As we begin a new fiscal year, there are a few key activities that we must complete first in order to keep our financial affairs stress-free for the remainder of the year. Here are four examples of unavoidable responsibilities:
Examine your current savings rate.
One of the most important factors in wealth growth is the savings rate. The general idea is that you should save at least as much as your age. For example, if you are 38 years old, you should set aside at least 38% of your income. The higher the number, the better.
It's critical to understand why it's less if it's less. Perhaps you have too many discretionary expenses or EMIs (equivalent monthly instalments). Perhaps you had an unexpected expense and your emergency fund, if you had one, was insufficient. There could be several reasons for this, all of which must be addressed.
Examine your financial objectives.
You should re-evaluate your objectives in light of the following:
Priority of goal: If the priority changes, the goals must be reprioritized correspondingly. Alternatively, you may have a new financial objective that requires a greater priority, causing you to de-prioritize other goals. Purchasing a home, for example, may become a higher priority than purchasing a car.
Goal target: It's critical to know if any external events have had a substantial impact on the goal target. Higher inflation, for example, may have driven up your college fund requirements.
Goal status: You need to know if you're on track to meet your goal in the timeframe you've set. If this is not the case, modifications to the portfolio or the amount of money invested will be required.
Examine your current asset allocation.
You would have chosen a mix of equity, debt, gold, and real estate based on your risk profile. However, market events may have caused these to shift throughout the year. For example, in the table below, equity has increased to 59 percent. As a result, rebalancing the portfolio and returning to the original asset allocation based on your risk profile is critical.
Review your emergency savings account.
The quantity of your emergency fund should ideally cover six months' worth of expenses. It may even be designed to hold a year's worth of spending. When you check your spending, you may notice that they have increased owing to the purchase of a new automobile or the birth of a child, for example. It could also have been lowered as a result of the repayment of a loan or a purposeful reduction in discretionary spending. As a result, you'll need to recalculate your emergency fund to account for 6 months of your new spending.
There are two basic techniques to save more money and spend sensibly in the new fiscal year that should be followed:
Can't seem to keep track of your spending? Simply automate your investment process.
After we've spent our money, most of us invest. As a result, we will eventually have very little money to invest. Switch your thinking from "Income - Expense = Savings" to "Income - Investments = Expense."
Start automating your investments from income to make this happen. Before any expenses are incurred, investments should be automatically deducted and stored in investment products. If SIPs aren't an option, you can deduct investments from your salary and put them in a separate savings account where you can make further investments. This approach will ensure that you only spend what you have and not at the expense of your investments. Furthermore, if done consistently, this has a multiplier effect.
Leverage supplemental income
Working on secondary income, such as passive income from investments, profits from pursuing your passion, and so on, is another wise strategy. The most major advantage is that your savings rate increases significantly, shortening your route to financial independence.
Should you put your money into passive funds in 2022-23?
Passive funds, such as index funds and exchange-traded funds, have grown in popularity in the mutual fund business. In February 2022, the total assets under management (AUM) were at Rs 5.3 lakh crore, representing a cumulative rise of 70% over the previous six years.
Passive funds have increased their share of the Indian mutual fund sector from 0.8 percent in February 2016 to 14 percent in February 2022. Passive funds have a market share of 40 percent to 50 percent in developed markets such as the United States and Europe. With a market share of passive funds expected to reach a laudable 37 percent by March 2025, India is joining the global party. Furthermore, evidence shows that passive investing is the most consistent approach to grow your money over time. As a result, investors should seize this chance to include passive products in their portfolios in order to achieve their financial goals and, as a result, improve their lifestyle over time.
Cryptocurrency's emergence as an asset class
The enormous mainstreaming of crypto assets is the most important story of the post-pandemic era. In India, crypto investment has grown at an incredible rate, with an expected 10.07 crore crypto owners by 2021.
Under the budget for FY 2022-23, the government has included crypto assets in the taxation ambit. If you still feel tempted to invest in cryptos, there are a plethora of crypto exchanges to choose from. Baskets, which act similarly to ETFs, are available on some exchanges.
With restrictions tightening surrounding cryptocurrencies, regular stock market investors may be more inclined to invest in this new asset class. However, investors should be aware that cryptocurrency is a high-risk investment and should proceed with caution. Crypto exposure should make up no more than 5-10% of your overall portfolio.
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