New Year resolutions are a common term heard during the onset of a new year. While some people make resolutions related to health or plan to stay fit, some plan to stay positive by bidding goodbye to negative qualities. Among all these, seeking a healthier financial life hardly gets the attention it deserves. 

However, keeping in mind the Covid-19 situation and the entire pandemic period that people have been through in the year 2020, we must learn a lesson and understand the importance of taking proper care of our finances. Moreover, we include making solid financial plans in our resolutions to try to overcome the monetary loss we have been through in 2020. So, scroll down to get an idea of some financial resolutions that you can take up to ensure better financial health in 2021.

Sort Out Your Net Worth

While it’s true that the first steps are always the hardest, don’t you think that after the year we have experienced, organizing your net worth is as important as your plan to have a fruitful 2021? Therefore, begin your way to a healthier financial life by sorting out your net worth. 

First, you need to list out the places where you have money. For example, have a look at your savings bank accounts, fixed deposits, retirement funds (if any), etc. Search for a recent statement of all these accounts to have a clear idea of the money you have. Next, get an idea of the worth of other assets you hold, such as jewelry, home, car, etc. The total amount after combining your money with the worth of these assets would give you an idea of your overall investments. 

After this, it’s time you have a proper idea of the debts you have, such as education loans, mortgage, credit card bills, etc. Making a total of these debts will give an estimate of the liabilities you have. Now, subtracting your total assets’ liabilities will give you a gross idea of your present financial state.

Put Aside Some Money as an Emergency Fund

An emergency fund has many roles to play. Be it meeting unforeseen financial emergencies or making up for the loss of income owing to unemployment, disabilities, or other reasons; an emergency fund can help one with adequate resources to deal with a crisis. Not having an adequate emergency fund forces us to default on existing debts. Take help of investments that were kept for critical financial goals, sacrifice our lifestyle and in many cases, also lead to avail loans at excessively higher interest rates.

Generally, an emergency fund should have an adequate sum that would help one carry on with their necessary expenditures for at least six months. Other than the mandatory expenses, an emergency fund needs to be big enough to deal with some unavoidable expenses such as paying EMIs, insurance premiums, etc.

Moreover, as financial emergencies can strike a person at any time, it would be a wise step to keep in accounts where you wouldn’t need to pay any charges for emergency withdrawals. However, those familiar with the internet or mobile banking can opt for FDs in scheduled banks.

Strategize a Financial Plan

Preparing a financial plan is a critical step to ensure a healthier financial life. It helps one strategize their investment moves w.r.t the financial goals, keeping in mind factors such as your risk-taking capability, investment type, and cash flow. 

Get down to creating a financial plan this new year by estimating the gross amount you will require to meet all your financial goals. Do not forget to count on the rate of returns, the inflation rate, and the period left to reach the desired amount. Now, when you have these factors right, you can use a SIP calculator to know the tenure and the monthly investments you will require to reach the goal.

Moreover, a financial plan also plays a significant role in creating a person’s asset allocation strategy to meet his financial goals. With an appropriate asset allocation plan in hand, you can keep a clear demarcation between gain and risks by diversifying your investments across different forms such as gold, equity, FDs, etc. Also, make sure that all of these needs to be done by having a vivid view of your risk appetite, financial goals, and investment

Try Out SIP Modes of Investment

SIP or Systematic Investment Plan helps an investor invest a predetermined amount in mutual funds at different intervals such as quarterly, monthly, etc. In this investment mode, the amount is directly debited from a person’s bank account and, therefore, induces financial discipline and a habit of regular investment. Besides, as the minimum amount of periodical investments begin with as low as Rs. 1,000 (Rs. 500 in the case of tax-saving funds), opting for the SIP mode of investment helps investors begin investing from a young age and get the benefit of compounding.

Moreover, with the SIP mode of investment, one hardly needs to keep an eye on the market rates’ ups and downs. Also, apart from the advantage of rupee cost averaging, the investors opting for the SIP mode tend to own more stocks at a lower NAV.

Improve Your Credit Score

Credit score holds a significant position in today’s financial world. These days, getting loans or credit card applications approved from the banks and financial institutions require a good credit score. Many of them also tend to offer loans at comparatively lower interest rates to those who possess good credit scores. Therefore, it is essential that one works towards building a strong one.

As credit score comes only into play when you have a credit history, the ones who do not have a history can begin with availing a credit card. The payments made across credit cards are seen as loans and hence, get reported by the credit bureaus. Later, these bureaus utilize this information to assess your credit score. If you are denied a credit card for reasons such as inadequate income, unfit location, etc., then you may opt for secured credit cards to build a credit history. 

Clear your Debts

Financial emergencies or urgency to make lifestyle modifications leads people to avail loans at a higher interest rate, which leaves them with little money to invest in their long-term goals. To keep you free from this stress, you can opt for consolidating all your existing loans. With this initiative, one can save a huge interest charge and can have the burden of repayment reduced. For example, top-up home loans can be a suitable option for home loan borrowers looking for consolidating multiple loans. Others may opt for consolidation options such as Loan Against Property (LAP), a personal loan, etc.

Key Takeaway

Being a witness to the turmoil situation in 2020, we understood the importance of the age-old adage “Save more.” Losing jobs, enduring pay cuts, and the fear of getting infected with Covid-19 have helped us realize that it is imperative to ensure a healthy financial life. Therefore, as we step into a new year, let us apply some smart moves and promise ourselves to stay financially fit in 2021.