The start of a new financial year is usually not given as much importance as the end of a previous financial year. At the end of a financial year, there are many tasks that need to be completed from the to-do list like finalization of accounts, filing of returns, this time it was also linking the PAN card with the Aadhaar card (the last date for the same was 31st March 2022 post which a fine will be levied). After completing all such mandatory tasks, the start of a financial year is often just ignored. However, ideally, it is the correct time to rectify the financial mistakes of the previous year and make suitable financial decisions to plan and improve the investment portfolio as well as other crucial expenses for the current year.
Given below is the list of such top things that need to be taken care of at the start of a financial year to ensure an overall smooth ride as well as avoid any last-minute hassles at the end of the financial year.
Top things to consider at the start of the financial year
The start of the financial year brings a new chance for investors and taxpayers to try for a profitable financial year. Some of the top things that need to be focused on at the start of the financial year are discussed hereunder.
- Assess the financial goals
One of the first and foremost things to be done is to take a toll on the financial goals set by a person. If the goals are met then the investor needs to start afresh for new goals. On the other hand, if such financial goals are not met then the next step is to take suitable measures in the direction to meet them. These measures can be the allocation of more funds towards the goals or it can mean moving towards investments that can help in meeting such goals. Investors can also take the help of professionals to seek out investment options for such purposes.
- Review the budget for the year and allocate funds in necessary areas
Another important task to be performed is reviewing the budget for the year. The start of the year is a good time to take the toll on the yearly budget and alter it given the high inflation. The expenses for almost everything are on the rise be it children’s education, monthly groceries, etc. Therefore it is necessary to review the yearly budget to ensure that all the expenses are duly met and there is no shortage of funds at the last minute. This budgeting exercise will also help in allocating funds to key areas and cutting expenses wherever needed.
- Review investment portfolio
Another important exercise is reviewing the investment portfolio. Investors need to assess their investments at the start of the year to ensure that they are still financially viable. Any investment that no longer meets the financial goals or the investment objective or is not profitable anymore needs to be objectively reviewed so as to look out for suitable options in its place. With the increasing age of the investors and changing goals as well as changes in interest rates and the market scenario, reviewing the investment portfolio is essential to ensure that investors can maximize their wealth at minimum risks.
- Review life insurance and health insurance needs
Life is uncertain is a fact and hence, life insurance and health insurance are crucial for every person and their family. Therefore, the start of the financial year is a good time to take good life insurance and a health insurance policy and secure the future of the entire family. The growing needs of a family coupled with the growing inflation is a factor responsible for increasing life insurance cover as well as health insurance coverage. Therefore, it is essential to review these needs ta the start of the year and plan for a revision accordingly, if needed.
- Tax planning
Tax planning is often left to the very last minute is it one of the gravest mistakes done by taxpayers. Most taxpayers would opt for last-minute tax savings options without thorough research or review of their financial needs and investment objective. This practice does not always yield the best results as last-minute options may not be many and lucrative in terms of cost-benefit analysis. Therefore tax planning should always be done at the start of the year when the taxpayer has the maximum time to select the best tax saving options that can not only help in tax savings but also help in maximizing their overall wealth.
- Increase investments or SIPs based on incremental income
SIPs are an excellent option for investors to reap the advantages of stock markets at lower investment costs. The start of the year is an excellent opportunity to start SIPs if not already done, or increase the SIPs based on the increased cost of living. At the start of the financial year, investors are flushed with their yearly bonuses or variable pay that can be utilized to increase their investments through SIPs. This is a better way to increase quality investments at manageable costs and increase the overall investment portfolio.
- Prepare a contingent or emergency fund
Finally, an important aspect often ignored or overlooked by many is the need for a contingent fund or an emergency fund that can help in times of crisis. Every individual should have a sufficient backup to meet their monthly expenses in case of any unfortunate event like job loss, disability, or death of the sole earning member of the family, etc. An emergency fund will help the family tide over such a crisis till a new income source or a permanent solution is not available. Ideally, a person should have an emergency fund that is sufficient for at least 6 months of their monthly income and expenses.
The start of the financial year is a crucial time period for all such important tasks that need careful assessment and planning. This will help the investors and taxpayers avoid any last minutes issues as well as help in better allocation of their resources and ultimately help in increasing their overall wealth.
Yes, investment under section 80C can be done at any point during the year.
The ideal portfolio allocation would depend on various factors like the investor’s profile, investment goals, time period, etc. However, for novice or risk-averse investors, an ideal portfolio would have approximately 60% debt, 30% equities and 10% of other assets (like gold).
Most experts believe that at the start of each financial year, inbfes0ors should increase their SIPs by at least 10% of their previous year’s SIP amount.
Reviewing the investment portfolio at the start of the financial year will help the investors weed out underperforming or obsolete investments and add better options in its place to realign with their investment needs.