There is something novel about stepping into a new year. Renewed money resolutions and revived investment objectives occupy everyone’s minds as they vow to spend the new financial year on a relatively sound fiscal note. Despite being careful about money matters, many people have shown a mad rush to invest in tax-saving instruments before the stipulated March 31 deadline.
A new financial year must be synonymous with new beginnings, which means that you must plan your investments intelligently. It’s high time to organize finances to create wealth, and not with the lone intent to save taxes. Systematic handling of finances not only enables the creation of the desired corpus but also saves on taxes intelligently.
Setting your financial goals necessitates a careful look at the existing financial plans and reviewing them regularly to check if they are performing in sync with your expected rate of return. This new financial year, focus on the following ways to organize your finances.
Modify your investment mix
The market volatility in the past year has changed a lot in markets. The relative performance of the market in the previous year vis-à-vis the market performance before that has underscored the need to periodically review investments. This will help you understand whether your current investment mix including stocks, mutual funds, debt fund instruments, and cash and cash equivalents is enough to meet your investment goals or if you must alter your proportion of investments.
If you have experienced any financial anomaly in the past year, it is time to review your investment journey and resize your target mix. Sudden considerations like the decision to retire early, plan for marriage or children, a drop in annual income due to job loss, etc., necessitate you to relook at your investments and decide if the current investment mix is enough to meet future requirements.
Tax saving instruments
Why should you plan your taxes at the last moment when you have a whole year ahead of you to plan investments that help you save on taxes as well? To start with, you can choose from a pool of investment options depending on your risk aptitude. For example, if you are completely risk-averse and do not aim for market-linked returns, you can park your money in Public Provident Fund (PPF), employee provident fund (EPF), tax-saving fixed deposits, life insurance and more.
However, if you do not mind taking in a little bit of risk, you can opt for a low-cost unit-linked insurance plan (ULIPs) that allows you to allocate your money in the desired proportion between equity and debt. Also, ULIPs come under the umbrella of EEE (exempt-exempt-exempt), which means that both the premium and maturity amount are exempt from tax. You have the choice to pay towards ULIPs in both lump sum and systematic investment plans (SIPs) depending on your finances.
Finally, the most sought after option by millennials and today’s generation are equity-linked savings schemes (ELSS) that allow you to invest in equities and earn market-linked returns while claiming deduction under Section 80C of the Income Tax Act on premiums paid towards the schemes. Depending on your understanding of investments, you may park your money in either one or more ELSS fund schemes.
Identify the amount you save on taxes through ELSS at the beginning of the year. This will save you from the burden of paying in lump sum towards the scheme at the end of the year. Instead, you can invest through SIPs throughout the year. This way, you not only benefit from the cost of averaging but continue to invest in instalments during the year.
Avoid falling prey to Finfluencers
Social media is becoming increasingly relevant to people interested in content on finance. However, do these channels assure credibility in the information that they are sharing? The pandemic forced most of the world to work indoors and threw open the doors of various online platforms looking for an outlet to showcase their content. The number of impressions grew with more people taking interest in how to earn passive income through shares and stocks. Taking advantage of the boom, many fraudsters created their media handles to share unsolicited stock tips, thus, influencing many people to buy their choice of stocks and then dumping them without notice.
In January 2022, the Securities and Exchange Board of India (SEBI) cracked down on a stock recommendation scam illegitimately influencing people through Twitter and Telegram. The idea behind apprehending these culprits was that they had been using social media channels to manipulate stock profits and book illegal profits. The SEBI issued a show-cause notice explaining how many gullible investors had fallen prey to these scams synonymous with the classic “pump and dump” scheme.
Avoid credit card overspending
Do you know the disadvantage of carrying credit cards in your wallet? You walk into a store with an idea to buy something, but before you realize you bought have 10 different things that you are paying for using your credit cards. The urge to spend and earn cashback on credit card offers is often a major cause of impulse buying.
For many spending is a way to seek relief from pent up anxiety. However, overspending with your card can result in huge credit card balances that will hurt your credit score in the long run. The burden of subsequent interest and debt makes it difficult to repay the balance amount, thus, pushing into further and recurring debt. Your accidental and unwarranted indulgence will force you to live a reality steeped in the obligation to pay money to the credit card company (bank or any other financial institution).
The Buy Now Pay Later (BNPL) scheme may seem like an alternative lucrative scheme to credit card use with lower interest rates and flexible payment options. However, too much dependence on these cards will result in an unwanted liability that you may have to repay from your savings.
Review your insurance needs
If you still rely on your corporate health insurance, it’s time to look beyond. This is because the increasing expenses on hospitalization and subsequent medical treatment can make a dent in your savings. This financial year, have a careful look at the medical needs of your family, their pre-existing disorders and how prone they are to various illnesses. Decide on an appropriate medical cover based on your understanding of how much you may need to pay for their health expenses in the future.
Life insurance is another aspect that many ignore. Your sudden death can spell financial ruin for your family. While there is no way that your physical absence from your loved ones’ lives can be compensated, the insurance amount can surely help them to repay any debt and liabilities while also taking care of their daily expenses.
Financial planning necessitates a lot of planning and contemplation. Since it has a deciding effect on your finances in future, it would be advisable to seek the help of a personal finance manager who will help you decide on the right kind and amount of investment.