As we inch closer to the new year, forming resolutions becomes imperative in order to set goals for the forthcoming year. Setting a budget, getting finances in check and carefully analysing your savings and investments comprise a key part of the financial aspect of resolutions. However, there are multiple other factors that are kept in mind while making that decision. There are multiple methods and practices along with financial tools that one can use to plan finances carefully and ensure a level of financial wellness.
The Guide to Financial Planning this New Year
December is the time everyone starts setting resolutions for themselves and before the new year arrives, here are a few easy-to-implement ways in which you can plan your finances for the coming year:
Budgeting: The Foundation of Financial Planning
Almost all financial planning depends majorly on having a budget and following it diligently. It is important to analyse past income sources, expenditure, investments and savings to get a clear picture of your financial standing and then plan accordingly how you want to spend, save and invest your future income.
A fixed budget puts a healthy constraint on your expenditure as well as gives you a number that you should ideally aim to save. Adopting the 50-20-30 rule, as mentioned in the famous book All Your Worth: Ultimate Lifetime Money Plan” by Elizabeth Warren, could be a great way to start as it allows you to have a better, more crisp idea of how to spend your money while also saving a particular amount.
Monthly Savings: Your ‘Rainy Day’ Saviour
When setting up a budget, it is imperative that you set an amount aside as savings or “rainy day fund”. A financial resolution that you should strive to include in your list of resolutions is to either save an amount of money every month or have a bigger goal and amount for the end of the month.
A few ways you can save more are by sorting priorities, differentiating between essentials and non-essentials, setting up fixed or recurring deposits with a bank, etc.
Building an Investment Portfolio: Your Retirement Companion
Investments assure present and future financial safety. They enable you to increase your wealth while also generating inflation-beating returns.
After you have a fixed plan for savings, the next important step is to figure out how and where to invest. Investing instills financial discipline by establishing a habit of getting away a specific amount each month or year for your investments.
In today’s day and age, when everything is available at your finger steps, people don’t realize how vastly their spending capacity has increased. The use of mobile apps and mobile-based payments have made it easier for consumers to get things done quickly, and that has changed the way a transaction is perceived now in comparison to earlier. Preferring food delivery overcooking, multiple streaming platform subscriptions, etc are now opted more by the millennial generation.
This in turn has given rise to a lot of expenditure that is non-necessary and can be avoided very easily. Expenditure control can help increase savings and allow more assets to be invested, as the more you save, the more you can invest.
Insurance: Your Safety Net
Insurance is essentially a financial safety net that you can rely on in times of distress. It is an extremely important and valuable financial tool. Purchasing insurance is critical because it ensures that you are financially secure in the event of a life crisis, which is why insurance is such a vital aspect of financial planning.
It not only allows financial security but also reduces stress at a later stage in life, especially when things would go south. A prime example of this was the pandemic when an unprecedented crisis struck the world, and it got extremely difficult to manage finances with the increasing costs of medical expenses and aftercare. The peace of mind that insurance provided to people in such a time is also what makes it a widely appreciated policy.
These are the most common ways in which you can plan your finances for the upcoming year. Since these methods are evergreen, they are sure to work perennially and also across the years.
Having said that, it’s important to take these methods seriously, as most people are aware of them but tend to overlook them.
Another critical point to keep in mind is to set realistic goals and aspirations to not overburden yourself and keep things going smoothly.
These are a few ways you can ensure your financial wellness, but it is essential to keep in mind that it is a step-by-step process that you need to take one day at a time.