If you’re looking for some inspiration on how to improve your finances, here’s a list of some financial resolutions you can consider:
1. Calculate your net worth
It's important to evaluate where you stand financially at the beginning of every new year. The best way to do so is to calculate your net worth. You can compute your net worth by subtracting your net liabilities from your assets. Here, net assets include all your investments in different accounts, existing FDs, mutual fund and stock market investments, PPF, etc. Net liabilities are the sum total of all your existing debts like student loans, home loans, and credit card debt.
2. Check your emergency fund
It is always a good idea to start the year after checking that you have adequate funds set aside for a rainy day. An adequate emergency fund keeps you financially afloat when faced with sudden unforeseen expenses like job loss. Maintaining adequate emergency fund reserves that can cover up to 3-6 months of living expenses is crucial, especially when the economy is uncertain. If you had dipped into your emergency fund the previous year, make sure you replenish the used funds as soon as possible.
3. Review and update your goals
Your next financial resolution for the new year should be tracking and updating your goals. At the beginning of each new year, be sure to check how close you are to fulfilling your set goals, like saving for the down payment on a home or building a retirement corpus. If recent market changes have diverted you from your path, ideate strategies to get back on track with your goals. Similarly, some of your goals may have changed over the last year. New goals may be added to your list due to major life events like marriage. If that’s the case, make a financial resolution for the new year to accommodate new goals in the year ahead and devise prudent financial strategies.
4. Pay off your debts
When making financial resolutions for the new year, you must factor in debt. Even if you are good at managing debt, consider ideating steps to reduce and consolidate debt. It is important to think about strategies to repay your debt as soon as possible because the longer you remain in debt, the more interest you pay. This inevitably reduces the amount of money available for savings and investment. For instance, if you have received a year-end raise or bonus, consider allocating it towards repayment of high-interest debt to clear your dues faster. Similarly, you can set a financial resolution to repay monthly credit card debts in full each month instead of making minimum payments. It is prudent to ideate a repayment plan for the entire year, deciding how much you can afford to pay to clear outstanding debts and then stick to this plan in the upcoming months.
5. Rebalancing your portfolio
Financial experts suggest that investors should rebalance their portfolios at least once a year. January is the best time to rebalance your investment portfolio and get your investments in order. The act of rebalancing your portfolio helps ensure that your investments are performing as efficiently as possible to ensure optimised returns. Additionally, this financial resolution for the new year also gives you a chance to review your asset allocation or how investments are split within your portfolio. Rebalancing your assets allows you to bring your portfolio up to speed with your life stage and changing savings goals. Moreover, rebalancing helps restore your original asset allocation if recent market fluctuations have caused your investments to sway from the target mix.
6. Keep a check on your credit report
Checking your credit report annually is a prudent and recommended financial move. If you haven’t checked your credit report in a year, now’s the best time to do so. At the beginning of each new year, you can review your credit report in detail to check for inconsistencies and errors. If you happen to find errors, you can promptly notify the credit bureau and get them rectified. This will simplify the process of securing credit in the coming months and reduce your chances of rejection.
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