7 money moves to make as a new financial year begins

The beginning of a new financial year is the perfect time to review your financial position across various important parameters. Apart from looking back at how well we managed our finances last year, we also identify key improvement points that we need to work on during the year. You will be saving and taking investment decisions that will define your future net worth. You will also invest some amount in tax-friendly investments as a part of your annual tax planning exercise. There will be some amount of planning required to optimize your repayment strategy as well. An assessment of your insurance coverage and a relook at your financial budget should also be done at least once a year. By doing these exercises at the beginning of the year you get to work upon them for the full cycle of twelve months.

1. Look back to move ahead

It is always recommended to look back at your past performance to get a better view of what lies ahead. As the previous financial year passes by, it is worthwhile to take a look at your financial state of affairs and major money moves during the year. Chances are that you will have to update your budget to align these developments or take new financial decisions based on them. It could be expenses made over the budget, investment made without due diligence, health expenses beyond insurance coverage and so on. If we are to improve our financial management in the future, we need to look back at what went wrong in our previous financial years. This retrospection often forms the bedrock of our new financial year decisions.

2. Review your portfolio

2020 was an eventful year, even financially. The stock market started the year on a back foot and recovered till around February of this year. Gold experienced a golden run during the first wave of the pandemic, while interest rates shrunk significantly. In light of all these developments, the beginning of FY22 is an opportune moment to review your investment portfolio. If you notice funds stuck in underperforming investments you can switch them to asset classes that showed promising signs. By all probability, you may have made some of these decisions even during the year. For instance, withdrawing funds from debt instruments to invest in gold in the middle of last year. In any case, these decisions should be calculated well and taken after due consideration. Any common investor should always consult a financial or investment planner and act after receiving their guidance. These experts study the market and financial instruments from different angles and are often better positioned to align your investments according to your financial objectives.

3. Plan your tax savings

Individuals opting for either of the two tax regimes should plan their tax savings at the beginning of the year. This allows you to spread over your tax-friendly investments across the duration of the year and maintain consistency in your saving habits. If you opt for the old regime, you can avail of the deductions under section 80 C to 80 TTB, apart from the exemptions of the various allowances, like house rent, transport, child education etc. In the new regime, tax savings are mostly limited to the exemption of investment incomes like LIC, PPF, NPS, leave encashment etc. and employerʼs contribution to EPF and NPS. Do note, although tax-saving opportunities are lower in the new regime, the lower tax rates compensate for this loss of opportunity. Deciding on your tax savings in February and March cause unnecessary strain on your monthly finances and may lead to poor investment decisions, particularly in the case of the old regime. Besides, if you opt for any monthly contribution schemes, deciding at the onset of the new financial year ensures that you complete all 12 contributions that can be made during the year.

4. Strengthen your rainy day fund

The pandemic was a timely reminder that one cannot take finances lightly. While some lost their jobs overnight, others faced pay cuts, and almost everyone bore the brunt of a stagnating economy during the lockdown. In times of such crisis, having a sizeable emergency fund can help us to sustain even without income. Building a rainy day fund is a basic financial practice. This fund should be built over time and in a gradual manner. Even if you have such a fund, this year you should aim to strengthen it further through additional savings. Crises like the pandemic are times of grave uncertainty, and a decent emergency fund can be the much-needed reassurance in such scenarios.

5. Insurance, ensured!

The need to review your insurance needs periodically was always there. Your financial importance towards your household changes, as does the financial needs of your family members. A life cover takes care of your family in your absence, and the sum assured should serve this purpose adequately. You have to consider the sum assured from the point of view of covering all of your financial goals, even in your absence. This could include childrenʼs education and higher studies, their marriage, and the livelihood and sustenance of your spouse. Similarly, health insurance needs to be relooked particularly due to the rising medical costs. During the pandemic, the entire family needed medical attention in many cases. This too has raised awareness among people towards health insurance.

6. Manage debts better

If you have a set of liabilities that you need to repay and EMIs that show up every month, you must have a repayment plan. To maximize your savings, try to settle the expensive debts first, and then proceed to the ones with lower interest. So, if you have a low-interest home loan and a massive credit card bill, you should get rid of the latter first. You will save the 35-40% interest which is typically charged by credit card companies. A secured loan with 7-9% interest, on the other hand, can be allowed to run its course for the time being. So typically, it would mean settling your outstanding credit card dues, personal loan, secured loans like auto and home loans, and interest-free loans from friends and family – in that order.

7. Review your budget

Once you have chalked out a financial road map for the year, it is also time to revisit your budget. Changes in investments, savings, insurance premiums and debt repayments would alter your cash outflow. Your inflow too may have changed due to job appraisal, bonuses and incentives. Reviewing your budget may not lead to tightening your purse strings, it may even allow you to splurge a bit if you have a decent spike in your cash inflow. Therefore, a new financial year also calls for a redrawing of the monthly budget and sticking to it thereafter.

While planning the major money moves for the financial year, make sure that you donʼt lose sight of your long-term financial goals. All the short and medium-term planning that you do for the financial year should be aligned to your long-term objectives. If the options leading to a particular financial decision puzzles you, it is always wise to take the counsel of a financial expert who can guide you in all financial matters.

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