12 important financial planning rules for successful investing in 2024

Will debt funds take over the throne in 2024, when interest rates are expected to fall? What is the outlook for gold and equities in 2024? Will gold continue to rise amid rising geopolitical tensions? Will stocks continue to outperform, or will they retreat? This is where financial planning and asset allocation come into play.

As an investor, you should focus on financial planning rather than pursuing profits. The new year brings a lot of enthusiasm and optimism. Use this opportunity to streamline your journey to financial freedom with these 12 financial planning rules.

Make smart decisions with expert help

In the age of DIY (Do It Yourself) platforms, we need to recognize the importance of qualified and experienced investment professionals. Our experts can help you list your financial goals, create a goal plan, make investments, and regularly review your goals until they are achieved.

Adopt budgeting

Creating a budget helps free up funds for investment toward your financial goals. For example, the 50/30/20 budgeting method allocates 20% of your income to savings and investments. Automate investments through SIP and automate premium payments through direct debit instructions. Set your SIP date around 2-3 days after your payday so that your investments are complete and you can spend the remaining amount on things you need or want.

Gain knowledge about risks and rewards

Typically, the higher the risk, the higher the expected reward, and vice versa. An investment professional can help you identify the right financial product based on risk, investment horizon, and other factors.

Understand the effects of inflation and compound interest

Inflation is a silent monster that erodes the value of money. On the other hand, compound interest, which Albert Einstein called the eighth wonder of the world, helps you grow your money. Long-term investing benefits from the power of compound interest and can help you earn returns that outpace inflation.

Set clear goals

SMART goals should be set: (S) Specific, (M) Actionable, (A) Achievable, (R) Sophisticated, and (T) Time-limited. It helps you pursue until you achieve it. Setting SMART goals helps you stay focused on achieving your goals.

take informed risks

When investing, it is important to take risks carefully. Investing in a product with an annual growth rate of 12% versus a low-risk product with an annual return of 8% can have a larger (2-3x) impact on the final corpus you accumulate. With this in mind, take informed risks towards your long-term goals.

increase tax efficiency

Make the most of the deductions under Section 80C of the Income Tax Act while investing towards your goals. For example, the Nifty 50 Index Fund (ELSS) offers a deduction of up to Rs 200 crore per year. 1,50,000 as compared to other Nifty 50 index funds (non-ELSS). Similarly, you can save tax by availing NPS contributions (Section 80CCD) and health insurance premiums for yourself and your family (Section 80D).

regular reviews

Consult with an investment professional to review your progress every 6 to 12 months until you reach your financial goals. Reviews can help you replace underperforming investments with new, suitable investments.

Don’t time the market

Time in the market beats market timing. Instead of guessing at entry and exit points, stay invested for the long term until your goals are achieved.

Invest systematically

SIP mode allows you to invest regularly in a disciplined manner. With Step Up SIP, you can increase your monthly investment amount every year as your income increases.

Focus on investment behavior and processes

Greed and fear are investors’ biggest enemies. While investing, put your emotions aside and trust that the investment process will get you through the tough times and enjoy the good ones.

do not pursue returns

As long as your investment returns meet your expected rate of return over the long term, there is no need to chase the scheme that gives you the highest returns in one, three, or five years. The table topper will continue to rotate every quarter. Employ a strong investment process that provides the resilience to continue investing despite market fluctuations.

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

Mayank Bhatnagar is co-founder and COO of FinEdge.

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Published: January 12, 2024, 10:57 AM IST