After the Union Budget was announced, the scramble to make sure investments are aligned and documents in order would have seized quite a few of us. Panicking and making rash investments as tax deadlines loom large is something to be avoided, as financial decisions made in a hurry rarely reap rewards. Having a tax planning system in place that allows for scheduled investments that seek to maximize tax benefits and contribute towards building up a rainy-day fund is something all young professionals should seek to do.
A few tips on financial planning and ways to save on tax and reap rewards are mentioned below to help you be money-smart and live life to the fullest.
Clear Outstanding Debt
Something seemingly obvious, clearing any outstanding debt is the first way to de-clutter your financial life and help kickstart the more responsible, financially-savvy you. Paying off credit card debt, student loans, or that bike or car loan is a priority if you want to make a positive impact on your finances beginning in April 2018.
Credit card debt remains the biggest thorn in the side of most young professionals, and tackling this will go a long way in taking the weight of debt off your shoulders. Ensure that all debt payments are cleared on time and in full. Unable to pay off that vacation on your card in one fell swoop? Always make sure you pay more than the minimum amount for a credit card to keep your credit score healthy.
With regard to loans, it is advisable to talk to your bank if you are unable to make EMI payments or wish to settle your loan earlier than expected.
Formulate a Budget and Keep To It
The easiest way to become more financially secure in the coming financial year is by drawing up a list of expenses and setting aside a budget for each. While setting a budget so close to the end of the financial year might seem like a moot point, begin budgeting for the next financial year, taking into account possible big-ticket expenses and allotting funds accordingly.
A priority when budgeting would be calculating the average cost of essential payments such as:
- Bills, outstanding debt.
- Rent, insurance payments.
Once the above have been budgeted for, additional expenses such as household items, the occasional treat or a holiday should also be factored in.
Identifying expenses will also help you detect patterns, such as that extra tea on a particularly stressful day or those regular treats after lunch. Budgeting and identifying even minor expenses can go a long way in helping you manage your finances and be better prepared for the next financial year.
Set Up a Rainy-Day Fund
All those articles and all that advice on having a little kept away for an emergency is part of the financial canon, and for good reason. Ensuring you always have a financial buffer for life’s little knocks not only keeps you from worrying about money but also inculcates a habit of saving. Starting with as little as Rs.500 a month would ease some of the pressure in the event of an unforeseen circumstance.
Another advantage of having an emergency fund is saving on credit card bills. With the ease that credit cards offer us, swiping when out of cash has become more the norm than the exception. This could send any budget or financial plan into a tailspin, especially if you already have a debt to pay off.
As a result, keeping aside a set amount of money each month towards a rainy day fund will be beneficial to clearing your debt as well and help you save.
Improve Your Credit Score
Thinking of buying a car or taking out a home loan? Having a good credit score is essential before you embark on such a journey since that number can determine your financial fate for the immediate future.
Building up a strong credit score makes it easier to negotiate a better interest rate and also gain access to credit since banks consider you able to repay your loan.
Paying off all debt on time and in full, not defaulting or missing payments, limiting credit card spends and sticking to a budget when it comes to frivolous expenses can all help you build up a strong credit score.
Keeping track of your credit score and ways to boost it can be found across the web, with apps like BankBazaar giving you access to a free credit report.
Investing in 101
Just starting out in the working world and looking to make your savings earn for you? Investing in the stock market is the way to go, though this comes with its fair share of risks.
Investing in bonds and securities not only makes your money work for you but also encourages you to save since the money is locked away for a specified period. This effectively reduces your ability to borrow or dip into those funds. Multiplying your wealth through wise investments also helps save tax, as the government has a number of schemes and sops meant to promote investment.
Investing in government assets is one of the safest ways to help build your wealth, which can be balanced with other forms such as stock trading.
Rein In Impulse Spends
Had a hard day at work and planning on hitting the bar? Resist the urge to down that drink and pay for it using your credit card. Avoiding impulse spends is the biggest way to save and keep your budget on track. Identify spend-thrift habits and attempt to cut back to keep your financial future healthy. Reducing impulse purchases need not mean completely going without.
Used to dessert after lunch each day? Make it every alternate day and try to skip it altogether on weekends. The money saved can be put into your rainy-day fund or towards investments, making your money earn for you.
Incorporating some of the above tips and tricks can help you keep yourself on track financially ahead of April 2018. Also, download the BankBazaar Mobile App to get access to quick bite-sized lessons and the latest news for better money management and financial know-how.