10 financial decisions you should take this New Year
The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. The lockdown though necessary has led to a disastrous impact on the economy. Still, it is important for everyone to reset their personal finances and their goals for the new year. Mostly people make resolutions at the start of the year. New Year’s resolutions are often broken; however, it is important to try to keep certain financial resolutions. Here are 10 financial changes you should resolve to make in the year to come:
1. Invest small amount every month SIP
- Systematic Investment Plan (SIP), allows one to invest a small sum regularly in their preferred mutual fund scheme.
- By activating an SIP, a fixed amount is deducted from the investor’s bank account every month, which gets invested in the mutual fund of their choice.
- The instalment amount could be as little as Rs 500 a month and it convenient as you can give your bank standing instructions to debit the amount every month.
- Rupee cost averaging helps an investor beat market fluctuations and makes his/her investment averse to market volatility.
- When the stock prices hit rock-bottom, SIP allocates an investor more units, and allots lesser units when the stock prices soar high thereby, averaging out his/her savings.
- SIP has been gaining popularity among Indian MF investors, as it helps in investing in a disciplined manner without worrying about market volatility and timing the market.
2. Open PPF Account
The Public Provident Fund (PPF) is a popular investment option in India. A PPF scheme is ideal for individuals with a low-risk appetite. It is a long-term investment scheme for individuals who want to earn high but stable returns. PPF investments come with the following benefits to the investor:
- As the PPF is backed by the Government of India, one of the most significant PPF account benefits is that it is entirely risk-free. The returns, too, are guaranteed by the government.
- One of the most important benefit of the PPF is its tax-exempt status. The amount you invest up to Rs. 1,50,000 is deductible from your taxable income, the interest you earn is non-taxable and the maturity amount you get after 15 years is also tax exempt. This makes it one of the most tax efficient investments.
- The maturity of a PPF account is of 15 years. PPF account holders have the benefit of flexibility of tenure. When your PPF account matures after 15 years, account holder will have two options – withdraw the entire amount or extend the tenure in blocks of five years.
- Although the PPF has a 15-year lock-in period, from the 7th year, you can make partial withdrawals from your account. Besides, partial withdrawals, you can prematurely close your PPF account if you need the funds for severe medical treatment or for higher education.
- The PPF allows a lot of flexibility in the investment amount. Every year, you can invest a minimum of Rs. 500 and a maximum of Rs. 1,50,000. You can make these investments in a maximum of 12 instalments or as a lump sum.
3. Open a Samriddhi Account if you have a girl child
- Sukanya Samriddhi Yojana is one of government-backed small savings schemes under the Beti Bachao, Beti Padhao campaign, that can help parents secure the future of their girl child.
- One of the reasons why this scheme has become popular is due to its tax benefit. It comes with a maximum tax benefit of Rs 1.5 lakh under section 80C of the Income-tax Act.
- Further, the interest accrued and maturity amount are exempt from tax.
- A Sukanya Samriddhi Account can be opened under this Scheme in the name of a girl child till she attains the age of 10 years.
- The initial investment can start from Rs. 250 and a maximum of Rs. 1,50,000 annually with further deposits in the multiples of Rs. 100. A minimum of Rs. 250 must be deposited in a Financial year.
- The Sukanya Samriddhi Yojana is a clever scheme launched by the government for the betterment of the girl child. Millions of families worry about the future expenses, whether they are marriage expenses or education expenses, of a girl child. Using this scheme, they can slowly but steadily invest in their daughter’s future.
4. Invest in physical gold small quantity every year
- Gold prices soared to new record highs as investors sought safe haven due to health of the global economy ravaged by the COVID-19 pandemic.
- Gold is a unique asset – highly liquid, yet scarce. It is a luxury good as well as an investment.
- Small bars and coins accounted for approximately two-thirds of annual investment gold demand and around one quarter of global gold demand over the past decade.
- Demand for bars and coins has quadrupled since the early 2000s.
- As a physical asset, gold prices are not directly related to company stocks.
- If you have a large portfolio of which equity forms a core part, gold funds may provide you much-needed stability without letting your wealth creation goals affected.
- Investors can minimise market risk by assuring return when other asset classes are performing poorly.
- Compared to any other asset, liquidating gold is the quickest and easiest in India, which makes them ideal as a financial cushion to protect against an unforeseen incident.
- If there is an urgency of cash, having highly liquid investments could be in the best interest as they can be easily converted to cash once redeemed.
5. Take medical insurance for parents and self
- The current COVID-19 pandemic has made the entire world sit up and realise that medical exigencies are unpredictable and can cause a financial upheaval that is tough to handle.
- In today’s time, the cost of healthcare in the country has risen significantly thanks to the ever-growing demand for medical services.
- Having a health insurance or Mediclaim comes handy in times of medical emergencies.
- Many individuals often have to use funds from their savings in case of a medical emergency, which not only impacts their financial health but also jeopardises personal goals such as education and marriage.
- Health Insurance is a way to ensure you and your family can get the best medical care without worrying about the cost.
- In a health insurance policy, the cost of medical treatment of the insured person(s) is borne by the insurance company.
- In exchange for a regular premium paid, the insurance company pays for all the expenses related to an illness for which the insured person needs treatment.
- This includes hospitalization, day-care, post, and pre-hospitalization, etc. And with the cashless facility, the bill is directly settled between the company and the hospital.
- Taking an insurance policy is thus extremely important to provided financial support and reduces uncertainties that individuals may face.
6. Take life insurance
Life insurance is a contract between a policyholder and an insurance company to provide the policy holder with coverage based upon timely payment of premiums. Life insurance provides a death benefit to the named beneficiary/dependent (usually a spouse) upon policyholder’s death. A life insurance policy generally provides the following benefits:
- One of the most important life insurance benefits is that it helps you secure your family’s financial needs, even when you are not around.
- If you have a spouse, children or parents who are dependent on you, it can be difficult for them to be able to sustain and take care of their expenses in the event of your demise.
- This is where life insurance plays an important role, the death benefits can help them take care of their expenses and have the financial stability.
- A life insurance policy also protects your business. Apart from covering your family, there are some life insurance policies that provide coverage to your business.
- can help settle the debts. During your life, you may avail of a loan to purchase a home, a car, fund your child’s education, or even to repay debts. However, in case you pass away before paying off the loan, the debt will directly fall onto your family members. If you have a life insurance cover, the family can pay off the debt with the sum assured and live a financially independent life.
- A life insurance policy supports your retirement plan. One can accomplish the goal of having a good retirement fund by investing in good life insurance plans. There are some life insurance policies that provide regular income on a monthly basis.
- Apart from protection, one of the most significant advantages of life insurance is that it helps you get tax benefits. No matter what type of life insurance policy you buy, you can save taxes. Under Section 80C of the Income Tax Act, the premium paid for life insurance is eligible for deduction up to a maximum amount of Rs 1.5 lakh. Also, the death benefit or maturity is exempted from tax under Section 10(10D).
7. Scan all important documents
- Document scanning eliminates the long, tedious paper trail that has to be sifted and sorted. Through digital scanning, one can scan the documents into the system and have them at hand to reference and use whenever they are needed.
- This is a much more convenient way of accessing files than the standard paper data management.
- Digital documents can be accessed far easier than physical ones. Sifting through folders for a file can take hours if buried upon piles of paperwork. Digital documents can easily be accessed with no problem at all.
- A digital system can save important files and allow you to function positively without any data loss or wasteful resource searching.
- So, remember to scan all your important financial and legal documents.
8. Invest in a second home
- The benefits of investing in real estate are numerous. Real estate investors make money through rental income, appreciation, and profits generated by business activities that depend on the property.
- A key benefit of real estate investing is its ability to generate cash flow. In many cases, cash flow only strengthens over time as you pay down your mortgage and build up your equity
- Real estate investors can take advantage of numerous tax breaks and deductions that can save money at tax time. In general, you can deduct the reasonable costs of owning, operating, and managing a property.
- Real estate investors make money through rental income, any profits generated by property-dependent business activity, and appreciation. Real estate values tend to increase over time, and with a good investment, you can turn a profit when it’s time to sell. Rents also tend to rise over time, which can lead to higher cash flow.
9. Review credit limits
- Make sure you check your credit report regularly and take steps to repair any negative aspects, especially since errors in these reports are not uncommon.
- It’s easy to keep tabs on your credit report, whether that’s getting a copy from the reporting agencies, or reviewing your history through any number of free credit monitoring sites.
- If you owe money on your credit cards, determine how much you can realistically afford to pay off during the year.
- For best results, try not to charge additional purchases on those cards while you’re trying to pay down what you owe.
- If you have high-interest credit card balances, consider whether it would be more beneficial to pay off those high-interest debts or to add to your savings.
10. Rebalance your Investment Portfolio
- Rebalancing is the process of realigning the weightings of a portfolio of assets.
- Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk.
- Primarily, portfolio rebalancing safeguards the investor from being overly exposed to undesirable risks.
- Secondly, rebalancing ensures that the portfolio exposures remain within the manager’s area of expertise.
- Often, these steps are taken to ensure the amount of risk involved is at the investor’s desired level.
- As stock performance can vary more dramatically than bonds, the percentage of assets associated with stocks will change with market conditions.
- Along with the performance variable, investors may adjust the overall risk within their portfolios to meet changing financial needs.