The start of a new year is a good time to reflect on the year gone by and plan for the year ahead. Many people make various resolutions for the new year regarding health, career, relationships, and of course, personal finance. This article will focus on the new year resolution to review your financial plan for 2022. We will discuss how you can review the financial plan progress you made in 2021 and the steps you need to take in 2022 to stay on track to achieve your financial goals.
Financial plan: Review of 2021 and action points for 2022
Let us discuss the various components of a financial plan and review the past year (2021) and plan for the coming year (2022). If you are a beginner and haven’t made any financial plan in place, don’t worry. You can implement the action points for 2022 discussed in this article and get started with your financial goals.
- Emergency fund
An emergency fund is the first thing you need to put in place when you start your financial planning journey. An emergency fund should have 3-6 months’ income for any unforeseen or unplanned circumstances. If you don’t already have an emergency fund in place, this is a good time to start building it.
If you already have an emergency fund in place, then based on the year that has gone by, you need to review whether the existing emergency fund is enough or if there is a need to increase it. During the years 2020 and 2021, many people either lost their jobs or had to take major pay cuts, or got hospitalised due to Covid-19 leading to huge hospitalisation bills. So, during these two years, many people’s emergency fund was tested to see if it could withstand the difficult time. Accordingly, you may review your existing emergency fund and check if it needs to be increased.
After the emergency fund, the next thing you need to review is insurance, including life insurance and health insurance. Due to Covid related expensive hospitalisations and untimely deaths, millions of families slipped into poverty due to lack of insurance.
So, if you don’t already have life insurance, please buy a term life insurance plan without any delay. If you already have life insurance, you may sit with your insurance advisor and review if the existing cover is enough using the human life value method or other insurance evaluation methods. If the term life insurance cover is inadequate, you should buy an additional term life insurance plan.
You should also buy a family floater health insurance plan for your entire family if you don’t already have it. If you have an existing health insurance plan, check if you need to buy a top-up plan. If you have health insurance from your employer, don’t be dependent on it. It is always better to have personal health insurance coverage.
- Financial goals
Once you have sorted out your emergency fund and insurance, you should review your financial goals. Regarding your existing financial goals, check the progress made in 2021, and evaluate whether you are on track to accomplish them. Review your existing systematic investment plans (SIPs) and check if there is a need to increase the SIP amount. Check if you need to start any new SIPs in the recently launched mutual fund schemes that you had delayed/postponed due to any reason.
Check if any new financial goals have emerged or need to be planned for in 2022. Accordingly, make a goal plan for them and start implementing it.
- Asset allocation
In 2021, equity mutual funds did very well as the stock market was buoyant. At the same time, during 2021, debt and gold were subdued. Hence, your asset allocation would have got skewed in favour of equity. So, check and rebalance your investment portfolio to appropriate asset allocation.
In 2021, fixed income products such as bank fixed deposits and Government small savings schemes went out of flavour due to the fall in interest rates in 2020. But, the interest rate cycle seems to have turned, and in 2022, the interest rates are expected to go up. So, you may look at these fixed-income products to allocate some money.
In 2021, we also saw listings of new real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). Check if you need to invest some money towards these financial products as part of your asset allocation.
- Tax planning
The start of January 2022 is a good time to review your tax planning for Financial Year 2021-22. Check if you have completed most of your investments to avail deductions under Section 80C and other sections of the Income Tax Act. This is also the time when your Company Human Resource (HR) Department will start asking for the documents (proofs) of investments you have already made.
If you have already finished the tax-related investments for Financial Year 2021-22 and submitted the proofs, you can pat yourself on your back. This is also a good time to start thinking about your tax planning for the next Financial Year 2022-23, although it will start after a couple of months.
- Estate planning
If you have created any new assets in 2021, it is a good time to update your will to include them in your will. If you don’t already have a will, it is time to make it. Having a will with a properly documented plan on how to distribute your assets after you are gone will ensure there are no fights between your legal heirs.
Review any ongoing loans that you have. If you have long-term loans such as home loan, education loan, vehicle loan, etc., check if you need to pre-pay them and close them earlier than their usual date. If yes, then you need to have a plan in place on how and from where financial resources will be made available for this purpose. If you have any personal loan or credit card outstanding, make it a priority to clear these high-interest loans first.
- Income and expenses
January 2022 is also a good time to review your cash flow statement. If you have received any salary hike or annual bonus, this is a good time to think about how you plan to invest this additional money. Also, check if you need to create any passive sources of income to supplement your regular salary income.
Is your cash flow position is tight or even negative (expenses are more than income)? If yes, this is a good time to analyse your expenses and see which ones you can eliminate or reduce to get back to a favourable cash flow position. A second source of income (passive income) can also reduce the gap between expenses and income.
Apart from the above components of a financial plan, check if you need to work on any other financial planning areas. The start of the year is a good time to reflect on these things and get going so that your entire year is in a well-planned manner. Remember the well-known saying: “Well begun is half done!”
Financial planning with the Glide Invest App
In the above section, we saw how you can evaluate the financial progress you made in 2021 and how to plan for 2022. You can partner with the Glide Invest App for your financial planning journey to get recommendations for the appropriate mutual fund schemes based on your risk profile. You will get advice on planning and systematically investing towards your financial goals.
With Glide Invest, you will get guidance for:
- A personalised risk profile assessment
- Identifying your financial goals
- Appropriate asset allocation
- Making a financial plan for each goal
- Automating the financial plan
- Review and analysis of your financial plan
- Hand holding you till your financial goals are achieved
To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.