The year is coming to an end; it’s time to take stock of our accomplishments in the past one year, especially with our finances, and plan ahead and set goals for the next one year. Usually at this time, people make New Year’s health resolutions, out of which the most common would be to lose weight. Money and personal finance resolutions come up only next on the list.
We all know, mostly New Year’s resolutions are conveniently ignored from the second week of January. People seldom stick to the resolutions until completion! If you too belong to that category, just quit from here or at the most read this page and ignore. Else, set measurable, attainable goals if you think you have the perseverance to stick to the resolutions. Don’t look to jump over seven foot bars but look around for one foot bars that you can step over. Unless and until you set goals and attain them, you will end up as any other mediocre guy aimlessly wandering in life.
Looking at your finances, analyze where you were at the beginning of this year and where you are now. Are you better off now than at the beginning of the year? Has your net worth gone up or have you fallen into debt? If you find you are not better off, it is time to plug the loopholes. One thing is for sure; only if you have checks and balances in your finances, you will have peace of mind and good nights’ sleep.
So, what is the secret to a secured future, prosperity, and peace of mind? Income more than expenses, therefore, savings (capital) and prosperity. Capital thus formed helps in clearing the debt or to invest somewhere to multiply the money and get returns. So for a secured future and peace of mind, you need to have wealth more than debt or zero debt! Is it attainable? Of course yes, if you plan smartly and act accordingly from now onward. So here are the 4 personal finance resolutions this New Year for a secured future for you to act upon.
Increase Inflows
For you to become financially secure, you need to work smarter rather than harder. Rather than depending on a single income, try to diversify your cash flows with multiple income streams. Time is money, only you need to find the ways you can convert your time into money. Think about it. Either offer to work some extra time with your current employer or find a part-time job elsewhere. Sell anything that you think is of no use anymore. Rent out your garage or the unused part of your house. May be, you can use your hobby to make money. The possibilities are many. There are umpteen ways to create multiple income streams, only you need to identify a few.The key takeaway message from the first resolution: Monetize your time and focus on multiplying your income.
Decrease Outflows
Analyze your spending habits. Find out where your drain holes are. Try to plug them. Begin tax planning right at the beginning of the year. Create and live by a monthly budget with a thrifty lifestyle. Disregard the urge to keep up with Joneses. Cut down every need without compromising the lifestyle, right from electricity to gas. If you are poor at tracking the numbers, take refuge with free budgeting apps like Mint. Don’t buy anything without thinking umpteen times. Don’t go on a shopping spree with your credit card. Use cash wherever possible instead of credit card. Using real money will make you think twice. Ultimately, it’s not how much money you make, but how much you save!The key takeaway message from the second resolution: Save more. Be content with what you have, never with what you are.
Payoff Debt
Let the next New Year’s resolution be to reduce the debt, whether credit card debt or mortgage. Debt is easy to get into, but hard to get out of. Prolong your debt and you make the lender rich! Unless you make a sincere, planned effort to get out of debt, you are not going to end up debt free. It will suck your energy unknowingly. So, the year end is the best time to review your debts when you are in the mood of making a resolution. Prioritize your debts from high interest to low interest. Retire them in order. Ditch the high-cost debt first. Usually credit card debt is the leverage with highest interest rate and that should be the one that has to be paid off immediately. Use any windfall to clear debt rather than to invest. Avoid getting into further debt with tempting credit offers.The key takeaway message from the third resolution: Don’t borrow from tomorrow to live today.
Build Wealth
While working on the aforementioned three goals, don’t forget to set aside some amount of your savings as an emergency fund, as unforeseen needs may arise anytime. You may invest your emergency fund in cash equivalent instruments like CDs but it should be available at your call if situation warrants for any emergencies like unemployment, medical emergency etc. If you are in your twenties and haven’t got an own house yet, it would be wise to buy a house somewhere at the outskirts of the city that you live now, if you can afford it with less than 2.5 years of your gross household income. However, it would be stupidity to buy a house if it would take your lifetime savings. Often there would be a standoff in your mind whether to payoff debt or to build wealth. Out of my experience, paying off debt saves more than what the same amount of money invested fetches. History has proved that equity fetches the best returns in the long term. So here too, time is your friend. Invest for a long term. Start early to take advantage of the compounding effect. Whatsoever little money you spare to invest, stick to your own investment principles and screening methods, and at the age of retirement, you should end up rich and prosperous.The key takeaway message from the fourth resolution: Invest your savings today for a better tomorrow. (Note that I said “savings” and not borrowed money.)
Too much of unrealistic New Year’s resolutions will kill your real enthusiasm to better your finances. The aforementioned points are very simple and not hardbound resolutions at all but common sense that you need to apply whenever you are handling your finances, your hard earned money. It is the way that you should lead an ideal life. Write down your financial goals as a checklist. Keep reviewing them at regular intervals and give yourself a pat on attaining them. Let me hope by the next New Year, you are either free of debt or you are on your way to debt free life! Wish You A Happy And Prosperous New Year.
article source: mtherald.com
