It’s that time of the year again when gyms everywhere see a surge in memberships, and why not? The New Year brings with it the promise of a fresh beginning. It’s the perfect time to hit the reset button on the negative developments of the past 12 months and to start off with a clean slate. While most resolutions revolve around health and kicking bad habits, the New Year can also be a great time to focus on personal finance. You can reflect on the changes of the past year, assess your current financial situation, set some new goals, and make plans to achieve them. So let’s take a look at 10 financial resolutions you can make for the upcoming year, and kick-start your journey to a secure future. Let’s go!
10 Financial Resolutions for the New Year 2024
1. Create a Personal Budget
Budgeting may feel like a small change, but it can have a significant impact on your financial stability. Start by tracking your income and expenses. To gain a clear understanding of where your money is going, divide your expenses into two categories – Essential expenses and Non-essential expenses. Your ‘needs’ are the essential expenses, things you can’t do without – rent/mortgage payment, electricity and water bill, and groceries. On the other hand, non-essential expenses represent your ‘wants’ – the money you spend on luxury items, hobbies, and recreation. By classifying your expenses, you’ll be able to identify areas where you can make cutbacks. That money can be added to savings or be invested. Remember, try to keep the budget realistic, because if you try to make too many cutbacks it can lead to frustration and ultimately abandonment. Stay disciplined and regularly monitor your expenses.
2. Improve Your Financial Literacy
Benjamin Franklin once said, “An investment in knowledge pays the best interest.” The time and effort you invest in gaining financial knowledge can yield invaluable results. Make a commitment to boost your financial literacy by dedicating time to reading finance articles, listening to podcasts, or watching educational videos. Begin this practice on a weekly basis and then slowly transition to a daily routine. The more you learn about financial concepts and stay informed about the finance world, the more confident and empowered you’ll feel when making decisions about your money.
3. Talk with a Financial Advisor
Financial planning can be a pretty complex process, and within this process, there are some different components such as goal setting, budgeting, creating an emergency fund, selecting the right insurance, debt management, planning for your child’s education, investment planning, retirement planning, tax planning, and estate planning. Each component has its own intricacies so needless to say the entire process can be overwhelming. While you can manage your plan on your own, it is wise to consult with an experienced expert so that everything is covered and there’s no room for mistakes. A financial advisor can assess your financial situation and help you create a personalised plan tailored to your goals and risk tolerance.
4. Build an Emergency Fund
If you don’t have a dedicated fund for emergencies yet, it is vital that you start building one as soon as possible. An emergency fund as the name suggests is a reserve of cash that you keep separate and use only to cover unexpected expenses. A large medical bill, your house needing extensive repairs, or a sudden loss of a job could be enough to derail you from your financial tracks. You can’t predict what happens in life, but it is important to stay prepared for the unforeseen. Generally speaking, an emergency fund should cover three to six months’ worth of your living expenses. When you make your budget, set aside a sum specifically to add to your emergency fund. There are many benefits of building an emergency fund:
- In case of emergencies, you won’t have to take a loan. Quick loans usually come with higher interest, which can quickly snowball and weigh you down.
- You won’t have to liquidate your investments prematurely, and you can carry on with your investment strategy.
- It will enable you to maintain your lifestyle in the face of challenges.
- You can enjoy peace of mind just by knowing that you have a financial safety net to protect you from the impact of unforeseen expenses.
5. Pay off Debt/Credit Cards Entirely
If you have any loan, credit card debt, or any other liability it is important to develop a repayment strategy. List down all your debts and note the interest associated with them. Now prioritise paying off the high-interest debt as it will save you money in the long run. Make use of the budget you created earlier and make cuts from the ‘wants’ so you can quickly free yourself from the burden of debt. It’s important to clear any credit card balances because that can affect your credit history. A negative credit history means difficulty in getting easy loans, high-interest rates, and a lower credit limit.
As you eliminate your debt, not only do you free up resources that can be directed toward savings and investments, but also experience a sense of sweet relief.
6. Watch Your Spending Habits
Nowadays people are more inclined towards impulsive spending compared to the past. It’s understandable really, because technology has brought massive stores to our fingertips. That cool outfit you just saw on your phone? Buying it is just a matter of a few clicks. And when we buy these small things individually, we don’t think much but every small purchase adds up fast and before you know it, you’re wondering where the money went.
So another resolution you can make is to have more control over your expenditures. You’ve already evaluated your expenses when crafting the budget, now you can take a closer look at the non-essential expenses and identify areas where you can cut unnecessary expenses. If you dine out often or order food online a lot, maybe it’s time to reevaluate the frequency. Don’t buy things just because they’re on sale because often when we buy stuff we realise quickly that we don’t really need it. If you have an expensive habit like drinking, smoking, or impulsive shopping, it’s time to address it and let it go. This is good not just for your financial health, but also your physical and mental health.
This doesn’t mean you should stop spending on your ‘wants’. What’s important is the need to strike a balance. If you make too many cuts, that is going to affect your lifestyle and you’ll feel frustrated. Be mindful of your spending without sacrificing the joy of living.
7. Improve Your Credit Score
When you have a good credit score, you get to enjoy many benefits such as lower interest rates on loans, a better chance of having a request for a loan or a new credit card approved, and having a higher borrowing limit. So how do you get a good credit score? Well, you have to use your credit card responsibly, which means
- Paying your bills on time.
- Maintaining a low credit utilisation ratio, which is recommended to be 30% or less.
- Not having many loans active at the same time.
Take these steps to improve your credit score. Your goal is to become a low-risk borrower in the eyes of your bank. When lenders look at you favourably, you get to enjoy the above benefits associated with a good credit score.
8. Know & Improve Your Net Worth
Your net worth is simply the value you get after you subtract all your liabilities from all your assets. Your assets include your cash deposits, savings, properties, investments, businesses, and cars, among others. On the other hand, liabilities include debt such as education loans, home loans, or credit card balances. Knowing your net worth is important because it gives you an overall view of your current financial standing. You can use your net worth today and compare it to your net worth in say, one year, to track your progress. To improve your net worth, you will have to either increase the value of your assets, reduce your liabilities, or do a combination of both. You can do that by having additional income streams, investing more, optimising your expenses, and paying off your debt.
9. Plan for Your Retirement
It’s never too early to think about retirement planning. In fact, the sooner you start, the more advantage you can take of compound interest. If you want to maintain your standard of living in your golden years, you have to calculate the amount you need post-retirement and invest accordingly. Invest in options specifically designed for retirement, such as the Public Provident Fund, National Pension Scheme, and Pradhan Mantri Vaya Vandana Yojana and regularly monitor and update your retirement plan. As time passes, your needs and goals will evolve so make sure those are also reflected in your retirement plan by making the necessary adjustments.
10. Succession Planning
The tenth and final resolution to make this New Year is to get started on estate planning. This process determines how the wealth of a person will be managed and distributed after their demise, and makes sure their financial legacy is protected. This can be done through a number of tools such as nominating beneficiaries, creating a will, forming a Hindu Undivided Family, or setting up a trust. So why should a person have an estate plan? The main goal is to safeguard the family and make sure that they can sustain the standard of living that they are used to and to enable a seamless transition of assets to the family. Estate planning also makes sure that your final wishes will be executed according to your intentions while reducing the tax liabilities of your beneficiaries. Without a proper plan, your estate might undergo probate where the courts will decide the distribution of your assets.
We always welcome the New Year with open arms, full of enthusiasm and in this enthusiasm, we make bold promises and resolutions and commit to a better future. Unfortunately, sometimes people find it hard to keep that motivation fresh and fall short of the promises they made. An important question to ask is – Why does that happen? Well simply, motivation fades, setbacks discourage, high expectations sometimes frustrate, and impatience leads to abandonment. Now another important question arises – How to keep going? The answer to that is by being realistic, specific, and disciplined.
When motivation fails, it’s discipline that keeps you going. That’s why when you set your goals, make them specific and attainable, and when you make your budget, make it realistic and a bit flexible. If it’s too rigid, and you make too many cuts, there’s a chance you won’t be sticking to it after a few months. Maintain your lifestyle and take small but consistent steps toward your goals. Consistency and discipline, that is how you overcome this. Accept the fact that you will inevitably make mistakes and you will face setbacks, but in those times, persevere and keep going. On top of that, when you educate yourself, have a contingency for emergencies, pay off your debts, plan for your retirement, regularly monitor your expenses, and stay in touch with a financial advisor, you will gain confidence and a sense of peace which will further throttle you into a secure and prosperous future.
Happy New Year!
Also Read: How To Plan Your Finances In New Year