A lot of things can be on your mind on the eve of the New Year. Thank the internet and the media for flooding hundreds of things you can change and resolutions you can take. It can surely be motivating. To keep things simple and not overburden your mind, we have decided to list just three simple things you can do better about your finance. Yes, just three simple things to start with and make a material change in your financial life.
Check your liquidity: How you will handle a financial emergency can say a lot about your financial fitness. Do you have sufficient surplus to manage an unexpected expense? How about managing expenses in case of a job loss? Even if you do have sufficient investments, are they liquid enough? Will you be able to get your hands on them at the right time? An essential part of your financial health is having a sufficient emergency fund, preferably, 6-12 months of your living expenses, in a very liquid investment vehicle. These vehicles can be a mix of pure cash, bank savings account, short-term fixed deposits, and liquid mutual funds.
Total insurance cover: Insurance is critical to protect your family and finances from unexpected events that can dent a hole in your finances or make them unstable. Be it a medical emergency, accident, critical illness, or even car breakdown, unpreparedness can set you back.
Life insurance is a very important addition to your finances that can help your family meet living expenses, achieve important financial goals, and pay off large liabilities in case of your unfortunate demise. Similarly, health insurance plays a vital role when facing medical emergencies. Essential insurance covers include life, health, vehicle, critical illness, and disability. Finally, be sure to only use and buy insurance products for your insurance needs and not as investment products. In not doing so, you would be robbing yourself of both a good insurance product and an effective investment vehicle.
Set financial goals: Have you aligned your investment with your goals? Having a goal-based approach can bring a lot of focus to your investment journey. Planning a child’s education, retirement, vacation, and house purchase are some of the common financial goals. Whatever goals you may have, they should be realistic, time-bound, and measurable.
Financial goals should also be reviewed at least annually to analyse your progress and to account for any material changes that could involve altering the investment strategy. You may decide to postpone a goal or maybe need more funding. The goals portfolio should also be restructured depending on the time left for goals and the suitability of investments. Additionally, your monthly savings can also increase gradually. Increasing your monthly or yearly investments can make a vast change in your goal’s progress. This is something that can be in line with your income increment. With options like step-up SIP in mutual funds, you can easily increase your SIPs automatically by a fixed % or amount every month or year.
Thank you for taking the time to read. Wishing you a very Happy New Year!
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