The 31st of March just passed. Did you have a stressful final month of the previous fiscal year? Do you frequently choose the wrong investments to make in order to save money on taxes? You are in the right place if your response is yes. We’ve given you advice on how to organize your personal finances in the upcoming fiscal year in this blog.
The study of resources, both personal and family, that can be seen as significant from a financial perspective is referred to as personal finance in the book “Personal Finance” by E. Thomas Garman and Raymond Forgue. These financial resources must be used, saved, safeguarded, and invested.
Key Aspects of Personal Finance
Lack of knowledge is the main factor in why most people fail to create good financial plans. Even though people put a lot of work into managing their finances, they frequently miss crucial details. We will talk about the five most important facets of personal finance in this part.
Saving
“Don’t save what’s left over after you spend; spend what’s left over after you save,” advised Warren Buffet. This is some excellent advise, no doubt. The financial catastrophe will not always strike you at the same time. It is therefore best to continue to stay organized.
Savings enable you to remain composed in such circumstances and seek a solution. Experts recommend that you save enough money to cover your costs for six months.
A “Saving account” used to be the favored method of saving. However, more consumers are turning to debt instruments like liquid funds recently to save money.
This change is due to a variety of factors. Liquid funds are primarily associated with low credit and interest risk. Additionally, it is simple and quick to withdraw money. Additionally, although there is no assurance, these funds provide you higher returns than your savings account.
Investing
Successful investing, in the words of Benjamin Graham, “is about managing risk, not avoiding it.” Saving and investing are often equated, according to many individuals. They are not, in fact.
You use your money to generate additional money when you invest. The market offers a variety of investment opportunities, including stocks, real estate, and mutual funds.
Divide them into short-, long-, and mid-term goals in order to select the best investment possibilities. Choose the choice that best fits your needs, horizon, and time frame.
Financial Protection
According to WHO, the foundation of Universal Health Coverage (UHC) is financial protection. It provides you and your loved ones with a safety net if it is wisely chosen. The key to avoiding financial hardship is to ensure prepayment and resource pooling.
Financial security makes sure that these unplanned events don’t interfere with your savings and investing goals. Insurance is a traditional kind of monetary defense. Basically, an individual must have one of four different types of insurance coverage. They are Personal accident insurance, Term insurance, Health insurance, and Mortgage Protection.
Tax Plan
By selecting the appropriate assets and purchases, you can minimize your tax. To reduce your taxable income, you might use one of the over 70 exemptions and deductions available in India.
The Income Tax Act’s Sections 80C and 80D may enable you to make significant income tax savings. If you invest in certain tax-saving vehicles like EPF, PPF, NPS, NSC, etc., you may be able to lower your taxable income under Section 80C.
The money you spend on the premiums for your family’s health insurance, on the other hand, can be deducted from your taxable income under Section 80D.
Retirement Plan
We can’t put off retirement planning for another time, said the speaker. Planning is now necessary. Bob Reid has rightly outlined the necessity of a retirement plan in this instance.
You should begin making plans for your retirement right away unless you intend to burden your children. This is actually because you can never predict when your employment may end.
A retirement plan is much more necessary now that people are living longer and inflation is more frequent. The best course of action might be to invest in stable income streams. Consider life insurance annuities, rental income, and mutual funds while making your retirement plan decisions.
How to Organize Your Personal Finance in the New Financial Year?
We are prepared to organize our own finances now that we are aware of the crucial components. We’ve included some advice to assist you in setting up your personal finances for the upcoming fiscal year.
1. Start Early
The proverb “Haste makes Waste” You may undoubtedly connect to this statement if you have ever attempted to manage your money and investments in the final month of the fiscal year. Not just you, but investors are impatient during the last-minute rush. The likelihood of choosing incorrectly is therefore greatest. So it’s best to start planning your budget now rather than waiting until March. Making thoughtful selections is aided by getting started early. In April, specifically, put your financial plan into action.
Better to begin at the start of the new fiscal year if you desire to invest in PPF or SIPs in your equity-linked saving schemes (ELSS funds).
2. Plan your Budget
It’s crucial to budget your money. At the beginning of the year, make a plan for your spending and savings. To choose wisely, review your earnings and outgoings from the preceding year.
Your cash flow should be determined in accordance with your financial goals. Try to prepay your loans, at least in part, if you’ve gotten a sizable bonus. In determining our financial strategy, our income and goals are crucial factors.
Your expenditures would be easier to track with this. So you can balance spending and saving, respectively. Using smart spending tools like credit cards, loyalty programs, or some apps may be a choice if reducing your spending is not an option.
Compare yourself to your budget from the previous month. You’d become a more savvy consumer as a result. Dedicate yourself to setting and achieving goals.
3. Create an Emergency fund
This is the fund that will help you take care of the unexpected expenses in “just-in-case” situations. Usually, financial experts advise keeping 20% of your every paycheck in this fund.
As per Forbes, you can create an emergency fund by simply following a few steps. They are:
- Setting up a target date to start your fund.
- Reallocating some amount from existing assets.
- Drawing a monthly commitment.
- Creating a separate account for gathering.
- Channelize extra income towards this fund.
4. Determine your insurance needs
Insurance serves important needs rather than just being a tax-saving tool. Checking to see if you have enough insurance coverage at the start of the new fiscal year is a good idea.
Your insurance coverage should, in the opinion of financial experts, be ten times your annual salary. Reviewing your insurance requirements in light of your evolving life goals is also crucial, for instance, if you intend to get married, have a child, or purchase a home.
India’s population is shockingly uninsured, according to a Swiss study. Nearly 83% of the population is not protected. In other words, if the Rs. 100 insurance cover is required, the policyholders will only spend Rs. 17.
You can also utilize Human Life Value (HLV) tools to determine whether your insurance coverage is adequate. You can use these online calculators to determine your financial needs by taking into account your responsibilities, advancements, earning potential, and age.
5. Review your investment portfolio
It is always a great idea to review your investment portfolio at the beginning of the new financial year. Track the market performance of your existing assets to understand how it has changed since last year.
Readjusting your investment strategy is especially important if you have experienced any major life changes in the last year. For example, if you are nearing retirement, you may want to invest in a good retirement plan. Evaluate your needs and invest accordingly.
6. Plan to spend your annual bonus
Do not allow the money get frittered away if you received an annual bonus. Be sure to budget your money. For instance, you can partially or fully prepay a debt if you have one. Or, if you have kids, consider using the bonus money to invest in a solid kids’ plan.
Even if you don’t have any such liabilities, you still shouldn’t go over budget and waste that money. Consider directing it toward your emergency savings or fund. This will enable you to reach your financial objectives.
7. Plan your taxes
It’s a good idea to start your new fiscal year by organizing your taxes. The financial discipline includes it, in fact. Once you’ve determined your tax bracket, you can start tax planning. According on one’s income level, there are several tax rates. Your tax outlay can be quickly determined if you are aware of your tax slab. Your need to reduce your tax liability will be determined by this.
Consider your current tax-saving investments before analyzing the potential for decrease. The maximum amount that can be reduced in tax outflow makes this significant.
You can choose from a variety of tax-saving tools, including tax-saving mutual funds, PPF, NPS, and more. Rather than doing it in the last month of the year, it is crucial to spread out your tax investment across the entire year. It’s crucial to recognize that your financial objectives must come before any investing goals, and that investments should not be made with the intention of reducing taxes.
8. Limit your debts
It sounds easier said than done. Anyways who wants to remain in debt? It just happens. However, as per Central Bank, there are certain strategies to keep your debts in check. They are:
- Do not buy anything which you cannot afford without a credit card.
- Completely pay off your credit card balance, every month.
- Focus on your needs not wants.
- Plan your budget as per your financial goals and requirements.
- Limit the number of cards you own.
- Maintain a master sheet to track your expenses.
9. Monitor your credit score
In the modern world, it is practically hard to live without a credit card. It is necessary for properly managing your credits, though. If you want to borrow money or mortgage a house, you need to have a good credit record. For this, you should strive to preserve a low credit usage ratio or at the very least, pay off your bill each month.
Nowadays, the FICO (Fair Isaac Corporation) score is the most widely used credit score. Your FICO score is based on your payment history (35%), credit history length (15%), debt to credit limit (30%), credit mix (10%), and recent credit (10%).
Getting monthly updates on your credit score from credit bureaus that you can subscribe to is another smart move. This will aid you not just in seeing errors but also in spotting any fraudulent behavior.
10. Maintain financial records
Maintaining order in your financial documents is crucial at all times. Later on, you can use this to track any inconsistencies. Traditionally, you would keep all of your bill and payment receipts in a folder or drawer. But this raises the possibility of overlooking or forgetting one or more of them.
There are several apps you may use right now to manage your finances. You can distinguish between the old bills and receipts using these web services. A reminder system for upcoming payments is available as well. By doing this, you can avoid the inconvenience of having to search through each document in your folder to find one.
Conclusion
Therefore, it is important to understand the five key aspects of personal finance i.e. savings, investment, financial protection, tax plan, and retirement plan before you start to plan. Moreover, organizing your personal finance in the new financial year using the tips mentioned above would certainly help you get more out of your available assets.
Hope you enjoyed reading this article and learned something. Keep visiting for more fun and knowledge.
FAQs
How do I write a financial plan for the new year?
Start early, create an emergency fund, plan your taxes, and monitor your credit score.
Which financial plan should be set first?
Your top objective should be to create an emergency fund because you never know when a crisis will strike and leave you in debt.
What is the 50 30 20 budget rule?
The 50-30-20 budget guideline states that you should set aside 20% of your income for savings and 30% of your income for expenditures.