#Personal Finance | 12 MIN READ

This New Year, make a resolution to improve your Financial Health

As always, people have made resolutions for the year to come. Health always tops the list of resolves made, and rightly so! Priority should be given to health and fitness as these are essential for a good life.

However, money plays an important role too, in our endeavour to lead a happy life with our loved ones. Hence, Financial Health should also be a key consideration when making New Year Resolutions. Good financial health is not about acquiring wealth because wealth per se is a very vague term as there is no limit to man’s wants. Financial health is about earning, saving and investing towards leading a comfortable life with your loved ones, fulfilling financial responsibilities, and achieving one’s life goals.

When we talk of good health, everybody knows the broad essentials. Develop good eating habits, avoid junk food, limit alcohol, follow a healthy lifestyle, exercise regularly and think positive. Similarly, there are some essentials for maintaining and improving financial health which we will discuss here:

1. Make a Start: Yes, ‘Making a Start’ is the first and foremost step. A mention of ‘Personal Finance’ itself intimidates people or is considered too dull a topic to discuss for most. However, one needs to start somewhere, and the earlier, the better.

2. Assess your current financial standing: You can determine your current financial status by calculating your net worth, that is, the difference between your assets (what you own) and your liabilities (what you owe). Plus, account for the current inflow (income) and the outflow (expenses) of money. This will help you understand if you are living within your means, and also help you to realize your saving capacity.

3. Define financial goals: Financial goals are life’s events, needs, wants and desires that require money to become a reality. Buying a car, taking a world tour, purchasing a house, funding children’s higher education and marriage, saving for retirement, etc. are examples of common financial goals. It is a good idea to define goals as short-term (less than 3 years), mid-term (4 to 10 years) and long-term (more than 10 years). Accordingly, a savings and investment strategy can be devised, aligned to the goals.

4. Start saving early: Starting early and being consistent in whatever you choose to do in life will deliver exponential results over time. And this applies to every aspect of life, good or bad. The habit of savings is no exception to this rule. When you start saving early in life, the principle of compounding works with the power of time to deliver exponential growth. Your savings earn interest. This interest adds to the base corpus that further garners more interest. This cycle, given time, becomes a snowball effect and keeps building upon itself, thereby delivering massive returns.

5. Diversify investments: Just saving money and not investing is like losing money over time. This is because inflation erodes the value of money over time. What your parents could buy with 100 rupees two decades ago is not the same as what you can buy today. You must invest with your financial goals in mind. It is equally important to invest as per your risk-appetite and diversify your investment across asset categories to maximize returns and reduce the risk of putting all your eggs in one basket. There are multiple investment instruments and opportunities and ample information available on the internet. Else you can consult a certified financial planner to guide you.

6. Financial security for the family: When you have loved ones who are financially dependent on your earnings, it is imperative to ensure financial security to take care of unexpected or unfortunate times in life. Make sure you have life insurance with adequate cover. Adequate cover is an amount that can provide for essentials – food, shelter, clothing, education and health, and preferably help the family maintain the current lifestyle in case something were to happen to you. If you have children, you can opt for child plans to secure their future. Child plans help you save for the child. However, what gives them an edge is the ‘waiver of premium’ benefit under which all future premiums get waived if something happens to the insured parent. The plan continues with benefits getting paid as and when due. Health Insurance is also essential in this era of rising health concerns and sky-rocketing medical expenses. Also, maintain an emergency fund and use it to serve its designated purpose only.

7. Regular financial planning: Regularly – atleast once a year, review and update your financial plan. Life changes daily, and with it, your needs, wants, earning potential, expenses and net worth. Reviewing your financial plan will help you realize your financial health and accordingly you can upscale, revise or remedy the same.

Every New Year, resolve to be better – physically, mentally, emotionally, financially; be a better human being and a responsible world citizen. Happiness is a natural outcome of living sensibly and conscientiously. Best Wishes for a Happy and Prosperous New Year – 2022.