We do have the habit of making New Year resolutions. Weight reduction, starting regular exercise, stopping bad habits, starting new investments etc. will be there in our list. I have an uncle who will stop drinking every new-year, only to start again after 3 days! This article is on resolutions in personal finance, which may help you in leading a life with better financial security.
1. Use your credit card carefully.
Credit Cards are very useful tool for modern living. But the way we use it is very important. If we start repaying only the ‘Minimum amount due’, we will soon get into the Credit Cards Trap and will be very difficult to escape from that. Use the card only for those, expenses, where you are sure of paying full at the end of the billing cycle. Accumulate the dues, only in case of unavoidable emergencies, because the interest rates are as high as 36- 48% annually! Also, prompt repayment will help you to improve your Credit Score with CIBIL.
2. Start reading articles on Personal Finance
These articles will give you a rough idea about the common mistakes that can happen to all of us in personal finance. Learning from other’s mistakes is always better. You can subscribe to our weekly articles on personal finance by registering free in our website www.finvin.in
3. Start one more SIP in Equity Mutual Funds
Systematic Investment Plan (SIP) in good mutual funds will help you in reaching your financial goals in a disciplined manner. The Equity market was very bad in 2011 and is likely to be volatile for 2012 also. The Sensex crossed 15,500 first time in 2007 and is still in that range after reaching highs of 20000 and lows of 9000 in between! The Sensex may be at the same value of 15500 by New Year 2013! But there will be lot of ups and downs and these volatile markets are good for long term investors through SIPs. These investments will help you for your retirement planning also. Allocate around 5- 10% of your investible amount to gold and silver.
4. Pre pay your housing loan
Since, the interest rates are very high, your interest out go will be reduced, if you can prepay your housing loan in parts. Now, the banks and housing finance companies will allow you to prepay the loan without any prepayment penalty. Also try to avail the balance transfer facility, if some other banks are offering better rates on your loan.
5. Review your Insurance portfolio
You have to go beyond your office mediclaim and opt for a health insurance policy, in the personal capacity. IRDA is making it mandatory for all new health insurance policies to offer life time renewal. This policy will be helpful, when you are changing jobs and more importantly after your retirement.
As far as life insurance is concerned, review your endowment/money back/ULIPs etc and decide to continue them or not. The traditional policies will offer retuns in the range of 4-5% only and better to avoid. ULIPs are having higher charges under various heads and will bring down your returns. NAV guaranteed policies are also not good. It is better to avoid the hybrid policies and go for Term Insurance policies of a decent value to ensure financial security to your family. Online Term policies offer better rates. Most of the tax benefits for insurance will be cut after the introduction of Direct Tax Code.
6. Prepare a budget and try to stick on
High inflation and a depreciating rupee have made life difficult for all of us. One rupee saved is one rupee earned! It is better to have a monthly budget for various expenses, so that you will have a control on that. To reach your financial goals easily, ignore the old formula, Income – expense = Savings. The new formula is Income – Investments = Expenses.
7. Educate your children financially
In our country, financial education is not part of any curriculum even in colleges. This most important aspect is totally neglected by our educationists. Unless you do it in your personal capacity, financial illiteracy will continue to affect us. Try to educate your child financially. Open a bank account in his name and let him learn the basic lessons of savings and investing.
8. Ensure prompt nomination in Insurance/investments
This will ensure that your nominee receives the amount as you have decided and will avoid lot of unwanted litigation and procedures.
We wish our readers and customers a Happy and Prosperous New Year 2012.