1. 50% for needs,
2. 30% for wants, and
3. 20% for savings and investments

It helps you strike a balance between non-negotiable spending, discretionary spending, savings and investments. While most of your spending is monthly, you will have some quarterly expenses (for example, society maintenance), half-yearly (for example, insurance premiums), and annual (for example, child’s school fees). Accordingly, to accommodate these ad hoc expenses, you can make a master annual budget and break it down into half-yearly, quarterly, and monthly budgets.

Emergency fund

Once the budget is sorted, you should build and manage an emergency fund. An emergency fund is handy during situations such as job loss, delay in salary, hospitalisation, etc. You should maintain an emergency fund equivalent to at least three months of your expenses.

If you already have an emergency fund, at the start of the financial year, evaluate whether the amount is adequate. If not, replenish the fund as per need. If you don’t have an emergency fund, create one on priority at the start of the financial year. You may maintain the emergency fund money in a separate bank savings account or a debt mutual fund.

Life insurance

The family bread earner(s) should have life insurance. The cover amount should be adequate to take care of your financial liabilities (home loan and other loans) and financial responsibilities (child’s higher education, spouse’s retirement, family’s monthly expenses, etc.). A term life insurance plan is ideal as it allows you to purchase a bigger cover at a lower premium.

If you already have life insurance, at the start of the financial year, evaluate whether the cover amount is adequate. If not, you need to purchase additional life insurance. If you don’t have life insurance, you should buy a term plan on priority at the start of the financial year. Do remember that your life insurance plan is your family’s financial backup in the event of your untimely death.

Health insurance

It is essential to have health insurance for the entire family. A family floater health insurance plan is ideal. You may have health insurance from your employer. But, the cover amount can change or be withdrawn anytime. Also, if you change your job, the new employer may or may not provide health insurance. Hence, it is good to have an employer health insurance cover, but better to have your own health insurance cover.

If you already have a family floater health insurance plan, at the start of the financial year, evaluate whether the cover is adequate. Medical inflation in India is growing at a rapid pace. If required, you may buy a top-up plan. If you don’t have health insurance, you should prioritise buying a family floater health insurance plan at the start of the financial year.

Goal planning

Once life and health insurance are sorted out, you may focus on your financial goals. At the start of the financial year, make a list of all the financial goals and classify them into:

1. Short-term goals (to be achieved within the next three years)
2. Medium-term goals (to be achieved within the next 3 to 7 years)
3. Long-term goals (to be achieved beyond seven years)

Consider investing in fixed-income instruments such as debt funds for short-term goals. For medium-term goals, consider investing in hybrid mutual funds that give you exposure to a combination of equities and fixed income. For long-term goals, consider investing in equity mutual funds.

The common financial goals of individuals include:

1. Fund for a child’s higher education and marriage
2. Retirement fund for self and spouse
3. Accumulating money for a house downpayment
4. Accumulating money for buying a vehicle
5. Fund for starting a business
6. Fund for annual vacation, etc.

It is better to do your goal planning and start investing towards goals through various financial products at the start of the financial year itself. If you are already investing towards your financial goals, evaluate the progress at the start of every financial year.

Check whether the investments are performing as expected. If any changes are required, go ahead and make them. If any new financial product has been introduced, evaluate whether you need to add it to your investment portfolio.

Tax planning

While investing in various financial products for the above goals, you must ensure the investments are tax-efficient. If you are filing returns under the old Income Tax regime, ensure you are utilising the deductions from taxable income under Section 80C, 80D and other sections of the IT Act. You can get the following deductions from taxable income:

1. Section 80C:Up to Rs. 1,50,000 for investments in financial products such as ELSS, PPF, EPF, NSC, NPS, home loan principal repayment, life insurance, etc.
2. Section 80D: Up to Rs. 25,000 for health insurance premiums paid for self, spouse, and children. If you or your spouse or both are senior citizens, the maximum deduction allowed is Rs. 50,000. An additional deduction of up to Rs. 25,000 for health insurance premiums paid for parents. If one or both of your parents are senior citizens, the maximum deduction allowed is Rs. 50,000.
3. Section 24: Up to Rs. 2 lakhs for interest paid on a home loan

In the earlier section, we saw how doing goal planning and investing at the start of the financial year is better. When you select financial products that are tax-efficient, your tax planning will also be taken care of at the start of the financial year itself.

When your tax planning is sorted out at the start of the financial year itself, you can make appropriate investment declarations to your office HR so that there are no unnecessary TDS deductions from your salary.

Debt repayment

Currently, we are in a rising interest rate environment. The bank may have increased the interest rate on your home loan a number of times post the RBI hikes in the Repo rate. Following the increase in the interest rate, the bank may have either increased the tenure of your home loan or increased the EMI.

In such a scenario, it makes sense for you to pre-pay some portion of the home loan. Make a provision to set aside some amount every month. Once you have accumulated a decent amount, you may use it to prepay the home loan principal partially.

Succession planning

Whenever you invest in any financial product, ideally, you should make a nomination at the time of investment itself. However, if you have not made the nomination for any financial product, the start of the financial year is an excellent time to review all financial products in your portfolio. If you have not added a nominee to any financial product or want to modify an existing nomination, you may go ahead and do it at the start of the financial year.

Please note that in the case of most financial products, the nominee(s) is/are just the caretaker(s). The actual beneficiaries are the legal heir(s). Hence, you should make a Will and include the details of all your assets and how you would like them to be distributed amongst the beneficiaries after your demise.

If you have already made a Will, you may review it at the start of the financial year. If you have invested in any new financial product, you may make a new Will and add it. Once you make a new Will, the old one will automatically become invalid.

Make new beginnings with the new financial year

Investors should ideally take the comprehensive financial planning route rather than investing in financial products or doing tax planning in isolation. The start of the financial year is an excellent time to review things and take a holistic and systematic approach to comprehensive financial planning. You can start by making a budget, putting an emergency fund in place, and buying life insurance for yourself and health insurance for the entire family.

The next step is to do goal planning and invest in tax-efficient financial products. While investing in financial products, ensure you do a nomination and include them in your Will. If you are already following the above process, the start of the financial year is an excellent time to review the progress made so far and take any corrective action(s), if required.