New year is just a couple of days away and the Indian Economy is expected to be even stronger in 2013, it is a good time to position yourself to maximise your own personal financial returns.
In that regard here are eight essential financial resolutions for 2013.
1. I will pay myself first. Many best-selling books on personal wealth creation find this single principle as the most fundamental, far-reaching, life-changing method of achieving wealth. The research is overwhelmingly supportive of the fact that those persons who invest 10 per cent of their gross income from all sources without fail will become financially independent usually by or before their mid-50s. The research is validated in some outstanding best-selling books including: The Richest Man in Babylon, The Wealthy Barber and The Automatic Millionaire.
2. I will live below my means. This is a sure way to achieve financial independence. It is also called lifestyle financial planning. The key is to strike a healthy balance between a reasonable enjoyment of your income now while ensuring that you, at the very least, keep your present standard of living throughout a long life.
3. I will spend a minimum of 20 hours on my financial affairs each week. In the outstanding study of thousands of first-generation millionaires by Thomas Stanley and William Danko documented in their runaway bestseller The Millionaire Next Door, the authors noted that this group of self-made millionaires spent on average 20 hours per week on their personal finances.
Many persons happily spend an average of 23 years educating and training themselves for their vocations. They spend another 33-42 years working towards retirement at age 65.
4. I will take up the budget habit. This habit allows us to save for future goals while meeting present ones and ensures that the timing of income and expenses is consistent.
A budget offers you some crucial efficiencies including showing up areas in your financing that need immediate attention and other opportunities for investments of which you were previously unaware.
Regardless, of how well you rate your memory, there is absolutely no substitute for documenting your monthly, or weekly, income and expenses and basing your expenditures on that.
5. I will set five-year financial and other goals for my life. This is an essential habit of some very successful persons. They argue that in the same way that a business sets five-year goals, people also need to look ahead. No one seems to know why five years is the ideal planning period, but it works. Be sure to write your goals.
6. I will involve my children in my financial planning activities. When children are engaged in the budgeting/financial planning process, they develop a healthy respect for money. They are less inclined to abuse your hard-earned income and generally show moderation in how they treat theirs. In fact, one of the richest legacies that you can leave your children is empowering them to break a generational cycle of poverty or pay cheque-to pay cheque existence.
7. I will invest based on my needs as much as on my risk quotient. The equation is very simple: if you seek financial independence sooner than later, then you must be ready to take more risks and so seek professional help to allocate your assets based on your propensity for risk.
If you are risk-oriented, weigh heavily towards equities in your investment portfolio. If however you are risk averse, then weigh towards fixed-income investments.
8. I will invest as far as possible in tax-free instruments. Your pension contributions are tax-free. Maximise the voluntary part of your contributions above the mandatory and maximize it. Bear in mind that the pending Pensions Act will offer additional benefits, especially in personal retirement accounts.
Seek out long-term savings accounts, unit trusts/mutual funds and all other securities that offer tax-free benefits. In essence, you would be adding another 25 per cent factor on whatever returns you receive and when compounded over time, will add up to a lot of money. Best wishes for a prosperous 2013.