Top 5 investment tips you need to follow entering this New Year

As the new year has started, you would have probably made a list of the resolutions you want to pursue in 2023. However, often, those resolutions get lost in papers as a month passes by. To avoid repeating such past patterns, especially with financial matters, it is essential to plan in advance and make realistic goals. If you are wondering how not to worry, PI is here for you.

Tip 1: Create a well-executed financial plan

While success lies in execution, planning your finances in a detailed manner has no other alternative. To avoid situations where you miss your bill payments or cannot afford a necessary purchase, you have to plan your year in advance.

There are many ways you can save yourself from this predicament and avoid unwanted expenses, such as the 50:30:20 rule of budgeting. The rule requires you to break your post-tax income into three parts: 50% for needs, 30% for wants, and 20% for savings and investing. This helps you to keep your spending in control and invest side by side.

For example: If your post-tax income is Rs. 50,000 per month, the breakup goes as follows:

50% on needs: Rs.25,000 goes into needs like paying rent, mortgage, groceries, insurance premiums, etc

30% on wants: Rs.15,000 goes into wants like travel, shopping, dining, movies, etc 20% on saving:

Rs. 10,000 goes into savings like emergency funds or investing in any asset class

However, know that no one size fits all, and what better than consulting a financial advisor to smoothen your financial transitions? It helps you get expert advice and suggestions to save, invest, and grow your money so that you can achieve your goals without any compromise.

Tip 2: Prioritise investments based on your goals

A person who is 60 years old and is retired vs. a person 27 years old and climbing the professional ladder, do both invest similarly? The straight answer is no. Investments must be based on your goals and their duration. For example, planning for a wedding after 3 years is a short-term goal, while saving for a house and retirement is a long-term commitment. Your portfolio asset allocation should be done on that basis. If it already is not, consult a financial planner and optimise your portfolio.

To achieve any short-term goals then, you can invest for the short term in a more liquid and stable return-providing asset class such as debt. While for the and for long-term goals, you can have a time horizon for a slightly higher period. You should always consult an expert in case of confusion where money is involved.

Tip 3: Don’t forget the taxes

Taxes are an unavoidable part if you are earning. It directly impacts your income and your investment returns, too, in the form of capital gains tax. If you miss planning for your taxes, your tax liabilities can be daunting on your finances. Thus, as the new year starts, make it a point to pay attention to your taxes.

There are many deductions that you can claim under various sections. We will discuss two.

Section 80C: You can reduce your taxable income up to Rs.1.5 lakh by investing in eligible tax-saving instruments such as PPF, EPF, LIC premium, ELSS, etc.

Section 80D: You can avail of tax deductions of up to Rs. 25,000 by purchasing medical insurance for yourself, your spouse, and your dependent children. An additional deduction of up to Rs.25,000 is available for the parents if they are less than 60 years. If the parents are aged above 60, the deduction amount is Rs. 50,000.

Tip 4: Save an emergency fund

This year, make it a point to save for an emergency fund. An emergency fund helps you survive any kind of emergency you face in your life. An emergency fund can be kept aside from your regular income for emergencies like unexpected illnesses, accidents, sudden purchases, job loss, or other unforeseen activities.

You should aim for your six months’ salary as an emergency fund. For example, if your salary is Rs. 50,000, then you can keep Rs. 3,00,000 as your emergency fund. The investment should be made in liquid instruments such as a bank FD or recurring deposit, which you can easily access.

Tip 5: Have adequate health coverage

As the saying goes, ‘health is wealth’; you should always prioritise your health and overall well-being. With the increasing cost of healthcare and hospitalisation, it is vital to have an adequate health insurance policy that covers you and your family members. Health insurance saves you from lofty bills when you are in the hospital due to an accident, illness, or any other reason.

This cover ensures to protect you against any uncertainty and also keeps you from an increase in medical inflation. Also, while we are at insurance, do not forget to buy a term plan for yourself to provide a cushion to your family in times of need.

Conclusion

Finance is an interesting aspect of our life that needs to be planned well. We hope that these tips help you make the most of this year and help you to stay ahead of the curve. There is no one size that fits all, and you can customise and dwell deeper into any aspect by consulting an expert. Hope this new year brings you lots of happiness, good health, and financial freedom. Happy new year!