Your financial experiences of the previous year could help you make better decisions in the new year. The beginning of 2021 is also the time where you should plan to overcome any financial setbacks that were brought about by the Covid-19 pandemic in 2020. Some of you may have gone off track in meeting your financial goals last year; in 2021, you have a chance to recover from the setbacks.

Here are 5 intelligent tips that can help you in laying down effective financial plans this year.

1. Review your investment portfolio

Start the new year by reviewing your investment portfolio that survived the financial storm in 2020. Due to the Covid-19 crisis, you may have been forced to redeem a portion of your investment or stop your SIPs or have suffered losses or couldn’t meet the objective of starting a new investment. The starting of the new year is the time to review your investment portfolio, identify the problems, and take corrective steps if required.

In the new year, you may plan to invest additional funds to match your financial goals. You may also restart your SIPs that were stopped in 2020 or start a new SIP. If your investment portfolio has become skewed towards a particular asset class like debt or equity, you may want to reinstate the portfolio balance by switching some funds. You may also invest more money in the asset class which you have ignored earlier. However, you’ll be well-advised not to rush through major investment decisions and seek the help of a certified investment planner, if needed.

2. Don’t let your guard down when it comes to financial preparedness

Due to Covid-19, many people lived on a squeezed budget in 2020. People who lost their incomes or suffered salary cuts had no option but to utilise their contingency funds to meet their financial requirements. You should try to start 2021 resetting your financial budget based on your current situation. That being said, don’t forget the pandemic is yet to end and you should not let your guard down while preparing for any other financial emergency in the near future. One helpful strategy should be to keep your discretionary expenses under control while focusing on maintaining adequate liquidity. If your cash-flow situation has improved, you also need to ensure you replenish your emergency fund at the earliest by exercising strict financial discipline.

3. Assess your insurance requirements

2020 was also the year when people understood the importance of having in place adequate life and health insurance protection for themselves and their financial dependents. As it’s the beginning of a new year, you should reassess how much insurance you will need so that it can provide you with adequate protection in the near future. Due to Covid-19, medical expenses have increased significantly. Dealing with them could be even more challenging if you simultaneously face income-related issues. So, it’s always better to get a comprehensive medical plan with a sum insured of at least Rs 5 lakh if you don’t have one yet. Do remember, your annual premiums would be much cheaper if you start your policy at a young age. You can also consider purchasing cost-effective top-up or super top-up plans to further expand your medical insurance protection ambit based on your requirements.

Similarly, if you don’t have life insurance protection, you must prioritise getting one to secure the final future of your dependents, especially after the pandemic exposed our vulnerabilities like nothing before. It’s always advisable to have a life plan with a sum assured of not less than 10x your current annual income. You may want to purchase a term plan for adequate protection whose premiums would be lesser if you start young.

4. Assess your debt repayment plan

The pandemic tested people’s debt situation and borrowing capacity. Due to job losses and income reduction, many were forced to live on borrowed funds to meet their regular spending requirements. Some opted for a moratorium on their loan EMI repayments while the interest thereof continued to get accumulated which significantly increased their loan obligation. So, the best way to start the new year is by assessing your debt repayment plan so that you can quickly recover the financial sheen that was lost due to the pandemic in 2020. An effective debt repayment plan will help you to strengthen your borrowing capacity that can later help you when you need it to accomplish your critical financial goals in the future. You should prioritise repayment of high-interest loans over the lower ones. If your finances permit, you should also aim to make adequate prepayments of big-ticket loans like a home loan so that you become debt-free faster.

5. Strengthen your credit score

Most banks have now linked their loan interest rate with the credit score of the borrower. It means a low credit score can cost you a higher interest rate on your loans. A very poor score can even leave you ineligible to apply for certain loans. As such, if you’re planning to buy a home, car or expanding your business with the help of a loan, it’s highly important to strengthen your credit score. The new year is a great time to push the reset button on your bad financial habits and start afresh with complete financial discipline when it comes to timely and complete repayment of your existing loan EMIs and credit card outstanding. You also need to minimise applying for multiple loans or credit cards in quick succession, limit your utilisation for revolving credit and avoid closing a credit card which you’ve used for a long time in a huff to improve your credit score.

In conclusion, financial planning will help you in timely achieving your short and long-term financial goals provided you draw those plan based on your past experiences. You need to build realistic strategies based on your goals and stick to them throughout the course. You also need to review them from time to time and make readjustments whenever required. I wish you all a very prosperous 2021!