of vehicles, appliances etc. These changes will help you save money throughout the year.

Invest on Knowledge and updating yourself

Knowledge is the best weapon. It is the most important investment everyone must make. Try and learn everything about your investments. If you are investing in equity asset class, learn as much about the companies as you can so that you understand the worth of your investments for a long term. Updating your knowledge periodically gives you a perspective to anticipate the future performance. This year, ensure your long term investments are wiser.

Save to invest, don’t Save to save

Value investing is long term investing! Saving is for short term goals, while for long term, investing is the right way. 

Learn the difference between savings and investing. Know about the impact of inflation on your savings. The return on your savings/ investments should at least beat the rate of inflation. A simple 7% inflation will reduce your corpus to half in 10 years and similarly, due to 7% inflation, our current expenses will double every 10 years.

Wealth is created exponentially by staying invested for a long term.  If you had invested 1 lac in Sensex in 1984, it would have become 1 crore in 30 years, i.e. 100X multiplication.

Precisely, as the economic changes have been supporting growth, the long term investments help multiply your wealth. So this year, commit yourself for a long term investment rather than only saving, for your financial goals.

  1. Create a passive income or additional source of Income

Creating genuine passive income is the holy grail of personal finance. To create wealth, you need a source of income which does not require your full time involvement and will still give you returns. Rental income, dividends, Royalty, Interest, etc are just some of the examples of passive income.

Everybody is good at something, be it investing, playing an instrument, playing a sport, communications, writing, art, dance and so forth. You should also list several things that interest you most. If you can combine your interest plus expertise, you should be able to monetize your skills.

You can write a blog, do content writing, social marketing promotions etc, the list is endless.

Some streams take much more initial effort to start, such as saving enough to buy your first rental property. But once you start it becomes easy to gain momentum.

Let the New Year be an Year of following the Resolutions, an year of new beginnings and pursuing the financial goals, an year of following good financial habits, no matter what.

Have a great Financial Year ahead!

Happy Investing! 

Stay Blessed Forever! 

Sandeep Sahni

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