For those who have already made up their New Year financial plans, they are faced with a pertinent question: “Would there be a provision to avoid financial mistakes of the past?” Here are a few ways to improve the personal finance planning and make up for the lost time and money.

Insurance management
Insurance products form a key component of an indivudual’s portfolio.

Not having insurance and not buying it at the right age: An insurance policy bought at an earlier stage has more benefits in terms of security of interests than the one bought at later stage, say, 35 years of age. For instance, buying insurance when your kid is still younger is the best way to build a corpus for your kid’s higher education.
Solution: Instead of looking at it as a just a tax-saving tool, estimate the financial security that is associated with it for you and the family. Identify your financial goals: Children’s higher education, marriage, retirement, or even buying a valuable asset. Choose an insurance plan depending upon the amount of monthly premium and how long would you like to pay for those premium.

Tax saving
Delay in the tax saving investment activities: Some people take tax-saving as an annual event. Instead of creating a budget with no room for tax payment, plan in advance and put a small money in, for example, Public Provident Fund (PPF) every month.

Investing heavily in FDs and NSCs: Interests earned on FDs and National Saving Certificates (NSCs) are taxable as per to an individual’s tax slab. The biggest mistake made by people is putting a large chunks of money into a five-year FD or buying more NSCs because interest earned is post-tax and thus, less than the rate of inflation.

Home loan
Planning to buy a house on loan? You should not repeat the mistakes people made in 2014.
Borrowing too much: Most home buyers make a mistake by taking loan that is much bigger than their affordability. Do a simple calculation and do not pay, at any cost, more than 40% of total income in EMIs of all the loans.
Signing on a wrong home loan: Ever heard of teaser loans? It was a scheme that banks introduced when rates were climbing. To encourage borrowings for the first home, banks charged a lower fixed interest rate, say around 8.5% for the initial few year. After that, it becomes a floating interest loan according to the prime lending rate or the base rate of the bank. You may take a loan expecting that when the loan shifts from fixed rate to floating rate after the initial two years, rates would start a downward trend. However, such situations are unpredictable and have no back-up plan. It is advised not to opt for such an option.

Taking home loan without insurance cover: An important aspect overlooked by many people while taking home loan is a home loan protection plan. Do not let the loan be a burden on your family in case anything happens to you. Or if you do not plan to have a house loan insurance cover, you must have a proper life insurance which shall provide for the EMIs and other borrowings in your absence.

Mutual funds
Here are a few common mistakes that people make while investing in mutual funds.
Not having an investment perspective: If you are planning to invest in a particular mutual fund just because your friends have invested in it, you may be inviting a big financial trouble. What most people do is select a mutual fund without assessing their goals. These financial goals are important in deciding your investment portfolio: Debt, equity and gold. For example, if you require a long-term investment for, say, your daughter’s marriage after 10 years, you should not go for a short-term debt fund.

Not keeping the objective of fund in mind: As it is, each mutual fund comes with a specific purpose, which you can find in the Scheme Information Document (SID) or Key Information Memorandum (KIM). Now, your personal objective must match the investment objective. It is only then that you will be able to gain. For example, the objective of an equity fund is to generate capital appreciation in long term; on other hand, the objective of a debt fund is to maximise the income.

Adhil Shetty

The writer is CEO, BankBazaar.com