Looking for techniques to reduce your tax liabilities? We've curated a list of 8 Effective Personal Financial Strategies just for you.
We’re in the midst of the 21st century, where money is more powerful than ever.
With a 34% millennial population in the country, there’s a paradigm shift in how finances were handled before and how Gen Z handles it.
As someone who’s loaded with tech savvy advancements and economic development, we understand the dilemma you face when it comes to financial planning strategies- to choose the conventional methods or ditch them to embrace the modern contemporary lifestyle, because YOLO.
The joy of receiving that first paycheck. A trip to Goa with friends, now that you can finally pay it from your money. Buying the first gift for parents for Diwali from that bonus.
But once that euphoria dies down, it’s time to figure out how to financially plan for your future so that your monthly takeaways can culminate in long-term wealth. And there’s only way to make this happen:
Financial planning is key to being smart with your finances
Chalking out a financial roadmap is important for everyone, but it’s particularly important if you’ve just entered the phase of adulthood and are into impulsive spending for all things nice.
When you plan your finances, you have the potential to save yourself from events in the future that merely savings could not.
Think about it like this - with inflation on the rise, the worth of Rs.10,000 is way more than what it’ll be in 10 years.
With the constant ups and downs of the economy of the world at large, a significant slit in GDP, stock market, and unemployment are factors that can always precede, sometimes in the matter of years or at times overnight - much like the Covid pandemic.
Sometimes, it’s events like these that show the reality of how easily our income flow can cease under a moment’s notice and shed light on the importance of why planning your finances is not a job you do when you’re in your late 20s or 30s - it's what you do as soon as you start earning.
So, if you do not want to eat away at your future earnings, you can follow any of the below steps that can help you manage your money in an easy way while ensuring the growth of your accumulated wealth.
Eight personal financial planning strategies to ace your money game
1. Don’t wait until Jan 1st, 2023 to begin your financial resolution - start today.
You’re going to be 25 and the only savings you have is to purchase the iPhone 13 you’ve been eyeing for months.
If this sounds like you, then it’s time you think about the bigger picture. Getting to terms with your finances can seem daunting, and even overwhelming if you’re doing it for the first time.
But, that being said, it’s important to begin somewhere, one step at a time.
First things to account for is analyzing your saving and spending patterns, like how much comes in your wallet and how much of it is cashed out.
Chalk out your fixed expenses to understand how much you can spend on variable expenses and the percentage of your income that you can save or invest/month.
Once you’ve worked on your money chart, it's time you divide the money you want to save into short and long term goals.
These goals could be anything from taking a trip to Europe in December 2022 or buying a home by 2025.
Categorizing your goals can help you put labels on them, whether it's a goal you can complete in 5 months or if it's going to take 5 years.
This way, you can create a roadmap of the amount of money you require to accomplish a goal and the time it’ll require before you check it right off the list.
2. Don’t keep the past debt piling up, clear it the chance you get
One of the first things to do when you start earning money is to pay off any loan you have on your back. For most of you, at this stage this could be an educational loan.
One of the perks of an educational loan is that it can be listed under 80E of the deductions, and there’s a possibility that you may have to bear effectively lower interest rates on this one.
What’s wise? To prepay that loan and not fall under the trap of clearing it for later. Remember, you’re getting a tax liability reduction only because you’re paying the interest on your education loan.
The longer you intend to continue with your loan, the higher the interest charges that will be levied.
3. Don’t get carried away with frivolous spend, instead invest it!
Your 20’s are too chill, said no financial literate ever! Trust us when we say this: your 20s are the perfect phase when you can introduce yourself to investments, a financial tip we wished someone gave us when we were 21!
When you start investing in your early 20s, you can park away a sizable chunk of your income, considering there are no liabilities like marriage and family in your backpack.
Besides this, cultivating a healthy habit of parting with some money for the future from an early stage can help you steer clear on impulse buys on a Zara sale or an impromptu weekend getaway!
Still skeptical about what investments can do for you? Think of it like this, if you start with a small investment of Rs.1,500 from this month, you will be able to accumulate a lump sum of Rs. 28.46 lakhs over 25 years, assuming an interest of 12%. If that’s not a way to grow money, then what is?
4. Don’t put all your eggs in one basket! Diversify.
One of the sought after mistakes when it comes to making investments is to put a big pile of money into one scheme.
Considering the volatility of the market, the wisest in the industry will tell you the one trick that can prevent you from facing a serious loss, aka diversification.
Now, portfolio diversification might seem like jargon, but it's not. In essence, it’s all about dividing your money and allocating it to different avenues of investment to eliminate the risk posed by constant shifts in the economy and even mitigate any short-term losses in the long run.
So, when we say invest it, we don’t mean put out all your savings into mutual funds. What we imply is to put a chunk of it in there, FD some of it and even roundup your daily transactions to invest in digital gold.
Really, when it comes to investing, the possibilities are surplus. As long as you follow the mantra of “everything in moderation”, you’ll be on the right track.
5. Cover your basics, buy an insurance plan
India has close to 42 crores of population with no health cover plan, primarily because of the notion that premium plans add extra baggage in your monthly expenses.
But, that’s not true, infact having yourself uncovered and being vulnerable to any unforeseen events can be too risky when you need to pay huge amounts from your own pocket.
In today’s time, getting yourself covered with an insurance plan is not a luxury anymore, it’s become a necessity. A decent insurance can help you and your loved ones tide over any emergency - health or life event with ease.
Getting an insurance does not just cover you from any risks, but actually helps you in the long run as it does not eat away all your personal savings and set you back for months.
Try getting an insurance that covers yourself with a policy as low as Rs.500/1000. You can then get an extensive cover that adds in your family at a later stage.
6. Start planning an emergency corpus
With the effects of the pandemic still looming on us and the outbreak of WW3 around the corner, we’re living in truly unprecedented and troubled times.
Given this unpredictable scenario, it makes more sense to create an emergency fund that can cover you in the face of any medical adversity or job loss.
Start saving a bit for this every month and try to accumulate funds that can cover your expenses for at least 6 months.
This can come in handy to clear up expenses like an educational loan default which can adversely impact your credit score and dampen your chance to avail bigger loans in the future.
7. Put that retirement planning on map
We know what you’re thinking - retirement planning when I’m 21, no way! We know that thinking about your finances during retirement is the last thing on your mind, especially since you’ve only started peddling upwards in your career.
But, one of the crux of why you gotta have a good financial plan and strategies in place is to be able to have a good portion of your money when you retire.
Because, the amount you save, invest today and the kind of financial decisions you take in this phase of your life will have a direct impact on the life you’ll be leading when you retire.
None of us plan to work forever, which is why it’s important to think about retirement and have a financial plan in place that can cover your life post 60s.
Now that you are thinking about saving for all your goals in life, it wouldn’t hurt if you could cut a sliver of your money and put it in your retirement piggy bank.
Start small, a couple of hundreds or thousands into investment portfolios like NPF or PPF from now to build a large corpus when you turn 60.
It's a wise move considering these schemes also help prevent tax liability in income tax filings.
8. Start tax planning today and you’ll thank yourself later
Remember when we talked about portfolio diversification? So when you invest in different schemes, don’t rule out saving your cash in funds that can be effective in preventing tax liability.
The Government of India has many such investment plans that provide benefits under Section 80C. Options like ELSS, PPF, NPS are schemes that promise to be a lucrative opportunity if you can invest your money in the long run.
The only thing to keep in mind is that these schemes work best when you allow your money to grow for a longer period of time. Start thinking about taking advantage of these investments when you can at least spare this income for a minimum of 3 years or more to gain fruitful returns.
Want to know more about these schemes? Check out our blog where we’ve covered all the various smart-tax saving investment options for you to choose from.
That’s a wrap from us
While the above steps in financial planning are just ways on how you can manage your money, it’s you who's the best person to decide which step you should follow and options to save for later. It’s possible that with so many options, you may feel confused on which is the best step for you.
When it comes to personal financial planning strategies, we suggest that you leave nothing to chance. Talking to financial advisors or having a conversation with peers and senior colleagues can also be fruitful before you map out your financial goals.
Talk, understand your options, take feedback and then jump into the world of finance and take the next plunge. After all, gaining financial freedom is in your hand - only if you learn about it and work for it.
All the best!