Money resolutions for the New Year

Don’t sit on them even if generally our clocks are set to Indian Stretchable Time (IST)

What’s a New Year without resolutions? Even if most are meant to be broken in quick time. On money matters though, making and abiding by just a few good promises can do us much good. Here are five money resolutions to keep the cheer going through the New Year and beyond.

Don’t procrastinate

Yes, we are like that only — our clocks are set to Indian Stretchable Time (IST) and we revel in pushing things to the 11th hour. But that’s really not such a good idea when it comes to our finances. It pays to be early here.

For starters, get cracking now on your tax saving Section 80C investments for 2017-18 if you haven’t done so yet. It’s just three months more to the financial year end. A last minute dash could mean making sub-optimal choices, given the plethora of options available.

An early start will give you time to reflect on where you must invest — based on relevant factors such as your age, objectives, risk profile, return and liquidity expectations, and existing portfolio.

Come April and the new financial year 2018-19 will begin. Make your tax-saving investments early in the year, say, before June, or at least invest regularly over the course of the year. An early investment starts earning returns sooner and helps you benefit from compounding.

Many of us also postpone filing our annual tax returns as far as possible. And sometimes, we miss the deadline. While this was always a bad idea with the risk of added interest costs and penalty, and delayed refunds, it got worse this year onwards.

A late fee will now be charged — varying from ₹1,000 to ₹10,000 — if you do not file by the due date. Save yourself all this trouble by filing your tax returns well before the due date.

Make sure you pay your insurance premiums well on time. Failure to renew on time or before the grace period ends means that you could lose much-needed protection. Besides, renewal after the grace period could attract penalty and entail higher premiums.

Be regular with all your loan repayments, as defaults could mean stiff penalties and dent your credit score.

It is never too early to start saving and investing for retirement. Compounding will reward you handsomely. .

Settle credit card dues

Pay your credit card bills, in full and on time — every time.

Interest rates on outstanding amounts on credit cards are among the highest in the market. The 2.5-3 per cent per month translates into 30-36 per cent per annum. Add to this late payment fees on payment defaults and the costs keeps snowballing. People caught in debt trouble should pay off their credit card dues, first.

Avoid revolving credit as far as possible. This mechanism allows credit card users to pay only a minimum amount of the outstanding balance, and carry forward the rest. While this may come handy when the user is faced with a temporary cash crunch, those who fall into the habit of making only the minimum payment run the risk of getting caught in a debt trap. Eventually, you may end up paying a very large sum towards interest.

Make bold with equity, the SIP way

Don’t let your savings idle away in your bank account for just 4-6 per cent annual return, that too taxable if it is over ₹10,000. Deploy funds smartly. Sure, debt investments are essential for stable income generation, but many of them don’t beat inflation in the long run. Equity generally does.

Reduce inhibitions towards equity investing. This does not mean you plunge into the stock market. Decide your asset allocation — your mix of investments across asset classes — based on your age, risk profile and circumstances.

A popular back-of-the-envelope calculation is that the equity percentage in your portfolio should be 100 less your age. So, if you are 25 years old, the equity exposure should be about 75 per cent. Use this thumb rule along with other factors relevant to you.

Invest in equities for the long term.

It’s safer to go the mutual fund route.Despite market volatility, well-run equity funds have delivered healthy double-digit returns over the long term.

Invest through the monthly SIP route rather than lumpsum. SIPs inculcate a disciplined, regular investing habit.

Especially now, given the sharp run-up in the market that has made valuations of many stocks expensive.

Importantly, don’t stop the SIP when the market is going through a rough patch. This could well be the case in the New Year if the market decides to take a breather. You get more units of the mutual fund in a falling market, making it the best time to invest. Despite short-term turbulence, SIPs should work well in the long run.

Cover yourself

Buy yourself adequate life and health insurance. Life and health are unpredictable. A big-ticket health-related expense can send your finances reeling. Also, if your family depends on you, your absence could leave them financially stranded. The thumb-rule is to get your life covered for at least 10 times your annual income. Keep it simple. Go for term insurance plans which offer significant cover at low premiums. Get health cover of Rs 4-5 lakh with a family floater policy to start with and increase it gradually.Also, buy plans online since they cost much less. If you have a home loan, make sure the insurance cover is sufficient to meet that liability too.

Spend smart

Build up a contingency fund — about six months expenses — to cope with emergencies. Keep this in fixed deposits or low-risk liquid debt funds that you can easily access, and don’t touch it unless there is a crisis.

Spend smartly and within limits. Budget your monthly expenses and keep track so that they don’t spin out of control. Various online money management tools can help you with this. Refrain from borrowing to spend on stuff that’s not really essential.

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