10 Personal Finance Ideas to navigate Global turbulence in 2023
03 Apr 2023
Table of Content
Begin with an emergency saving account
Creating an emergency fund
Trim your regular outgoings - practice cost-optimizing
Review your monthly expenses and make changes
Take advantage of tax deductions and credits available
Find sources of passive income
Clear off your debts/liabilities
Assess the risk factor
Plans helpful in financial planning
Dos & Don’ts of financial planning in 2023
There is wide consensus that various developed economies could face recessionary pressures in 2023 post the steep rate hikes that all major economies across the globe have witnessed. While we can’t know for sure when uncertainties may arise or how much they would impact us, it is always a great idea to be prepared with contingencies. Here are the top 10 ideas to mitigate any financial risk especially in the background of global economic slowdown. From automating your finances to building up an emergency fund, these methods will help you weather any possible financial storm.
1. Begin with an emergency saving account
“An emergency fund turns a crisis into an inconvenience”. One of the most crucial avenues to help you tide over uncertainties is to start an emergency savings account. An emergency savings account is special savings account that you only use in case of an emergency, such as a job loss, medical bills, or other miscellaneous expenses. By having an emergency fund, you can avoid going into debt if something unexpected happens. There are a few things to keep in mind when starting an emergency savings account:
1. Start small
If you don’t have much money to start with, that’s okay. Just start with what you can and build up from there.
2. Make it automatic
Set up automatic transfers from your checking account to your savings account so you don’t have to think about it.
3. Keep it separate
Keep your emergency fund in a separate account from your other savings so you’re less tempted to spend it on non-emergencies.
4. Invest for growth
Once you have a little bit saved up, consider investing some of your emergency funds so they can grow over time.
An emergency savings account provides you a great cushion in case of turbulence and thus must be given appropriate priority.
2. Creating an emergency fund
Assuming you don’t have an emergency fund start with a small amount. Let's say putting Rs. 500 to Rs.1000 into an emergency would be a great start. Now you can save automatically by setting up a direct deposit from your paycheck into a separate savings account. You can pay yourself first by making saving a priority. Remember, do not dip into your emergency fund for non-emergencies and once you have saved 3-6 months of living expenses, you can start investing your money.
3. Trim your regular outgoings - practice cost-optimizing
The first step to saving money is reducing your regular outgoings. There are a number of ways you can do this:
- Review your current expenses and identify areas where you can cut back.
- Make a budget and stick to it. This will help you track your spending and ensure you're not overspending in any one area.
- Shop for better deals on insurance, utilities, and groceries. You can get a lower rate by switching providers or negotiating with your current service provider.
- Use cash instead of credit cards. This will help you stay mindful of your spending and avoid racking up debt.
- Consider downgrading your cable package, cell phone plan, or other luxuries. Do you really need that extra channel or unlimited data? Probably not!
4. Review your monthly expenses and make changes
If you want to save money, one of the best things you can do is review your monthly expenses. This will help you identify areas where you may be able to cut back or make changes.
Some things to look at include:
1. Housing costs
Housing is one of the biggest expense heads in an Indian household. One may look at optimizing this expense by trying to explore better rental deals basis one’s requirement.
2. Transportation costs
With crude oil prices skyrocketing, practicing carpooling or using smart public transport can help optimize expenses
3. Utility costs
As a family we spend a considerable amount on utilities primarily food and energy. Smart changes can help lower expenses as well as offer a more healthy lifestyle
4. Entertainment costs
One can periodically re-evaluate recreation and entertainment costs and look at augmented savings
Once you’ve reviewed your monthly expenses, make changes where you can. Even small tweaks can add up to big savings over time.
5. Take advantage of tax deductions and credits available
When it comes to saving money, taking advantage of tax deductions and credits available to you is a great way to boost your savings. There are a variety of deductions and credits available, so be sure to do your research to see what you may be eligible for. Some standard deductions and credits include the following:
a. Section 80C – Deductions on Investments
One of the most well-liked and popular sections among taxpayers is Section 80C because it enables taxpayers to lower their taxable income by making tax-saving investments or incurring qualified costs. The highest annual deduction from the taxpayer’s gross income is ₹1.5 lakh. Both individuals and HUFs are eligible to take advantage of this discount. Businesses, partnership businesses, and LLPs are not eligible for this deduction. Subsections 80CCC, 80CCD (1), 80CCD (1b), and 80CCD are all part of Section 80C.
The overall ceiling for claiming a deduction, including the subsections, is ₹1.5 lakh, with the exception of an additional deduction of ₹50,000 permitted under Section 80CCD (1b).Various investment avenues where investments can be claimed under section 80C are as follows:
- Public Provident Fund
- National Savings Certificate
- National Pension Scheme
- Employees’ Provident Fund
- Tuition fees
- Post Office tax-saving deposits
- Five-year bank deposit
- Life Insurance Premium
- Equity Linked Saving Schemes
- Sukanya Samriddhi Account Deposit Scheme
- Post Office Senior Citizens Savings Scheme
b. Income Tax Deduction under Section 80D
Income Tax Deduction under section 80D is for the premium paid for Medical Insurance. This section allows deductions on the health insurance premium paid by an individual or HUF. You can claim a deduction of ₹25,000 for self, spouse and dependent children and an additional deduction for insurance of parents of less than 60 years of age, which is up to ₹25,000. Parents above the age of 60 can seek a deduction of ₹50,000.
c. Income Tax Deduction under Section 80E
Interest on loan paid for education is eligible for Section 80E. Please note that principal repayment on loan cannot be claimed as a deduction. The loan should have been taken for yourself, your children, and your spouse or for an individual for whom you are a legal guardian.
d. Income Tax Deduction under Section 80EEA
Section 80EEA allows a deduction for interest payments up to ₹15,00,000. This deduction is over and above the deduction of ₹2,00,000 available under section 24. An individual should not own any house on the date of a loan sanction to claim this deduction.
6. Find sources of passive income
There are a number of sources of passive income that can provide you with additional income during tough economic times. Rental properties, for example, can provide a steady stream of income if you are able to maintain occupancy levels. Other sources of passive income include investments in stocks, bonds, and mutual funds. If you're looking to boost your income during a slowdown, consider utilizing some of these sources of passive income. With a little effort, you can find yourself in a much better financial position when the economy eventually recovers.
7. Clear off your debts/liabilities
If you're in debt, now is the time to start paying it off. With a recession on the horizon, it's important to get your finances in order and get rid of any debts that you may have. There are a few different ways to pay off your debts, such as
- You can either do it yourself or use a debt consolidation company.
- If you're doing it yourself, you'll need to figure out a budget and make a plan to pay off your debts as quickly as possible.
- If you use a debt consolidation company, they will work with you to create a repayment plan that fits your budget.
Whichever method you choose, make sure you stick to your plan and don't add any new debt. This will help you stay afloat financially and avoid getting buried in debt.
8. Assess the risk factor
When it comes to saving money, there are a few key things to keep in mind. First and foremost, you need to assess the risk factor. How much can you afford to lose? This will help determine how much you need to save. If you think there's a chance you may lose your job or have your hours cut back, it's important to have a cushion of savings to fall back on. Experts recommend saving enough money to cover three to six months' worth of living expenses
9. Plans helpful in financial planning
Here’s a list of some suitable plans that can help in building a reliable corpus of finance for your future needs in a recession:
1. Retirement Plan
Generally, you should start making retirement plans long before you reach middle age. Very few individuals are aware that 25 years of age is the minimum requirement for purchasing a retirement plan. Bank of Baroda offers Indiafirst Guaranteed Retirement Plan at 25 years (For regular premium and limited premium, No minimum age is applicable for a single premium). In order to provide you with returns on maturity when you need financial support during retirement, it is essential to have your money invested in a market-linked plan. A plan like Indiafirst Guaranteed Retirement Plan provides you with guaranteed benefits, making it a secure and trustworthy alternative.
2. Child Education Plan:
Ensuring their child’s bright future and a solid foundation for their profession and overall well-being is every parent’s dream and responsibility. A child education plan like the Bank of Baroda IndiaFirst Life Little Champ Plan offers liquidity features of guaranteed payouts, bonus accumulation, and life insurance benefits. Your financial goals of paying for your child's schooling, higher education, and other necessities can be significantly aided by such a strategy.
3. Health Insurance Plans
Health insurance policies, often known as mediclaim insurance, provide a great deal of assistance during hospitalization and adequately cover hospital-related charges. Bank of Baroda offers more than 10+ different categories of Health Insurance Plans that cover more than simply your bills and reimbursements. They provide a lump sum payment upon illness diagnosis in order to provide the finest therapy available including other benefits.
4. Term Plans
As they primarily offer a life insurance policy to the investor, term plans are a good option to be considered when it comes to financial planning. Term insurance provides you with safety cover and financially protects your family in difficult times. It gains importance since it may offer a significant quantity of coverage for comparatively lower prices. Term plans from Bank of Baroda like IndiaFirst Group Term Plan and IndiaFirst Life e-Term Plus Plan are two of the best options to go for.
10. Dos & Don’ts of financial planning in 2023
When it comes to financial planning, following are a few Dos and Don’ts that you should keep in mind.
|Create a budget.||Don’t forget to make future investments.|
|Make sure to save up for an emergency fund.||Avoid setting aside a large portion of money each month into a savings or investment account, start with small amounts.|
|In case of taking a debt, be sure to research and compare around for the best interest rates and terms.||Avoid taking on new debt if possible.|
|Be consistent when saving and following cost-cutting.||Do not break the emergency fund in mere circumstances and avoid overspending.|
Financial planning is a must in view of anticipated recession and it doesn't have to be difficult. There are several simple strategies to reduce expenses. You may achieve financial success by making some little adjustments. You can maximize your emergency savings in the long term and master your money management by simply adjusting your financial habits.
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