Here Are Some Tips to Plan Your Finances Correctly in 2022

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Like the 2007-08 global financial crisis, COVID 19 has caused various economic challenges that have massively impacted financial planning of many.  Few of the devastating consequences due to the pandemic include impact on job security, income, and market volatility. All of these have consequently highlighted the fact that conventional financial planning methods may not offer sufficient buffer against global or nationwide economic depression. Thus, you must keep the listed aspects in mind while forming your financial plan in 2022:

Invest in equity mutual funds through SIP to meet your long-term goals

If you are a conservative investor, then you may wonder - what are equity funds? Equity mutual funds invest a major chunk of corpus in equity stocks of different companies in specific proportions. The asset allocation in an equity fund depends on the equity fund type and its alignment with investment goals. As equities are known to overcome inflation and fixed income instruments by a wide margin over the long term, investment in equity funds would help you meet your long-term financial goals of 5 years and above.

SIP route of investment is recommended to invest in mutual funds because of the benefits this method offers. SIP permits you to invest a predefined amount at regular intervals whether monthly, quarterly, or annually in a mutual fund. As the SIP amount is deducted automatically from your savings account on a predetermined date, this inculcates financial discipline. Additionally, as the lowest investment amount through SIP in equity funds usually begins with just Rs 500, anyone with limited investible surplus can derive benefit from equity investments and gain the most from the power of compounding. Periodic and automated investments through SIP also ensure the benefit of rupee cost averaging i.e., more units are purchased at lower NAVs during falling markets and vice versa. This helps in averaging the investment cost and even eliminates the need to time your investments and monitor the markets. 

Note that technological development has made it possible to invest in mutual fund online through several online platforms. Thus, today you do not require visiting the AMC for the investment. You can easily compare amongst different funds and invest in the one through the online mode as per your preference. 

Avoid debt trap

Assume, X began working in January 2019 for a travel agency. And in January 2020, he bought a new laptop and mobile on EMI through the newly availed credit card for a repayment tenure of 24 months. Unfortunately, COVID 19 hit, which adversely affected the travel sector, and he was fired from the job in July 2020. Due to the sudden job loss, he was heavily burdened with considerable credit card outstanding. Neither did he have any mutual fund investments in equity funds or in any other types of mutual funds nor did he have any fixed income investments to meet the burden. Unfortunately, he had to borrow the required funds from his friends and relatives to repay those outstanding dues.

Nowadays due to technological development, availing loans have become extremely easy. You must adopt an approach of delayed gratification by resisting your urge to squander and instead defer these buys to avoid indebtedness.

Form a contingency fund

You must insulate yourself from the chances of job loss owing to another economic depression by forming an adequate emergency fund. Such a fund would assist you tide over tumultuous events and mitigate basic expenditures like rent, utility payments, EMI, or credit card due repayments etc.  Ideally, you must park at least 6 times your monthly mandatory expenses as an emergency fund in a fixed deposit or savings bank account.

Buy sufficient health insurance

A sound financial planning must not just cover ways to create wealth but also to protect your created corpus. The COVID-19 pandemic has pinpointed the fact that unanticipated healthcare exigencies might cause a massive drain on your finances if you have inadequate health cover. Moreover, you must know employer provided health insurance lapse once you switch your job, leaving you with no medical cover until you join another company providing the same benefits. Thus, you must buy a separate health cover in addition to the employer provided cover to protect yourself against the rising healthcare expenses.