A guide to financial planning for FY 2024-25

As the new fiscal year, FY 2025, approaches, it's the perfect time to take stock of your financial situation and set achievable goals. This comprehensive guide empowers you to craft a personalised financial plan for FY 2025, helping you navigate your finances with clarity and confidence. From stock investment and mutual funds investment to ETFs, gold, and government bonds, there is a lot to explore.

Step 1: Assess Your Current Financial Standing

Building a solid financial plan begins with a clear understanding of your current financial situation. Gather your financial documents, including bank statements, investment records, payslips, loan details, and insurance policies. Here's what to analyse:

• Income: Calculate your net income (after taxes) from all sources, including salary, rental income, investments, etc.
• Expenses: Categorise and track your expenses for a month (or several months) to understand where your money goes. Common categories include housing, groceries, transportation, utilities, entertainment, debt payments, etc.
• Savings: Evaluate your current savings habits. How much are you setting aside each month? Where is this money being saved?
• Debts: List all your debts, including outstanding loans, credit card balances, etc. Note the interest rates and minimum payments on each debt.
• Investments: Review your existing investments, including their performance and risk profile. Does your asset allocation align with your financial goals and risk tolerance?

Step 2: Define Your Financial Goals

Once you have a handle on your current financial situation, it's time to define your financial goals. These goals should be SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. Some common financial goals include:

• Short-term goals: Building an emergency fund (3-6 months of living expenses), saving for a down payment on a house or car, and funding a vacation.
• Mid-term goals: Paying off high-interest debt, and saving for a child's education.
• Long-term goals: Saving for retirement, building wealth, achieving financial independence.

Step 3: Create a Budget

A budget is a roadmap for your money, ensuring your spending aligns with your income and financial goals. Several budgeting methods exist, such as the 50/30/20 rule (50% needs, 30% wants, 20% savings/debt repayment) or zero-based budgeting (allocating every dollar of income to expenses or savings).

Choose a method that best suits your needs and preferences. Here are some tips for creating and sticking to your budget:

• Be realistic: Allocate realistic amounts for different expense categories based on your tracked spending data.
• Automate savings: Set up automatic transfers to your savings accounts or investment accounts to ensure consistent savings.
• Track your progress: Regularly monitor your spending and compare it to your budget. Make adjustments as needed.

Step 4: Develop a Debt Repayment Strategy

If you have outstanding debt, creating a debt management plan is crucial. Prioritise high-interest debt first, utilising strategies like the snowball method (paying off the smallest debts first for motivation) or the avalanche method (focusing on debts with the highest interest rates).

Consider debt consolidation to simplify your payments and potentially reduce interest rates. Remember, tackling debt helps free up your income for future goals.

Step 5: Build an Emergency Fund

An emergency fund is a safety net that protects you from unexpected financial emergencies like job loss, medical bills, or car repairs. Aim to build an emergency fund that can cover 3-6 months of your living expenses.

Start small and gradually increase your contributions as your financial situation allows. Options include a high-yield savings account or a money market account for easy access.

Step 6: Invest for Your Future

Investing allows your money to grow over time, helping you achieve your long-term financial goals like retirement. Here are some factors to consider when building your investment portfolio:

• Risk tolerance: Assess your comfort level with risk. Higher-risk investments offer the potential for greater returns but also greater potential for losses.
• Time horizon: Match your investments to your time horizon. You can invest more aggressively for long-term goals like retirement.
• Investment goals: Choose investments that align with your financial goals. Equity investments offer higher growth potential, while debt investments offer regular income and stability.

Step 7: Protect Your Income and Assets

Adequate insurance coverage safeguards you from financial hardship in case of unforeseen events. Consider these insurance options:

• Health Insurance: Ensures you have access to quality medical care without facing financial burden.
• Term Life Insurance: Provides financial support to your loved ones in case of your untimely demise.

• Disability Insurance: Replaces a portion of your income if you become disabled and unable to work.
• Property Insurance: Protects your home or car from damages caused by fire, theft, or natural disasters.

Step 8: Review and Adapt Your Plan Regularly

Financial planning is an ongoing process. Review your financial plan regularly, at least once a year, or more frequently if your circumstances change (job change, marriage, birth of a child). This allows you to:

• Track progress: Evaluate your progress towards your financial goals and adjust your plan as needed.
• Adapt to life changes: Life throws curveballs. Adjust your plan in response to changes in your income, expenses, or family situation.
• Stay motivated: Regularly reviewing your goals and progress helps you stay motivated and committed to your financial journey.

Additional tips for FY 2025

• Maximise Tax Benefits: Explore tax-saving investment options like Equity Linked Saving Schemes (ELSS) or Public Provident Fund (PPF) to reduce your tax liability and boost your long-term savings.
• Embrace Technology: Utilise online budgeting tools, investment platforms, and mobile banking apps to simplify and automate your financial management.
• Seek Professional Guidance: Consider consulting a qualified financial advisor for personalised advice tailored to your specific financial situation and goals. A financial advisor can help you develop a comprehensive plan, including investment strategies and retirement planning.

Conclusion

By taking the time to create a personalised financial plan for FY 2025, you take control of your financial future. Utilise this guide as a roadmap, remembering that financial planning is a journey, not a destination. By consistently monitoring your progress, adapting to changing circumstances, and staying disciplined, you can achieve your financial goals and build a secure financial future.

Disclaimer: This blog is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making any investment decisions.