Arjuna (Fictional Character): Krishna, as we usher in the New Year, many of us are setting resolutions for a healthier, happier life. Among these, financial resolutions hold a key place. Can you guide us on how we can set effective financial resolutions, particularly focusing on the art of investing, in the year ahead?
Krishna (Fictional Character): Arjuna, from this new year we are starting a New Series on “Personal Finance” (Arthneeti) where we will be talking about how to manage your finances in an effective way. This year has shown very interesting number in terms of wealth creation. Indian Share market are at record highs. The Nifty has jumped over 20% in 2023 and the Sensex has risen nearly 19% to log their best years since 2021 and second-best since 2017. Those who had invested previously are now sitting at good returns on their investments while some of them are wondering if they had invested, they would have had such gains. Hence to avoid this Fear of Missing Out (FOMO), one should set Financial Resolution.
Arjuna (Fictional Character): Krishna, understanding the importance of financial resolutions is one thing, but how should one go about setting these resolutions effectively? What steps should we follow to ensure our financial goals are not just wishful thinking?
Krishna (Fictional Character): Arjuna, setting financial resolutions is like charting a course for a successful journey. It requires a structured approach, and here’s how one can plan it:
1. Earn Income: The first step is to secure a stable income. It’s the chariot that drives all other financial decisions. Focus on enhancing your skills and opportunities to ensure a steady inflow. As per current scenario approx. 40% of our population is able to clear this stage.
2. Save for Emergencies: Before anything else, build an emergency fund. Life is unpredictable, and having a financial cushion is like having a safety net in your chariot for unforeseen circumstances. One should always save for emergency funds which should be around 4-6 months of your monthly income and only approx 20% of the population is able to conquer this stage.
3. Make Monthly Budgets and Financial Goals: Plan your monthly expenses. A budget is your roadmap; it guides your spending and helps in managing your finances efficiently. Your entire expenses should not be greater than 50% of your monthly income. Your Financial Goals include buying homes, cars, luxury items and one should ensure to make a budget before going ahead and buying these items.
4. Plan for Loan: If you need to have loans, strategize their repayment. Reducing liabilities is crucial in the journey towards financial freedom. Your loan repayment should ideally be below 30% of your monthly income.
5. Plan Your Investments: Finally, focus on investments. This step is about growing your wealth and earning passive income. After you have worked for money now it is time to “Make Money work for You”. Balance of your funds after crossing these 5 stages should be invested. Investments can be done as per Risk Taking Capacity and financial goals.
One should always go step by step in this and not jump to next steps in haste. Everyone should identify the stage they are currently in and follow these accordingly. This approach will help in setting realistic and achievable financial goals. One should also get help of Financial Planners and experts.
Arjuna (Fictional Character): Krishna, What should readers learn from this?
Krishna (Fictional Character): Arjuna, remember that the journey of financial planning is progressive and requires patience. Start where you are, use what you have, and do what you can. Approach each stage methodically, don’t rush to the next stage. There are many new year resolutions of health which often turns into disappointments, let’s work towards solidifying this Financial Resolution. We will discuss all these stages in details in the upcoming articles of this “Personal Finance” Series.
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