Six items for your 2022 financial planning checklist

Prepare a budget: Every year requires one to go through a new budget preparation exercise, considering the present realities. Among the first things that one needs to know is where they stand in terms of income and expenses. Vikas Singhania, chief executive, TradeSmart, said, “It is essential to review your spending within the various elements and plug any holes. Hence, you must monitor spending, especially those that tend to overshoot, like the occasional dinner or movie becoming more frequent than originally planned.”

Archit Gupta, CEO, Clear, said, “One of the best methods to save money and meet all your needs is to follow the rule of 50:30:20. According to this rule, you can utilize 50% of your income for necessities like food and accommodation. Further, you can use 30% of your income towards your lifestyle expenses like purchasing new apparel, buying new furniture or spending to eat out. The balance 20% of your income must be saved and invested mandatorily. This 20% should be first held in liquid instruments like fixed deposits to create an emergency corpus. As per standard rule, everyone should have at least six months of income saved for emergency purposes. Once you create an emergency fund, redirect a minimum of 20% of your income for investing in building long-term wealth.”

Review financial goals: Reviewing your financial goals helps you stay on track with your long-term goals. Check if you are on track to meet your tax saving and retirement goals. Check if you have adequately provided for children’s education, marriage, holidays.

Anup Bansal, CEO, Scripbox, said, “While looking at the budget, income, expenses, savings, you must look at the financial goals for the past year. This process will help with any changes you may require in your overall financial plan. If some of the data is not available, you may want to put in the mechanisms to capture that information. You should review your liquidity requirements in new year and make provisions for it.”

Review your integrated investment portfolio: An integrated investment portfolio typically includes investment options like fixed deposits, mutual funds, stocks, national pension schemes, gold and real estate. Align your portfolio to desired asset allocation, keeping in mind the potential savings and investments you will be making in the next year. If you do not have an integrated view of your investment portfolio, you should create that view.

Singhania said, “With a strong performance in 2021, it is time to review your investment portfolio, especially the equity and mutual fund portfolio. Check if they are helping you meet your various goals, taking into account a very conservative return expectation in 2022. Chances are 2022 may not be as good as 2021, which may necessitate a certain amount of rebalancing.”

Debt repayment goal: Have a plan to repay all your costly debts, like personal loans or credit card bills. Aim for a debt reduction target for the year, which you should realistically align with the sources of funds to help reduce these loans. Certain debts like home loans are low cost and offer tax benefits. So, in that case, you must plan your debt repayment goal in a way that you set all the higher cost ones first before you work towards settling the home loans. Bansal said, “If you have existing loans, then it is a good idea to compare the interest rates with what is being offered currently. If required, you can get your loans restructured to optimize on equated monthly instalments (EMIs), tax benefits and affordability.”

Maximize tax savings: You may also start collating data for tax filing and plan for any tax-loss harvesting in the next three months before the end of the financial year. Singhania said, “The government allows its citizens to invest in certain tax-saving instruments. One should try to take advantage of these saving instruments that help save taxes and result in a forced saving. Make sure to save as much as possible to avail of the tax benefit.”

Review your family’s insurance coverage: You may or may not have comprehensive coverage on life, health, car and other risks. Reviewing this ensures that you are up-to-date on your risk coverage. If there is any change in your personal status, e.g., new job, new-born kid, marriage, etc., your risk cover requirements may change.

Singhania said, “With the danger of the pandemic still lurking on our heads, the last thing one needs is to get caught off-guard. Make sure that your family is well covered for all health issues and all the family’s liabilities are covered.”