Clean up your finances in April

The Asian Age.  | Adhil Shetty

Business, In Other News

Don’t postpone investment decisions to the end of fiscal, you need to begin the process to avoid buying bad products.

With the new fiscal year beginning today, let’s see how to rejig your finances.

As the financial new year begins, it’s important to clear off the cobwebs of the past, starting with a clean slate, and set yourself up to achieve the goals that you cherish. Money being the key to the achievement of your aspirations, it’s necessary to manage it well. Therefore, let’s look at the steps you should take right off the bat in April, and reap your rewards through the year.

A budget is your financial map for the year. It identifies what you will earn, where you will spend, and how much you expect to save and invest. So try and understand what you wish to achieve this year. You may be preparing to have a child, or about to buy your first car, or planning on going on a much-needed vacation. Any goal will require funding. If you had been saving up for those goals already, well done! You must now liquidate those savings and use them in the most efficient manner. If you haven’t saved up, you should start now.

A new year is also a good time to get rid of anything weighing down your finances. That would mean not just financial products but bad habits, subscriptions, and avoidable spending. Let’s say you have a secondary bank account that you don’t use but need to maintain the average monthly balance and pay annual card fees. Close it. You may have multiple subscriptions to online video streaming services that you don’t really use. Close them too. You may have an unhealthy weekend splurging habit. End it. You may have bought an investment plan whose long-term returns are pathetic. Consult an investment advisor and take a decision on whether to continue it or exit.

Don’t leave this task for the end of the year. Tax-planning is an activity you should attend to through the year instead of making hurried, poorly-thought decisions in the financial year-end. Assess the income you are going to generate this year. Identify the sections of the Income-Tax Act under which you can claim tax breaks — Rs 1.5 lakh under 80C, and Rs 25,000 under Section 80D is the bare minimum you can save. There may also be deductions through existing investments, rent, loan interest, children’s school fee etc. Determine your tax-saving short-fall and start investing through monthly contributions instead of taking the whole burden at the end of the year.

Another year has gone by, and it’s a good time to check if you have adequate insurance.

Health insurance is a must for all persons. Term covers are necessary for people with dependents and credit liabilities.

If you have coverage, check if you need to upgrade this year. In the last year, new responsibilities may have fallen you, and therefore you need to manage your risks better. If you don’t have coverage, act now without wasting time.  The bare minimum coverage you should have is Rs 5 lakh for health insurance, and 10x your current annual income as life insurance.

As another year passes, your income may increase a little bit thanks to a salary hike or growth in your business.

Therefore, your ability to save and invest will also increase. So take stock of your investments and step them up in proportion to the rise in your savings. For example, let’s say you invested Rs 5,000 a month last year, and this year your income increased by 10 per cent, your monthly investment should rise by 10 per cent to Rs 5,500. Stepping up your investments every year would help you accelerate towards wealth goals. Let's say you invested Rs 5,000 a month for 20 years for returns of 12 per cent. Your corpus would be rs 49.95 lakh. But if you stepped up the investment by 10 per cent every year, your corpus in 20 years would be Rs 99.44 lakh.

With these simple yet essential steps, you'll begin the financial year on a strong note and end it wealthier.  

— The writer is CEO,