A new year is a fresh beginning - a time when we can reflect on the past and look forward to the future with a fresh perspective and a desire for a positive change, which motivates us to make New Year's resolutions. While resolutions allow us to envision the best version of ourselves, most of them are abandoned in just a few weeks.

In managing personal finances, too, this scenario is all too familiar. So, as we stand at the onset of 2024, perhaps it is time to revamp our approach to financial well-being. Instead of relying on financial resolutions, make small changes in your lifestyle and embrace the power of atomic habits. Let’s look at some habits we can adopt for our financial future.

• Goal-based investing - To begin with, it is important to set financial goals. Everyone has the desire to be wealthy and financially independent. However, setting such vague goals brings ambiguity and uncertainty. In order to achieve a financial goal, one must set goals that abide by the SMART acronym - specific, measurable, achievable, realistic, and time-bound. Setting SMART goals can help build a practical plan through which you can set deadlines and derive an optimal investment amount to achieve your goals.

• Budgeting - Creating a monthly budget is a systematic method to ensure the timely settlement of payment obligations and maintain a consistent trajectory towards financial goals. Just setting a budget, however, is not enough. One must track spending to ensure whether the budget is being followed. Moreover, regular tracking of expenditures provides invaluable insights into financial habits, allowing for informed adjustments to the budget as needed. This would not only reinforce discipline but would also allow strategic decision-making, ensuring the achievement of financial goals. 

• Emergency fund & insurance planning - The only thing certain in life is uncertainty. Hence, one must always have a plan in hand to cater to these uncertainties of life. In the absence of an emergency fund, one might have to opt for loans or, worse, break the funds created for specific needs, bringing a hurdle to your wealth creation journey. 

While an emergency fund is necessary for immediate liquidity for unexpected expenses, insurance is also essential to mitigate the long-term financial impact of significant perils of life, such as accidents, illnesses, or the unfortunate loss of the breadwinner. Both insurance and an emergency fund serve as a pillar to fortify your financial health and safeguard against unforeseen events that can potentially derail your financial stability.

• Expenses to investments - “Do not save what is left after spending, rather spend what is left after saving.” One must track all their expenses and ask oneself a question - ‘Is this out of necessity, or is this something that can be avoided?’. Upon doing this, one can cut down on unnecessary expenses and make changes to lifestyle. For instance, if you spend a total of Rs 10,000 monthly on leisure activities, then just cutting down by 10% and investing that Rs 1,000 can make a huge difference. To give you a perspective, an SIP of Rs. 1,000 in equity mutual funds started 15 years ago would have helped you build a fund of Rs 5,64,120, a gain of 14.01%. (Source: Sensex TRI)

• Timely servicing of debt - Unsecured loans and unpaid credit card dues can be detrimental to wealth creation and are often categorised as ‘bad debts’. It is crucial to clear these bad debts or any other overdue payment obligations in full as and when they arise. This not only impacts your overall financial health but also plays a pivotal role in establishing and maintaining a good credit score. Untimely payments and delinquencies can be toxic for your credit score, making it difficult to bag good interest rates or, worse, get a loan in the future.

• Automated investment - Setting up automated investments like a SIP in mutual funds can empower you with financial discipline and consistency. With an SIP in mutual funds, you can invest small amounts towards your financial needs and build a fund methodically over time. Moreover, SIPs relieve investors from the need to remember to invest each month consciously. The convenience of automation allows you to stay on track with your financial needs without having to intervene in the procedure. The inherent benefits of SIPs, such as rupee-cost averaging, power of compounding, accessibility, and affordability, furthermore make it an attractive investment option. 

• Retirement planning - As per a survey conducted in 2020 by Nielsen, 51% of Indians do not have a retirement plan ready, and barely one in five takes inflation into account while planning for retirement*. This sheds light on the unpreparedness of Indians for retirement. Moreover, many still rely on their children for retirement. With the shifting mindset and growing trend of nuclear families, it is very important for every individual to plan for their retirement. Retirement planning is a cornerstone of financial freedom, which is of utmost importance to make you self-reliant and ensure a dignified and stress-free lifestyle during the golden years of retirement.

* Source: Business Today 

• Seek financial guidance - Making the right investment decisions might seem like a daunting task. To get guidance in this journey, one can consult a financial advisor. A financial advisor can understand your financial needs and risk profile and support you in your wealth-building journey. When opting for the mutual fund route, one can leverage the knowledge of a mutual fund distributor. 

Cultivating positive habits for your financial health can prove to be pivotal for your financial success. Even subtle adjustments in lifestyle and savings practices can make a huge difference, for one good habit can create a ripple effect. Bringing discipline and consistency to your investment pattern and following fundamental financial health practices such as goal-based investing, budgeting, timely payment of debt, and insurance planning can lead you to a financially prosperous future. 

In this fast-paced world, where time is precious and financial responsibilities grow with each passing day, finding an investment approach that aligns with your life's trajectory is paramount. A game-changing approach, SIP with Top-Up ensures that your investments keep up with your changing lifestyle and protects your wealth from inflation's eroding effects.

Gone are the days of monitoring market movements and constantly adjusting your investment plans. With SIP and its automated Top-Up feature, you set out on a hands-free journey to steadily and gradually amass wealth. As your income grows, so do your investments, and with the power of compounding, your wealth multiplies effortlessly.

SIP Top-up gives anease of increasing your investments, the wisdom of regular contributions, and the extra potential of compounding growth. You can unlock the secret of building sustainable wealth and make financial independence achievable without your active participation. Let's explore further this simple yet revolutionary idea and understand certain aspects of building wealth with SIP Top-up.

1. Automation helps bring in Discipline: 

SIP Top-up is a user-friendly strategy that promotes consistent and methodical investing through automation. It assists people in developing the habit of growing investments without having to worry about market timing or frequent manual modifications. However, it's essential to have a reasonable selection of suitable mutual fund schemes based on risk tolerance, investment horizon, and financial objectives. 

Being automated also brings in the discipline of increasing your investments steadily with time. Often people start SIPs and then forget about it for years together thus effectively end up saving less and less every year, both due to inflation in absolute terms and as a percentage of your income. Even from the perspective of saving consistently in ‘real-value’ terms, the increase in SIPs yearly must at least match the inflation figures and one can add more to adjust for change in income levels and living standards.

2. Enables you to build wealth faster: 

Increasing your SIPs with Top-Up facility can greatly improve growth of wealth and hasten the wealth creation journey for you along with accomplishment of financial objectives. This powerful strategy takes advantage of systematic investing, compounding, and automatic increments in savings to propel your wealth growth manifold. Let us understand the power of SIP Top-Up by comparing it with a normal SIP assuming market returns of 12%. 

We can clearly observe that the wealth created increases by a substantial margin if we opt for a SIP Top-Up option across all horizons and more when the periods are longer with the power of compounding. 

3. Helps Achieving Financial Goals: SIP Top-Up is a useful tool for attaining your financial objectives faster once it is linked with your financial goals as compared to simple SIPs. Having a purpose-driven or goal oriented investment strategy that keeps you motivated and focused when you match and map your SIP investments with these objectives. With the benefit of compounding, even the goals that may seem to be unachievable can surprisingly look achievable if proper planning and SIP Top-Up needs are identified. Even when a simple SIP is sufficient, the Top-Up SIPs would add that extra layer of comfort and margin should anyway go wrong when the goal maturity is near. In addition, it will also take care of your increase in aspirations and living standards with time such that your goals need not be fixed.

Let us see this with an example where we have a higher education goal target amount of Rs.2 Crore, maturing after 15 years. Now assuming market returns 12%, we can see that the normal /fixed SIP amount required would be around Rs. 42,000 per month. However, if one decides to increase the SIP by Rs.5,000 every year, then the first year SIP amount required falls down drastically to around Rs. 17,000. Thus, a goal becomes more achievable with Top-up SIPs. 

Now, what would happen if the person is capable of saving say Rs.42,000 and still do a top-up of Rs.5,000 every year? In such a scenario, the wealth created after 15 years would be Rs. 3.18+ crores, giving you an extra cushion to upgrade to the best college or have a margin of safety, just in case. The original target of Rs.2 crore would have been achieved around 3 years prior to the target date.

Bottom Line 

To make the most of SIP with Top-Up, it is essential to start early, stay consistent, and invest for the long term. As a simple rule, we can think that every SIP has to be a SIP with Top-up SIP. As we have seen, the Top-Up SIPs can significantly transform the course of your financial journey by providing a simple yet efficient way of comfortably achieving your financial objectives along with discipline. 

A month has already passed since the start of the new financial year (FY). When it comes to any matter involving finances, accounts, and taxation, the FY is crucial. Since a lot of activity takes place during this phase, it is an important period for many businesses and employees. Regardless of any action though, the financial year presents an opportunity for everyone to revisit their finances and their plans for the new year. There are a few things that ought to be done. Here’s a brief checklist of the things you should do at the start of every FY. 

1. Revisiting your Financial Plans

A long-term financial plan is a very important element of any person’s financial journey in life. The idea is to identify, and plan for our financial goals and align our portfolio with savings to fulfill them. Thus, it becomes crucial that we should regularly review our goals and plans. The start of the financial year presents an opportunity to revisit your goals. Typically the need for any change may arise due to any change in your current life including family composition, financial situation or your own requirements and aspirations. 

2. Portfolio Review

Your portfolio consists of different asset classes and different underlying products /investments. The portfolio review is where we are making decisions on the portfolio composition and reviewing the underlying holdings. If you already have a financial plan in place, your portfolio should be tuned to these predefined objectives. In the absence of the same, there should be some portfolio-level asset allocation strategy followed as per your risk profile. Reviewing your portfolio may lead to rebalancing the asset allocation to start with. At the granular level, you would also want to make sure that you have ‘suitable’ holdings while removing any non-required, long-term non-performing holdings.

3. Managing Incentive & Salary Increment 

This is the time for many to receive the yearly performance incentive /bonus. The joy of earning the annual bonus, which is something we all look forward to, is followed by many plans about how to spend it. Further, this is also the time when you look forward to your salary increments. With both, a sizable amount and an increased cash flow every month, it is also the time to plan for the same. Surely, rewarding yourself with a well-deserving holiday break or a new gadget is well justified. However, going overboard and spending more than required is something you would wish to avoid. So again, it is that time of the year when you put some part of that bonus and increment to good use by investing & saving it towards your goals. Note that regularly increasing your monthly savings or SIP and investing lumpsum amounts significantly contributes to your wealth creation journey.

4. Assessment of Insurance Coverage 

Your responsibilities notably grow after key life events like marriage, parenthood, buying a house, etc. Make sure your insurance has enough coverage to handle all of these newly added commitments. Return back to the calculations you would have used to determine the appropriate level of coverage for yourself and your family members, add the amount required to cover the additional responsibilities and purchase any extra coverage that you require. However, each of those measures must be completed while taking into account your needs and possible risks. Keep in mind that you should reassess your insurance coverage each year to make sure it is sufficient to cover both your standard of living and the growing cost of medical care.

5.Tax Planning 

The beginning of the financial year is a good time to do your tax planning rather than the year-end. That’s because you have enough time to calculate your expected tax liability and make decisions for savings and spending for tax-saving purposes. Moreover, this is the right time to do so since there is no rush or pressure of deciding something quickly and thus you are less likely to make any mistakes. You now have ample time to estimate tax saving needs and evaluate all options available and make those investing & spending decisions for the entire year.

6. Revisiting your Financial Behaviour & Past Decision  

Your financial and investment behaviour is perhaps the most important determinant of your financial success /well-being over the long term. Every investment decision taken, not taken or delayed carries risk, return and opportunity cost elements. Decisions influenced by emotions, biases, unrealistic expectations and so on can have a huge impact on your wealth creation journey. The start of the year is an opportunity to learn from your financial and investment decisions taken over the last year which can be improved now. It is also an opportunity for you to set some benchmarks for yourself and frame a proper process /checklist for any financial decisions that you can make in future.

Conclusion: 

We celebrate and welcome the start of the new calendar year with a lot of excitement and zest. Most of us also set new resolutions and targets for the new year. The start of the new financial year should be seen as equally important in the financial sense. Why not set some new financial resolutions? This is a time for self-assessment in monetary terms and resetting yourself close to your financial objectives and well-being. One should resolve to be a better and wiser investor and ensure that your financial path in the coming year is clear and well-planned. It is time for you to also pick up the phone and schedule a meeting with your mutual fund distributor/ advisor and set the ball rolling.