A new year dawns. There’s so much to do, so much to cherish, so much to savour. For all these, we need money. The money we already have needs to be managed well.

Writing for publications such as The Telegraph has provided me plenty of opportunities to express my views on money management. It has also given me the confidence and conviction to develop a financial framework for money management. That framework, which we call the 5S Pyramid, is now the subject of my new book on personal finance. Let me give you a glimpse of this framework which we hope more Indians will refer to when making money management decisions.

Save

American psychologist Abraham Maslow visualised human needs layered like a pyramid. The most basic needs — food, clothing, shelter — have to be satisfied first. Only then can we satisfy higher needs like love, achievement, and self-actualisation.

Similarly, getting your savings right is the first step to financial serenity — and probably what most of us struggle with. Get your savings right. And the rest follows.

This year, if you want to get ahead with your finances, prioritise savings. Save at least 10 per cent of your takehome pay; preferably 20 per cent if you can. Have three to six times your monthly income locked in an FD for emergencies. Use a recurring deposit to ensure compulsory savings. Budget regularly. Track your income and expenses. Find ways to cut costs to improve savings.

Lastly, interest rates may be rising, but don’t forget the lessons we’ve learnt from past crises. Park your money with well-capitalised banks with good corporate governance and low bad assets.

Secure

Walk into any room and ask for a show of hands for who owns health insurance. Chances are that half the room will say they don’t have coverage. We’re coming out a pandemic. But ironically, insurance adoptionremains low. Much needs to be done in this regard.

News of a new wave of Covid ravaging Asian countries emerges. We remain hopeful that India has seen the worst of this crisis. But health problems at an individual level may occur. As you go into 2023, take stock of your life and health insurance, and make sure you’re adequately covered.

Your family is counting on you to get this right. As far as thumb rules go, a term cover of 10 times your annual income, and a life cover at least one time your annual income should be considered.

Savour

Enjoy your money. But know the guardrails you must adhere to. Last year was a great one for retail credit. Personal loans grew a whopping 20 per cent. The fastest growing loan segments are credit cards, loans against FDs, and consumer durable loans.

Interest rate hikes have not had an impact on credit demand. Credit is easily available to the eligible borrower who wants to fulfill his/her aspirations. Paying interest on consumption and daily needs is not great for your finances. But there’s a lot of innovation happening in credit as well, allowing you to borrow at no cost and also incur no interest on EMIs on BNPL (buy now, pay later) and credit cards. Borrow the money you need, but pay back in full. Try to keep your credit card spends at 30 per cent of your spending limit. Never be late. Do a monthly check of your credit score. If your score starts to fall below 750, take remedial steps like paying back your dues.

Strengthen

Look around you. There are enough get quick rich schemes going around. Cryptocurrency is all but illegal now. There’s a boom in online trading and there’s no shortage of investment advice. There’s a fear of missing out in real estate as well.

Now, if your finances are to get stronger, you must invest. And some investment methods are more reliable than others. For instance, data shows that it’s hard for the average investor to beat indices such as the Nifty 50 and Sensex, and therefore, it’s much easier for them to create wealth with a plain vanilla index fund.

Before you do that, do evaluate your life goals, investment plans, risk appetite, time horizon, and the ability to invest. In 2023, take the time to set yourself clear, achievable financial goals, and the right investment vehicle to achieve them. For example, home ownership is important to Indians. You must think about how you are going to finance your home.

Serenity

The previous four Ss are verbs. This S is a noun. It’s a destination, an end, a state of mind. There are lots of things detrimental to your peace of mind. Take for example, the rising instances of digital frauds and phishing attacks. People transact with UPI, cards, and netbanking. Infosecurity is financial security today. You must educate yourself about evolving risks to keep your money safe.

At the same time, learn about compliance needs as well. Nominating your accounts properly is a step in that direction. If something were to happen to you, your loved ones would be able to access your bank or investment accounts as you intended them to.

Financial serenity needs to last for your lifetime. You are probably going to live longer than your ancestors, thanks to advancements in life sciences. Therefore, you’ll need your money to last for that lifetime. Pay special attention to your retirement fund. Let 2023 be the year when you get all the above right. All the best!

The writer is CEO, BankBazaar.com, and author of ‘The Bee, The Beetle, And The Money Bug’ — a book on personal finance