Perfect plan: financial tips for the new year

These basic financial tips and tricks will improve your personal balance sheet.

The end of a year is the best time to evaluate your finances and prepare a new financial plan for the coming one. The best financial advice is time tested and involves saving money, investing right and tracking expenses.

Read FHM India in the digital libraryEvery issue, every shoot, on TCG Media.

With agents selling credit cards, banks selling insurance policies and that friend who made a fortune in crypto currency, it is very easy to get caught in analysis paralysis with regards to making financial decisions. But, these basic principles will greatly improve your balance sheet and help you make better financial decisions.

Keep the credit card in check

That shiny plastic engraved with your name can easily become your greatest nightmare. The first rule of credit cards is to have just one. Try and pay off your expenses in cash and limit credit card bills to essential purchases like fuel, mobile bills and other recurring expenses. It is wise to leave the credit card at home if you are going on a random shopping spree. Use it only for planned expenses.

Use only 30 per cent of your credit limit and try to pay off your full balance every month. Credit card companies are notorious for adding penalties and late fee charges, so go over your statements carefully at the end of the month.

Start investing for long term

At the beginning of the year you need to commit to one long term investment. An S.I.P. in a good mutual fund will make you habituated to putting away a certain amount every month for your investments. Even if the amount is small in the beginning, the compounded returns in the long run are sizeable. Make it a point to stay invested for five to ten years in order to reap the best returns. You can also invest in the stock market with a lump sum amount at the beginning of the year. Debt funds and government bonds are also a good long term investment option, as they are relatively risk free and offer tax incentives as well.

An S.I.P. in a good mutual fund will make you habituated to putting away a certain amount every month for your investments.

Get your CIBIL score in order

Your CIBIL score ranges from 300-900 and is basically derived from your credit history. This score is used by banks to determine your loan eligibility. Most people don’t realise the importance of the CIBIL score until they apply for a large loan and are denied the loan or charged higher interest rate due to a low CIBIL score.

To improve your score, you can start by paying any existing EMI’s and credit card bills on time. Late payment has an adverse effect on the scores. Utilise your credit card limits judiciously and don’t max out the credit limit. Another important factor is to have a healthy mix of secured credit (home loan, car loan) and unsecured credit (personal loan, credit card). It is better to have more secured loans than unsecured loans.

Consolidate your debt

Debt consolidation refers to taking out a loan to pay any or all existing loans and credit card debt. The debts that can be paid off in this manner are usually unsecured and short term debts. By consolidating debt, one can pay lower monthly installments and enjoy the benefit of lower interest rates. This option can be used if you are unable to manage too many debt repayments and are paying high rates of interest to service the debt.

There are many financial institutions in India that have attractive offers for debt consolidation. However, taking out a loan for debt consolidation should be seen as a last resort. The best practice, is to avoid debt by changing spending habits and improving savings.

Plan for retirement

Data consistently proves that people who begin retirement planning at a young age end up with a larger nest egg in their golden years. Most employers have a provident fund provision where you can stash a percentage of your monthly income. The Personal Provident Fund is also a good investment option for retirement. One can also look into E.L.S.S. option in mutual funds as they are meant for long term investment. The advantage of retirement funds is that you can claim tax benefits on these investments.

From the December 2018 issue of FHM India.