2020 has gone by in a daze but there’s always hope for the new year. We are way into 2021 and as the year is off to a good start, it is a good time to start thinking about your financial planning. While some people aren’t new at this and already know in depth what is financial planning and the importance of investing, if you’re like most others, you might be wondering how to plan the next financial year starting in April and where to invest money but may not know how.
So we have compiled some of the things you need to keep in mind to think through your investment plan for the year 2021 –
- Monthly savings: With the ongoing pandemic, you cannot say for sure whether you will be getting a pay hike at your job. One can always hope, but either way you need to plan ahead for the worst-case scenario and be pragmatic about how much money you are genuinely able to save every month. Learn what amount you will be capable of saving, and make sure that you save at least 20-30% of your savings. So if you are making a purchase, ensure that it does not exceed a year’s worth of savings as that will drive you in a debt.
- Unexpected big expenses: Learn to anticipate expenses, plan ahead and try not to be impulsive. If you plan to unexpectedly make a big purchase such as an expensive car loan or a home loan, calculate objectively whether you will be able to pay the EMI every month with your income without compromising on your core savings. And it is a good idea to have an emergency fund ready with you before you end up needing it.
- Tax saving investments: Figure out if you need to save taxes. If yes, then you will have to explore various types of investments and choose tax saving investment plans to take care of it. Make sure to deduct your EPF contributions, insurance premium payments (if you have a policy), home loan principal payment, etc. from the limit of Rs. 1.5 lakh under Sec 80c, and you can choose an investment plan to invest the rest of the money. The best idea is to go for tax saving Mutual Funds as you can start investing through SIP and not all together at the end of the year, which is more comfortable and helpful in planning ahead.
- Short-term and long-term investment: You need to figure out how much amount of money you wish to invest in fixed income (short-term) and in equity Mutual Funds (long-term). For short-term investments, it’s a good idea to invest in shorter term debt funds as they are efficient and stable if held for at least three years. If the amount is smaller than you can also think about FDs.
So these are some tips on how you can plan ahead your financial year 2021. Make sure you analyse all investment options, calculate the risks and accordingly make financial choices. Happy investing!