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Tips for your finances in the new financial year

With proper tax planning strategy, you will be able to utilise most of the tax benefits available under various sections

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You may have read the headlines on how auto insurance premium, bank cash transaction fees and many other services are going to cost an extra penny April onwards. These one-off things will always happen, but making a to-do list at the beginning of the new financial year can actually help you plan your personal finance for the next 12 months. DNA Money spoke to top money-brains. Experts say this is how your money calendar should look like.

Plan taxes and investment: Instead of going for the last minute mad-rush, why not make a small plan now? That's right. Vishwajeet Parashar, senior vice president and group head marketing, Bajaj Capital says income tax incidence on an individual can be reduced if you do early tax planning, i.e. from April onwards, also the sooner you start investing to save tax, the quicker your investment starts earning returns on it.

With proper tax planning strategy, you will be able to utilise most of the tax benefits available under various sections. Make a monthly note of how much you can invest in Section 80C and invest every month in PPF, mutual funds and others.

Blueprint cash flows, but align investments with risk-tolerance: Higher salaries, accumulated bonus, amongst others inflows, are likely to alter one's cash flow heading into the new financial year. It's important to identify appropriate investment avenues for these flows early – make your money work harder and longer for you.

"However, given eternally dynamic and volatile markets, it is important to assess (or re-assess) one's risk-tolerance. Loss-bearing capacity, investment time horizon, liquidity requirements are all examples of factors that need to be considered before making investment allocations," feels Aditya Sharma, Director, investment strategy, at Standard Chartered's Wealth Management unit. For example, volatility in equity returns tends to reduce over longer holding periods and a systematic, disciplined investment approach yields favourable outcome.

Shift focus to income from expenses: It is a common practice to cut the spending just because it is overshooting the planned budget. An individual should rather focus to identify the avenues where the income can be increased to an extent that your add-on expenses can be taken care off. Just some work around weekends can fetch you that extra bit.

Dinesh Rohira, founder and CEO, 5nance, says, "Pursuing your hobbies into the business of income generation could be one of the options, be it as simple as teaching during your leisure time. It will be of a great financial prudence if you plan your taxes better from start of the year and that your existing investments earn you enough to match the gap in your personal financial budget."

Check your life insurance cover: The moment we buy a car we need insurance, every housing loan is backed up with a house loss policy. However, when it comes to our own life and health insurance we do not take due care. "A 'must have' becomes a "good to have". Life insurance provides life cover for securing the future of our loved ones and health insurance secures individuals from health uncertainties, which are ever increasing with changing lifestyle," avers Gaurav Seth, chief financial officer, Canara HSBC Oriental Bank of Commerce Life Insurance. Sometimes because of the addition of a family member or swelling hospital expenses, you may need a higher amount of coverage and reviewing your insurance cover every year can actually help you and your family adequately covered from any uncertainties, adds Parashar of Bajaj Capital.

Review goals, portfolio and take action: You must have an updated financial portfolio which should give you at a glance picture of your investment in different asset class, annual return since inception and in last one year and performance against benchmarks. Also, get clarity about short-term and long term goals.

"Once you have this in place you must check the performance of various assets vs your expectations. In case required, execute suitable changes in your financial portfolio. It is always advisable to do a loss analysis, for example – exit costs, penalty, surrender charges because the new investment you are going to make has to cover for the losses as well," advises Aalok Bhan, director and chief distribution officer, Max Life Insurance.

On the basis of your revised goals, opt for the best suitable products. Once your goals are in place you must do a reverse calculation to understand steps required today.

Stop being emotional about investments: More often than not, greater returns require taking on greater risks. Risks associated with equities are broadly acknowledged, while risks associated with bonds are often overlooked. While it may be difficult to identify 'winners' all the time, following a disciplined approach to removing 'bad eggs' is equally important, notes Sharma of Standard Chartered'.

Many people perceive that money can be made only by investing in right instruments at the right time. This understanding overlooks one of the most important factor that the real money is made only when you book the profits. "It is never a wise decision to attach an emotion to investments. One needs to understand the investment objectives and financial goals and exit from the investments before it turns out to be an opportunity lost," adds Rohira.

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