2024: The Year To Fortify Your Personal Finances For Resilience
As a writer of personal finance columns and blogs, I face this question at the end of every year.
Should one make cast-in-stone resolutions related to finance for the next year or talk about an approach?
Well, resolutions give a high, and one is brimming with a sense of purpose, at least for a few days or weeks.
Then, the rough and tumble of life checks our resolve to stick by the resolutions.
My track record of sticking to resolutions was patchy when I was younger.
Today, with some decades under my belt, I know that building an approach suits me better.
Why? Because you cannot predict shocks – about life and investing. The way to handle shocks is to build resilience.
Stephen Roach, the former chairman of Morgan Stanley Asia, recently wrote about the three lessons he learnt trying to make sense of the future.
First, expect the unexpected. Second, one crisis begets. Central bankers lowered interest rates to near zero to tackle COVID-19, and now one is seeing bubbles across asset classes. Third, extraordinary events are now the rule, not the exception.
Welcome to 2024 – a year brimming with challenges and opportunities for your financial growth.
Here's a guide that will give you the initial steps to build resilience in tackling personal finance issues.
Life and Health Insurance
When uncertainties abound, insurance is the way to mitigate risks.
Life and health insurance are not expenses but investments in your family's future.
Get a term life insurance cover commensurate with your family's needs and in line with your income. Do not over-insure, but neither should you have a lower coverage.
Health insurance is a no-brainer.
Healthcare costs are rising, and a sudden expense can rock your boat. The best time to buy insurance is when one is healthy.
Regularly review your insurance plans to ensure they cover your changing lifestyle and health needs. Remember to shop around for plans that offer better benefits at lower premiums.
Debt Management
In a world where credit is easy but expensive, mastering debt management is important.
Start by tackling high-interest debts like credit card dues.
There are two ways to tackle debt - snowball and avalanche methods.
In the snowball method, you pay off smaller debts first for a psychological boost. Use the avalanche method to first clear debts with the highest interest rates.
Remember, the goal is not just to manage debt but to live debt-free.
Savings Strategy
YOLO – You Live Only Once is a catchy line. It cannot be a mantra, though, to you a secure financial future.
Savings are the foundation of financial security.
Build an emergency fund that covers 12 months of living expenses. Most folks say 3-6 months is a good buffer. Still, we advocate a longer runway to ensure you have enough room to manoeuvre without being cornered into making decisions.
Set specific goals like buying a new home or funding education, and automate your savings to ensure consistency.
It does not matter how much you earn but how much you save.
Learn something about AI
In 2024, understanding the impact of artificial intelligence on your source of income is vital. AI is revolutionising industries, automating tasks, and creating new job roles.
Knowledge of AI helps you adapt to changing job landscapes, enhances your employability, and offers insights into how AI can augment your work.
Being AI-literate ensures you stay ahead in a rapidly evolving digital world, making you an asset in any professional field. This awareness is crucial for career growth and long-term success in an increasingly AI-integrated world.
Watch Your Cashflow
Cash flow in personal finance is the balance between your earnings and expenditures
A positive cash flow is the ideal scenario, where you have surplus cash to be allocated towards savings, investments, or repaying debt
A positive cash flow can help you refine your investing strategy. A positive cash flow makes you feel in control of your finances and changes your mental framework
Remember, investing is about choices and a calculated move towards wealth accumulation.
Tax Planning
Smart tax planning can save you a significant amount of money.
Explore options under Section 80C of the Indian Income Tax Act and ensure you have fully availed the permissible limit.
ELSS, or Equity Linked Saving Scheme mutual funds, which have a compulsory lock-in of three years, is an excellent way to learn about the benefits of staying invested and, eventually, understand the magic of compounding.
Financial Health
A healthy financial life starts with a solid budget.
Track your income and expenses religiously. Use apps or traditional methods, whatever works for you.
Monitor your credit score annually and ensure that discrepancies, if any, are raised with the relevant credit information bureau
Work on improving your credit score, which is crucial for securing loans and other financial products.
Dust Cobwebs Away
Spring clean your thought process.
Understand that finances and investing are about behaviour and our thought process.
FOMO and Lollapalozza are two major syndromes that most of us get caught in.
Develop an investment process, tweak them when necessary and stick to the plan.
As we traverse 2024, let's commit to making smarter financial decisions.
Your journey towards financial freedom starts today.
Keep learning, stay informed, and take proactive steps to build the resilience needed for a prosperous future.
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