April marks the start of the Financial Year 2019-20. I’s the time to take decisions that would help you finish the year financially stronger.
April marks the start of Financial Year 2019-20. I’ve often said April is the best time of the year to take stock of your finances. It’s the time to take decisions that would help you finish the year financially stronger – with higher savings, better returns on investments, greater protection through insurance, and a smart tax saving plan. Let’s take a look at 5 steps you should take in April.
Create A Budget & Clean Up Finances
Take stock of your expected income for the year. Also look at priority expenditure for the year – rent, insurance, EMIs, children’s education costs, healthcare, nutrition, utilities etc. Look at discretionary expenditure such as eating out, lifestyle, travel etc. The key is to make meaningful allocations towards priority items, find ways to reduce expenditure, and increase savings and investments in any manner possible. For example, you may have a DTH connection along with online video streaming subscriptions. Pick one option, cancel the others, and save some money. Part of your budgeting process is also about setting goals and allocating money towards the achievement of goals. Goal-setting is the first step towards any investment, and the start of the financial year is a good time to set goals – be it buying a car, taking a holiday abroad, or saving up for retirement.
Prepare A Tax Plan Now
April is the best time to prepare your tax plan. This is an extremely important part of your finances. You should not leave it pending for the final months of the financial year. Often, people ignore tax planning through the year and then end up making poorly-thought, hurried financial decisions as the year-end deadline approaches. If you plan your taxes well, you’ll be able to get better returns on your investments, ensure better health and life coverage for your family, and be able to save more taxes. Therefore, consult your tax advisor and create a tax-saving plan now.
Save & Invest Every Month
Just like tax-planning, investments and savings are also not to be left for the year-end. They should be monthly exercises. This would distribute your investment contributions over the year, and you would be able to avoid the strain of making lump sum investments near March. For example, instead of trying to invest Rs 1.5 lakh near March, why not invest Rs 12,500 every month? You could invest in an ELSS mutual fund or PPF to save taxes. You could also open an e-NPS account and increase your tax savings. If you already have an investment plan, consider stepping up your investments in line with your salary hike. Let’s say your salary is increased by 10% this year. Therefore, you should step up the investments by 10%. This would accelerate your wealth creation goals, helping you invest more and possibly retire faster as well. Lastly, take stock of your emergency fund and top it up in a meaningful manner. This fund should have at least 3-6 months’ worth your current income in a fixed deposit, and should be touched only during emergencies.
Top Up Your Coverage
The start of a new financial year means you must take stock of your existing insurance coverage. If you or any of your family members don’t have health insurance, get a policy without wasting further time. If you’re a dependent and don’t have term insurance, get a policy and secure the long-term income needs of your dependents. If you own insurance, examine the need to top up your coverage to bring it at par with your current lifestyle and income needs. For example, you may have a basic term plan cover of Rs 50 lakh but you’ve become a parent recently and therefore you should consider boosting the coverage to Rs 1 crore for higher protection for your family. Similarly, you may have a basic health insurance policy of Rs 5 lakh, so you can consider getting a super top-up policy of another Rs 10 lakh.
Prioritise Debt Payments
Lastly, take stock of your existing debts. Your debts may be one or many. For example, you may have concurrent home and car loans, along with credit card debt. Prioritise repayments to get out of debt sooner and to save on interest costs. You should ideally start with the costliest loan. Normally, this is credit card debt where the annualised rate of interest may be as high as 50-60%, which is astronomical compared to a home loan (around 9% currently). Once you’ve repaid the costliest debt, move to the next costliest debt, and periodically divert your savings to your loan account to repay it in full as soon as you can.
With these simple yet essential steps, you’ll begin the financial year on a strong note and end it wealthier.
(The writer is CEO, BankBazaar.com)