Creating a financial checklist before the end of 2019

As another calendar year comes to an end, you must be getting ready with your New Year resolutions. This time lets make it more real. At least with respect to your finances, let’s not take chances. Here is a 6 point financial checklist for you before we enter the Year 2020. But, remember to be fully prepared with your checklist before the new year sets in.

1. If you have not already done it, set your financial goals and create a financial plan. This may sound like a routine affair but you need to make it happen. Unless you sit down and jot down your goals on a piece of paper; like your retirement, your daughter’s education, your nest egg etc, it will never happen. Financial goals are the starting point because they give direction to your finances. Make a comprehensive list of all possible medium term and long term goals. For now, don’t worry about whether these goals are practical or not. Just ensure that you are able to assign a monetary value to each goal.

2. If you have goals, you need money and the probability of your becoming a millionaire by a stroke of luck is extremely small. So you need to work towards it and more importantly, you need to make money work harder. The starting point is savings. How much are you saving per month and can you squeeze extra out of your monthly income. Remember even a small additional sum of Rs.2000 per month invested in a SIP mutual fund can make a big difference at the end of 20 years. That is why savings matter!

3. Review your credit score and it does not cost a dime. CIBIL and Experian will give your credit score by email free of cost. Review your credit profile and analyse why your score is low. It could be because your debt is too high as a percentage of your income. It could also be because you have multiple credit cards and you are close to your limit on all of them. It is time put thing in order. Use intermediate inflows to reduce your high cost loans and put limits on card usage. Your score will automatically improve in a few months. Credit score review should be a necessary part of your checklist.

4. Review  your insurance and your emergency fund. Firstly, don’t mix insurance and investments. That means; endowment policies and ULIPs are clearly out. Risks must be covered by term policies and a mix of mutual funds can help you with investment and wealth creation. Review your emergency fund. Ideally, it should be around 4-5 months of your monthly income and must be invested in something like liquid funds that can be easily accessed. Don’t let your emergency funds run too low.

5. Consolidate your mutual fund and equity investments. Remember, a combination of equity funds and debt funds are best suited to meeting your long term goals. Ideally, adopt the SIP mutual fund route to meet these goals and ensure that each SIP is clearly tagged to a goal. Don’t spread your money too thin across too many funds. Stick to a handful of funds that have given good performance in risk-adjusted terms. That can make a big difference to ease of handling your mutual funds portfolio.

6. Finally, get your tax process in order. Irrespective of whether you are an employee or a businessperson, maintenance of tax records and timely remittance of tax is a must. Don’t fall for the age old PPF and NSC story to save tax. Tax saving mutual funds or ELSS funds are a potent combination of tax saving, lower lock-in and equity participation. It can work for you in multiple ways.

The New Year should be a time to get your finances and investments more organised and this checklist can be a good starting point. Don’t forget that tax saving mutual funds can be like hitting two birds with one stone.