We are reaching towards the end of 2015 and as you step into a new year you will be making some new resolutions. It may be a career change, a house to buy, a vacation for family and others. While making such resolutions, most of the time, personal finance is left behind. It still does not figure in our top priorities and we have many reasons for it. But it’s also a hard fact that the biggest reason for a stressful life emanates from our bad finances.
Add to it the growing uncertainty in careers and impact of inflation, the need of planning ahead is much higher today. Hence, it’s wiser to add personal finance in your resolutions to ensure you stay on course for meeting your life goals.
Here are 10 Tips to what you should planning for your personal finance in 2016:
- Review 2015
Start with a review of 2015. How did you faired in your financial decisions? What you missed out? What task have you left pending? Where you made a mistake? Were your investments on track with your goal achievement? A review of past year helps you in analyzing where you need to take corrective measures to improve upon your finances.
2. Manage Your Cash Flows
Monitoring your cash flows is important for keeping yourself awake on what’s happening with your finances. A budgeting helps you in knowing what you are earning, how you are spending it and what you are saving. In general you may not be aware about many variable expenses on how they are impacting your cash flows. But by creating a budget you are able to get in control of all such expenses and are able to understand your finances much better. So monitor your cash flows so that you can control your spending habits.
- Prepare monthly budgets
The next step is to prepare monthly budgets before each month according to the priorities and income. Try to cover all expenses within your monthly income including the monthly instalments of loans and credit cards. If possible, try and make some provision for savings also to meet any unexpected emergencies. Simply preparing a budget will not suffice. It should be strictly followed to achieve success.
- Pay Yourself First
The basics of finance says that you should save for yourself first and then spend. Rightly said so as there is no limit to spending. Creating a discipline to save is very important to ensure you have the required resources to meet your financial goals. So with every income you get home make it a rule to save first and then spend form whatever is left. This savings will be the money from which you will build the nest egg for the future.5. Maintain Emergency Fund
Emergencies can knock your door any time and will hit you badly on financial front if you are not prepared. Sudden death, hospitalization, job loss etc. will require sufficient funds for you or your family to sustain living for some time. So maintain an emergency fund to ensure you do not have to dive into your long term savings.
- Keep A Control on Your Debt
It’s not a rare situation any more as many have fallen into debt traps. Ideally your commitments to debt should stay within 25-30% of your net income. But many a times we go overboard and the commitments are as high as 50% which leaves very little for your other requirements. Avoid such situation and keep your debt well within means.
- Build Adequate Protection
Life is full of uncertainties and to keep your family financially stable after you its necessary that you have adequate protection from various type of risk involved. But more importantly you need to identify the type of insurance coverage you need to counter financial risk arising from it. Do a detailed analysis based on your financial situation and avail the right amount and type of insurance coverage.
- Do Not Save But Invest
Although healthy savings is a sign of your good financial health, the job remains unfinished till you are not investing the money in right avenues. Inflation eats out your savings and unless you beat it there is always a higher probability that you will fall short of your requirements. So your savings has to be invested. But these investments should be in alignment with your goals so that you can avoid over diversification or concentrated on a single asset class.
- Make Yourself Financial Literate
Awareness is required to keep yourself away from committing mistakes or falling for misseling. Many of us do not give much importance to this aspect of our financial life. Although you need not be an expert but a little bit of self-awareness will tell you whether financial decisions you are making are not any mistakes. A planner or adviser only acts as a coach for you guiding towards making those decision. So read and ensure you too can ask difficult questions to your advisers to ensure he/she is taking your interest.
- Create An Estate Plan
Estate planning is important to have a smooth transfer of your legacy to your family members. There are and will be many legal hurdles if you have not documented your wishes to reveal. A proper record maintenance is the starting point of an effective estate plan. They should be easily traceable by you or your family so that during emergencies or contingencies no one has to run around. There are numerous ways in which you can keep your documents secure. Then you should have a properly written Will which illustrates how you wish to transfer your assets.
There are other aspects of personal finance such as making your spouse a partner in your personal finance decision, working on right nominations etc., which are equally important. But the above discussed aspects are basics where the financial planning starts. By following them you can ensure you are prepared well for contingencies in life and can create a roadmap for your future. If you have been avoiding them or missed some, a new year is always a good reason to start.