Making a financial plan at the start of the year helps you choose right investments and makes you a disciplined person.

IN INDIA it is not unusual to wish someone 'Happy New Year' in April. Whether it is Bihu in Assam, Baisakhi in Punjab, Ugadi in Karnataka or Vishu in Kerala, the new year is celebrated in various forms across the country in April. But there is yet another new year that is observed - the new fiscal year. This is the 12-month period for which the government and most companies use for accounting purpose. From finance point, the fiscal new year is more important than the calendar year. And what's a better date to start planning your finances than the first day of the new fiscal. Here are some points that you should keep in mind while planning for the new year.

GET THE PLAN RIGHT

The starting point is to make a financial plan for yourself. Many a time individuals devote time to merely executing and completely ignore planning. At the start of the financial year you have time on your side. "If you have not written a financial plan for yourself, this is the best time to make one," says Sumeet Vaid, founder, Freedom Financial Planners. Take some time out and decide where you want to be. The next step would be to identify how to reach there. If you are not comfortable with preparation of a plan, involve a financial planner. The starting point of any financial plan is to set up an asset allocation plan for yourself. So, if you have stocks, which you have no clue about, it's better to sell them and clean your portfolio. It is important that you start afresh. Make an asset allocation plan keeping your current responsibilities and liabilities in mind. "Don't just make a plan, but also ensure that you execute it judiciously, as this will help you meet your financial goals," says Amit Suri, a financial planner.

UNDERSTAND YOUR ASSET - LIABILITY BALANCE

Make a list of your assets and liabilities. A good understanding of what your assets are earning for you and what you are paying for your liabilities can help you manage them better. "Investing in an asset that fetches you a post-tax yield of 5% at a time when you are servicing a liability such as a loan at 15% is not a good idea," says another financial planner. If you are in such a scenario it makes sense to sell your low-yield assets and repay your high-cost debt.

CONSISTENCY IS THE NAME OF THE GAME

Reduction in liabilities and increase in assets can fetch you financial freedom. Invest regularly taking into account your asset allocation. If you earn every month and spend everyday, it's better to save everyday and invest every month. Investments are made to build assets and not merely for tax saving. The earlier you start, the better off you will be.

PLAN YOUR TAX

This may sound weird. Typically, individual taxpayers plan their taxes in December to March. However, it is better to invest every month. Be it an investment in public provident fund or equity-linked savings scheme of a fund house, it makes sense to invest at regular intervals. "Whatever investments you want to do for tax planning in equities, do it through the SIP route rather than doing a lumpsum investment at the end of the financial year," says Ranjit Dani, a financial planner. This ensures that you get to average your investments and save tax without getting pinched at the end of the year.

DISCRETIONARY SPENDS

"Increasingly more of us are getting into the mode of spending more and saving less," adds Sumeet Vaid. Don't blindly swipe your credit card. This is the area where you have to be very careful. Do not take loans as they could leave a big dent in your finances. If it is a second car or an upgraded music system, better think twice. It is wise to live within your means.

BONUS MONEY

With the financial year coming to an end, you may be entitled to a performance bonus. Plan out how you would want to spend the money. You can earmark a part of the bonus for say, going for your dream vacation. Please apply a 'hair cut' of 20% at least on the bonuses and direct a part of it towards reducing some liability such as your home loan.

INSURANCE

Most of us buy insurance towards the end of the financial year when the market is flooded with most complex products that need not necessarily help you. It makes sense to judge your insurance needs now when there is not much noise. Distributors need not entertain you with more information on products in the peak tax-saving months, as there is enough demand for them. However, in such lean months they are more than eager to get business. It is likely that you will be entertained even for low-commission pure-risk products which otherwise are kept off shelves.

Source : http://epaper.timesofindia.com/