5 Resolutions for this New Financial Year

The new financial year has begun and few states will gear up in the coming week to celebrate New Year based on their regional calendar.

The New Year is all about starting out with optimism and positivity. People buy gold, book a house by paying a token amount or purchase any asset as they consider this day to be auspicious.

This year, take a step forward and get your finances in shape. Keeping a healthy personal finance statement is all about sizeable saving, right investing and smart spending.

Here are some resolutions you can consider in this New Year.

1) Make your balance sheet
Get a complete idea of how your money trail-how much you earn, save, invest and spend. This should cover all your income sources such as salary, investments rental income etc. You also list down all the loans and interest payments to each of these loans. This will give an exact idea of where you stand financially. On the asset side, you should mention you investments in equities FDs, gold and insurance. This will be the first step to plan for your future financial goals.

2) Invest more 
More the better, especially when it comes to investments. When you lower your trivial expenses, you have more cash to invest. Ideally you should be investing at least 30% of your take home salary on a monthly basis. It can be higher at 60% in early years of your career especially if you don’t have a housing loan or other financial commitments. You will build a bigger corpus due to compounding effect.
To start with, set a savings goal this year. Then you can monitor your performance on a monthly basis to see if you can achieve it.

3) Plan your taxes
Tax planning cannot work in isolation and ideally should not be a last minute exercise. It has to be in line with your overall financial planning. While making any tax saving investment, you should compare options based on returns, liquidity, tenure of investment, risks and more importantly your requirement other than tax benefits. You can consider a SIP in ELSS or make monthly contributions to PPF, EPF or even NPS. Idea is to stagger your tax related investments so that you can avoid cashflow issues and make financially sensible investments.

4) Pay off expensive debt
It is always tempting to pay off the housing loan whenever you receive a windfall or some bonus especially with the abolition of pre-payment penalty. This will set you free from earmarking a large chunk of your salary to housing loan EMIs. But paying off other expensive debt such as credit card, which charges an annual interest rate of 40% makes better financial sense.

Even if you are paying 11% your effective rate is much lower as the interest rate is calculated on daily reducing balance and you get to save tax as well. Secondly if the you prepay in the last few years of the loan, the saving on interest outgo is not that high as the interest component of the EMI is repaid in the first few years of the home loan.

5) Build a contingency fund
Better save than worry. Unexpected hospitalisation or even financial emergencies come knocking at a time when you least expect it. Hence it is better to save 10% of your monthly income in investments such as Liquid funds, short-tem FDs, which can be easily liquidated. Or you just earmark a part of your bonus in any instrument, which comes with an easy exit clause.
Ideally the size of your contingency fund should be equal to 5 months of your take home salary.

It is time to walk the talk now. On account of the New Year, we wish you a financially healthy and wealthy life.