7 things you should do to take control of your finances in 2014
Improving your fitness level, getting that dream job or buying your own house, everybody has many plans for the new-year 2014. But one of the most important things that most of you need to inculcate in your resolution list this year is improving your financial health. Most people plan to review their financials every now and then but procrastinate this in lieu of other so called "important" things. And by the time they realise this it is too late to go back on some of their big mistakes. Hence if you have not made any plan for a better financial life this new-year, it is high time you considered working on this.
We have constructed a to-do list which might be of great help to you in this endeavour.
PersonalFN believes that if you follow the above mentioned to-do list rigorously then it will definitely improve your and your family's financial future not just this year but also in the years to come. Remember that, the most important thing about new-year resolutions is not just to make them but to implement them as well. On that note, we wish you a financially healthy 2014.
- Review your existing investment portfolio: Most people do their investments without proper planning or based on irrational 'tips' from friends or relatives. As a result most of these investments end up in a mess. You need to ask yourself "are these investments best suited to my financial goals and risk appetite". If the answer is 'Yes' then you do not need to review your investment portfolio but if the answer is 'No' or you are not sure about it, then you are in a great mess and you urgently need to review your portfolio before it gets too late; as the longer you hold these the more you will loose on the returns on your investments.
- Review your debts: More often than not, people land up taking too many loans in order to fulfil their financial goals in life (such as children's education or marriage, buying a house or a car, starting their own business or even going on a holiday). Taking a loan is not bad thing as long as you know your means to service it. It is also important to understand that having a high debt-to-income ratio, could have an adverse impact on your borrowing capacity as well as your financial health. Hence if you have a large number of loans you must endeavour to reduce or rather endeavour to be debt-free soon. For this, first assess which debt payments are burning a hole in your pocket. For instance, you might have certain credit card dues, which bear a relatively high rate of interest. For the early extinguishment of your debt liabilities, consider repaying these debts first. You can repay the high interest loans with low interest ones. This will help you save money on interest payments. Create a plan to repay your dues and classify the ones you will need to clear first.
- Create a budget: Analyse your monthly inflows and outflows. If your outflows leave you with very little to save and repay your debt, or worse with no money at all; then it is high time you started monitoring your spending habits. Establish a monthly budget for all your expenditures and be determined to follow it. Curtail all the unnecessary expenditures and save wherever you can. This might mean reducing all the outings and even rationalising on the necessities such as food, electricity and telephone bills etc. Although you cannot stop purchasing necessary items, be a smart customer. Purchase discounted items, use coupons, negotiate with the shopkeeper, and plan all your shopping trips so that you can save on the transportation costs. It goes without saying; don't add on to your debt by shopping more on credit cards etc. Having extra credit can sometimes create a feeling of having access to large sums of money and can lead us to buy things that we really can't afford. Keep track of every small expense, as it is these small expenses that often amount to big bills.
- Create a proper Contingency Reserve: Contingency Reserve is the amount which you should always keep aside (in a savings bank account or a liquid fund) for any unfortunate event. Unfortunate events could be medical emergency, loss of job or any other thing for which you have not planned for. Though you might say I already have 50-60 thousand Indian rupees in my bank account, but it might not be sufficient as it is always advisable to keep between 6-12 months of expenses as contingency reserve which should not be used for any EMIs or bill payments.
- Consult your family and decide your Financial Goals: Unless you know where you are headed you won't get there. Many people are unable to achieve what they want in life, because they don't know what they exactly want. So you should sit down with your family, consult with them and decide what financial goals you should be targeting for various stages of your life. The financial goals which are applicable to most of the people are Retirement, Child Education, Child Marriage, House purchase etc. But the more difficult part is to decide how much amount you require as on today and in how much time do you want to achieve these. You should have a clear vision of your financial goals as your investment in any financial product is totally dependent on your risk taking ability and time horizon set for your financial goals.
- Protect your family's Financial Future: Remember that none of your dreams or wishes that you have towards your family might be fulfilled if something unforeseen happens to you, especially if you are the only earning member in the family. Contingencies in life may occur when you least expect them leaving the entire family's financial future in jeopardy. Hence despite of having a fast paced life and many other responsibilities you must remove time to find out whether you are adequately insured or not. If not, you should not delay taking an adequate insurance cover. At PersonalFN, we believe term insurance policy is the best while safeguarding your family's financial future and you should never mix your investment and insurance needs. Apart from life insurance, also remember to take a suitable health insurance policy as medical and hospitalisation bills can sometimes create a big financial crunch and ruin your finances.
- Consult the Expert: We understand that you might not have the expertise or the time to review your existing investment portfolio, reduce your debts, work on a budget, create a contingency reserve, decide on your financial goals and its amounts, protect your and your family's financial future, and decide on where and how much to invest. But in such a case, you can always hire the services of a financial planner, and while you do the same, be careful in your selection and seek services from the one who is qualified, unbiased and who would adopt as much as care and prudence as he would do while managing his own finances, but taking into account your needs and risk profile. Remember, investing in the advice of an expert will not be a waste of money and could put your personal finances on the right track.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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