1. Avoid rolling over credit card debt
We do this all the time. Paying 5% of outstanding credit and rolling over looks simple. There is a problem here. Your credit card cost is close to 4% per month. Effectively, you are only reducing your debt monthly by 1% assuming you don’t spend on your card. In reality, you keep paying each month but realize that your credit card debt is either stagnant or increasing. The answer is to pay as much as possible; even use some of your cash flows to repay the credit card debt before investing. After all, the smartest investment is cutting debt that costs 48% a year.
2. Don’t go overboard on small savings
If you have been a big fan of small savings all along, you must do a rethink. Small savings rates will go down and government will also gradually withdraw tax exemptions. While the statutory contributions are OK, you must allocate your surplus to growth assets rather than trying to stick to small savings products like PPF, PO deposits, NSC, KVP etc.
3. Start tax planning right away
Your tax filing may happen after the completion of the financial year, but your tax deductions start right away. One way to plan your taxes systematically is by making tax-saving investments from April itself. It not only syncs with your income flows but also gives you enough time to plan additional investments in the case of pay hikes and bonuses. One way is to start an SIP on ELSS funds to ensure regular tax planning.
4. Review your credit report each month
Most banks have become very particular about credit scores and consistency of scores after the pandemic. You must maintain a good credit score all through. Review your credit score each month at the CIBIL website and ideally it must show a stable or rising trend. CIBIL scores of 750 plus are ideal for easy loan approvals. Make this a personal finance habit. Now you can download your entire CIBIL report free of cost.
5. Build a contingency fund
The pandemic underlined the importance of having a contingency fund to fall back upon. Most people fell back upon their savings, gold holdings and PF holdings to tide over the crisis. One discipline you must inculcate is to have 5-6 months’ income as a contingency fund in a liquid, yet productive, avenue like liquid mutual funds. It is time to build this contingency or to re-build it if you used it up during the pandemic.
6. If you are planning to buy a new car, just wait
Buying a car is an important decision and also a lifestyle decision. But there are a lot of changes coming in. The new scrappage policy could make cars effectively cheaper and save you a lot in terms of road taxes and registration fees. Also, if you going for a green car, then you have additional income tax benefits. Car buying could change drastically so wait for more clarity from the government before taking this decision.
7. Review your ECS mandates
Doing a review of your ECS and auto-debit mandates each year is a good habit as it avoids embarrassments. Auto debits could get into legal wrangles so if you have auto debits for utility and other payments, it is best to cancel them. In case you have given ECS mandates to your bank for MF/insurance payments, be careful if you bank has merged. Eight PSU banks have merged and old cheque books, passbooks and ECS mandates will not work as the IFSC numbers have changed.
8. Plan your budgets assuming old TDS rates
If you are a professional or businessman, old TDS rates will apply from FY22 onwards. Last year, the government reduced its TDS rates to 75% of the extant rates. That expired on 31 March and so all TDS deductions will now be at old rates. You can plan your monthly cash flows accordingly.
9. Prepare to pay 10-20% higher Insurance Premiums
The pandemic resulted in higher underwriting losses and greater risk perception. This is likely to result in higher insurance premiums on term life policies and also health insurance policies. Tweak you budgets and be prepared for higher insurance costs.
10. Don’t procrastinate, time to act is now
That is easy to grasp but tough to implement for most. Good personal finance will work only if you make it work. It must begin with a financial plan to meet your goals. If you have not yet done it, then do it now at the start of FY22. That is not something to put off!