8 Smart Financial Planning Moves You Should Make at the Beginning of FY 2022-23!

Things may or may not have been planned out the way you wanted them to be, last year, but reflecting on the year and gaining a fresh perspective is the key to a brighter financial future. As we have completed two years under COVID-19, life is getting back to normal slowly and steadily. The COVID-19 pandemic taught us many money and life lessons, the importance of financial security, and the need to be prepared for life during uncertainties.

A prudent financial review will assist you in determining how well you handled your finances in the previous year and where you stand now. It will also assist you in making the necessary financial decisions to effectively manage your finances in the short term as well as long term. Remember, working towards financial stability is a long process and not a two-day plan.

Let me guide you with 8 essential smart financial planning moves that should form a part of your yearly beginning of financial year routine:

1. Review Your Financial Goals

You should make it a point to review your progress towards your financial goals at the beginning of the financial year. Financial goals, in fact, are the numerical value of one's life goals, such as creating a corpus for post-retirement life, child's education, home loan down payment, etc. In many cases, short-term goals for which you may have invested could become redundant, or It is possible that the target amount of your goals might have moved up more than you anticipated earlier.

A review of financial goals at the beginning of the year will assist you in identifying such misled investments and redirecting them to meet your financial objectives. For instance, if you were planning to buy a car, excessive input costs may have caused prices to rise above average. In this case, you'll need to recalculate how much you'll need to invest every month in order to have sufficient funds that would be required to achieve the goal. Additionally, if your life stage or financial circumstances have changed significantly in the last year, you may need to rethink and prioritise each of your financial goals or add new ones.

2. Track Your Expenses And Save More

Start the process by making a budget for yourself and your family's requirements. Analyse your previous year's income, expenses, and future goals. Review your budget, financial goals, and check if you have reached any milestones for the year.

Plan your spending and cash flows for the next financial year. If you have a goal coming up this financial year, plan to gradually move your money from equity to debt and keep it safe.

It is perfectly okay to spend your hard-earned money, but wisely. It is a smart move in financial planning to keep a budget and track your expenses and identify your major expenditures. Sometimes, looking at things from a vantage point helps in understanding them better. So, take a look at your income and expenses from a broader perspective to identify what can be cut down and then narrow down your focus to optimizing your spending.

One of the quickest ways to save money is to spend less, and stop buying necessary things. This is easier said than done, though! But you can start taking small steps, practice delayed gratification, and save more. Remember, saving plus investing regularly results in financial freedom. You should always try to save more and invest that amount in worthy avenues.

Considering that there has been a massive shift to digital spending in India in recent years, expense management apps can be handy for those struggling to get a sense of their spending habits. In case it gets tedious to keep a tab of all your expenditure, these expense management apps can come to your rescue. They will help you review your expense profile better and help prioritize your spending.

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3. Build an Emergency Fund

Saving regularly is a good financial habit you must instil. But saving for a rainy day is essential as a solid savings base would give you a cushion to handle uncertainties in a better way.

Considering the recent uncertainties that pose both health and employment risks, it is always wise to keep aside a certain amount of money in case of an unexpected financial crisis. Having this amount will prevent you from digging into your savings. So, make sure you have an emergency fund for such situations. Ideally, it is a good rule of thumb to keep aside at least 12-24 months of living expenses, including loan EMIs based on your current expenses and foreseeable risks. This could be one of the smartest moves in your overall personal finance planning.

Set a savings target and work towards it. If you can save more, do so by all means. And if you have reached your savings target, give incremental savings a shot. Remember: A penny saved is a penny earned. Most corporate organisations schedule their annual increment and appraisal cycles around this time. Ensure you put the raise in income to good use by building an emergency fund.

You can gradually increase your savings amount towards a rainy day fund. It might not seem like much, but if you're consistent with this habit, you'll soon build up a decent corpus for survival in a crisis. Once you've saved enough, you could use the money to pay off the bills or start investing. In case you already have one, keep reviewing it regularly and keep adding surplus whenever possible.

4. Start Investing

It is never too early or too late to start investing. You need not necessarily have huge funds to start investing. Start with small but smart investments; try convenient and smart options like Systematic Investment Plans (SIPs). SIP has become popular for investing regularly in mutual funds. It offers the flexibility and convenience to gradually invest the amount of your choice.

Start small, increase the amount gradually, and then you can work towards having a diverse portfolio of various financial instruments once you get the hang of it. Look at low-risk mutual funds and keep the long-term in mind always. One should take the help of online SIP calculators to find out the monthly contributions required for achieving each financial goal. This will provide a clear roadmap on how much to save each month. With the help of SIP mode, you can easily invest in equity, debt, or hybrid funds as per the risk appetite. The SIP mode will save the hassle of investment timing, ensure financial discipline, and help in cost averaging during market corrections.Ideally, you should increase your SIP investment by 10% every year with a rise in your income. This will help you reach your financial goals faster.

Investing is one of the best ways to make your money grow over time. You can also invest in mutual funds that are considered to assist in wealth creation over the long run. Don't underestimate the power of compounding returns, nor chase after high returns in the short term.

Given that, the risk is inevitable in market-linked financial avenues. Hence, building a risk appetite in line with your goals is critical. One of the most important things to remember while investing is not to be swayed by the fear of missing out. Cryptocurrencies have been in the news since inception, but especially after Budget 2022, with 30% taxation now being introduced on gains from crypto, it only makes the task difficult to generate returns while investing in cryptos. It's a speculative investment and can only be a very small percentage of your long-term portfolio. Always do your research and never solely rely on others' advice, as capital markets are associated with risks.

5. Begin with Tax Planning

As you must have observed over the past few weeks, many taxpayers end up making hasty decisions with respect to their tax planning towards the end of the financial year. It is best to start the tax planning exercise for FY2022-23 at the beginning of the financial year instead of waiting until the end of the year in order to avoid mistakes. Often investors become impatient when closer to the deadline, and that's when most mistakes can happen.

So, you should also start your tax calculation afresh, taking into consideration the changes in tax rules and enhancement prospects in your income. After calculating the estimated annual income, you should consider all the available avenues to save taxes, so that the tax outgo may be minimised. As tax-saving investments are long-term in nature and come with certain lock-in periods, you should pick up the instruments carefully. Apart from saving tax, such instruments should also meet your long-term financial goals. You can do SIPs in Equity-linked saving schemes (ELSS) at the start of the financial year or invest in suitable tax-saving options.

Next year in March 2023, you will then be worry-free, unlike many of your peers. Then, a major part of your tax-saving investments for the FY 2022-23 will automatically align with your payments in the early part of the financial year. This takes away the burden of last-minute planning and minimises the chances of errors that come with the last-minute execution of hasty decisions.

6. Analyse Your Debt situation

You may have been under financial circumstances where you were required to take loans or may have debt. Having a debt is not bad unless you struggle for repayment in time. You must analyse your debt situation at the beginning of the financial year and aim to reduce it over the year.

Keep track of your financial outflow towards your home loan EMIs, car loans, credit card payments, and more. Before taking any loan, make sure whether or not you are eligible for it. Do not take loans that would take a toll on your finances in the near future and create a debt burden for you.

Debts are scary; sometimes, they can weigh you down with a burden and make it hard for you to focus on other important aspects of life. However, if you want to get ahead financially, you need to tackle your debts. Start by reducing your debt every month in smaller amounts. Then work out a repayment plan that works for you. The sooner you pay it off, the better it is.

Developing good credit habits is important to financial stability. Always keep an eye on your credit score as it plays a crucial role in getting a loan at lower rates if you wish to borrow in the future. Monitor your credit report for any suspicious activity or errors in the report.

7. Ensure an Adequate Insurance Cover

Your responsibilities may increase significantly over a period of time. Accordingly, you need to make sure that your life and health insurance cover is sufficient to cover all these additional responsibilities.

Remember, in your absence, your cover should be enough to provide a monthly income to your dependents, settle all loans, and even take care of the major expenses like your children's education. Evaluate your insurance for life as well as health at the beginning of the financial year and not at the time of submitting your investment proofs at the end of the year.

As a thumb rule, your life insurance cover should be at least 10 times your annual income. However, since you have time in hand, you would do well to take stock of your assets, goals, loans as also your spouse's income to arrive at an accurate figure. The importance of health and term insurance policies can't be stressed enough. Not only does insurance protect you from unforeseen risks, but could help you in the long run, provided there is adequate coverage for your life and medical/health costs. While opting for life insurance at a younger age will give you benefits such as lower premium charges, you may opt for family-floater health insurance cover to secure the health of your family.

8. Review Your Investment Portfolio

A review will help you understand which assets and funds in your portfolio have performed as per your expectation and which have been laggards. A periodic review of your portfolio is essential, and the beginning of the financial year may be the perfect time to do it.

Ideally, you should assess your investments based on various qualitative and quantitative parameters and only consider removing or switching those assets and funds which have been underperforming consistently.

A fund giving negative returns might not be underperforming if the entire category has fallen or the markets are going through turbulence. So, you need to compare the fund performance and analyse the market conditions. You need to be careful how you approach making such investment decisions as it will lead to enhancing or may even ruin your portfolio performance.

Reviewing your portfolio is also useful when your goals change. For instance, you started investing in an equity fund when you were 10 to 15 years away from your retirement goal. But now, you have almost reached your target amount and are only two years away from your retirement. In such a scenario, you need to allocate a higher amount of this accumulated corpus to safe fixed-income products.

A periodic portfolio review is a smart move towards your financial planning as it gives your portfolio a fresh start, and you may even rebalance a few investments if required.

However, an important smart financial planning move that is underestimated is enhancing your financial literacy. Financial literacy plays a major role in your financial success. If you are Financially literate, it aims to assist you in better comprehending the intricacies of financial planning, tax-saving, and investing. It is a life skill that you must grasp to maintain sound financial well-being.

So, with the start of this financial year, begin to enhance your Financial literacy that will help you maintain a secured financial future.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst