Source/Contribution by : NJ Publications
Action Plan for Personal Finance
An action plan is a road map for the achievement of some important goal. Most of us have some personal goals but we are often found falling short of the action plan to pursue them. With this article, we hope you make å smart action plan of your own and follow it.
Make A Successful Action Plan:
Before we take about the key actions you should explore, let us ensure first ensure that the entire ritual does not fail and the actions we decide to undertake are successful. Here are the four steps that will go a long way in ensuring your success...
Consider only a maximum of three actions. Even one to two actions is good enough as too many actions are hard to cope up with and you may lose focus and passion with time.
Make sure that the chosen actions are worth your time, holds your interest and passion, is on top or requirement and is also practical and meaningful for you to implement.
Ensure that the actions are well-defined, measurable, time-bound and in numbers. This will give you a very definite idea of the target and will help success instead of having to live with vague, subjective interpretations. Note, we have given open-ended actions below which have to be well-defined by you.
Make yourself accountable by sharing your actions with others and also maybe asking others to keep track of the same. Your spouse, children, parents and even friends and bosses can be made asked to keep you on track and support you.
Its' time now to explore a few suggested personal finance actions we hope you will make and also follow through.
Invest __ % More:
If you are a regular investor and think that you do enough investments, this year do more than enough. Resolve to invest a certain extra percentage each month this year. For example, if you invest Rs 10,000 each month, invest 10% extra, which is just an additional Rs 1000, which you can manage. At the end of the year, you will have invested an extra Rs 12,000. If you are yet to start saving, this action should be also at the top of your list.
Know that while you can come up with 100 reasons to avoid investing more right now and plan to invest more in the future, you just need one reason to start investing more from now. And believe us, there would be many compelling reasons for you to start saving. However, investing in the right product is also crucial. Equities give us the magic of compounding over a long-term, and its something that you should also explore. Remember, even if you invest a higher amount later, you will not be able to beat the returns of compounding you will generate on the smaller amount over a long duration of time.
Be adequately insured for all risks
When was the last time you carefully looked over your insurance coverage in a comprehensive manner? It is important that you keep on checking on your insurance coverage and making adequate changes in same. Evaluation of comprehensive coverage will require you to assess insurance coverage for life, health, personal accident, critical illness and home insurance. The idea is to protect the financial well-being of your family in case of any death, disease, disability or damage to property. If you haven't explored insurance in depth, resolve that you will do so asap and get adequate coverage.
Keep an Emergency fund of __ months income:
Life is unpredictable. You never know what will happen next and you might need money for some reason. Medical emergencies, unforeseen expenses which are unavoidable, sudden cash crunch, an urgent requirement for working capital etc. Thus, it is important that you have some amount set aside for emergencies. If you don't already have an emergency fund, it's time to start building it and if you have one, add a little more money to it. Typically, an emergency fund of three to six months of your income or expenses should be adequate enough for you.
While we are strictly against money lying in your savings bank account earning nominal interest, we advise you to build an emergency fund nonetheless and keep this money in a liquid mutual fund or a savings account.
Cut expenses by __ %
The main culprit behind low savings and an unhealthy financial situation is often our spending habit. There is often a disproportionately high expenditure on discretionary expenses. Expenses on entertainment, shopping, purchase of gadgets, frequent mobile upgrades, etc play havoc on our finances beyond our imagination. One action that you can explore is to track these expenses on a monthly basis by recording it and then planning the same from next month onwards. We do not ask you to say 'no' to everything, just put a limit in place, relative to your income and your saving plans. With this action, we can easily cut about 10-20% of our expenses every month. Remember, a penny saved is a penny earned.
Cut your debt portfolio by __ %
An easy and hassle-free loan is both a boon and a curse. While the availability of easy loan helps one through difficult times, it might sometimes also lead to unnecessary consumption. This is one of the reasons why people should shy away from taking credit cards. What people actually need to do is be smarter with their consumption pattern. Should you take a high-interest personal loan for a vacation? No. But if needed, should you avail an education loan for your kids? absolutely Yes. This year, learn to make a differentiation between good and bad debts. Good debts help you build assets, improve stature (like home, education) and are of low costs. Bad debt is often towards depreciating assets or intangible experiences (like car, travel, gadgets, etc) and often are of high costs (like CC, personal loans). This year resolve to clear your debt portfolio of all the bad debts first and then good debts, if possible. Being debt free by the year end can be a great action.