Budgeting is among the cornerstones of financial planning. Only once you have a clear idea of your income and expenditure, can you plan your finances for the future. For this step, prepare a list of expenses you are likely to incur in the coming year and segregate them based on your wants and needs. Retain the necessary ones, and cut the ones you think don’t add value to your life. Don’t forget to account for your investments when budgeting. This exercise will give you a good idea about the amount you will need to live reasonably and fulfil your life goals.
The new financial year is a good opportunity to review your previously-set goals and re-align them based on your income and career progress. Revisit your goals, and filter them based on your current and future needs. Note down the goals you want to achieve this year and assign them a reasonable deadline.
For example, setting up an emergency fund or saving up for an upskilling course are short-term goals that may be achieved in up to 2 years. Saving up for your children’s education or marriage are examples of mid-term goals that can take anywhere from 5-7 years. Buying a house or planning for your retirement are long-term goals which typically stretch over a longer period of 20 or more years.
Only once you have your goals laid out can you start planning your investments which will help you in achieving them.
The next step is to identify instruments that will help you achieve your various goals. While doing so, keep in mind to include tax-saving instruments in your portfolio. Ensure that your portfolio is diversified to mitigate risk and maximise the returns your investments have to offer. To save tax, you may explore options, such as Public Provident Fund (PPF), tax-saver bank FDs, Voluntary PF (VPF), ELSS, etc.
Upon embarking on your investment journey, make sure you regularly review your investments and increase them as your income goes up. For example, if you have invested in a SIP of Rs.1000 in 2022, hike your investment by 10% or more in 2023, as your income increases.
A systematic and disciplined approach to investing can fetch you the best results in the long term. The mantra is simple. Invest regularly and consistently. Don’t stop investing or withdraw when the markets are volatile, especially in the case of SIPs.
Uncertainties, big, or small, are a part of life. It is important to be prepared for them. If you do not have one already, start building your emergency fund. Ideally, this corpus should be equivalent to up to 9 months of your monthly income. To ensure quick access to this money, you can explore options such as savings accounts or fixed deposits that offer easy liquidity.
Frequent rate hikes have already taken interest rates to pre-pandemic levels, adding to borrowers’ debt burdens. With loan EMIs and tenors ballooning, simply paying EMIs is no longer enough. Try pre-paying 5% of your loan each year to save on EMIs and lower your tenure. You may also explore refinancing to save on interest, now that spread rates are trending at new lows of 1.95. Don’t ignore Credit Card bills, pay them in full, on time. Timely repayments will boost your Credit Score and creditworthiness, making it easier for you to access credit in the future.
Being adequately insured is another tenet of efficient financial planning. Life and health insurance are two essential products which increase your preparedness for financial emergencies. Life insurance helps replace your income, thus keeping your loved ones financially secure in the event of your sudden demise. Health insurance, on the other hand, helps cover medical expenses which, in today’s time, can easily dent your savings.
Your life insurance coverage should ideally be 10-15 times your average annual income. Health insurance coverage should be decided based on factors such as your family’s medical history, age, and lifestyle habits. In the case of both these policies, you must review them regularly and adjust their coverage based on your income and your family’s needs.
The new financial year is a great time to start afresh. The steps listed above can help you build a strong financial foundation that is sure to serve you well in the years that will come.
This article first appeared on Indian Express.
