We are only few days away from welcoming the New Year. Some of us must have booked a holiday at a hill station for spending time with our family while some would have planned a grand party with friends. Each one of us celebrates in the way we like.
This is also the time when most of us make an excuse to set some financial goals. Be it buying a house, a car or going on a vacation. Even for someone who has started a new business, the New Year becomes a reason to start afresh with new strategies to reach new milestones. But only a few of us achieve these. Most of us find ourselves in a peculiar situation of not able to manage our finances, despite meeting some of these milestones.
The solution lies in not only making these resolutions but also planning well to achieve them. Meeting our future goals depends on how well we plan today. If we have not planned well in advance then it is very difficult to achieve what we have set out to achieve.
Here are some financial resolutions you should make before you step into the next year:
1. Budgeting: One of the most common goals in life is simply to manage money better – spend less and save more. This is achieved by making out a budget. Controlling spending, saving money, and investing for the future are all important aspects of financial planning. If you have not been following this earlier, then create your first budget in the month of January.
Budgeting not only helps you keeping track of your finances, but it also brings a discipline in your personal life.
2. Identify your goals clearly: The second step in personal financial planning is choosing and following a course towards long-term financial goals.
Any financial plan is incomplete if you have not set your personal and financial goals. If you do not set your goals, you will not be able to measure your success.
• Short-term and long-term goals: Identify your short-term and long-term goals and prioritize them. If you are not able to meet your short-term needs with your limited resources and try to stretch yourself by taking debt, your long term goals like retirement could take a hit. Thus, it’s necessary that you are aware of what your needs are and which ones require immediate attention. Once you have identified these, allocate your savings towards suitable investments.
3. Avoid taking on too much debt: I have seen many of my friends taking loans for meeting their short term goals like vacation, marriage gifts etc. Now I am advising most of them on debt management. The prime reason for such instances is lack of financial awareness and not adopting a financial planning approach.
For a middle class family, the only approach for meeting their needs is accumulating over a period of time. Even if you want to gift your wife a nice gold or diamond set on your wedding anniversary, the right approach is to start saving for it six-eight months before. Personal loans and credit card borrowings are very costly and they hit your household budget without generating any asset.
4. Learn: The primary reason for investing in any wrong product or becoming a victim of mis-selling, is lack of awareness. We generally try to meet all our goals through a combo product like ULIPs. A financial plan not only gives you a roadmap, but also educates you on effective allocation of your limited resources in the right asset class. Moreover, when you bring discipline in your savings and investments, your decisions become more effective in raisin your standard of living.
Thus, before taking any decision on your hard earned money next year, educate yourself. The education becomes more important as you will be seeing lot of advertisements and receiving calls for tax-saving investments starting from the first week of New Year.
5. Review how you fared: Most of us would remember what resolutions we made during the previous year. Evaluate whether you have followed those or they were only the excuse for convincing yourself that you are going to make things better. If you have been following a financial planning approach yourself, do an evaluation of what you are still lacking and make progress. If still you are not able to make it, take the help of a Certified Financial Planner.
There are and there will be grand parties every year to celebrate but if you miss out on any of your financial goals, then it’s going to affect your future, financially and personally. Just like you plan your celebrations every year, in the same way, review your financial situation periodically.
So, make your own resolutions but plan well in advance to achieve them. Remember, the New Year is a time of celebrations in anticipation of a better future. That’s why you celebrate it every year.