The Financial Year 2018-19 has just started and with this it is also time to do your tax and investment planning for this year, particularly if you are an income tax payer. Where to invest, how much to invest – you have to plan all these things in a bid to save income tax. Along with this, you also need to plan your finances – like creating an emergency fund and consolidating your debt – to keep your financial house in order as well as to meet your future financial goals. For, saving and investing without any planning won’t serve any purpose, nor that will help you accumulate a sizable nest egg for your retired life.
We are, therefore, taking a look at 5 investment and money management strategies for this financial year as well as also for the future:
1. Create a financial plan: Creating a financial plan is the first step towards your financial well-being. If you haven’t created one yet, start by identifying your financial goals and devise an asset allocation strategy for them based on your investment horizon and risk appetite.
2. Maintain adequate emergency fund: Emergency fund provides a financial cushion to deal with unforeseen financial emergencies arising from job losses, illness, accident, etc. “Without an adequate emergency fund, you will be forced to redeem your long-term investments or avail loans at high interest rates. Therefore, create an emergency fund consisting at least six months of your mandatory monthly expenses, such as your daily spends, insurance premiums, existing EMIs, rent, children’s school fee, etc,” says Naveen Kukreja, CEO & Co-founder, Paisabazaar.com.
3. Buy adequate insurance cover: Ideally, your life insurance policies should cover at least 10–15 times of your annual income. However, as most confuse insurance as an investment tool, they invest in insurance policies that provide very little cover and generate sub-optimal returns. Instead, opt for pure term plans as they provide large life covers at very low premiums. Also, ensure to buy health and personal accident policies to insure yourself against high medical costs and disability.
4. Start ELSS SIPs right from the start of financial year: Most taxpayers tend to procrastinate their tax-saving investments till the last quarter of the financial year. This leads them to make hasty decisions and end up with sup-optimal tax-saving investments with higher lock-in period and lower post-tax returns. Instead, “investors should find out the scope of saving tax under Section 80C at the start of the financial year and distribute it equally among the direct plans of 2-3 ELSS funds through SIPs for the entire financial year. Among all tax saving instruments, ELSS has the lowest lock-in period of 3 years and delivers highest returns over the long term. Opting for the SIP mode will help in cost-averaging during falling markets, derive greater benefits from power of compounding and avoid straining cash flows during the last quarter,” says Kukreja.
5. Consolidate your debt: Increased access to retail credit has led many to avail multiple loans, leaving them with very little for their financial goals. The best way to deal with such scenario is to consolidate your existing multiple debt into a single one with lower rate, longer tenure and other favourable terms.
According to Kukreja, home loan balance transfer and top-up home loans would be the best option for the existing home loan borrowers while others can consider loan against property, personal loan balance transfer or loan against securities, according to their loan eligibility.