The year 2018 is nigh! And like every year, it is time to draw up your new year resolutions. Whether or not you say it out loud, the one wish you have is to be in a better financial shape. How about you make a resolution towards a better financial health then ?
Here are a few steps to ensure your financial health is in order.
Take stock of your financial health
The first step is to review your financial health. One barometer of your financial health is your CIBIL score. This is a three-digit score [between 300 and 900] assigned to you on the basis of your credit repayment track record. This is applicable to all lines of credit such as loans and credit cards. If you repay your debt on time, you are likely to have a good CIBIL score. If your CIBIL score is 750 and above, you can rest easy, else scan your CIBIL report to see where you can improve.
The next thing you need to do is put a financial plan in place. It can help meet your life targets. So, this new year, outline a financial plan that can help you fulfil your long-term goals.
Are you adequately insured ?
The first step of financial planning is to ensure your loved ones are financially secure in your absence. This is why opting for a life insurance is ideal.
The most ignored aspect of insurance is health insurance, especially when one is healthy and young. Considering the fast lives that we lead today and the skyrocketing costs of hospitalisation, health insurance should not merely be an option. In fact, the younger you are, the cheaper your health insurance policy will be. This is the best time to get a health cover.
Build an emergency fund
The next step should be to build an emergency fund. Life is such that it can throw a curveball at you at any time. You may fall prey to a health condition or lose your job. At such times, repaying your debt or even meeting regular expenses may become an uphill task. To avoid falling prey to such situations, it is prudent to build an emergency fund that can take care of all such expenses and debt repayments for at least nine months.
Do not worry about building it all at once. You can start by putting away at least 10% of your monthly income. Instead of saving, you can invest it in a liquid or a debt mutual fund through a Systematic Investment Plan [SIP]. Liquid or debt funds are ideal because they can provide inflation-adjusted returns at low risk.
Consider long-term goals
The most crucial step is investment planning. It is important to build a kitty large enough to finance your child’s education, wedding and even your retirement. The good news is that you do not need to go from pillar to post looking for appropriate instruments to fulfil each financial goal. Mutual funds, especially equity oriented ones, can step in to meet your long-term goals. These funds have the potential to yield high returns in the long run.
It is not only about their performance. There are several other advantages of investing in equity mutual funds. You can reap the benefits of professional fund management for one. You do not need to worry about your own level of expertise in stock picking. You can trust fund managers to meet your investment objective. Secondly, equity mutual funds are liquid. This means you can redeem units of the scheme at any time, unless you have invested in an ELSS scheme where your funds are locked in for a minimum of 3 years. Thirdly, you get the benefit of diversification when you invest in equity-based funds. You can own a diversified portfolio rather than buying a single stock and risking losses.
Investing in equity-based mutual funds is advisable through the Systematic Investment Plan [SIP] route. SIPs allow you to invest in mutual funds for as less as Rs 500 every month. They also you also reap the benefits of compounding.
Compounding means that the returns generated from your investments are reinvested in your principal. The longer you remain invested through SIPs, the more you stand to gain. Therefore, investing in equity mutual funds through SIPs can be best to meet your long-term financial goals.
To sum up, improving your financial health is not difficult. All you need is a little discipline. So, here’s to your better financial health in the new year!