Five New Year resolutions for a financially secure 2024

With 2024 finally here, many of us would have set New Year's resolutions. From getting fit to waking up early, we have all been there, giving ourselves targets to achieve. But how many of us set financial resolutions? Only a few, right?

Growing economic uncertainty and soaring living costs have proved that setting financial goals has become the need of the hour. While it may initially sound boring, creating and achieving money-related targets can lead you to a wealthy future.

Let's dive into the five New Year resolutions that will set you on the path to a financially sound future.

1) Buy an insurance policy

Start the year by getting both life and health insurance.

A life insurance coverage helps provide financial support to your dependents in the event of your demise. It is recommended that you get a term plan since it is the most affordable way to insure your life.

How much coverage do you need? The answer depends on a variety of factors. For instance, an individual in their late 30s with a huge home loan and two small children will require higher life insurance coverage than someone 60 years old who has paid off all their debts and their children are employed.

Ideally, your life insurance coverage should be sufficient to repay your outstanding loans and fund your loved ones' lifestyle till they are financially independent. However, given that our needs keep evolving, assessing whether our current life insurance is sufficient is crucial. If necessary, consider increasing the amount.

The above rule applies to health insurance as well. While health coverage of Rs 3-5 lakh might have been adequate a few years ago, more is needed today owing to rising medical costs. Further, if you have ageing family members, the likelihood of medical emergencies increases, which can leave a massive dent in your pocket if you keep your health insurance coverage the same.

2) Avoid tax planning at the eleventh hour

Many of us are guilty of leaving our tax planning till the last minute. Unsurprisingly, most people invest in tax-saving schemes without even evaluating them.

So, what's the right time to start planning? Ideally, it would be best if you started in April of the previous year. This helps you make well-informed investment decisions that will earn you high returns.

Let's take an example to understand this better. Suppose you hurriedly put your money in a PPF (Public Provident Fund) to save tax. While there's no doubt that PPF provides tax benefits, the joy would be short-lived. This is because if you had invested that money in a tax-saving mutual fund instead, it would have generated far greater returns than a PPF for a similar duration.

3) Start investing for your retirement

If you think your 20s or 30s are too early to start planning for retirement, think again.

Unlike our previous generations, most Indians today are employed in the private sector. Pension plans do not cover many, and schemes such as EPF (Employees' Provident Fund) and PPF are inadequate to meet their post-retirement needs. What's more, a rising inflation rate means that your current living expenses do not indicate how your retirement needs will look 30 or 40 years from now.

Thus, the earlier you start planning for your retirement, the better. Here's how.

Let's assume you begin retirement planning at 30 and target a corpus of Rs 5 crore. You will then need a monthly SIP (systematic investment plan) of Rs 14,200 invested in an equity fund earning 12 per cent annually. On the other hand, if you start investing for retirement at 45 and want to achieve a Rs 5 crore corpus, your monthly SIP would surge to a whopping Rs 99,100 for the same equity fund, generating 12 per cent returns! Hence, it's best to start investing right away.

4) Don't go for an investment only because of its returns

Often, investors choose assets primarily based on their past returns without evaluating whether they are suitable for them or not. This is the reason why many investments go sour.

Before parking your money in an asset, ask yourself the following questions:

• How long do I want to invest?
  
• Why do I want to invest?
  
• How much risk can I take?

Once you have the answers to these questions, you can clearly understand which investments are appropriate.

For long-term investors, equity mutual funds are a wise choice, while fixed-income options such as a high-quality, short-duration mutual fund are ideal for those with short-term goals.

5) Don't time the market

Markets are inherently volatile, and no one can predict what's coming next. Instead of panicking over markets' ups and downs, you should formulate an asset allocation plan.

By asset allocation, we mean dividing your portfolio into equity and debt. Compared to equity, debt is a safe investment avenue. Yet, it carries lower returns. On the other hand, equity provides inflation-beating returns in the long run, though it can be volatile during short periods.

If you want to invest long term, your equity allocation should be greater since it earns much higher returns than debt could. Moving closer to your investment goal, you can shift your money towards debt securities.

If you follow these resolutions in 2024, you will soon be on the journey to a financially secure and prosperous future.

Also read: These four mutual funds went from zero to hero in 2023