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As soon as the New Year starts knocking on our doors, all of us eagerly resolve to start the year on a positive note. We make resolutions, give up bad habits and replace them with good ones. These good habits, when practiced sincerely, have the potential to improve your life considerably. 

Even when it comes to personal finance and investments, good habits have the potential to grow your wealth if you are sincere. In fact, if you inculcate good investment habits, you can ultimately achieve financial independence.

Does financial independence sound like a Utopian fantasy?

Well, it certainly can come true provided you indulge in good investing habits. Here are some that you can consider giving a healthy start to 2022 – 

Automate your expenses and investments 

Automation should be your buzzword this New Year. Automate all your expenses and investments by putting a direct debit mandate or Standing Instruction on your bank account or credit card. Every month, your bills and investments would be automatically debited from your bank account or charged to the card so that you don’t have to undertake the hassle of remembering the dates. This takes out forgetfulness from the equation and instils discipline in bills payments as well as investments. Moreover, as the bills are paid on time, you can avoid late payment charges or interest payments.

Invest in tax-saving avenues from start

Most of us have the habit of scrambling to invest in tax-saving avenues as the financial year draws to a close. We leave tax planning to the last possible minute and then get in a mad rush as the time draws near. Why the hurry when you have a full year to plan?
So, starting from April 2022, start tax planning from Day 1 of the next financial year. Thereafter, as the financial year draws to a close, you can assess your tax planning and make changes, if needed, rather than starting the process from scratch. 

Reconcile your debt

Debt management is quite essential if you want to allocate your disposable income towards investments rather than towards debt repayments. So, if you have a credit card, pay the bill in full. Do not revolve around credit as it attracts a considerable rate of interest. Moreover, abstain from availing of unnecessary loans. Keep your loan requirement minimal and if you have a running loan, automate its installments too. Make sure they are paid on time. 

Review your credit score

Your credit score is a measure of your creditworthiness. It tells lenders how capable you are of repaying your debt. The score is an important parameter when you apply for a loan or a credit card. It is calculated based on your present and past credit history. 
You should check the score regularly, at least once a year. If your score is low, try improving it to enhance your loan prospects. 

Read more on What is a Credit score and how it is calculated.

Create an emergency corpus

Emergencies are sudden, unexpected, and, more often than not, require considerable funds, whether they are minor or major. As such, you need to be prepared to meet the financial requirements of these emergencies. To do so, you should set aside at least 3 to 6 months’ worth of your income in an emergency fund. Invest this fund into a liquid avenue like a bank savings account or liquid mutual funds so that you can redeem it whenever needed. 

Assess your insurance plans

Insurance is a form of emergency planning and you cannot afford to go wrong with it. A term life insurance policy and a health insurance policy are a must-have. While the former protects against the financial loss of premature death, the latter provides assistance in medical emergencies. 

Assess your life and health insurance plans and check their adequacy. The coverage of your term insurance policy should be at least 10 times the average annual income of the last 3 years. For instance, if your average annual income over the last 3 years is Rs.10 lakhs, you need a sum assured of Rs.1 crore. 

When it comes to health insurance, the ideal coverage would be 50% of your annual income and 100% of the hospitalisation expenses that you have incurred over the last 2 years. For example, if your income is Rs.10 lakhs, the minimum sum insured should be Rs.5 lakhs. Moreover, if you have been hospitalized anytime over the last 2 years and incurred a bill of Rs.2 lakhs, the coverage should be enhanced by Rs.2 lakhs to give you an effective coverage of Rs.7 lakhs.

Check the nomination details 

Check the nomination details in your insurance policies as well as in your investment accounts. If no nominee has been named, name one immediately. Moreover, inform the nominee about the nomination so that, when required, the nominee can make a claim on your insurance plans and investments to get the accounts settled.

Educate your family about your assets

Your family should be aware of your financial assets so that when you are not around, they can use them to meet their financial needs. Update your records in your insurance and investment accounts. Also, educate your family members about the insurance claim process so that they can make a claim in emergencies when you are otherwise indisposed.

LakshMe has come up with the My Family Record Book. This book has been specifically designed keeping in mind important financial, medical, personal and other miscellaneous details that is important for the family to know. You can edit the book whenever required.

Click here to download the book.

Make effective use of credit cards

There are different types of credit cards available in the market. Each card is designed for a specific purpose and so is its reward structure. So, use different cards for different purchases for maximum rewards. For example, use lifestyle-oriented credit cards for spending on entertainment expenses and dining out. Similarly, travel cards are best for travel bookings and shopping cards are best used for shopping. 

Simple habits, effective results!

So, begin this New Year on a positive financial note. Practice these healthy investing habits and give your financial portfolio a boost so that it can fulfil your goals without causing you any financial worry.