5 Things You Must Do to Strengthen Your Finances in 2023

Jan 09, 2023 / Reading Time: Approx. 8 mins

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We have officially entered the new year, 2023. Did you have a look at your finances yet?

For many of you, managing your finances can feel like a long and arduous task. While there are things you should be doing on a periodic basis throughout the year, like monitoring your monthly budget and investment portfolio and making sure to pay all of your bills, some may only roll to around once a year, such as filing your taxes.

The beginning of the year is a great time to take a broad look at your overall financial picture. By doing this, you can see where you might be able to cut back on unnecessary expenses or increase your savings cushion.

Market fluctuations and economic downturns marked by high volatility tend to have a direct influence on your finances. India continues to face headwinds from external factors as geopolitical challenges remain. Besides, there is a high possibility of recession rearing in two of the world's biggest economies, the US and China, this year. The impact on the domestic economy if this occurs is inevitable. Therefore, it will be wise to jumpstart 2023 by considering some financial to-dos to maintain your financial wellbeing.

To help keep your finances on track, we have compiled a to-do list for all of those activities that are best tackled early in every new year. Helping you look forward and plan for a productive year ahead is the goal of this to-do list, which plots out a number of tasks you can undertake to improve your financial life.

1. Set & review your financial goals -

The start of the new year is the ideal moment to outline your S.M.A.R.T. financial goals if you haven't already done so. Your hard-earned money could be lost if you invest and save haphazardly. Therefore, you must first identify your financial goals in order to conduct effective financial planning.

Some goals may be personal or family-specific (such as international travel, home or automobile purchases, etc.), while others may be stage-specific (such as saving for children's higher education, wedding costs, or retirement preparation). Whatever you aim for, make sure the goals are realistic so you can stick with them. To ensure that you are on the right track towards reaching your goals, you should review them at the start of each year and make any changes if required. Additionally, check if you need to reassess and prioritise your existing goals.

To achieve each goal within the given timeframe, you must estimate the amount of money needed and invest in worthy avenues like mutual funds. You need to ensure you invest in the right mutual fund schemes that will assist you and work towards reaching your goals. Therefore, you may consider PersonalFN's SMART Fund Explorer, it is a unique tool that provides a list of the best suitable mutual fund schemes aligned to your financial goals. Click on the key to accomplishing your financial goals with PersonalFN's SMART Fund Explorer.

2. Aim to increase your savings

Savings are the basis for your financial goals, it will lead to greater financial accomplishments. In 2023, focus on your savings to get ahead with your finances. Given the headwinds in play, it is wise to focus on increasing your savings in the new year to allocate it to rewarding investment avenues that contribute to wealth creation.

With the help of a budgeting exercise, create a personal finance budget to ensure compulsory savings. Keep track of your income and expenses. There are some apps that can help you track spending by linking to your bank account, or you could track it manually by reviewing your bank statements and receipts. Explore ways to cut costs so that your savings can improve.

In addition, if you have the bandwidth, you may consider starting a side hustle and count your regular job as a safety net against you, while the side hustle can provide a source of additional income and boost your savings.

5 Financial Must-Dos for the New Year 2023
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3. Construct a debt reduction plan for 2023

Your first task is a simple inventory of all of your current debts, determine how much you owe in total, and list out each account, including the total owed and interest rate. Some common examples of debts that many individuals hold are student loans, home loans, credit card balances, auto loans, mortgage payments and personal loans, etc.

You need to choose a method of debt reduction or payment as per your suitability; One is the Avalanche method - Here, you pay debts in order of interest rates, starting with the highest, like credit card dues or personal loans. Another is the Snowball method - Here, you pay debts in order of balance amount, starting with the lowest. Whichever method you choose, remember paying off a manageable amount periodically or monthly will reduce your debt burden. Try to maintain a debt-to-income ratio of below 40% to keep your credit scores good.

4. Hedge your portfolio against a possible downturn

Make sure to diversify your investments appropriately; every asset class has its own cycles, correlations, and ups and downs. Nobody can predict with certainty which of these assets, including equity, debt, and gold, will perform well. When you have a sufficient amount of diversification, you may protect yourself from the underperformance of a few investments while benefiting from those that do well at the moment.

Given the market volatility, economic uncertainties and the possible risk of recession, it will be prudent to review your investment portfolio at the beginning of 2023 to hedge against any possible downturn. A periodic review of your investment portfolio will help you identify the progress of your holdings, and you may consider eliminating the underperforming ones that bring down the overall portfolio returns. I recommend 'PersonalFN's Mutual Fund Portfolio Review' service, which is a personalised portfolio review service designed to boost the returns of mutual fund investors by reviewing and streamlining their existing mutual fund portfolio.

On the other hand, ensure that your investments are still aligned with your financial goals, as there have been some changes in your financial circumstance in the past year, 2022.

5. Focus on improving your financial awareness and security

Knowledge and understanding of all things related to money are critical to build long-term wealth. The earlier you learn to assess your financial situation, the sooner you will be able to may make changes towards the areas of growth you would like to focus on in 2023. There are several ways to improve your financial awareness, from doing research on the internet, enrolling in classes, reading financial books, or subscribing to personal finance newsletters.

 

Financial literacy equips you with the right financial awareness and money management skills that enable you to utilise your hard-earned money effectively and make informed financial choices. Additionally, peace of mind and safety are paramount while managing money and investments. For example, digital frauds and phishing attacks are on the rise. You make transactions daily through UPI, credit and debit cards, and net banking. Therefore, your financial security is crucial, and for that, you need to be financially aware and educate yourself about ongoing risks to safeguard your hard-earned money. Make sure you enhance your financial knowledge and maintain financial security.

Therefore, consider following the above-mentioned financial to-do list and let 2023 be the year you get your finances right!

Warm Regards,
Mitali Dhoke
Research Analyst



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