Did you ever wonder how long an average New Year’s Resolution lasts? According to Forbes, a 2020 survey reveals that 55% of respondents keep their New Year’s resolution for less than a year.
Of the 55%,
14% stick to their resolutions for at least three months,
while 19% follow them for only a month.
We’ve already finished a quarter of 2023, and it’s time to see how far we’ve come in sticking to our resolutions. Spoiler alert! This is not a blog about how to stick to your new year’s resolutions. Yes, we’d love for you to follow through on your fitness resolutions, but more importantly, we want to introduce you to Financial New Year Resolutions. This twist to new year’s resolutions is to help you set financial goals to kick-start your financial planning.
Financial New Year Resolutions are the resolutions you make to stick to your financial plan. These will be the building blocks to a solid personal financial plan that will lead to financial growth. Why are we talking about this now in April 2023? A financial year in India starts on April 1st of the current year and ends on March 31st of the next year.
Financial Planning is not rocket science. You can start financial planning today, with the right guidance. We want you to start this Financial New Year on the right note, so you earn more ‘notes’. Unlike other resolutions where you shrug it off with “I’ll do it next year,” Financial Resolutions have the power to bring you financial freedom.
Financial Planning for the New Financial Year 2023-24 is essential to achieving financial independence and securing your future. With the changing economic environment, having a well-defined financial plan in place is crucial to help you achieve your financial goals and manage your money effectively.
A step-by-step guide to plan your finances
Here are 11 steps on how to create a financial plan in 2023:
Step 1: Assess Your Current Financial Situation
When you start making a financial plan, don’t be confused with the planning process. Take it one step at a time.
The first step to making a financial plan for the new financial year is to assess your current financial situation. This involves reviewing your income, expenses, debts, and assets. Take note of your income sources, including your salary, bonuses, and other income streams.
Next, identify all your expenses, including bills, groceries, transportation, and any other regular expenses. Ensure that you factor in any irregular expenses, such as vacation costs, medical bills, or home repairs.
Lastly, determine your total debt, including credit card debt, student loans, and any other outstanding loans. By analyzing all the above information, you’ll get a clear picture of where you stand financially. More importantly, you can identify areas that need improvement. These steps are the building blocks to financial planning.
Step 2: Define Your Financial Goals
The next step in creating your financial plan is to define your financial goals for the upcoming year. Your goals should be specific, measurable, achievable, relevant, and time-bound (SMART). Define what you want to achieve and by when.
This could include saving for a down payment on a home, paying off debt, investing for retirement, or starting a business. Your financial goals should align with your long-term financial plan and help you achieve financial stability. It is these good practices that set you on the right track to achieving your financial goals. With the right financial planning, these good practices will become a part of your everyday life.
At Vittae, this is our first step in learning about you. We understand your financial goals and current financial situation to determine a personalized financial plan to help you achieve them.
Step 3: Create a Budget
Once you have identified your financial goals, the next step is to create a budget that aligns with your objectives. A budget helps you to manage your finances effectively and track your spending. When making a business plan, a person analyzes his/her balance sheet to determine if he/she is making profit or loss. Much like that, creating a budget is like analyzing your personal balance sheet to ensure you make the best financial plan for yourself.
Start by listing all your income sources and expenses, including fixed and variable costs. Ensure that you factor in any savings, investments, and debt repayments. Making a note of your everyday expenses is also a suggested practice to make your financial plan more practical. Remember, financial planning included both planning for the future and also acting on your current financial situation.
Make adjustments to your spending to ensure that you are living within your means and saving enough to achieve your financial goals. These simple tips will help you while financial planning for your future.
Step 4: Automate Your Savings
An effective way of saving money is to automate your savings. This involves setting up automatic transfers to your savings account, investment account, or debt repayment account. If you were handling a business, you wouldn’t be tracking your expenses in bills and receipts but also make a digital note of all your expenses for ease. Similarly, when making your financial plan, don’t miss out on using the technology at hand.
By automating your savings, you can ensure that you are putting aside money regularly and consistently. Features like these will help make financial planning easier and faster. This in turn will help you to achieve your financial goals faster and more efficiently. It is a rather simple step but proves to be effective in most cases.
Step 5: Reduce Your Debt
If you have any outstanding debt, the next step is to work on reducing it. This includes credit card debt, student loans, and any other outstanding loans.
Start by prioritizing high-interest debt, which tends to snowball into larger amounts faster. Look for ways to reduce your interest payments, such as negotiating with your creditors or consolidating your debt. Financial Planning as mentioned, isn’t about short term goals but about saving for the future while managing the present finances.
Consider adopting a debt repayment strategy, such as the snowball or avalanche method, to pay off your debts efficiently.
Step 6: Review Your Investments
Reviewing your investment portfolio is crucial in ensuring that you are on track to achieving your financial goals. Evaluate your investment performance and determine if you need to make any adjustments. This is an important step that will tell you what’s going wrong and how to make adjustments to your financial plan and also your approach to the financial planning process. Remember, the goal is to achieve your financial goals while being tension-free.
Consider diversifying your investments, including stocks, bonds, and other securities, to reduce your risks. You may also want to invest in low-cost index funds or exchange-traded funds (ETFs) to minimize fees and maximize returns. Keep in mind these pointers while creating an idea financial plan for you.
Step 7: Plan for Taxes
Ensure that you plan for taxes throughout the year, and not last minute at tax time. A financial plan ideally focuses on planning for taxes rather than filing taxes. Filing ITR is the actual action of filling the required forms and filing the amount needed to the government. Whereas, planning for taxes involves investing in tax saving products to save money while filing ITR. It is the latter, planning for taxes that you need to focus on when making your financial plan.
It is also a popular opinion that filing ITR is a very tough process. We’re here to tell you otherwise. Filing ITR is an organized step-by-step process that is simple to follow. Even so, our certified financial experts can help you file your taxes for free. We can also help you with a Tax Report to plan tax-saving investments.
This involves setting up a tax-free savings account or contributing to a registered retirement savings plan (RRSP). Planning for taxes throughout the year, as a part of your financial plan, can reduce your tax liability and keep more of your hard-earned money.
Step 8: Build an Emergency Fund
An emergency fund is essential in case of unexpected expenses or job loss. Aim to save three to six months’ worth of expenses/income in an easily accessible account. Including the emergency fund in your financial planning is a step that you cannot miss!
The amount you need to start building an emergency fund can be determined by factors such as your current income, existing liabilities, etc. Vittae suggests the exact amount of Emergency Fund(s) you need, to easily add to your financial plan.
Step 9: Consider Insurance
Evaluate your insurance coverage, including life, health, disability, and home insurance. Ensure that you have adequate coverage to protect yourself and your assets from financial risk/loss. When you are making a financial plan, it’s important that you consider your partner/family in it too.
How you add a nominee to your bank account, consider the goals of your family members as well. For example, an international summer vacation, planning for a master’s degree education, etc.
Insurance plans will help you during medical emergencies, and family loss. Some plans also help secure your child’s future in terms of his/her education. Often overseen, this is also an important step that needs to be taken after thorough research and added to your financial plan.
Step 10: Save for Retirement
Planning for retirement is one of the most important aspects of financial planning. You should start saving as early as possible to take advantage of the power of compounding and build a large corpus for your golden years.
You can also use various retirement schemes such as NPS (National Pension System), PPF (Public Provident Fund), and EPF (Employees’ Provident Fund). Furthermore, you should also diversify your retirement portfolio across different asset classes such as equity, debt, gold, etc. Considering these schemes makes your financial plan more secure, for your future.
Diversifying doesn’t mean more risk due to different financial products. It is a financial good practice to balance both risks and returns across different asset classes. It is important to include this as a part of your saving in your financial plan.
VITTAE TIP: Change your money mindset
Your money mindset is the way you think and feel about money. It influences your financial decisions and behavior. Upgrade to a growth mindset and ensure to pick up good financial practices. This helps build your financial discipline.
STEP 11: Track your progress
Finally, track your progress throughout the year. Monitor your income, expenses, savings, and investments. This will help you stay on track and make adjustments as needed. This final step can’t be taken lightly, as it is a regular check on your financial plan and determines how you can make it better. A financial plan is not locked in cement. It is flexible according to your changing needs. Remember to keep updating and upgrading it with your increasing finances.
By following these steps, you can effectively plan your personal finances for the New Financial Year 2023-24 and achieve your financial goals.
Making new resolutions and creating good habits takes time and energy. What is guaranteed is that you are sure to enjoy the benefits. Start creating your financial plan today and keep pushing yourself to move up the ladder. Take up these Financial Resolutions with a strong commitment and a positive mindset.
Being mindful and taking responsibility will help you focus your actions toward your financial growth. Vittae will help you create your actionable financial plan and stay on the right track in your journey toward financial freedom.