Why It's Important to Plan at the Beginning of the Financial Year

Shrishti Bajaj is an up and coming interior designer based in Gurugram. Though things are going great professionally, Shrishti is not happy on the personal finance front. To begin with, Shrishti applied for a vehicle loan. She had to accept the higher rate of interest because her credit score was 650 - much lower than the desired 750 to 900. The latter range fetches many benefits such as faster loan approval and reduced rates of interest. Shrishti frequently misses the due dates of her credit card bills, phone bills and once or twice, even the home loan instalment was overdue. All of this led to lower credit scores.

Then, Shrishti wanted to close the deal for her home décor showroom by making the down payment. However, while writing the cheque; she realized that the annual contribution towards Sukanya Samriddhi Yojana, where she has been investing INR 1.5 lakhs p.a. in her daughter’s name, was due. So was the annual premium for the endowment life insurance policy. Also, her health insurance premium renewal was nearing. There was no way she could foot all four payments at once. Hence, she had to let her dream business location go.

You must also be wondering about the reason for so many hick-ups on what’s expected to be smooth financial sailing in life for a talented professional like Shrishti. The reason is not the paucity of funds, but the paucity of planning.

Financial planning is very important for structured investments and realizing life goals through a dedicated corpus for each such goal. However, the timing of these investments is equally, rather even more important so as to avoid an outgo of cash in one go or missing out on an important installment due to lack of funds. Matching the timings of your investments with those of your income on sustainable basis for a long run is very crucial.

A well-crafted investment plan not only features the selection of asset classes matching one’s risk appetite and return expectation but also offers a smooth path of execution by spacing out the financial outlay throughout the year. The beginning of the financial year (in India, the financial year begins in April and ends in March) is an apt period to zero in on this design. Let’s see why:

A clear idea about cash coming in and going out

After successfully filing the income tax returns for the year, you would have a clearer estimate as to the amount and expected timings of your income and expenses. This knowledge would help you allocate the right funds for your personal expenses, emergency funds and investments at the right time for the coming year.

Ample scope to choose a flexible investments schedule

Once you choose the investments and the frequency of the same, you would have a couple of quarters to witness their impact on your obligations, ability to service the debt, and final amount of cash that you would have on your hands. You would have room to make changes in the investment schedule during the latter part of the year based on your experience.

Once you choose the investments and the frequency of the same, you would have a couple of quarters to witness their impact on your obligations, ability to service the debt, and final amount of cash that you would have on your hands. You would also have room to make changes in the investment schedule for your tax saving plans. Investing early and scheduling monthly will also help you earn the benefits of SIPs.

A fixed period for tracking the investment performance

The end of the financial year provides an excellent opportunity to review the performance of various types of investments in your portfolio such as equity shares, bonds, or bank fixed deposits.

You may retain or discard some of them based on their performance, market ups and downs and the overall economic environment at national and global levels for the coming year. At the beginning of the next financial year, you may immediately implement these changes.

Prioritizing investment goals

A clear idea as to your cash inflow and outflow as well as other obligations would help you prioritize your investment goals such as funds for a dream vacation or down payment for a house. Accordingly, you would be able to choose suitable types of investments to fulfill these objectives.

Financial planning at the beginning of the year gives the much-needed flexibility that may be needed for error detection and course correction later in the year. The savings and wealth created can also be augmented if the time at your disposal is more and it allows more room for the principle of compounding to be effective. Hence, it is a wise strategy to start the process of financial planning at the beginning of the year.