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Money Dec 31, 2012

Five New Year money resolutions to break this year

By Bindisha Sarang

Come New Year and everyone has some or the other resolutions to make like "I will loose 30 kgs this year" or "I will invest 15 percent of my income this year" or "I will read 12 books". Some decide not to make any resolutions in the year.

But, just like it's a good strategy to have a to-do list, it's also good to make a not-to-do list. Likewise, this year apart from making New Year resolutions, you should probably look at the resolutions that have to be broken this New Year. These are ones that we tend to do with our money by default and they work against us. If you intentionally break these resolutions you've made unknowingly, your money life will get that much needed change.

If your mind tells you that the credit limit on your card is equal to the amount you can afford to spend, you are being deceived. Reuters

It's my credit limit and I shall use it:

If your mind tells you that the credit limit on your card is equal to the amount you can afford to spend, you are being deceived by your mind. It's probably the worst resolution you made unknowingly and it's about time you broke it.

It may be the amount you are permitted to spend, but all that is permissible is not beneficial. So, just because you get that much credit does not mean, you use the whole of it or go over board. "This is a very common thing that people do, over spend on their credit card and go over limit," said Pankaj Mathpal, Mumbai-based certified financial planner.

It's my money so it's my asset allocation:

Rebalancing the portfolio is one thing and following what friends, co-workers and markets tell is another. "No asset performs all the time," said Suresh Sadagopan, another Mumbai-based CFP. If you simply follow the advice of friends or see markets to pull and put your money every now and then, you might get things right in the short term but may go wrong in the long term. "Don't try and time the market. So, when the market is falling, you should not stop your SIPs, but simply continue with them," Sadagopan said. Break the resolution which has been part of your system; that is trying to time the market, and following the sheep.

It's my life, so it's my neighbour's wish:

As a social animal, we are inclined to compare ourselves to others. This probably is a resolution you made as a child growing up, when your best friend got half a mark more than you in a Geography paper. And you swore, you will never let yourself be lesser than others again. When it comes to marks it is one thing, but when it comes to lifestyle, keeping up with the Jains, isn't wise.

"Imagine this, you buy a brand new car, it's a hatchback.You are very happy with the car. Next month, your neighbour, or your friend buys a sedan. And, suddenly you are no longer happy with your car, you too want a sedan. Social pressure, keeping with the other people's life style might ruin your financial life," Mathpal said. Break, break, break the resolution you made to keep up with the Jains. Your life style and expenses should depend on your life's financial goals, and you should not simply mimic your neighbours.

It's my time, so I will do it later:

If you think, you are in control of your time you a sadly mistaken. Every year ever since you've been in the tax paying bracket, you make your tax savings investments in last week of March. Now, that's a resolution to break. Reason being, due to last minute hurry, you land up buying those insurance policies you don't even need. Of course, they might offer tax benefits, but due to time constrains, you simply sign the documents, right the cheque, not knowing what you are actually getting into. This year, start early.

Don't wait to do your tax planning, start as soon as possible. So, for FY13 start now (Ideally, you should have started in April 2012). So for FY14, start in April 20013. Don't wait for March 2014. "Later", only puts you under pressure and you become as easy target of insurance agents.

It's my emergency, so I will decide how to deal with it, when it comes:

Crossing the bridge when it comes is a good idea while driving, but not when it comes to your money. Emergency funds at least three months expenses kept aside, is a serious step of managing finances. "In fact, don't even call it emergency funds. Call it job income loss funds," said Sumeet Vaid, a Mumbai-based Certified Financial Planner. We totally agree with what Vaid said. If you call it by that name "job income loss", instead of just emergency or contingency fund, it becomes more real. So, this year, break the habit of saying I will have an emergency fund someday, and park as much as three months expenses towards your Job Income Loss fund.

These are a few resolutions, you could choose to break this year. Let us know which else are on your mind...

by Bindisha Sarang

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