Save money with budgeting
Budgeting is the stepping stone to starting your financial planning journey. Budgeting helps you allocate your income towards expenses, savings and investments. You can begin with 50/30/20 budgeting that allocates income as follows:
a) 50% towards needs or non-negotiable expenses such as food, clothing, rent, EMIs, medicines, kid’s fees, utility bill payments, etc.
b) 30% towards wants or discretionary expenses such as eating out, movies and other forms of entertainment, subscriptions, vacations, etc.
c) 20% towards savings and investments for financial goals such as an emergency fund, life insurance for income earners, health insurance for the entire family, child’s education and marriage planning, retirement planning, down payment for house, home loan repayment, starting a business, etc.
Once you become comfortable with 50/30/20 budgeting, consider increasing the savings and investment component beyond 20%.
Money resolution for 2024: Start budgeting today if you are not already doing it. If you are already doing it, check how to improve it.
Automate your investments and bill payments
In the above section, we discussed how to allocate money towards savings and investments with budgeting. Once the money is allocated, you can automate your investments through systematic investment plans (SIPs).
With SIPs, every month, a specified amount will be deducted from your bank account on a specified date and invested in a specified mutual fund scheme. Automation helps you become a disciplined investor, create wealth with the power of compounding in the long term, and achieve your financial goals.
Similarly, you can choose the standing instruction (SI) or auto-debit option for regular payments such as life and health insurance premiums, loan EMIs, credit card bills, utility bills, etc. It helps you avoid your insurance policy getting lapsed, defaults and penalties on loan repayments, and disconnection of utilities.
Money resolution for 2024: Make a list of all your investments and payments, and check which ones can be automated and implemented.
Invest more with the help of step-up SIPs
In the earlier section, we saw how regular SIPs can help you reach your financial goals. However, step-up SIPs can help you reach your financial goals even faster. With a step-up SIP, you can increase the monthly investment amount on an annual basis.
Suppose you start a monthly SIP of Rs. 5,000. With a step-up SIP, you can increase the investment amount by a specified percentage annually. For example, with a 5% step-up, the SIP amount will be Rs. 5,000/month in the 1st year, Rs. 5,250/month in the 2nd year, Rs. 5,500/month in the 3rd year, and so on.
You can also increase the monthly SIP amount by an absolute amount. Suppose you start a monthly SIP of Rs. 5,000. With a step-up SIP, you can increase the investment amount by, say, Rs. 500 every year. In this case, the SIP amount will be Rs. 5000/month in the 1st year, Rs. 5,500/month in the 2nd year, Rs. 6,000/month in the 3rd year, and so on.
Money resolution for 2024: Check your surplus income and see how you can step up your investments and implement it.
Upskilling: Invest in yourself
In the earlier section, we saw how a step-up SIP can help you reach your financial goals faster. Along with investing in SIPs, you should invest in yourself also. For faster career growth, you should invest regularly in upskilling yourself. You can participate in upskilling programs within your organisation as well as outside. Check if your organisation reimburses the fee for external courses you plan to take for upskilling. The famous quote from Warren Buffet says: The most important investment you can make is in yourself.
Money resolution for 2024: Evaluate the upskilling opportunities within and outside your organisation. Make an action plan for which courses to take and implement it.
Also Read : Up to 7.50% FD interest rate: BOI launches super special fixed deposit scheme
Prioritise repayment of high-cost debt or convert it into an EMI plan or a personal loan
If you have any high-cost debt, make sure you prioritise its repayment. For example, if you have any credit card outstanding, make the entire payment instead of the minimum amount or any other amount lower than the entire bill amount. Credit card companies charge one of the highest interest rates. The annual interest rate is usually in the 36% to 42% (3% to 3.5% per month) range.
If you are not in a position to pay the entire outstanding amount, you can request the bank to convert the amount into a monthly EMI plan. The other option is to go for a personal loan and use the amount to repay the credit card outstanding amount.
Money resolution for 2024: If you have any high-cost debt, prioritise its repayment.
Follow asset allocation and diversify your investment portfolio
Different asset classes take turns to outperform each other over the years. Also, each asset class has a specific role in an investment portfolio. Hence, you should follow appropriate asset allocation and diversify your investment portfolio. You may include asset classes such as equity mutual funds, fixed income, gold, etc.
Money resolution for 2024: Assess your risk profile and allocate money to various asset classes as per your risk appetite.
Plan for financial contingencies with emergency fund and insurance
An emergency fund and insurance are an important part of the overall financial planning journey. An emergency fund helps you take care of unexpected financial emergencies. Your life insurance plan is your family’s financial backup in the event of your untimely demise. A family floater health insurance plan shields you from hospitalisation costs if you or a family gets hospitalised.
Money resolution for 2024: If you don’t have an emergency fund, start building one. Buy term life insurance for all family income earners. Buy a family floater health insurance plan that covers the entire family.
Make a positive start to 2024 with money resolutions
The new year brings a lot of optimism. Use this opportunity to make your money resolutions for 2024 and implement them. They will put you on a firm footing in your financial planning journey for 2024 and many years to come.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
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Published: 02 Jan 2024, 02:04 PM IST