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They say there is never a wrong time to do the right thing. That’s true even when it comes to your finances. There is never a wrong time to start saving, planning, investing, evaluating a portfolio, and so on. If you were waiting for the right push, the beginning of a new financial year is a good time to make a move.
While a new calendar year gives you the perfect opportunity to sort your life on the personal front and make resolutions to live by, a new financial year gives you a chance to put your financial life in order. Here are five financial resolutions that you can make at the start of FY20 that will help you stay financially fit for life.
Make tax saving part of financial plan
Most planners believe that tax planning is an integral part of a person’s overall investment plan and both should be in sync with each other. “Many taxpayers invest in an ad hoc manner at the fag end of the financial year. As a result, they lose an opportunity to make these investments count in their wealth creation process. The start of a new financial year provides them an opportunity to change that and make tax-saving investments an integral part of their plans," said Hemant Rustagi, chief executive officer, Wiseinvest Advisors, a financial planning firm.
Then there are other practical matters. Postponing tax saving to the end of the financial year will not only disrupt the cash flow for the month but also give you little time to think holistically about your money life. If you start planning from the beginning of the year, you can solve both problems. You can distribute investments through the year and manage your cash flow efficiently. Besides, “planning early also gives you the time and option to evaluate your investments through the year and make necessary changes," said Vijay Kuppa, co-founder, Orowealth, an advisory and online investment platform.
Moreover, new rules for taxation and deduction come into play in the new financial year. Also, since this is also the time when companies appraise their employees, a lot of you would be getting a salary hike in the same period. Once you have all the information and the extra income, you can plan your investments accordingly.
“This is the time when tax planning should be looked at for the next financial year. Since salary revision would happen for most of you at the start of the financial year, this is the time to check course and make any required corrections or new additional savings etc," said Lovaii Navlakhi, managing director and chief executive officer, International Money Matters Pvt. Ltd, a financial planning firm.
Review insurance need
Adequate insurance is a must. Remember, your risk coverage need does not remain constant; it changes with different aspects of life like when you get married, when you have a child, when you borrow, acquire assets, your age and so on. “Insurance is an important aspect of risk management and hence one must be adequately insured," said Rustagi.
It is important to increase life and health insurance covers if there is a need to do so. You should start by reviewing your insurance needs. “If one has been following a strategy of mixing one’s investments with insurance and has accumulated a number of policies, it’s time to change that. Remember, it’s not the number of policies but the quantum of risk cover that is the key for risk management. A term plan is an ideal product to reduce costs and to ensure adequate risk cover," added Rustagi.
Monitor cash flow
Managing cash flow is the most important aspect of your financial life. It’s essential to keep track of your income flow and avenues of expenses.
Often people find it difficult to invest because they don’t have a clear idea about how much they can save, and this is because they do not know how much they spend in a month or a year. Only if you track your expenses can you identify the unnecessary or avoidable ones, and figure out how much you can save.
Financial planning is not a one-time process; you need to keep revisiting your plan time and again to evaluate it. As financial goals change, you may need to make changes to your investment portfolio. “Your earlier investments may or may not completely resonate with your objectives for this financial year. Thus, reviewing and rebalancing your portfolio according to your investment objectives is recommended," said Kuppa.
The start of a new financial year can be a good time to rebalance your portfolio. Remember that there was a lot of volatility in the equity as well as debt markets last year, and it may have changed your asset allocation. “Since asset allocation plays a key role in determining the potential return and the attendant risks, it must remain relevant through one’s defined time horizon. Considering that asset allocation changes over time, the start of the new financial year can be a good time to rebalance it, if required, in a tax-efficient manner. Since the portfolio is structured to meet a particular risk tolerance, it may suffer ‘risk drift’, if not rebalanced," said Rustagi.
Avoid speculative investments
In financial markets, speculation refers to short-term trades with the intention of making quick gains. The positions are often leveraged and risky. Often investors take an investment call based on tips or advice from friends, relatives or colleagues or even based on their own understanding, but such speculation can backfire. “Avoid too much experimentation during periods of uncertainty as it can spell disaster for one’s financial future. A simple strategy to avoid making ad hoc decisions is to stay focused on your investment goals. It automatically irons out indiscretions from one’s investment process," said Rustagi.
Even seasoned investors need to relook at their investments and portfolio at fixed intervals, and the beginning of a financial year can be a good time to do so.