Financial resolutions you must make and keep post the 2020 crisis
After, a tumultuous year that was, 2021 is likely to begin with financial resolutions at the top of the charts. A US-based annual resolution study found that the current most popular resolutions among people are to ‘save more’ (44%), ‘clear debts’ (43%), and ‘spend less’ (30%). Sounds simple, right?
But, will these resolutions stick through the year?
And, do we need a crisis to remind us to act on and take control of our financial situation?
With 2020 in rear-view it is blatantly clear that a crisis always comes unannounced and hence getting our finances in order is the need of the hour. As newbies in the corporate world or established HNIs, each of us must take a step back and sketch out our plan for a secure future.
Here are some financial resolutions you could pick to get you started on your journey:
Stock up for a rainy day
The absolute need for an emergency fund has been the biggest lesson that 2020 had taught each of us. With businesses at a standstill, salaries reduced and job losses the norm people have struggled to make ends meet. Smart investors who had kept aside 3 to 6 months equivalent of their monthly expenses in easily cashable/liquid instruments would have sailed through these testing times thanking their stars for their foresight. For others, this may have been an eye-opener. This was seen clearly between the months of April ’20 to June ’20 were more than 5.5 million salaried workers withdrew money from their employees’ provident fund (EPF) accounts, out of which 60% were non-Covid-19 withdrawals. This is a clear indication of the lack of savings in emergency funds. As financial advisors, we cannot stress more on the need for easily accessible cash to help you sail through such difficult times.
When the well dries up
Another eye-opener for most individuals was the need for a side hustle. A single source of income cannot be relied upon anymore, what happens when that source dries up? Take a look at businesses that survived the lockdown, the local vegetable vendors and chemists that began home delivery, tailors that now began stitching masks, or Zomato that delivered groceries when food orders had scaled down. There is a need for an additional income, it may not be a replacement to your main source nonetheless it should be an income that could be relied upon. A side business, a lucrative hobby, or surplus invested offering fixed returns could be ways to create this alternative source. And if well-planned and precisely executed your alternate source could help you retire early too.
Health comes first
Health, hygiene, and hand sanitizers have been the talk of the town. With the outbreak of the pandemic, lack of doctors in clinics, and stressed health infrastructure, the sick have had to rely on private hospitals for their healthcare needs. This has come at hefty costs with a strain on hospitals, lack of medical personnel, and no standard costs for Covid-19 treatment which has resulted in medical bills skyrocketing. Unfortunately, this year India has recorded a 29% increase in medical inflation. Health insurance products have already seen a spike in premiums and expect another revision in the future. The peace of mind that having insurance offers during emergencies, cannot be emphasized more. Investing in a well-researched insurance cover for you and your dependents must be prioritized to safeguard you from unforeseen medical emergencies that could drain your savings.
No plan no gain
Investing cannot be done on a whim; prudence is a pre-requisite for any financial decision. Investing requires patience and knowledge lacking which one is likely to erode their gains in a mixed bag of assets that do not match your goals or needs. A recent investment report by ET money proved that the top 25% of investors with a disproportionately higher allocation to ELSS Funds earned better returns than compared to the bottom 25%. This was attributed to the mandatory 3 year lock-in period of ELSS funds. Unfortunately, the report also highlights the fact that increasing incomes have not translated into increasing investments, indicating a rise in earning has resulted in an equivalent rise in discretionary expenditure as well. These missteps or financial goof-ups are outcomes of a lack of planning and goal setting. A proper plan can ensure you are in control of your finances and are en route to the goal you have set for yourself.
This New Year 2021, we are all in search of a fresh beginning and a new start. Start this year on the right note, get your finances in order and reduce your burden of having to worry about another financial crisis, recession, or pandemic. Get professional advice; plan prudently and in advance, above all stay on track to achieve your goals because your hard-earned money must grow.