Year end is probably the most optimistic time of the year, for it brings with itself the promise of a better tomorrow. No wonder then that it’s also the time most of us set our New Year resolutions. This year, consider financial resolutions and set out to achieve them. Here’s how you can set out...
DEFINE SMART GOALS
New Year resolutions should start with well laid-out objectives or goals using SMART model.
Specific: Goals must be very specific so that you are crystal clear in what you are aiming for and how you will achieve it.
Measurable: Use online tools, spreadsheets or calculators to measure your progress in achieving goals and review how closer you got to your goals as planned.
Achievable: Do not set yourself up for failure by having over-ambitious goals that are hard to achieve. Set realistic goals so that you can take on the challenge with confidence.
Relevant: Once you make a list of goals, reassess it and prioritise it so that relevant goals which can lead to your ultimate end goal of a stable financial life are not missed out.
Time Bound: Deadlines are necessary as they will put the much-needed pressure on you to achieve the goals and take some time out in an otherwise busy schedule life.
MANAGE DEBT AND EXPENSES USING 28/36 RULE
Most of us tend to pay bills right before the due date and sometimes end up missing our deadlines. You can make 2019 a tad easier by setting monthly auto-debit payments for regular utility bills and credit cards as soon as you receive your salary or regular business income. This will ensure that your credit score is intact by paying bills on time and the savings made on late payment fees can add to your financial kitty.
On the credit score front, it would be wise to check your credit score at start of the year, as it is available free of cost once every year. If your credit score is below 750, then work towards improving it by at least 20-30 points by end of the new year. You can take help of a financial consultant for the same, if needed.
A 28/36 rule can be used where you should spend no more than 28 per cent of gross salary on household expenses and not more than 36 per cent of gross salary on monthly EMI payments including home, car, personal or education loans.
If you have a home loan, then you should set a goal to use surplus or bonus income to repay your loan amount during the year. As a thumb rule, first repay your debt and then use surplus money for investments and leisure activities.
REASSESS YOUR ASSETS, LIABILITIES AND INVESTMENTS
One should calculate one’s net worth at the beginning of the year by subtracting assets from liabilities and at the end of the year, check how things stand. If your net worth increased significantly, pat yourself on the back and keep up the good work. But even if it didn’t, don’t get dejected and work twice as hard towards achieving your target net worth.
It will not be a bad idea to look for new high-paying jobs or alternative sources of income in the new year. We focus so much on cutting down expenses and saving money that we tend to ignore the idea of increasing income. It is advised that you have a closer look at your investment portfolio in the new year and make necessary changes or increase allocation to gain maximum returns from investments.
You should also increase the contingent or emergency fund by adding one month’s salary at the start of new year in order to adjust for rising inflation and daily household items.
Lastly, one must focus on personal health and work towards maintaining work-life balance by planning a vacation with family. If you don’t have a travel fund, then start one and keep adding some income every month.
As per global statistics, only 9 per cent people are able to achieve the financial goals set at start of the year. Set SMART goals and even if you achieve close to 70 per cent or above, celebrate the achievement, for you have moved many steps in the direction of a holistically rock-solid financial life.
