Below we've put together 5 simple financial resolutions for you, for a healthy, wealthy and wise year ahead.
1. “I will stick with simple investment products”
When it comes to money management, boring is good.
On the back of the massive Covid-fueled equity markets rally in India and around the world, many investors went for thematic and sector funds. But in 2023, things didn’t go as planned.
That is not to say that sector and theme funds are bad. Focus on simple products. Only when your portfolio is adequately diversified, should you go for sector and theme funds, that too only to the extent to which you can tolerate the risk.
Our experience shows that it is better to invest in simple and diversified investment vehicles, instead of the exotic and finding something new" to invest every time. You'd rather allot more money to the same boring financial products which are good, rather than finding something "new" to invest in. Same and boring is better than new & exciting.
2. Build a contingency fund and buy health insurance”
An emergency fund is a corpus everyone needs, to tide over the phase when you’re out of a job and have no income. The corpus should be as big as 6-12 months’ worth of unavoidable expenses. Unavoidable expenses would include your rent, grocery and food expenses, some conveyance, systematic investment plans (SIP) for MFs, insurance premiums, regular medical bills, and so on.
When Covid-19 struck all of a sudden and people lost their jobs, the emergency fund suddenly became a hero; a sort of a life saviour to help tide over difficult times.
Similarly, buy a health insurance policy if you don’t have one already. It’s fine if you are covered by your employer. But that’s not enough. Office health insurance covers can vanish overnight if you, say, change jobs and the new job doesn’t provide you with one. Or if your company decides to cut costs.
3. Repay mortgages on time, preferably before time”
The home loan burden went up significantly in 2022 due to all the rate hikes by the Reserve Bank of India (RBI). In 2023, make a resolution to pay back on time.
Vipul Patel, Founder, MortgageWorld, a loan consultancy firm, advises prudence. And further explains, if you are eligible for a loan of, say Rs 1 lakh, then borrow just Rs 80,000. Do not stretch yourself. “Make a resolution that not only will you repay your debt on time, but at every opportunity, you will try to prepay your debt,” adds Patel.
In fact, Patel says it’s a good habit to target to repay your home loan within 1/3rd of the original tenure. For instance, if you have a 30-year home loan, try to prepay your loan within 10 years.
4. “I will enjoy. But I will not misuse my credit card”
Credit cards often tempt you by offering to increase your credit limit. Remember: it’s not a privilege or reward. It’s a debt trap. Instead, set it to a level that’s comfortably below the average balance in your savings accounts. Also, always pay your credit card bill in full, not the minimum amount due.
5. “I will make my will in 2023”
Contrary to what many feel, this is not a morbid resolution. A will safeguards your wealth and estate, whether you’re dead or alive. Make an inventory of all your assets — money, investments, jewellery, artefacts, and everything that you have accumulated over the years.
Don’t forget to list down your liabilities as well, especially your loans. After a person passes away, the creditors lend up at the doorstep of the legal heirs demanding their dues. Taxes, if pending, also need to be paid to the government. Your will must ensure that you leave behind enough to take care of your liabilities so that your legal heirs aren’t bothered.
`Listing one’s investments is important as more often than not the inheritors have no clue about this, leading to a huge gap between the actual value of one’s inheritance and the inherited value.
Have a happy 2023!