A Year-End Review of Your Finances to Avoid Repeating Mistakes in 2024

The market shifts, your wants and goals evolve, your available investment options change and tax laws are rewritten.

Therefore, the year-end offers a prime opportunity to pause, reflect, and plan for the next 12 months and beyond. By understanding your current financial standing, setting realistic goals, and developing a comprehensive plan, you can embark on a journey of financial success.

A year-end financial review of your finances provides a clear picture of your current financial situation, allowing you to identify areas of strength and weakness. This understanding is crucial for setting realistic and achievable financial goals.

[Read: 5 Situations That Call for a Review of Your Financial Plan]

Additionally, it enables you to assess your progress towards your existing goals, helping you determine whether your current strategies are working effectively or need to be adjusted.

This process helps in identifying recurring financial patterns, both positive and negative. By recognising these patterns, you can make informed decisions to capitalise on your strengths and curb any detrimental habits that might hinder your financial progress.

Additionally, a comprehensive review can uncover potential financial risks or opportunities that you may have overlooked throughout the year. Financial mistakes are common, and learning from them is essential for financial growth. By taking the time to reflect on your financial journey, avoid repeating past mistakes, and implement effective financial strategies, you can set yourself up for financial success in the new year.

[Read: 5 Financial Mistakes Newly Earning Millennials and Gen-Z Should Avoid]

This article will guide you through common financial mistakes individuals often make, providing actionable strategies to avoid repeating them in 2024 and valuable insights to help you make informed decisions.

Listed here are some of these common mistakes that one needs to avoid in the upcoming year:

Mistake #1 - Investing Without a Goal

Investing in mutual funds without a set goal can be like driving without a destination, you might end up somewhere interesting, but it's unlikely to be where you truly want to be. An aimless investment could make your hard-earned money go for a toss, as you don't know how much to invest, where, and how long to invest.

When you don't have a set financial goal, you may be more likely to make impulsive investment decisions based on short-term market trends or rumours, which can result in significant losses. Investing without a financial goal can be a recipe for financial disaster since you may not know why you are investing in a particular asset or scheme.

[Read: Smart Financial Planning: Don't Risk Your Long-Term Goals to Meet Short-Term Expenses]

To begin with, determine S.M.A.R.T financial goals and evaluate your risk appetite; now, you may choose investment avenues that align with your objectives. This can help you map your savings and investments to specific goals. A goal-based investment helps investors to decide on the right asset allocation required for their portfolio.

Mistake #2 - Lack of Emergency Fund

Life is unpredictable and throws curveballs like unexpected car repairs, medical bills, job loss, or even appliance breakdowns happen to everyone. Without an emergency fund, you're forced to rely on credit cards, loans, or selling assets, increasing your debt burden and potentially affecting your financial stability.

[Read: 5 Steps to Protect Yourself Financially from any Potential Downside]

Not having an emergency fund can put you in a difficult financial situation in case of any uncertainty, such as hospitalisation of a family member, job loss of sole breadwinner, etc. Having a safety net in the form of an emergency fund not only adds to financial stability but also leads to peace of mind.

So, in this new year, 2024, aim to save at least 6-12 months' worth of living expenses, including loan EMIs, in an emergency fund that you can access quickly. You may consider deploying your emergency fund in a separate savings account or pure liquid funds.

Mistake #3 - Delay in Retirement Planning

Delaying retirement planning is a common mistake; many of you often wait for the right time to invest, but the best time to start saving for retirement is now. Delayed retirement planning could lead to drawbacks like lower returns due to a constrained investment period, high insurance premiums, missing out on tax benefits, and low retirement corpus.

Remember, the sooner you start, the more time you have to build a wealthy retirement corpus in worthy investment avenues. Do not repeat the mistake of delaying your retirement plan; this new year, take control of your golden years by starting your retirement planning as early as possible.

[Read: Best Mutual Funds for Retirement Planning]

Additionally, do note that inflation erodes the purchasing power of money over time. When making retirement plans, it's important to consider the impact of inflation that may affect the amount of money you will need to cover your expenses in your golden years.

Mistake #4 - Procrastinating Tax Planning

Procrastinating is failing to plan ahead, resulting in missed deadlines, penalties, and lost opportunities to minimise your tax liability. While waiting until the last minute to plan for your taxes, you will end up investing in sub-optimal tax solutions, which may not reduce your tax liability that much.

Although it may be months before you file your taxes for FY 2023-24, now is the ideal time to make wise tax planning decisions. Take advantage of year-end strategies to reduce your next tax burden before it is too late.

[Read: 4 Tax Planning Moves You Should Consider Before the Year-end]

This includes keeping accurate records throughout the year, staying up-to-date on changes to tax rules, and working with a qualified tax professional who can help you identify opportunities to minimise your tax liability and avoid costly mistakes.

Mistake #5 - Ignoring a Periodic Portfolio Review

Vigilant monitoring of your investment portfolio is a crucial task that one may conduct semi-annually or annually. An investment portfolio review helps you know your investments better; it makes it easy to make informed decisions aligned with your investment strategy so that you do not deviate from your financial goals.

Ignoring a periodic portfolio review may lead to missed opportunities; you might keep pouring money into underperforming investments, asset allocation may differ, lower returns, etc. Periodic portfolio reviews are your pit stops along the way, allowing you to refuel, adjust your course, and ensure you are on the right track.

Thus, you may consider planning to execute a year-end portfolio review of your investments. It will also help you eliminate the consistently underperforming schemes that drag down the overall portfolio returns.

Mistake #6 - No Debt Reduction Plan

To make your financial life easier and help enhance your credit score, begin paying off your loans, especially those that charge a higher interest rate. Usually, many individuals stress about their debt burden but somehow do not plan to focus on a debt reduction plan.

This year end is the ideal time to set goals for reducing your debt burden in the coming year 2024. One may consider debt reduction or debt restructuring plans to reduce their debt burden and work towards living a debt-free life. It includes adopting avalanche and snowball methods based on one's suitability.

[Read: How to Achieve Financial Goals With No to Low Debt]

You can start by listing out your debt obligations by prioritising the high-interest debts first, clearing outstanding credit card dues, car loans, or even personal loans, if any, and then move on to other debts like home loans.

This will help enhance your creditworthiness and maintain your debt-to-income ratio below 40%, which will give you access to avail loans in the future in times of need. Do note that failing to make timely payments for dues can affect an individual's credit score.

Mistake #7 - Leaving Insurance out of Financial Plan

Something you should consider when thinking about your financial future is a plan for emergencies. Life insurance and health insurance should be part of your financial plan, especially if your family depends on your income to cover monthly expenses.

With ever-increasing inflation, the cost of medical and hospitalisation products and services has also increased significantly. An adequate health and term insurance policy coverage will help manage expenses and avoid an impact on savings or financial stability.

[Read: Importance of Insurance | Why Do You Need Insurance Cover]

If you have not purchased a life and health insurance policy till now, this new year is the ideal time. Remember, you have to ensure the terms and conditions of the insurance policy before purchasing for easy access to claims.

In case you have existing life and health insurance coverage, you may consider evaluating the same and ensuring it covers all your medical and financial requirements.

In conclusion, by addressing these common mistakes, one may be able to take better control of their finances in the upcoming year 2024, eliminate recurring financial pitfalls, and pave the way for a secure and fulfilling financial future.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.