2019 is around the corner and most of us have already made new year’s resolutions. While losing weight or reducing the number of beers per week is admittedly important, setting a financial goal for the new year to come is just as important. Making a clear financial goal for the year is the equivalent of a having a meal plan on paper – it tells you exactly what to do when.
Financial Plans – The Biggest Misconceptions
One of the biggest misconceptions about making a financial plan is that you will be strapped for “fun” cash. The belief is that you will have to cut out on all your fun activities such as eating out, going out on vacations, etc. Contrary to this belief, you might be able to go out more often and enjoy a lot more as you know you’re being financially responsible.
How to Make a Financial Plan for 2019?
There are two ways you could make a financial plan for the upcoming year 2019.
- If you’ve already got a financial plan you followed in 2018, all you need to do is update certain clauses according to the progress you’ve made.
- If you haven’t made or followed a financial plan for the previous year, don’t worry, we at Earlysalary will do just that for you.
The thing about financial plans is that they are supposed to be tailored for you based on a lot of factors such as income, expenses, age, time to retirement, and finally, life goals. Here, we’re going to give you a rough idea of what sub-goals you should have in your financial goals for 2019.
Financial Plan – Your Personal Basket of Items
There are various aspects to be taken care of while preparing a financial plan for the entire year. Here, we’ve highlighted a few of them.
- Work on Saving Maximum Taxes
As a salaried individual, you have to pay taxes. The Income Tax Act of 1961 has a lot of provisions for deductions and exemptions. Use these provisions to maximize your tax savings. However, remember that tax-saving investments aren’t usually the best choice to park your funds for wealth creation, so invest only with the intention of saving tax.
- Maximize Savings & Create an Emergency Fund
If you’re on a fixed income from one job, the most important thing would be to save as much as you can. One must remember that “savings” is different than “investments”. For the sake of clarity, your investments aren’t liquid and won’t help you when you need money – your savings will. Hence, create a budget that focuses on maximizing saving.
- Track Your Expenses
The trick to maximizing your savings lies in tracking down your expenditure to the last rupee. We’re not asking you to live frugally – meet all the expenses you need to sustain your lifestyle, but we’re insisting that you track all your expenses. There are a lot of apps that help you track your expenditure through your smartphone. If you’re uncomfortable using your phone for this purpose, you could also get a pen & paper and start jotting down your expenses.
The idea behind writing down your expenses is that you will probably notice wasteful expenditure and will hopefully cut down – that money goes to your savings!
- Increase Your Financial Literacy
While one important part of financial planning is “doing”, learning new things is often the part we ignore. In the world of finance, nothing ever remains constant. Tax rules, investment avenues, expenses, etc. are all changing rapidly. Every year, the Indian Government comes out with a Budget which also outlines changes in taxation rules. Tax rules are your best friend, always stay updated.
- Invest As Much As You Can
Investments are great, in the sense that they can become a major source of passive income. For example, a mutual fund deposit worth 500,000 INR earning an average interest of 10% p.a., can yield you 50,000 INR per year. While this income is taxable, investing in specified avenues can help you save tax. As a general rule of thumb, you should be investing at least 20% of what you make every month. So if you make around 100,000 INR per month, at least 20,000 INR should be going towards your investments.
The Bottom Line
Planning your finances is paramount to leading a financially stress-free life. However, planning is just the first and easy part of the process.
Sticking to your budget and overall financial plan for the year is not as easy as it looks – it’ll take a couple of months to get everything on track, especially if you’ve been a spendthrift in the past. Do not despair if you think it’s too difficult – start with baby steps. Doing something according to your plan is much better than abandoning the thought completely.