4 Golden rules of financial planning

These financial principles explained below will never be altered or become useless. If you want to protect your finances from the effects of uncertainty, follow their advice.

1- Have a strategy, and be rich

This is one virtue that may be able to neutralize the effects of various financial sins. A financial plan serves as a guide for your financial journey. It will assist you in getting back on track even if domestic and global events disrupt your investments. At the macro level, planning has an impact on every aspect of personal finance, including taxation, insurance, and goal attainment.

It can help you cut your losses, increase your gains.  Also, it helps to avoid the pain and anxiety that comes with a financial or life stage crisis. On the other hand, A plan is simply a list of your needs and wants, as well as putting money in the right places. So, you have it whenever you need it. Calculate your current worth and identify the goals for which you will need money in the future as a first step. Calculate the exact amount needed for each goal, after factoring in inflation as well as the time frame in which you want to achieve it.

Determine your risk tolerance and then select the instruments in which you want to invest (asset allocation). When you link your investments to your goals, you won't have to rush for money when you need it. Create a plan as soon as you get a job because you can invest without straining your finances or burdening additional responsibilities.

More importantly, it will assist you in maximising the benefits of compounding. So if you don't start saving for retirement until you're 40, you're likely to save a lot less than if you start when you're 25.  Your planning will almost certainly go for a toss in a market collapse like that of 2008. But, it will usually hold you in a strong position through most ups and downs.

2- Protect your family and finances

Most people are so focused on investing and building assets that they neglect risk management. This is the second constant that does not change over time. Because it is critical to protect your family and finances by building a good insurance portfolio. The majority of people buy insurance to save money on taxes and as an investment.  Life insurance is the second most popular investment after fixed deposits. It accounts for 25% of small investors' wealth. however, you mustn’t mix insurance and investments. Pure protection plans should be at the bottom of your insurance pyramid. These protect against death (term plans), illness (medical plans), and accidents (accident/disability covers) risks.

Your age, income, dependents, and needs will determine the number of life and health insurance you purchase. Next, think about insurance policies that can assist you in achieving your objectives. Traditional (endowment) and child plans are amongst them, and finally, buy plans that can help you build wealth (Ulips). Real estate and household contents insurance are two other important insurance plans to purchase. With the basic covers costing less than Rs 2,000 per year, these are reasonably priced.

3- Don't overlook Taxes

like death, Taxes are an unavoidable fact of life. While tax rules and slabs may change over time, taxation remains constant. It has an impact on every aspect of your finances. From your income and allowances to your investments and the assets, you buy and sell. So, instead of ignoring or pushing it away, pay attention to it.

Consider it as a way to cut your losses while increasing your profits. Hire a planner or a tax professional if you need help, but get started as soon as possible. Divide the document into three sections: tax-saving contributions (deductions/exemptions), tax payment, and return filing. Make a calendar for everyone because procrastination leads to not only uncertainty but also defeats and penalties. Calculate how to maximize exemptions and deductions under various parts. It will help you to schedule your tax-saving contributions at the beginning of the financial year. So, if you pay tuition for two children, invest in the PPF, and have your EPF deducted from your income. You'll likely reach your Section 80C limit of Rs 1.5 lakh. And won't need to rush into buying an endowment plan or (Ulip) that you don't need.

To find out how much more you can save, look over the list of other exemptions and deductions available outside of Section 80C, such as those under Section 80D (health insurance premiums) or Section 80G (donations and charity). Make sure you've claimed any tax-free reimbursements from your employer, such as medical or transportation, by sending in your bills and proof on time. If you forget to claim certain reimbursements, such as LTA, you won't be able to claim them when filing your taxes. Also, learn about your investments are taxed. So, you can purchase and sell properties with little to no tax burden. And cover losses against profits in a given year. Then, by checking the deadlines, remember to make your tax payments on time.

For example, an individual entity (other than corporations) must pay advance tax in three instalments by the 15th of September, the 15th of December, and the 15th of March of each year. If you don't, the outstanding balance will be charged 1% simple interest per month. Finally, set an alarm or a reminder to file the return two months before the deadline. It will save you from the confusion and website crashes of the last few hours. Of course, if you have already paid your taxes, you can do so later, but why wait?

4- Keep an eye on your investments

If you don't monitor your portfolio on a regular basis, your plan and portfolio will go to waste. A review is necessary to track your progress toward your objectives and, if necessary, take corrective action. You should monitor your investments on a quarterly basis for short-term goals and annually for long-term goals. While some people check more frequently than others, such as twice a week or more, it is practical to check at longer intervals. In changing market conditions, it's critical to examine asset distribution, which may have changed and will need to be rebalanced.

Selling anything that is doing well and investing in a losing asset class might seem counter-intuitive. But a portfolio focused on asset allocation has a higher chance of outperforming the market in the medium and long term. The next step is to examine individual investment performance. And exclude funds or stocks that have not performed consistently for more than four quarters.