“No one’s ever achieved financial fitness with a January resolution that’s abandoned by February”, says Suze Orman an American author, financial advisor.
The new year started, new beginning new resolutions made. Everyone started their new resolutions positively by learning lessons from last year which was affected by Covid-19 all over the world.
Everyone made new-year resolutions including ‘Financial Resolutions’ such as:
1: I will start writing down my income and expenses
2: I will increase my savings every month
3. I will maintain enough emergency fund
4: I will ensure optimally, and protect my family.
5: I will reduce my debt.
6. I will start SIPs to achieve my financial goals
7: I will diversify my investments according to my risk portfolio
8: I will review my existing investments Resolution
9: I will handle my paperwork related to banking, investments, insurance, etc and maintain a record
10: I will attempt to maximize tax saving and file tax before the due date
11: I will find an expert or coach where I can do my financial planning
12: I will find many passive income sources to increase my net worth
13. I will complete my succession planning this year
A commonly observed fact that often many individuals fail to keep up their financial resolutions by the year-end —.
Therefore, everyone must follow New Year Financial Resolutions conscientiously to achieve financial freedom within a fixed time frame. This will help us to achieve our financial goals.
we have to follow these below best practices to achieve our long term financial goals.
Before we plan our long term financial goals we have to understand the meaning of financial goals.
Financial goals are monetary targets that you wish to achieve in your life. Financial goals are your dreams with a price tag and an end date.
But, are all your dreams are not financial goals. Only if it passes the S.M.A.R.T. test then your dreams can be a financial goal.
1 Educate yourself
Find a mentor, coach, or financial advisor who will help to achieve your financial goals. Who you can trust and discuss your financial goals and plan accordingly.
Invest at least 5% of your income into education, to upgrade yourself and understand the terms of basic finance so that acquired education will help you to achieve your financial goals faster and you can be aware of the money scams happening in the world.
2 Set SMART Goals
SMART goals should be Specific, Measurable, Adaptable, Realistic, and Time-bound goals (SMART goals). Setting these SMART goals are not so easy. You have to either educate yourself or hire a financial advisor who can help you to set and achieve those goals.
Specific: When setting financial goals, we have to be specific about the goal. Vague goal- leading to uncertain results. A specific goal has definite answers to the ‘what, when, why & how’ of the financial goal.
Measurable: A financial goal needs to be measurable. It should be an efficient and stringent tracking mechanism. If you plan to save Rs 2 Lakh in a year, your progress can be measured by how much you save every month. If you are lagging, then appropriate steps can be undertaken to get you back on track. Setting a measurable goal helps you stay on track to achieving your long term financial goals.
Achievable: This aspect is very important in your financial goal. It should focus more on how your goal and make it achievable. Can you upgrade yourself to get a better job and increase your savings so that you can achieve your goals? Or should reduce your lifestyle expenses to save more for long term financial goals? It is important to note that you should ensure that you give your 100% to achieve your long term financial goals.
Relevant: Another important aspect of setting financial goals is to establish relevant and realistic goals. You should set your goal in such a way that your dreams come true in a realistic way. You have to put your efforts to make it happen. While there is no harm in dreaming big, setting unrealistic financial goals will inevitably lead to failure.
Time-bound: Financial goals are nothing but achieving deadlines. Having a deadline brings credibility to your goals. You have to write your goal with a start date and end date. If you know these dates you are more determined to accomplish a goal. So, always create time-bound financial goals.
Once you have set S.M.A.R.T. financial goals, the next step is to segregate them based on their time frames. Financial goals are characterized as – Short term financial goals (less than three years), medium-term financial goals (3-7 years) and long term financial goals (7+ years).
It is helpful to readjusting the goals and plan depending on changes in your circumstances, risk appetite, the performance of the investment portfolio, and as per your investment objectives.
Based on these SMART goals, even a financial advisor can help you to achieve your envisioned financial goals by drawing a financial plan prudently.
SMART goals are helping to choose the types of financial goal. Helps to assess your risk profile, align that with your investment objective.
SMART goals fix the time horizon to achieve the goal and setting the asset allocation in the right way.
3 Prepare for a rainy-day/emergency fund
I observed when I did financial planning to some families that, when life throws a curveball, most people pull out funds from their other investments.
Life is unpredictable, and we have to prepare for that. Saving for emergencies is the goal for necessity. It should be the first one you should set, regardless of your situation.It is base for your long term goals. if it is not taken care then all other long term goals will be affected badly.
It’s up to you to decide what qualifies as an emergency for you and your family. There are a lot of different situations that can fall into this category, including:
Repair of home appliances
When something unexpected and expensive occurs, emergency funds are helping you to keep you from suffering financial losses.
If it is not taken care of properly, it will impact your personal finances and your peace of mind also. With the help of financial literacy and the proper guidance of a financial advisor, you can plan your emergency fund.
It should be approximately 3 to 6 months of your income into a Savings account or liquid funds so that you can withdraw any time without disturbing your other investments
4 Cover yourself with Adequate Insurance
People are not ready to accept the truth that one day we have to leave this world. Another truth is that we don't know when and how?
Sudden, untimely demise of the breadwinner can be emotionally and financially traumatic for family members. Even an accident also can put the bread earner in abed for a lifetime which will increase the expenses and stops income forever.
Hence, to safeguard the interest of clients’ loved ones and dependents, do take the time to assess your insurance coverage, because having life insurance, health insurance, and accidental insurance cover is fundamental in your financial planning and financial health.
5 Minimizing your Debt
Especially in India, people are attracting to luxury items through different sales techniques. Even though items are not required they tempt to buy those through loans. Banks are ready to give loans as they are selling their product. Now along with cars, homes, people are taking loans for their vacations, Gadgets, and furniture also.
But people will not understand the truth that, while loans provide access to a sum of money, over time they could prove to affect their financial health and reduce their wealth creation ability.
It will also affect negatively the credit score and future borrowing capacity.
So, you have to be very careful when you are buying unnecessary items if it does not come in your needs. it's your money so you have to handle it with enough care and prudence.
Understanding the pros of reducing debt obligations will help you to save your money and invest wisely to live a comfortable life.
6 Invest your money in SIP
SIP is a systematic investment plan which brings discipline to your savings and investment. You have to understand the power of compounding which helps you to reach your financial goals in an easy and systematic way through your own discipline.
If we stopped our SIP in between, the objective of maximizing savings and investment will be lost, and in turn, it will prevent you from achieving your financial goals.
Remember that SIP is a rewarding strategy in itself. if you have selected mutual fund schemes on a need-basis and recommendations are backed by thorough research, it will help you to serve in the interest of your financial well-being and build the desired corpus to accomplish financial goals.
Ensure the focus is on the long-term and you should not fall prey to the short-term undercurrents. you should selected schemes in the mutual fund portfolio are as per your portfolio diversification.
7 Master the art of Diversification
Diversification is one of the basic tenets of investing. It helps to reduce the investment risk of the portfolio and increase the return over time.
It is common that people tend to invest in one or two financial instruments where they know. It's true that you have invested in such an instrument that you can understand and have in-depth knowledge of that.
Don't put all eggs in one basket.
“Wide diversification is only required when investors do not understand what they are doing.” – Warren Buffett.
You have to diversify your investment into Gold, Real estate, equity, debt, etc so that allocation will be as per your risk appetite and help you to grow your money and achieve your financial freedom.
8 Review your Portfolio Periodically
Once the asset allocation is done as per your financial plan, investments are done; a portfolio review is necessary.
Your investments should be dealt with care, caution, alertness, and astuteness. Financial advisers help you to track your portfolio as per your financial goal, rebalance the portfolio if necessary.
It also helps you to weed out the underperforming investments.
9 Maximizing Tax Savings
Tax planning is a holistic exercise. If you can understand and avail the permissible exemptions, deductions, and reliefs available under the provisions of the Income-Tax Act.
Investment planning and tax planning need to complement each other. Financial advisors will able to help you to do your tax planning exercise at the beginning of the financial year.
It will help you to focus on maximizing your investment by making it tax-efficient.
Remember, a penny saved from tax is a penny earned!
To achieve long-term financial goals, along with the best practices we have to calculate our present and future value and then plan our investment accordingly in a SMART way. These are the 5 steps to helping you to set your long term financial goals
•Determine the current value of the goal
•Determine how many years later do you want to achieve the goal
•Determine the future value of the goal
•Determine the best investment option to achieve the goal
•Determine the monthly/annual investment amount to be committed towards the goal
Once you have set your S.M.A.R.T. long term financial goal, the next and the most critical step is to find the best investment option for achieving your long term financial goal.
Equities have time and again proved that they are the best investment option for achieving long term financial goals amongst all the traditional public provident funds, National pension schemes, & non-traditional unit-linked investment plans investment options.
Integrity, following high fiduciary standards, a prudent approach, financial literacy, trust in your financial advisor can help you to keep up with your financial resolutions made at the beginning of the year, ensure your well-being, and enable you to accomplish financial goals.
Further, these are all long-term goals and required a lot of patience, discipline, and focus to stay a long way in building a sustainable wealth that gives you peace of mind through your financial freedom.