New Year Special: 7 Financial Resolution for 2021

The year 2020 was a disaster for many. Unemployment and financial emergencies as a result of the pandemic forced many to use their emergency funds. Relief packages by the federal banks and government have set financial markets and businesses on the path of recovery. With the new year at the door, steps there can't be a better time to seal the loose ends and make new financial goals.

Financial planning has always been key to attaining money goals. When we make new years resolutions, they are often related to health and relationships. This year was full of financial difficulties for many people due to the pandemic. It made us realize that not just how much we earn is important, but how we utilise it or how money smart is equally important. Here are few financial resolutions that you can add to your list right now.

Create a Financial Plan

If you don't have a financial plan yet make it a task to create one as your new year's resolution. Cash inflows and outflows affect our finances. This serves the purpose of wealth creation in long term.

A financial plan will ensure you achieve your short term or long term goals stress-free. A basic financial plan includes savings and investments, a suitable insurance policy, tax planning to name a few as discussed here.

Few other notable mentions to your list of resolutions can be as follows.

Track Your Personal Net Worth

It's a good practice to keep a track of personal net worth. One doesn't have to be a Chartered accountant to calculate net worth. Your net worth is the sum total of the assets and liabilities in your portfolio.

You can consider it as an extended part of the above resolution. It can also act as a motivator for some people. By knowing where one stands today one can carve out their path to be a high net worth individual over the due course.

Read Financial Books

Investing in financial books written by 'Benjamin Graham' and 'Philip. A. Fisher' can teach you how markets function and how concepts like value-investing, can help in wealth creation.

Books like 'Rich Dad, Poor Dad' by Robert Kyosaki can give you a good start as it would introduce you to complex ideas in an understandable fashion. Once you develop the taste, then you can pick up books like 'Security Analysis' and 'Intelligent Investor' by Benjamin Graham.

Manage Your Debt and Improve Your Credit Score

No, I am not talking about the home loan here as you know it has tax benefits. Organize your debt obligations and pay off the ones that have the highest interest rates (credit card loans). In such a case, you can consider debt consolidation and refinance as a rescue option.

If you owe more than you earn, then it's only sensible to sell your investments and use the capital to pay off your debt. Reducing debt obligation can help you to improve your credit score. A healthy Credit score will make you eligible for low-interest loans in future.

Open an Individual Retirement Account (IRA) Budget for the fun stuff

You can open an individual retirement account with the help of your financial planner or accountant. You can make regular contributions to this account.

It will ensure that you don't compromise with your lifestyle even after you retire. Compounding and tax advantage on your regular deposits can help you build a healthy retirement corpus.

Create a Budget Reward Yourself

Rewarding yourself is important, as it will make you stick to your financial plan and also keep you motivated. What good is your money if you can never enjoy it? Create a fund for fun stuff (travel, partying, eating out, movies and concerts) and make monthly if not weekly contributions to it from your income. This will save your pocket from any unplanned burden. I have even seen people taking loans to fund their trips, so I recommend having a separate fund to reward yourself.

Spend Wisely by Keeping a Check on Unnecessary Expenses

Includes use of deals and coupons when available or waiting for a bumper sale to get the best deals. This includes making meals at home, setting a monthly shopping limit and selling all the unwanted items in your home. There is a fine line that separates this resolution from the above-mentioned fun stuff resolution.

Finally, one can take up the above resolutions piece by piece to make it whole. Improving your financial health is a long term journey rather than an overnight job. Take one step at a time. Make some real progress on your journey this year.