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Your Money in 2021: Smart Steps for a Healthier Financial Life

Taking care of your finances and creating a solid financial plan has become more important now, especially given the Covid-19 type situations, which can turn our lives upside down.

While resolutions related to health or relationships are the most popular at the start of a new year, those related to financial health often lack attention. However, taking care of your finances and creating a solid financial plan has become more important now, especially given the Covid-19 type situations, which can turn our lives upside down.

Let’s look at financial resolutions to ensure better financial health in the new year:

1. Have enough emergency funds

An emergency fund helps deal with unexpected financial demands or loss of income resulting from unemployment, illness or disability. Without an adequate emergency fund in place, unforeseen financial emergencies may require you to default on your existing loan repayment obligations, redeem investments set aside for critical financial purposes, or sacrifice major style expenses. life and/or to benefit from loans at much higher interest rates.

Ideally, an emergency fund should be large enough to cover your monthly mandatory expenses for at least six months. Besides your unavoidable daily expenses, an emergency fund should include insurance premiums, existing EMIs, monthly contributions towards your financial goals, among others.

“As financial emergencies like accident, illness, job loss, etc. can happen at any time, make sure you keep your emergency fund in high-yield savings bank accounts. to make withdrawals instantly without having to pay additional fees for these withdrawals.Those who are comfortable with mobile or Internet banking can park their emergency funds in fixed deposits of scheduled banks,” says Radhika Binani , Product Manager,

2. Prepare a financial plan

A financial plan can help you develop money management strategies to achieve your financial goals based on your risk appetite, investment horizon, and cash flow. Begin the process of creating a financial plan by estimating the amount needed to achieve each of your financial goals, the assumed rate of inflation and rate of return, and the time horizon remaining to achieve those financial goals. Once you have a clear number for these factors, use the online SIP calculators to determine the monthly contributions needed to meet these financial goals.

In addition to providing your investments with proper direction, financial planning also helps create an appropriate asset allocation strategy to achieve financial goals. With an appropriate asset allocation strategy in place, you can strike a balance between risk and rewards by diversifying investments across different asset classes like equities, fixed income instruments, debt, gold , etc., based on your financial goals, risk appetite and investments. horizon.

3. Opt for the SIP investment mode

Systematic Investment Plans (SIPs) allow mutual fund investors to invest a predetermined amount in mutual funds at periodic intervals, for example, monthly, quarterly, etc. As the amount of an SIP is automatically debited from your savings bank account on a pre-determined date, it ensures financial discipline and regularity in investments. Moreover, as the minimum ticket size for SIP investments in most equity mutual funds starts from Rs 1,000 (Rs 500 in the case of tax savings funds), opting for SIP mode allows investors with limited investable surpluses to take advantage of diversification in their equity investments and simultaneously benefit from the power of compounding.

These automated and regular investments via SIPs also allow investors to benefit from averaging rupee costs during market corrections and bear market corrections by buying more units at lower NAVs. This removes the requirement to monitor and time the markets.

4. Build a strong credit rating

Credit score looms large in today’s financial life. Lenders and credit card issuers consider your credit score when approving loan and credit card applications. Some lenders also charge lower interest rates to those with good credit scores. “Since there can be no credit score without a credit history, those without a credit history can build their score using credit cards. Credit card transactions are considered the equivalent of a loan and are therefore reported to the credit bureaus. The bureaus use this information to assess your credit score. Those who are denied credit cards due to insufficient income, unusable locations, etc. can opt for secured credit cards to establish their credit history,” says Binani.

5. Buy adequate insurance coverage

We often confuse insurance with investment products. As a result, many end up investing in reimbursement plans, ULIPs, endowment policies, etc., which provide inadequate life coverage while producing suboptimal returns. Ideally, the life insurance coverage(s) should be equal to 10 to 15 times his annual income. The most cost effective way to purchase large life coverages is to purchase term insurance plans. In addition to this, one should also purchase a sufficient health insurance policy to protect themselves from rising medical bills.

6. Consolidate your debts

Increased access to credit and the urgency to make lifestyle expenses are causing many to take out multiple loans at higher interest rates, leaving them with little funds to make long-term investments. “Consolidating multiple existing loans into one at a lower interest rate and for a longer repayment term, if needed, can help save interest charges and reduce the repayment burden. While add-on home loans are one of the best consolidation options for existing home borrowers with multiple loans, for others a personal loan or home loan, etc., may be a suitable choice,” Binani informs.

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