It is the start of a new financial year when new tax rules come into force and most of us get appraisals. Altered cash flows due to income and taxation changes make it the perfect time to review your finances and create a plan for future. However, if you are not sure about where to start, here are seven easy and smart money moves that will help you organise your finances for the next financial year and beyond:
Buying at right Valuation
Buying a house can be profitable when you are doing it at right valuation. In this regard it is very important to mention an interesting answer to this question by a Rajeev Shah, a stock broker with Angel Broking. “Buying a property is like buying a stock. Just because you own a bluechip company stock will not make your portfolio attractive. You should buy the stock at right valuation and know when to exit. Then only its profitable else if becomes a messy affair,” he added. For instance if your monthly income is between Rs 70,000 - 80,000, and if you are planning to buy a property if will be a better deal only if you are buying a property which is between Rs 40 Lakh-Rs 45 lakh. Also more time you live in your house, more profitable it will become. So earlier you buy, better it is.
Create an adequate emergency fund
Like in most aspects of life, the saying ‘Uncertainty is the only certainty’ applies to personal finance as well. Despite the best efforts, life can throw some unpleasant surprises in the form of loss of income due to unemployment or disability or other unforeseen events. Such exigencies mostly lead to availing costly loans or redeeming existing investments, thereby jeopardizing your financial goals. Instead, maintain an emergency fund that can meet with your mandatory expenses for at least six months.
Follow an appropriate asset allocation strategy
Asset allocation is the process of diversifying your investments across various asset classes, such as cash, debt, equity, instruments and gold. As its main objective is to derive optimum returns based on your risk appetite, investment horizon and income tax slab, asset allocation strategies would differ from person to person. For example, as equities can be very volatile in the short and medium term, an investor with a moderate risk appetite should stick to short-term debt funds for goals maturing within 3 years. However, those with higher risk appetite or falling in 30 per cent tax slab can consider hybrid funds for the same time horizon.
Buy adequate insurance cover
Life Insurance secures the future of your family in case you are not around in the future. Ideally, the total sum assured of your life policies should equal at least 10–15 times of your annual income. Opt for a pure term plan to buy large covers at very low premiums. Also ensure to buy adequate personal accident and health covers to insure yourself against disability and high medical costs.
Start ELSS SIPs right from the start of financial year
Most investors procrastinate their taxsaving investments till the last quarter of the financial year, leading to hasty decisions and costly mistakes. To avoid such mistakes in the next financial year, calculate the scope of saving taxes under Section 80C through ELSS investments after considering other mandatory payments and equally distribute it among 2–3 ELSS schemes through SIPs across the entire financial
Consolidate your debt
The best way to deal with it is to consolidate your existing multiple debt into a single one with lower rate, longer tenure and other favourable terms. Top up home loan and home loan balance transfer would be the best debt consolidation options for existing home loan borrowers.
Monitor your credit report
Credit reports too can contain wrong information due to clerical errors or frauds. Such information can reduce your credit score and your future loan applicability. Periodical review of your credit report will allow you to detect such wrong information and also additionally give you sufficient time to build your credit score through responsible credit behavior.
(Author is CEO& Co-founder of Paisabazaar.com)