by Digvijay Singh Kanwar
The beginning of a new year is a great time to take a step back and see where you stand and where you need to go in life next. It is the time to start making improvements in your life. A good place to start is with your finances.
Whether you want to set up your retirement fund or buy a house, setting financial goals for yourself can help you work towards the life you want. While you may have some specific goals in mind, here are a few basic points that will help you utilize your money to its full extent.
1. Create a Budget
One of the best ways of managing your money better is to plan a budget for yourself. You can start by calculating all your major expenses including living expenses, insurance premiums, and other monthly bills like loan or mortgage payments. This will help you determine how much money you need to spend and how much money you can save.
If you are unsure about how and where you spend your money, tracking your expenses using an online tool or an app can be useful. This will not only give you a fair idea of how much you pay for your essential needs but will also help you to single out any unnecessary expenses. Once you have determined how much money you will need for all your fixed monthly expenses, you should make a budget based on that figure. Once you have done this, you should calculate how much money you’ll be left with. You can use this leftover money to set yourself up for the future.
After setting your budget, set aside that money and use it only for its intended purpose. Sticking to your budget is probably the most challenging and vital step of having control over your finances. If you manage to do this, other steps that follow should not prove to be difficult.
2. Manage Your Debt
Having debt does not mean you are bad at managing your finances. Loans and credit are sometimes essential and practical, especially if you have taken a loan to buy a big asset like a home. However, they can become a problem if you feel overwhelmed by your debts. If you are finding it difficult to manage your living expenses due to your monthly loan payments, then you have a problem.
Make it a goal in the New Year to get your debt under control. You can do this by following a few simple steps. The first step in doing this is to take stock of all your debt. If you have multiple ones, note down all the details for each. These details will include the total amount for each debt, the interest rate, the monthly installment, and the remaining tenure. Once you have all these details listed, you can start planning your strategy to eliminate them.
One of the most cost-effective ways to clearing your debt is to eliminate high-cost outstanding balances first. This is a good idea, as these are the ones that will cost you the most amount of money to prolong. You can start paying more money towards high-interest debt and continue making minimum monthly payments on the others. Once your biggest debt is cleared, you’ll have more finances in hand to manage your other needs.
Another way of managing this is by opting for a debt consolidation option. You can take a personal loan or check with the banks around you to see if they offer a debt consolidation option.
3. Prepare for the Unexpected
There are some events in life that bring unforeseen expenses. In order to avoid getting overwhelmed with such expenses, you should protect yourself with insurance plans. Here are a few types of insurance plans you should consider taking:
Health Insurance: You can protect yourself against big medical expenses by opting for a health insurance plan. Health insurance will cover your expenses in the case of serious illness or if you need to undergo a major medical procedure.
Life Insurance: A life insurance policy can help you make sure that your dependents have some sort of income in case of your death. First, you should check with your employer to see if you are covered under a group term insurance policy. Many employers offer an insurance policy to all their employees.
If you aren’t covered under any such policy, you should consider starting with a low-cost term life policy. If you think you have a lot of additional liabilities, you should look for an insurance plan that will cover all your needs.
Disability Insurance: Getting a disability insurance will help you in case you are rendered permanently disabled due to an accident or illness. If you are not able to continue working due to a disability, you will still have a source of income in the form of your insurance.
Asset Insurance: Protecting your assets, such as your home or car, with an insurance can help you avoid large expenses in case of accidental damage. Home insurance protects the value of your home in case of natural disasters or accidental fires. Getting an auto insurance will help you pay for accidental damages for your vehicle.
4. Focus on Savings
Saving for your future should be one of your financial goals for the New Year. Having savings is an important step in securing your future. It can help you take care of a lot of expenses by yourself, such as buying a house, paying for medical expenses, or dealing with a sudden loss of income. It will also help you manage your expenses upon retirement.
Some ways you can try saving money for your future is to opt for a retirement plan or invest in Fixed deposit, government bonds, mutual funds, and other saving schemes.
5. Establish an Emergency Fund
Besides having savings and insurance, you should also consider having an emergency fund. You can start by putting aside some money every month for this purpose. This will help you be prepared if something isn’t covered by your insurance. Having this fund will not only help you manage your expenses, but it will also help you refrain from dipping into your savings in case of an emergency.
The Bottom Line
Remember that getting your finances in order is a long-term process. You should start by taking small steps and then you can slowly build upon them. Whenever you opt for any financial tools, such as insurance, fixed deposits, credit cards, and loans etc., you should always compare the options on tools or websites. Keeping yourself informed about the product you are taking will help you make decisions that are better suited to your needs.