Here are five things you should do put your finances in better condition.
The new financial year has started and just like we plan to refresh our new year by taking new year resolutions, we can learn from the mistakes we did in FY 2017-18 and can refresh our finances this financial year. Here are a few tips which can be used to refresh finances this fiscal year.
1. Ensure financial security for your family:
Insurance is not just a tax saving tool, it provides a financial safety net in times of adversity. Those who rely on group mediclaim insurance offered by the employer are not sufficiently covered. This financial year we should check our insurance needs and accordingly enhance adequate cover through different available insurance policies.
Many of us come under the group mediclaim policy offered by employers and feel that we do not need an additional policy to protect our wealth and family. However, when required such basic policies fall short of adequate coverage. We must have an additional floater policy to complement our group policy making up for rising medical costs. In addition to the floater, we can also consider a top Up policy to enhance coverage for a larger sum assured. The coverage should be selected upon individual income levels as in current times even a Rs 10 lakh coverage may fall short in case of major illness.
Health insurance and term insurance with critical illness rider are must for every individual. Health insurance with sufficient cover ensures coverage against rising medical expenses and term insurance safeguards our family finances and lifestyle in case of death. Moreover, critical illness provides a lump sum amount in case an individual is diagnosed with any critical illness covered by the insurance policy.
2. Reduce financial liability:
The best thing we can do to refresh our financial portfolio is to reduce our financial liability. Interest rate on personal loans, credit card loan, etc. is very high in comparison to secured loans like home loans. It hurts the pocket and imbalance the monthly budget of any household. In case we receive any bonus or incentive, we can repay short-term loans which actually affect our pocket a lot.
3. Make investment a route to achieve financial goals:
It is very important to link investments with financial goals for effective planning. An investment without a financial goal is aimless, as one cannot quantify it well. For example, if our financial goal is to reduce our home loan by making 20% partial pre-payment. We can start a SIP of xyz amount for N number of years and link this financial goal, this way we can make the best use of our investment.
4. Explore tax benefits under various sections:
Many of us, wish to plan our taxes for the whole year but end up doing it at the last minute. Due to this last minute tax planning, we are unable to maximize tax saving available through various sections of Income-tax Act 1961. The best time to plan taxes is at the onset of the financial year i.e April. This way we get time to choose those options which are best suited to our needs and financial goals. Not surprisingly, we also end up harvesting benefits of tax planning.
5. Choose the right investment option:
Market conditions vary every financial year. There is innovation in investment products every year. We can refresh our investment portfolio according to the new investment products introduced and our learning from the past. Choice of investment option entirely depends on the risk profile. On the basis of how far is our financial goal and our risk appetite, we can decide the type of investment products like mutual funds, bonds, fixed deposits etc.
It is always good to save and invest every month. But prior to that, here are three things which need to be taken care off, in order to refresh finances this financial year. First, we have to secure our family with multiple insurance covers i.e. Health, Term, Critical Illness and Home Insurance. Second, we should also think about reducing our debts, especially high-interest loans like personal loan and credit card loan. Third, that we should start investing in those investment products which can provide us suitable returns over the long period of time.(The writer is Senior VP & Group Head - Marketing, Bajaj Capital)