A new year – and a new decade – is knocking at the door. The time to make new resolutions is almost here. Year after year, the list tends to be somewhat predictable: from quitting bad habits to eating healthy and exercising more.
But what about working on your financial well-being? Are you in the pink of financial health? It is as important as your physical fitness. You may be surprised to hear that people have begun to prioritise financial wellness just as much as physical wellness. A survey by the Boston-based Fidelity Investments concluded that people would choose to save $5000 rather than shed five pounds of weight in 2020! It also pointed out that many people regretted incurring new debt in 2019. These are clear indications that it is best to spend in a more planned and judicious manner.
Listed below are some essential financial resolutions that you must make while ringing in the new year and the new decade.
1. Clear or reduce debt
They say debt-free is worry-free. However, global debt trends defy that adage. If we take a world view, global debit was at its historical high in 2017, at $184 trillion. In per capita terms, this debt burden translated into $86,000, which is over 250% more than the average per capita income. So it’s clear that we, as individuals, are spending 2.5 times more than what we earn.
The above data indicate that irrespective of whether we are individually in debt or not, each of us is part of the enormous global debt burden. Observe the world debt clock ticking for a minute, and you should be instantly motivated to become penny-wise.
Here are some ways to clear or reduce your debt in the new year:
- Cut down on the use of credit cards
- Avoid taking loans on credit cards
- Reduce your spending on lifestyle and leisure; use the cash saved to clear debt
- Prioritise your debt-clearance goals and focus on getting out of high-interest debt
- Consult a professional, because they can advise you on how to make your money work for you
- If you have investments, use the interest earned to reduce debt
- Lastly, don’t create new liabilities in 2020
Also Read: How to Save More, Worry Less
2. Create an annual budget
Budgeting is a simple but effective way to balance your earning and
spending. Most families have one or two sources of income and many expenses to
meet, and that is where budgeting can come to one’s rescue. Budgeting helps
take care of various financial needs within available means. A detailed budget
can also help with the planning of other expenses such as investment,
insurance, upkeep, and new purchases. Besides, proper budgeting motivates one
to save for the future and put aside a sum for emergencies.
Along with an annual budget, also resolve to create monthly budgets, because some months can be more ‘expensive’ than others. Monthly budgets can help even out the yearly fund outlay.
3. Want to spend more? Earn more!
Who does not like to go on a vacation abroad, or attend a favourite show, or take up an expensive new hobby? But ask yourself: even though you can afford it, is it wise to make such expenses from your regular finances? Resolve to set aside your primary income exclusively for planned expenses. If you have a long bucket list that calls for extra spending, then earn more! You could either take up a side job or invest in a part-time business that will create an additional income and help you comfortably spend on your indulgences.
4. Save, save, save
Saving is the only way to provide for future financial needs. The global inflation rate was 3.4% in 2019, and it may rise to 3.56% in 2020. So, no matter where you are, your cost of living is most likely going to increase in 2020. It makes a good cause for regular and planned saving.
If you haven’t saved yet, begin saving in 2020. If you have been religiously saving, do it more rigorously in the new year. This financial cushion will protect you against any contingencies and emergencies, apart from giving you a sense of security and comfort.
Here is how saving regularly benefits you:
- Allows you to exercise financial freedom
- Provides for life events and other milestone occasions
- Helps reduce debt
- Improves credit rating
- Helps while making down payments for significant purchases, thereby reduces the burden of interest to some extent
- Facilitates a comfortable lifestyle
The bottom line, then, is to make saving a habit rather than an occasional impulse.
5. Formulate a retirement plan
You may currently be 25, 35, or 45. But sooner or later, you will have to transition to the retirement phase. These are the years when your regular income declines or stops, and expenses increase.
Here are some reasons why you may need more funds in your retired life:
- Health and wellness expenses
- Regular requirement of medicines
- Age-related disease, disability, or loss of vital functions
- Partial/total immobility
- Physical dependence on a caregiver
- Unforeseen medical emergencies
- Loss of spouse, which may stop a source of income
- Meeting rising costs for self and partner
- Increasing social responsibilities
The only way to provide for your retired life is to prepare an astute financial retirement plan. Before 2019 ends, spend a few hours of serious contemplation on this all-encompassing requirement for a financially sound future. Consider your individual domestic circumstances, your personal health status and other aspects of your life that will impact your financial needs during retirement. Then build a pragmatic retirement plan that accounts for all foreseeable scenarios.
The above resolutions will help you be as financially independent during retirement as you are now. Financial independence is vital for one’s dignity and self-respect during the retired phase of life. Don’t hesitate to seek professional advice for proper retirement planning. It will only add more value to your retired life.
6. Create a personal financial statement for 2020
After all these exercises, you should have enough clarity to create your financial goals and a roadmap for the future. Keep reading your financial goals regularly like a gospel to ensure you don’t lose sight of them.
As we prepare to welcome a new year and a new decade, let’s add financial planning to our list of resolutions – and stick to them. We wish you financial security in 2020 and beyond!
