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Since the beginning of the pandemic, everything around us has become unpredictable. During these uncertain times, most people start to feel the mental strain due to financial crunches. Therefore, you should be prudent with your financial plan. With proper financial planning, including tax planning, sound investments, buying a life insurance money savings plan or a good regular income plan, you too can lead a financially secure life.
A proper financial plan allows you to recover from serious financial setbacks. Below are five smart financial planning tips that you can incorporate into your daily life.
● Proper tax* planning:
Any long term financial plan is incomplete without a proper tax plan. You should know that wealth is not built only through earning; it is also built through saving. With proper tax planning, you can invest in various avenues that provide decent returns along with good tax benefits. Income tax laws encourage individuals to invest their money by providing tax reliefs. There are certain government assets where you can park your money to avail of all the benefits.
You can also get tax benefits through deductions. Deductions reduce your total tax payable. According to Section 80C of the Income Tax Law, you can get a deduction of up to ₹1,50,000 through the payment of premiums on your life insurance policy. The individual can also avail of further deduction of ₹25,000 through Section 80D for health-based insurance policies. A good insurance plan will help you save a lot of money through tax savings.
● Debt management:
Debts are an easy way to arrange funds. If you are a business owner, then through proper debt management, you can generate decent returns. But with mismanaged debt, you could run into trouble. Debts might seem harmless during the moratorium period. But once the interests start rolling in, then it is crucial to keep track of it. The most financial money-saving plan focuses on minimising debt. There are few ways with which you can start reducing your debts. Financial experts usually advise using the windfall gains like bonuses, increment and inheritance money to eliminate debt.
One of the easiest methods is to follow your budget and make provisions for the debt. But if you are already neck-deep in your debts, then you should follow the snowball method. The snowball method dictates that one should pay off their smaller loans first. By removing the smaller debts, the person gets psychologically motivated to try to remove the bigger loans as well. Invariably try to negotiate with the lender to provide you with a lower rate of interest.
● Contingency fund:
During the initial few months of the pandemic, millions got laid off. Getting jobs during this period also became quite difficult. Those who owned business had to put down their shutter due to nationwide lockdowns. People started digging into their savings to sustain themselves. People who had proper financial plans in place were able to cope with the situation while others had to struggle.
This is the importance of a rainy day fund or emergency funds. If you do not already have such a fund, then you should start with creating one. There are few essential steps to create one. You should first calculate your monthly expenses, including insurance premiums and loan repayments. Then you should slowly start building your emergency fund by putting in money from your savings account. You should have a sizeable emergency fund to cover at least six months of your expenses.
This is one of the most generic personal financial planning tips. Yet, this is the most important one. To build wealth, you need to invest. There are various financial instruments where you can invest your money to get decent returns. Some of them are riskier than others. You should compulsorily invest a significant part of your earnings. While it is okay to use a savings account to store your emergency fund, the returns are not enough.
Through fixed deposits, one can get decent returns over a longer period. Similarly, one can also invest in the stock market, where one can get exponential returns. You can also opt for ULIPs as a part of your equity investment strategy. ULIPs# offer life cover along with the option to invest in market-linked funds. More importantly, you can choose the nature and risk profile of the fund you choose based on your own risk appetite.
A risk-averse individual can also invest in an insurance policy that acts as a regular income plan. Opt for guaranteed1 insurance savings plans or guaranteed income plans that offer risk-free investing and assured returns, along with life cover. You can also invest in government security assets.
● Life insurance policies:
Expanding on the tip from investing, insurance policies immensely help you with financial planning. For example, you can take an insurance money saving plan that acts as a savings account. But in time of need, you will get a decent cover. This money can help you compensate for the loss in income due to any reason.
Nowadays, insurance plans have become versatile. One need not get multiple plans for multiple things. An individual can opt for a single plan and expand the coverage through the extra rider's 2 option. Guaranteed returns plans offer life cover and a guarantee of assured returns. Additionally, you get tax benefits, choice of premium payment modes, unique rider options and much more.
The Tata AIA Life Insurance Fortune Guarantee Plus (UIN: 110N158V01) is a versatile money saving plan. The policy ensures a regular income plan with a period of your choosing. The plan acts as a savings plan as well. It assures the return of the premium after the maturity period. You can also opt for various other riders for a nominal fee to increase the plans’ coverage.
Other Tata AIA Life Insurance Plans
Tata AIA Life offers life insurance policies that give guaranteed returns, market-linked returns, retirement benefit and pure life cover. Some of our policies also promise the return of premium as a maturity benefit.
● Term Insurance Plans
● Wealth Solutions (ULIPs)
● Savings Solutions
● Retirement and Pension Solutions
5 Steps of Financial Planning:
Let us now have a brief look into the 5 steps of financial planning.
● Step 1 - First and foremost, you need to define your financial goals and objectives. This will provide you with a roadmap for your future financial management.
● Step 2 - Next, you need to gather all your financial information about assets, liabilities, incomes, expenses, etc. You also need to determine your risk attitude and capacity.
● Step 3 - Now, you need to review and analyse all the facts and figures that you collected in the above step.
● Step 4 - You will now be able to develop a financial plan with all the available information. This can be done by preparing financial statements, cash flow reports, consolidated tax reports, etc.
● Step 5 - Lastly, you can now implement your financial plan and evaluate for any discrepancies.
You can follow these personal financial planning tips to achieve both long term and short term goals. But without a proper financial plan and a tax plan, this might become difficult to achieve. The first thing you want to do before you start your finance journey is to prepare a plan.