As the year 2018 passes, look back and check what is the status of the resolutions you have taken at the beginning of the year 2018. If you have achieved that resolution, congratulations! The time has come to make a new resolutions for the coming year 2019. These resolution could be anything from getting married, having a child, losing some extra fat from your belly or buying a new house. Let’s discuss some financial resolutions for 2019 in this post which you should consider for the new year.
Introspect your current situation and your future need. You will find a gap in between. The resolution you are planning to take this year is in line with filling this gap so that you are on the track of achieving whatever you have planned.
Financial Resolutions for 2019
Let’s discuss some of the important financial aspect which you should considered as a new year resolution. You might be doing some of them, if you do, that’s fine. If not, you should ponder as why this is important for you and take it seriously.
Passive Income Source
You may be one of the people doing 9 to 6 job or managing your own business. You are earning comfortably to manage your family. But still you need to sit down and think about your skills and talent and you should find out what skills and talent of your that people find useful and are ready to pay. That can become your second income source.
Though there is no hurry to start your second source of income as you are comfortable with your primary source of income, but that doesn’t mean that you should ignore generating your second source of income. You can build on this gradually, it could be your two year, five year plan. Important here is you think in the direction of generating your second source of income.
Second source of income also help you to attain financial freedom. There are many ways you can generate second source of income today. There are many jobs, taking tuitions, teaching music, online jobs, website, blog, affiliate marketing and so on.
If you have surplus money, you can invest it in different investment avenues based on your need and risk profile. Mr. Warren Buffett said “Never depend on single income. Make to create a second source.”
Start Emergency Fund
Life is full of uncertainty. Jobs today are not secure. Artificial intelligence and machine learning are taking away many jobs. There can be any medical emergency in the family. You have certain fix expenses to meet every month. There are many uncertainty in life and those can occur at any time.
Having a contingency plan in case of any emergency occur is must in today’s life. You must have at least 10% of your monthly earning saved for an emergency fund. There are various ways you can create an emergency fund for yourself.
You can have a separate bank account in which you can deposit a fix amount every month as an emergency fund. Make sure you do not touch this account until it is necessary.
In the coming 2019, you should resolve to have an emergency fund what may come. Give yourself a promise that for normal day to day expenses like AC service, car servicing, washing machine repairing etc you will not use the emergency fund as it is not meant for that.
You can have separate bank account, recurring deposits, liquid mutual fund SIP to build emergency fund. You can have a credit card for emergency but make sure you use it within your limit.
Understand Inflation for Your Financial Planning
You should understand the importance of inflation and its impact on your future financial planning. Inflation is a very important aspect for any financial planning. If you ignore inflation while doing your financial planning, you are bound to go wrong.
Do you know the cost of petrol in the year 1990? it was very cheap as compare to today’s price. No you are wrong, the price of the petrol in the year 1990 was as expensive as it is today. The value of Rs. 1 was much much higher in year 1990 as compare to today. Why this? it is due to inflation.
So while doing your retirement planning, you must consider return so that the inflation is factored out in your calculation. If you miss inflation in your financial planning, you are making a huge mistake. You will never have enough money at your retirement.
The thumb rule is your portfolio should be making higher returns after subtracting inflation and tax. So if the inflation is 10% and tax is 2% your portfolio must be making higher than 12% per annum. Otherwise, you are not making any money.
There are many online calculators available which can help you to determine the amount you would be needing at the time of your retirement.
Increase Your Investment Every Year
In order to achieve your financial goal, you need to increase your investment every year. If you are already doing it, that’s fine. If not then start doing it from year 2019.
Sometimes, you may think that there is no space for further savings/investment, don’t worry start investing with what ever you have and try to maximise your savings every month. Pay yourself first and then manage your monthly expenses with the residue amount.
You will get your pay rise every year, make sure that you increase your investment amount in the same proportion of your salary increment. This is not difficult if you maintain discipline every month/year.
Make sure you invest this amount in the proper investment avenues as per your needs and risk appetite. The earning from this investment needs to be measure on a regular basis. If the return is not measured on a regular basis, you will find your self in a trouble. As you will not be able to achieve your goal just by investing.
Avoid Taking Debt
Think ten times before taking any debt in the year 2019. Debt is really bad and can destroy your wealth in a big way. Any debt you take will have a repercussion on the cash flow and your financial planning.
If you take a home loan and buy a home at the early age, you will not be able to save and invest for your future. I am not telling you to not to purchase a home with home loan, but do it with due diligence and try to finish your loan as soon as possible. So that you have extra money every month for your future planning.
Decide your goals and start investing into them first. Give it few years before you think of taking any loans. By that time you will have some corpus with you as a back up money.
At the initial stage of your career, there are so many uncertainty so it is good not to take any risk of loan at that level. Let yourself settled in your career, have a stable job and income every month. Then if you really need you can go for home loan to buy a home for yourself.
I am not against buying home with a loan, the idea is to think about the implication have on the money needed for your goals. How it will affect your monthly cash flow and whether you can afford it in your life.
Indian tax structure is one of the most complex. Indians are lazy when it comes to learning taxation. Both the above statements are true for we Indians.
As a tax payer, you need to understand the various aspect of taxes applicable on your earnings. Most of us are not aware about the tax slabs and other exemption. This is resulting into a last movement rush for investment just to save tax. Most of us are investing in the last quarter to get the tax benefits.
Now, if you are aware the tax and exemptions, you could have a plan well in advance i.e. from the start of the financial year. This will not only you to save tax but also help you to invest systematically throughout the year and not just in the last quarter.
There are plenty of online portals and websites available for free where you can check the various tax implications on your earnings. They also help you to plan your tax well in advance, so that you do not have a cash crunch in the last quarter to save tax.
If you can’t learn by yourself, take help of the advisor who can draw your tax saving plan at the beginning of the year. So that you can split your investment equally among whole 12 months of the year.
So work on these resolutions from today itself, don’t wait for 1st January 2019 to make these resolutions. This will help you to take a decision about your money which will help you to create wealth and achieve your financial goals.