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.
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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.
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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.
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Mayank Bhatnagar is Co-founder & COO, FinEdge.
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Some money experts have insight on what helps the average American feel better about their financial situation – and it has little to do with a high income or assets.
Emergency savings amount
Conclusion:
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The investment adviser group Vanguard surveyed thousands of its clients about their financial situation, and found the strongest predictor of financial well-being and lower financial stress was having at least $2,000 in emergency savings.
By the numbers:
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Those who have at least $2,000 in emergency savings were associated with having a 21% higher level of financial well-being, versus those who didn’t have any emergency savings.
Those who have an additional three to six months of expenses saved up saw an additional 13% boost in financial well-being.
Dig deeper:
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Additionally, those with an income of $500,000 or more saw a 12% boost in financial well-being.
And those with over $1 million in assets had an 18% boost.
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RELATED: These cities have the highest percentage of ‘rich renters’ as housing prices rise
Financial well-being
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More perspective:
Financial well-being is a state wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life, according to the Consumer Financial Protection Bureau.
Dig deeper:
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Vanguard asked how often people spent thinking about and dealing with their finances, and found that those who have an emergency savings fund spent 2.5 fewer hours per week on financial matters.
On average, those without emergency savings spent more than 7 hours per week on financial matters.
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RELATED: Child care cost the most in these states in 2024, analysis found
Big picture view:
Most financial experts, including Vanguard, recommend having about three to six months of expenses accessible in an emergency savings fund.
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The Source: Information in this article was taken from a Vanguard report, which analyzed data after surveying more than 12,000 investors of varying age, income and asset ranges. This story was reported from Detroit.
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Start-ups and companies seeking scale-up funding no longer flock to the stock market as readily as they once did. Many bypass the high street banks too. The reason? They have other options thanks to the ready availability of different types of funding from private markets, at least for those businesses showing fast growth potential.
Private capital markets, which have grown significantly in recent years, offer services ranging from debt funding, seed and venture capital to minority stakes and full buyouts.
Their efforts to rival public markets have been helped by bouts of volatility and illiquidity that have hit stock markets. The tougher life gets for listed companies, the more companies are tempted to go or stay private. Being on a public market comes with extra costs, the legal obligation to be fully transparent on all aspects of the business and the risk of a lifeless share price. Increasing numbers of listed companies are being taken private as their discounted shares make them easy prey.
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Ironically, one way for investors to tap into the growth and profitability of private markets is through investing in companies that use public stock markets to raise capital for their private funding operations. Intermediate Capital provides a range of private funding, spanning debt, mezzanine finance and private equity. Petershill Partners, whose parent is Goldman Sachs, provides capital and expertise to private capital managers.
Investment trusts have invested in private markets for decades, and range from Pantheon International, which specialises in private equity assets, to Scottish Mortgage, which allocates a proportion of its portfolio to unquoted companies. Lucrative returns are not guaranteed and it has become an increasingly crowded market, which brings additional risks. Investors should take care to avoid overexposure and to research the available options properly.
The latest reading of the Federal Reserve’s preferred inflation gauge showed price increases slowed in April as inflation remained above the Fed’s 2% target. The release comes as investors have been closely watching data releases for signs of how President Trump’s tariff policy is impacting the economy.
The “core” Personal Consumption Expenditures (PCE) index, which strips out food and energy costs and is closely watched by the central bank, rose 2.5% on an annual basis, in line with expectations and lower than the 2.7% seen in March. Core prices rose 0.1% in April from the prior month, in line with expectations and the monthly increase seen in March.
On a yearly basis, PCE increased by 2.1%, below the 2.2% economists had expected.
The release is yet another sign that while economists and consumers alike expect Trump’s tariffs to push prices higher, the inflationary impact from policy largely isn’t showing up in hard economic data. Friday morning’s release reflects the month of April, the first month in which a large portion of Trump’s tariffs were in effect.
It does not include any impacts from the 90-day tariff pause between the US and China.
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“The increased tariffs have not yet worked their way into the consumer inflation readings, but we anticipate that the improved inflation trend will reverse in the second half of the year as companies are forced to begin passing along a portion of the increased tariffs in order to protect profit margins,” Nationwide chief economist Kathy Bostjancic wrote in a research note on Friday.
Read more: What Trump’s tariffs mean for the economy and your wallet
On Wednesday, minutes from the Federal Reserve’s May meeting revealed officials are growing increasingly concerned about how Trump’s policies could impact its fight against inflation.
“Almost all participants commented on the risk that inflation could prove to be more persistent than expected,” the minutes read.
Investors and consumers alike have been closely watching for any price increases due to President Trump’s tariffs. (RONALDO SCHEMIDT/AFP via Getty Images) ·RONALDO SCHEMIDT via Getty Images
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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