Finance planning review: Reflect on 2022 and roadmap for 2023

It's December, that time of the year when you must have made resolutions for the new year. You are excited and confident that you will ace all the resolutions in the coming year. These resolutions may relate to health, finance, career, relationships, etc. The article will discuss 5 things related to finance planning that you should do in December. These will help you improve your finances in 2023 and achieve financial goals in the long run.

1) Review the progress of your finances and goals

You should do a regular review of your finances. It includes reviewing your cash flows, budgeting, emergency fund, life and health insurance, financial goals, loan repayments, tax planning, etc. December is a good time to do the above activity by reflecting on what went well in the year. It is also an opportunity to plan for the year ahead.

While reviewing your financial goals, it is best to take the goal-based planning approach. For example, if you want to build a fund for your child’s higher education, take the following steps:

a) Current Cost of the Course: Based on the child’s current age and the time they will take college admission, calculate the number of years you have. Find out the current cost of the course.

b) Future Cost of the Course: You know the current cost and the number of years in hand. Using these inputs and education inflation, calculate the future cost of the course. You can look at past data on how the fees have increased to determine the average inflation rate.

c) Make a Financial Plan: Based on the amount required and investment time horizon, make a financial plan. Decide the asset allocation, financial products, and expected rate of return. Accordingly, you can arrive at the amount to be invested every month.

d) Implement the Plan and Review Regularly: Start investing in the financial products chosen through a Systematic Investment Plan (SIP). You can invest in the selected mutual fund scheme through IDFC FIRST Bank. Log in to your IDFC FIRST Bank Savings Account, select the mutual fund scheme for investment and get started with your SIP. Review the products’ performances regularly. Make changes whenever and wherever required. Follow this plan till the financial goal is achieved.

2) Make a budget for 2023
 

The next item on your December things-to-do list should be reviewing your 2022 budget and making the 2023 budget. Check the money allocated for various categories for 2022 and the actual amount spent on those categories. If you spent more than budgeted, check how you can scale back in 2023.

While making the 2023 budget, divide it into 2 parts: regular monthly and ad hoc one-time expenses. Pay attention to the one-time expenses. These may include:

a) Annual education fees for children,
b) Insurance premium payments,
c) Vacation,
d) Purchase of electronics/consumer goods, etc.

Some of these expenses may be quarterly or half-yearly instead of yearly.

It may not be possible to fund the above big expenses from the monthly income in the month they are incurred. So, make a provision by setting aside some money every month for these expenses. You may open an IDFC FIRST Bank Recurring Deposit to accumulate money for these ad hoc expenses.

You may have ad hoc income from an annual bonus, maturity/redemption of a financial product, etc. You may budget this money for either ad hoc expenses or invest it.

3) Review the tax plan for 2022 and plan ahead for 2023
 

Have you submitted the investment proofs for tax savings for Financial Year 2022-23? If not, from January, your employer's payroll team may start deducting TDS from your salary. So, do your tax planning and complete your investments for FY 2022-23 if they are still pending.

Make the best use of all the deductions allowed under various sections of the Income Tax Act to maximise your tax savings.

*The above are just some of the sections of the Income Tax Act that allow a deduction from taxable income. These are subject to change from time to time.

4) Review the financial products that You have already invested in and plan for new ones

You should review your investment portfolio regularly. December is a good time to review. Changes may be required in some investments due to:

a) The chosen product is not performing on expected lines
b) Better financial products have emerged
c) The financial goal is nearing, which may necessitate moving the money from equity to fixed income.
d) The tax laws related to the financial product have changed, etc.

If any of the above reasons require you to make changes in your investment portfolio, go ahead and do it.

For example, one could invest in real estate by buying the whole property earlier. But now, fractional ownership allows multiple investors to pool money and buy a single property. Every investor gets fractional ownership based on the amount invested. Real Estate Investment Trusts (REITs) have emerged in the last couple of years. They allow investors to buy a piece of commercial real estate at less than Rs 500.

For many investors, buying a whole or fractional property was out of reach earlier. But REITs have brought it within reach.

Similarly, earlier, investors could buy gold through bullion, ETFs, gold mutual funds, etc. Later on, Sovereign Gold Bonds (SGBs) were introduced. These give annual interest (paid semi-annually) and better capital gains tax treatment on maturity. So, buying SGBs may be better than buying gold in other forms.

Review your finances to check whether your investment portfolio requires you to make changes. The changes may be due to improved new products or better ways of buying the same product. If yes, go ahead and make that change.

5) Choose smart financial gifts for yourself and others

Throughout the year, there are occasions for you to purchase gifts, either for others or yourself. People usually give traditional gifts, which the recipient may or may not find useful.

You may start giving innovative or financial gifts next year onward. Some of these can include buying brand gift vouchers with your IDFC FIRST Credit Card and gifting them. You can get a discount on gift voucher purchases and earn credit card reward points. Consider starting a mutual fund SIP or buying an SGB for a loved one.

December is a good time for vacation and finance planning

For many people, December is the best month of the year. You get ready to bid farewell to the current year and welcome the new year. Some of you may plan to party in town, while others may plan their vacation elsewhere. While your preparation may be in full swing, reserve some time for your finance planning. Make sure you review the current year and plan for the year ahead. It is the best way to ensure you are on track to meet your financial goals and achieve financial freedom.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.