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Twelve personal finance resolutions for year 2022

As year 2022 comes to a close and a new year is about to dawn, It is essential to acknowledge that year 2022 will be different and more challenging for investors. In the last 2 years, it was all about recovery from the COVID lows. The easy money is out of the system. The next year will see higher inflation and, perhaps, higher interest rates too.

December 28, 2021 12:17 IST | India Infoline News Service
As year 2022 comes to a close and a new year is about to dawn, It is essential to acknowledge that year 2022 will be different and more challenging for investors. In the last 2 years, it was all about recovery from the COVID lows. The easy money is out of the system. The next year will see higher inflation and, perhaps, higher interest rates too.

How should investors prepare for this shift. Here are 12 New Year Personal Finance Resolutions for 2022.

12 Personal Finance resolutions for year 2022

How do you handle a year that will see higher inflation and higher interest rates. It is hard to give a one-size-fits-all solution. However, these 12 personal finance resolutions can help.
  1. Year 2022 is not the time for binge consumption. So get your overspending under control. Stop treating your credit cards like debit cards and see how best you can cut corners and costs. This will not only put a lower financial burden on you but also leave you with more savings. Revenge consumption is OK as long as you don’t have to pay.
  2. It therefore logically follows that your second resolution must be to squeeze more savings out of your income. As Buffett said, it is not how much you earn, but how much you save that will determine your wealth. Use a thumb rule. Try to increase your long term SIP allocation for goals by 15-20%. Just work your budgets backwards and you will be surprised how much of slack you can actually identify.
  3. High Inflation is going to be a reality in 2022, although it may show signs of tapering. However, don’t count too much on inflation tapering. Protect your savings from inflation. That means; add a comfortable equity component to it. Low yielding FDs and bonds are OK, but they will not get you too far if inflation eats away returns.
  4. Prepare for rising interest rates. That has two implications. Firstly, your bond portfolios could yield lower, so try to add some floater component to your debt investments. That will neutralize your debt portfolio as rates harden. Secondly, in your equity portfolio, be cautious of high debt companies. Rising interest yields are never comfortable for them.
  5. It is time to review your retirement plan. If you have made aggressive assumptions about the money growing, then tone it down. If it means you have to save more, this is the time to start. Of course, in the end, you could end up with more than you require for retirement, but that is always a good problem to have.
  6. Don’t wait till the end of the fiscal for your tax season. Of course, there will be only 3 months left for FY22, but you can start planning for FY23. If your ideas is to save tax under Section 80C via ELSS, then start an ELSS SIP right away. You not only save each month for your tax reduction, but also get the power of rupee cost averaging.
  7. Don’t take college expenses of your children lightly, they actually cost a bomb. Irrespective of whether your kids want to study in India or abroad, a good university education will set you back by a huge amount. Sit with your financial advisor and start looking at child education products which combine savings, growth and insurance.
  8. You must have learnt the importance of an emergency fund during COVID. Even if you were protected, it still pays to pad up your emergency fund to 6-8 months of income. You may have used up your emergency fund during the pandemic, so this is the time to replenish. Invested in low-risk liquid products like money market funds or liquid funds.
  9. Review hidden costs on banks, bills, credit cards. Your bank quietly bills you for average balance, ATM withdrawals, third party ATM withdrawals, cash transactions, IMPS transfers etc. Add these up and see which bank does not fleece you. Pay your utility bills on time late payment penalties are huge. If you have a credit card, bargain with the issuer  for annual charges, late payment fees and other costs. These will add up to a lot.
  10. Don’t fall for every BNPL and digital-loan scheme. Today, there are Fintech platforms willing to lend you money in a matter of minutes. These are not as simple and innocuous as they appear because there are huge costs. Also, Buy Now Pay Later schemes often encourage you to buy things you don’t need with the money you can put to better use. Use these facilities very prudently.
  11. Build a passive income stream. This is something most of us tend to overlook. See how you can put your tangible and intangible assets to better use. Is your property lying idle? Are any of your assets lying idle? Do you have the scope to use some of your unique skills for building a second line of income. All these should be focus areas.
  12. Last but not the least, an important resolution must be to review your insurance coverage. COVID highlighted that medical and life coverage may not be as big as you think. The last thing you want is a series of setbacks making a joke of your financial plan. Ensure adequate insurance for your assets, liabilities, health and your life.
These 12 resolutions may not make you a richer person. But, it will surely position you better to be on track to your financial goals, even in the face of uncertainties.

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