Deepshikha | Jun 27, 2022 |
5 Mistakes to Avoid while stepping into a New Financial Year
Making resolutions for the new year is a highly popular tradition. As a new financial year begins, you can continue to be enthusiastic.
A new financial year is an excellent start for making financial decisions related to, among others:
Making financial judgments might lead to errors. Sometimes it results from a lack of knowledge, and other times it is the result of being irresponsible.
But as Rich Dad, Poor Dad author Robert Kiyosaki says, “Don’t waste a good mistake, learn from it.”
Make a vow as we start a new financial year to stay on track with your objectives by learning from your mistakes and avoiding them in the future.
Your financial plan is a dynamic document, not a one-time task. Reviewing your financial plan at the beginning of the financial year is a smart idea because your income and expenses may have changed, changing your savings rate.
Based on the actual performance over the previous year, you could also need to alter. You should reevaluate your objectives and make the necessary adjustments to the plan.
You need to keep track of where your money is invested throughout the year. The secret to taking control of your investments in this situation is asset allocation. The distribution of your assets should take into account your objectives, the time horizon for investments, the need for liquidity, and risk tolerance.
For instance, at age 45, your financial objective might be to start saving for retirement 15 years from now. Your objective for the next seven to eight years may be to send your child to school abroad. Asset allocation is necessary to ensure that you have both liquidities now and a reliable income after retirement.
You can opt for asset allocation in two ways:
The future consequences of making large investments with just one of these objectives in mind can be detrimental.
As Peter Lynch says, “Know what you own, and why you own it.” Make it a goal to do so in the upcoming financial year!
Avoid upgrading your portfolio too regularly as doing so will cost you in terms of transaction costs, exit loads, and capital gains taxes.
Assuming you have done your homework and due diligence, you must allow enough time for assets to perform for your portfolio to benefit from long-term investing.
You should make changes or exit investments under the following three conditions:
As you move through several life stages, your demands in terms of money and health vary. For instance, you might have purchased insurance plans when you were younger and had fewer obligations than you do now, in your 40s.
It is therefore imperative that you review your life and health insurance annually or at least every two years.
You can take into account the following aspects of life insurance:
Your family may experience a difficult time without you there. You should thus increase your life insurance coverage by a comparable amount to sustain them in your absence after taking all the relevant considerations into account.
Your requirements for health insurance vary as you become older and medical expenditures rise. You will pay a higher premium with pre-existing condition exclusions if you decide to purchase more coverage later in life. Therefore, you need to act quickly to obtain greater coverage.
If you haven’t reviewed your life and health insurance, use this financial year’s beginning as the time to do so.
Tax planning is a crucial factor to consider when planning your finances. The easiest approach to handle this is to prepare ahead for taxes, and the beginning of a financial year is the ideal time to do it. Make allocations appropriately to reduce taxes since there are tax exemptions available for investments, health insurance premiums, house interest payments, etc. under various sections of the income tax code.
To avoid paying extra interest to the IT department, make sure to pay advance taxes by the due date if you want to redeem some investments for liquidity needs.
You can better comprehend your tax savings if you start your financial year with tax preparation.
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