April 22, 2024

12 essential financial planning rules for a successful investment journey in 2024

2023 was an excellent year for investors. The Nifty 50 gave good returns of around 20% and mid and small-caps did even better. Gold sparked investors’ portfolios with around 13% returns.

In 2024, with interest rates expected to go down, will debt funds take the crown? What is the outlook for gold and equities in 2024? Will gold continue to rally with geopolitical tensions rising? Will equities continue outperforming or take a backseat? This is where financial planning and asset allocation are important.

As an investor, your focus should be on financial planning and not chasing returns. The new year brings a lot of enthusiasm and optimism. Use this opportunity to streamline your financial freedom journey with these 12 financial planning rules.

Take expert help to make smart decisions

In this era of Do It Yourself (DIY) platforms, a qualified and experienced investment expert’s importance must be recognised. The expert can handhold you for listing financial goals, making goal plans, making investments, and regular reviews till the goals are achieved.

Adopt budgeting

Budgeting helps you free up financial resources for investing towards financial goals. For example, the 50/30/20 budgeting method allocates 20% of income towards savings and investments. Automate your investments through SIPs, and insurance premium payments through auto-debit instructions. Keep the SIP date around 2-3 days after your salary date so that the investments are taken care of, and you can spend the remaining amount on needs and wants.

Gain knowledge of risk and reward

Usually, the higher the risk, the higher the expected reward, and vice versa. An investment expert can help you identify suitable financial products based on risk, investment time horizon and other factors.

Understand the impact of inflation and compounding

Inflation is a silent monster that erodes the value of your money. On the other hand, compounding, which Albert Einstein called the world’s 8th wonder, helps you grow your money. Long-term investing helps you benefit from the power of compounding and earn inflation-beating returns.

Set clear goals

You should set SMART goals: (S)pecific, (M)easurable, (A)chievable, (R)elevant, and (T)ime-bound. It helps pursue them till achieved. Setting up SMART goals will help you stay focused on achieving them.

Take informed risk

Taking measured risks in investments is important. Investing in a product that gives you 12% annual growth vs a low-risk product that gives you an 8% annual return can have a significant (2-3 times) impact on your final accumulated corpus. Take informed risk for your long-term goals keeping this in mind.

Build tax efficiency

While investing for goals, maximise the deductions under Section 80C of the Income Tax Act. For example, a Nifty 50 Index fund (ELSS) can give an annual deduction of up to Rs. 1,50,000 compared to other Nifty 50 Index funds (non-ELSS). Similarly, you can save tax with NPS contributions (Section 80CCD), and health insurance premiums (Section 80D) for self and family.

Regular reviews

Sit with an investment expert to review the progress of your financial goals every 6-12 months till they are achieved. A review helps to replace underperforming investments with appropriate new ones.

Don’t time the market

Time in the market beats timing the market. Rather than speculating on the entry and exit points, stay invested for the long term till your goals are achieved.

Invest systematically

The SIP mode makes you invest regularly in a disciplined manner. Using step-up SIPs, increase the monthly investment amount annually in line with your increasing income.

Focus on investing behaviour and process

Greed and fear are an investor’s biggest enemies. While investing, keep your emotions aside and trust the investment process to sail through the tough times and enjoy the good times.

Don’t chase returns

As long as your investment returns meet the expected rate of return in the long run, you don’t need to chase schemes with the highest returns in 1, 3, or 5 years. The table toppers will keep rotating every quarter. Adopt a strong investing process that provides resilience for staying invested despite market volatility.

The financial planning journey is a marathon and not a sprint. Hence, following these 12 financial planning rules will keep you in the race for the long haul till the financial goals are achieved.

Mayank Bhatnagar is Co-founder & COO, FinEdge.

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