A new year signifies fresh starts, new opportunities, new experiences, and new possibilities. It also implies new opportunities. The past year may or may not have gone as planned, but the key to a brighter future is to reflect on the past year and adopt a fresh perspective. Moreover, if the past two years have taught us anything, it is the significance of financial stability and the need to be prepared for life’s difficulties.
Achieving financial security is a process, and two days of work will not make us wealthy than we were yesterday. This should not prevent one from building important behaviours; rather, it should serve as additional motivation to begin doing so.
According to scientific studies, it takes approximately 66 days for a behaviour to become a routine part of your lifestyle, or a habit. Therefore, it is an excellent moment to begin working towards our own financial objectives and developing financial discipline. Here are some practises that can help you achieve your goals in 2022.
1. Maintain Expense Records
Keeping track of your expenses is a smart first step in financial planning. Know where your money is going and how much it costs. From time to time, gaining a vantage position might facilitate a better grasp of a subject. Examine your income and expenditures from a larger perspective to determine what may be reduced, and then zero in on minimising your spending.
If keeping track of your expenditures becomes onerous, expense management applications can be of assistance. Due to the fact that the apps will have a record of all your transactions, you will be better able to assess your expense profile and prioritise your spending. Considering the tremendous move to digital spending in India over the past few years, expenditure management applications can be useful for those who are unsure of their spending patterns.
2. Increase Your Savings
Saving is challenging. However, it is necessary to save for a rainy day because a solid savings base will provide you with a cushion to face uncertainty more effectively. A savings plan should begin with the budgeting process. The 50-30-20 rule is a methodical technique to budgeting frequently proposed by financial gurus.
50 percent of a person’s income should be allocated to essential expenses or “needs” (living, food, and other expenses), 20 percent to personal spending or “wants” (luxuries and leisure), and 20 percent to savings or financial goals such as investments.
However, it is essential to recognise that there is no universal solution. You can build your own rule of thumb by considering your income and financial objectives. Establish a goal and strive toward it. If you can save more, you should do so. And if you have already met your savings goal, try incremental savings. Remember that every penny saved is one earned.
3. Commence Investing
It is never premature or tardy to begin investing. You need not be “The Big Bull” or “The Big Bear” to begin investing in the stock markets. Start with little but intelligent investments. Utilize practical and intelligent techniques such as Systematic Investment Plans (SIPs). SIP has grown in popularity for regular mutual fund investments. Similar to a regular deposit, but connected to the market. Consequently, you have the freedom and convenience to invest the amount of your choosing.
Once you’ve gotten the hang of investing, you can build a varied portfolio of various financial instruments. Consider low-risk mutual funds and always keep the long term in mind.
For people with a lower risk tolerance, fixed deposits, recurring deposits, provident funds, national pension systems, and other traditional yet secure investments are available.
The power of compounding returns should not be underestimated. Neither investor pursues big short-term profits. Reasonably, slow and steady wins the race. Nevertheless, risk is inherent in market-linked financial schemes. Developing a risk tolerance that aligns with our objectives is crucial.
One of the most important things to remember when investing is to not be influenced by FOMO. Don’t wait too long to invest, but also don’t invest out of fear of missing out. As capital markets are risky, you should always conduct study and never rely only on advice from others. Patience is a virtue.
4. Secure Yourself and Your Family
The significance of health and term insurance cannot be overstated. Not only does insurance protect you from unforeseen dangers, but, assuming proper coverage, it could also benefit you in the long run by covering your medical/health expenses. Your out-of-pocket costs will be limited. You do not need to use your savings, and they are also excellent tax savers!
Having health/medical, term, and/or life insurance is wise and protects you and your family during unpredictable times. In addition, subscribing for insurance at a younger age will result in cheaper premium costs. The purchase of health/medical and life/term insurance, however, requires exhaustive investigation. Before choosing one, read the terms and conditions thoroughly.
5. Tax Strategy
Tax planning is a fundamental and essential aspect of financial planning. It helps reduce tax obligations. Don’t search for tax-saving opportunities solely at the end of the fiscal year or when it’s time to file your tax returns. Plan in advance, preferably before the start of a new fiscal year.
There are numerous ways to lower your tax liability, such as investing in various government programmes to minimise your taxable income. Plan your tax deductions carefully in advance so that you can claim a reduction in your tax liability. Life insurance, health insurance, mutual funds, mortgage interest, and other expenses qualify for the standard deduction.
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