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Five steps to get your finances in order
A simple checklist at the beginning of the new financial year
It is very important for an individual to carefully plan for finances and funds. Effective parking of funds can reap lots of benefits for you in the form of timely returns. Financial planning not only helps save and reduce tax liability but also achieve long-term and short-term financial objectives.
Financial goals cannot be achieved without effective planning. It helps to manage your income efficiently. You can analyse cash inflows and outflows, and know your income and expenditure. This can inculcate saving habits and moreover, you can cut back unnecessary expenditures.
Financial planning is a must in order to save tax as well. It is always suggested to start financial planning immediately at the start of a new financial year.
There are three main motives for financial planning:
1. Wealth creation
2. Tax saving and
3. Develop saving habits in order to secure your future.
Why should you start financial planning at the beginning of new financial year?
So that you can use financial figures and numbers to your advantage and get together a sound investment plan. An individual has lot of options as far as investment avenues are concerned which helps to save tax and grow your capital as well.
Mutual funds, life insurance and health insurance, bank fixed deposits, public provident fund are some examples of financial instruments which can be used by individuals to park funds. Efficient financial planning helps you to broaden your capital base and identify investment opportunities that sync with your long-term goals.
Everybody performs this activity but remain ignorant and leave some things they must have done to begin with. Investing and financial planning gives you more benefits if done at right time and in right investment avenues.
Here are dos and don'ts of a sound financial planning:
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Five steps to get your finances in order
Starting point
It is said that financial planning must start with the beginning of financial year and it is very tough to catch on time if you lag behind. Thus, planning must start early in order to start the process to get financial records to know your financial health. Knowing your assets and liabilities always pay off as you can pay your debts early and build on your assets. Individuals must pay their costly and expensive debts first of all after studying financial records.
Tax planning
This is another aspect of efficient financial planning. Saving tax acts as double-edged sword as it helps to reduce tax outgo and saved tax can be utilised in order to pay debts. Moreover, investments done under section 80 C like life insurance and health insurance also provide risk cover and products like ULIPs help to grow your wealth. Tax planning must not be postponed to the end of the year which is usually the case for individuals which result in hasty investment decisions just to save tax. Further, wrong investments do not generate returns consistent with your financial goals and an individual generally ends up on the wrong side.
Five steps to get your finances in order
Better returns
If looking to invest in recurring deposits or small tenure deposits for better returns on your investments, then you must start planning very early. Early investments can generate more returns as they remain invested for larger part of the period and compounding shows its magic as well helping your money grow more.
Don't leave till the end
You must not leave your tax planning to the end of a financial year. Investment in wrong avenues lead to more lock-in periods as you are not able to generate appropriate returns on your investments. Furthermore, leaving everything to the end of a year results in more outflows.
Don't buy into something just because everyone is
An individual must make sure that you are not buying and investing in financial instruments because doing so is the trend. You must do your homework and analyse various investment avenues in order to generate maximum returns.