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6 Things to Consider for Building a Strong Financial Plan

dateKnowledge Centre Team dateOctober 06, 2021 views234 Views
Financial Planning | Build a Financial Plan

With the commencement of the new financial year, we review our investments and assess where we stand economically. The beginning of a new financial year also gives us a chance to reassess our insurance needs and kick start our financial planning.

In addition, mapping a full financial year in advance is a transcendent practice for better tax planning and embark on our journey towards financial independence. Planning our finances at the start of every financial year can assist us in taking into account the financial goals we wish to accomplish in the next 12 months. This includes where and how to invest and save our funds to get higher returns on investments.

In addition to this, projecting our expenses at the start of the financial year can also help us divide our corpus into small sums that make it easier to work toward our set economic goals.

Six Things for Building a Financial Plan

Here are some essential tips that you must keep in mind at the start of a financial year.

1. Review your financial goals

The commencement of the financial year is the most suitable time to review all your set financial objectives. This is because every year, there is a substantial hike in the price of assets you wish to own. Hence, reassess your finances at the start of every financial year to get better control over your funds.

For instance, if you were thinking of purchasing a car, the prices might have witnessed an above-average rise because of the soaring input prices. In such a situation, you ought to recalculate the amount you will need to invest each month to produce the amount you demand when the moment arrives.

Further, if there is a notable change in your life stage in the previous year, you may have to revise your priorities or include new objectives.

2. Analyse your life insurance requirements

Life insurance has become a remarkably essential investment product that acts as a financial cushion and guards you and your loved ones against all financial contingencies. Hence, you must always ensure to own a life insurance policy that is well-suited according to your family needs and financial obligations.

In addition, you should also pay regard to coverage amount and assure that it is adequate to fulfil all the monetary liabilities of your family in case anything unfortunate happens to you.

3. Evaluate health insurance requirements

Like life insurance, purchasing a health insurance policy has also become important in present times, given the skyrocketing costs of medical treatments. Hence, if you do not have one already, the start of every financial year is the most suitable time to invest in a health insurance policy that provides you with adequate financial coverage to remain financially guarded against any unforeseen health emergency.

Health Insurance Plan | Reasons to Buy a Health Plan Online

4. Revisit your investment portfolio

While investing for the long-term is the way to wealth development, that doesn't mean you ought to invest and forget. A periodic review of your wealth portfolio is requisite, and the beginning of the financial year is the perfect opportunity to perform this.

Assets or wealth portfolio review will assist you with understanding what funds have outmatched, which have proceeded according to your assumption, and which have grown slowly. Also, by looking at the performance of your investments, you may feel like eliminating the slow-growing ones.

However, before taking this decision, you need to look at the fund performance versus the category average. If you think the funds hold the capability to bounce back or the prices would increase in the coming future, you must retain those funds.

Reviewing your portfolio is additionally helpful when your financial objectives evolve. For example, you began investing in an Equity Fund when you were 10 to 15 years away from your retirement. Yet, you have not reached near your set amount with your retirement just two years away. In this situation, you must invest a higher amount of this saved retirement corpus to fixed income products such as a retirement plan or monthly income policy.

5. Begin your tax planning

It is ideal to begin your tax planning at the beginning of the financial year. That is because you have sufficient opportunity to calculate the amount you need to invest to save as much tax as possible and assess all investment alternatives available.

In addition, since you have the whole year to invest the amount, you can divide these investments into different schemes to gain a higher return on your earnings. This tax planning toward the beginning of the year turns even more significant if you plan to invest in market-linked products such as ELSS and NPS.

Also, investing in SIP that assists you with saving tax throughout the year will guarantee that you profit from the ups and downs the markets may confront.

6. Increase your monthly investment amount

Increasing your monthly investment amount will ensure that you have accumulated enough funds to fulfil your set long and short term financial goals. To achieve this, it would be best if you enhanced your SIP investment by 10% consistently with an accent in your income.

This will help you arrive at your monetary objectives quicker. Furthermore, you can look at other saving schemes such as the National Pension System (NPS) that offers you the extra Rs. 50,000 deductions far beyond the Rs. 1.5 lakh deduction accessible under Section 80C.

After looking at all the points mentioned above, we can assert that financial planning at the start of every financial year is essential to have better control over your financial position. This financial planning will not only help you better your finances but also ensure a smooth financial journey in the years to come.

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