Financial Actions for the New Year 2022- Contributed by Team FINMISSION

As we are into the New Year 2022, we see people making resolutions of various kinds, more often than not about their physical or professional lives. We believe that focusing on financial health is as important as anything.

Here, we advise "22" resolutions that could make an individual financially healthy and positive.

1) Assess your Net Worth for  your present/current  financial condition: -

List and table your Net Worth in an Excel sheet or with pen & paper,

Now this brings to a new term name Net Worth- So what is Net Worth?

Your net worth is quite simply the sum total of your assets minus to the total of your liabilities. If you have more assets than liabilities, you have a positive net worth. If your liabilities exceed your assets, your net worth is negative. So, all your investments such Deposits, Mutual Funds, Gold, Real Estate should be added in asset side and add all your liabilities like EMIs, Maintenances and Utilities, Services etc

Your net worth is a financial snapshot of your total wealth at one moment of time. It does not measure your cash flow. It provides visual clarity where one stands financially and it provides a sense of control of the financial situation where one lies.

2) Prepare a Budget: -

It conclusively says that one has to start by listing the various expense heads that one has to incur in day-to-day life. Divide expenses between essentials and discretionary spending. Match spending with income and you would know the amount of surplus/deficit and the time of the year (and the reason) it is likely to happen. Accordingly, you can advance or postpone some expenses.

 Key would be always to spend only as much money as is left over after savings.

3)Prepare & Allocate  for an emergency fund: -

No second thoughts on the importance of creating an emergency funds at this pandemic onslaught.

Emergency Fund should include only essential spending and ideally be equal to six months worth of spending. This should be available in a savings bank account and your spouse/ dependents should also have access to the funds. If there is a critical/important milestone expense lined up during the year, it should ideally backed by certain investments, if not include that as well.

4) Take Life Insurance cover: -

Based on annual expenses (essential + discretionary) as well as milestone costs, compute the amount of money required to maintain your current lifestyle. Term Cover should ideally be the gross value of such expenses after factoring in inflation. If there are additional earning members in the family, the cover can be shared with them. Go for ONLY Term Insurance. (We will delve more into the specifics of Life insurance in the coming blog).

5) Assess Medical/Health cover: -

One should assess each and every family member’s physical health, especially based on recent developments (COVID-19 and other health factors). Cost of treatment should be the benchmark for the medical cover. Based on this, recalibrate existing medical cover periodically so as to factor in inflation too. Explore alternative options like super top up, critical illness policy, personal accident cover an so on to maximize benefits and/or optimize the premium amount. Review floater vs. individual premium plan premiums during every renewal.

(We will delve more into the specifics of Health insurance the coming blog).

6) Allocate to invest 20 % to 30% of income (At bare minimum level):-

The average savings rate in India is ~30 percent. This should be seen in the light of annual average per capita income being only Rs 1.5 lakh. So, every earning member of the family should strive to save at least 30 percent of his/her income if not more. One should ensure that this ratio is maintained throughout his/her working life.

7)Productive Tax Saving ->Activate monthly section 80C investments: -

People tend to make tax-saving investments only close to the financial year-end. Investments in the Public Provident Fund (PPF) and Equity Linked Savings Scheme (ELSS- Mutual Funds), can be done on a monthly basis, which would actually maximize returns (power of compounding as well as averaging).This would not only reduce your financial burden on the year-end, but also instill a disciplined approach in you.

8) Make sure loans are backed by assets: -

As far as possible, if a loan has to be taken, an individual should ensure that it is for the purchase of an asset like a home or for future benefit, like education. These loans also provide tax breaks (Tax breaks are tax concession or advantage allowed by government.). Also, in a worst-case scenario, one can sell the underlying asset and repay the loan; this will not a significant impact on an individual’s net worth.

9) Repay debt in time (Critically think to reduce the debt level at the earliest):-

Corporate entities are in the process of reducing debt in these tough times. Individuals too should attempt to repay loans, especially high-cost ones like personal loans. This would not only improve their net worth, but also help boost investments. Seek financial help from an advisor to reduce collateral damage.

10)Look to improve credit score to 750: - (CIBIL score)

Individuals having a score of 750 or more get the best credit terms. One can achieve a good credit score by paying EMIs, credit card bills and other loans before their due date. A lower score means not only higher interest rates but sometimes denial of loans too. (Such credit scores are important for accessing loans at lower interest from financial institutions).

11)Always maintain zero credit card debt: -

If one pays only the minimum amount due on a credit card, the balance costs 2.5 percent/month or more in interest. This more often than not puts a severe strain on finances and is the first step towards getting into a debt trap. In addition, the credit limit also tends to get truncated, which could lead to a financial squeeze in emergencies. (Always Pay the credit card debt in full – Do NOT pay only the minimum amount).

12)Make sure investments are tax-efficient: -

Interest earned on fixed deposits are added to an individual’s income and taxed in line with the person’s tax bracket. Investing in debt mutual funds provides an indexation benefit if held beyond three years and hence is more tax-efficient. Similarly, dividend earned by equity MFs are not taxed, but if an investor gets it from direct equity investments, tax is deducted at source. Also, instruments like PPF and Unit-Linked Insurance Plans (ULIPs) have exempt-exempt-exempt status while the National Pension System, National Savings Certificate and ELSS have exempt-exempt-taxable status.

13) Communicate financial details to family: -

Having done all this, it would be a disservice to the family if the details are not communicated to them. One should spell out details about bank accounts, insurance, investments and so on at least to the spouse. Recent reports say financial institutions have approximately Rs 1 lakh crore of unclaimed money. So, an individual should ensure at least that all financial and immovable assets have a nominee. Ideally one should execute a "WILL" so the transition is smooth. Under Indian laws, a nominee is only a custodian.

14) Compile Financial Documents into different financial heads: -

All your investments and payments of liabilities should be neatly recorded in organized manner under the right heads either in digital or printed format. It is easier to keep them organized digitally so that, it could be helpful at the time of retrieval and analysis.

15) Do NOT chase return without understanding Risks.

 Returns are not as important to create wealth (I know it is counterintuitive). If you do not understand the risk for an investment, you are just speculating on a return, which could be dangerous for financial consistency and financial consistency is critical for compounding.

16) Beware of Unsolicited tips: -

Hey that Social Media - beware! It is a double-edged sword. Critically analyze whom you are following, why you are following without bias and ideology. It is important to think rationally, although it is said by wisest and successful investors that in the domain of financial investing, most think that they are rational but they unfortunately aren’t. Therefore, be conscious about it. “Common sense is not Common” is a best fit in the field of investing.  Hence, do not and never invest in get rich quick schemes. Do not let the greed demon take over your rationality. The perennially richest folks had one thing in common. They played the waiting game and embraced patience and not intellect.

17) Make your Investments mapped with appropriate Goals: -

This is strategically crucial to successfully accomplish your financial milestones like a piece of cake.  This is mainly done through capital markets structures such as Equity and Debt Mutual Funds (Get guidance or outsource this to a financial advisor). This financial step will eliminate bad decisions on money and priorities.

18) Don’t Ignore or have a causal notion regarding the Retirement Goal-Keep it at top Priority – It is critical.

God Save Us. Many are ignoring the iron clad requirement of allocating money for their retirement. Retirement corpus allocation should be the highest priority in one’s milestone investment. It is important because, that’s the only foundation you could have to hang on peacefully and comfortably in the going days of our lives. Do not ignore… I repeat Do not Ignore. (Contact Advisors, take control of it asap.)

19) Practice Delayed Gratification.: -

Practicing delayed gratification is an important life skill. It can be learnt through conditional approach and mental planning.

In today’s day and age of one click purchases and immediately accessible information, instant gratification is seen as the norm. The always-on world, with smartphones and Wi-Fi, reinforces that you have to get what you want right away. But instant gratification isn’t always best – in fact, impulse control is an essential life skill. When it comes to achieving your goals, delayed gratification is the skill that will get you there faster.

The truth is, it’s not realistic to get everything you want, much less get it immediately. Instant gratification is actually a source of frustration – it creates false expectations. By learning to employ delayed gratification, you buy time to strategize thoughtfully and learn from your failures. Once you delay that gratification, the competition is much lesser and you can see the waters clearly.

20) Invest only in High quality stocks and use during market lows as great investing opportunities.

Investing in Individual listed companies is important to create intergenerational wealth. Hence, it is extremely important to choose only high-quality stocks which may not provide rocket shooting returns but will provide you better sleep in the night. Here, only allocate a percentage of your investments  if it allows after the allocation your priority financial goals such as  retirement, Children education, Marriage, Insurances for life and health and short term commitments. This money here is something you will never use it in your lifetime, therefore make this allocation rationally.

21) Practice Good Financial Habits and gradually try to Eliminate the bad ones through accountability techniques. 

It is essential to inculcate good financial habits. Good financial habits do not mean to be a miser or to be cheap. Good financial habits embrace a tone of conscious frugality.

22) Consult Financial advisors for strategic and logical Investments and align the investments with your risk profile.

It is vital and prudent to consult a financial advisor for strategically prioritizing one’s financial goals and this could help to deter financial indecisions, biases, narrowed financial knowledge and most importantly minimize the effects of bad financial decisions. This will definitely help one’s financial journey with bliss and comfort.

I understand, each of the above-mentioned pointers could be a topic on its own weight. However, this effort is to sensitize on the financial thought process for individual/family’s personal finance.

This New year 2022, with these “22” financial ideas, gear up for your good health and prosperity, and drive your financial journey to the right destination with confidence and comfort.

Hope you enjoyed or appreciated reading this one. Thank You, keep safe & Be Empowered... 😊

This blog “Finmission’s Class" is an effort to educate and spread the word of financial knowledge and awareness whilst empowering the community with a touch of practicality on personal finance.

For any queries and assistance related with incidental financial advisories and for goal based financial plan, you may feel free to write at the "contact us" form in the blog or you may please ping a message through Whatsapp (Mobile No: +91 9499979180) or call at the mentioned mobile number and I will be most glad to guide your path to financial freedom.