How to effectively manage your finances and taxes in 2023

Put yourself on a budget

A budget will give you a clear idea of how much money you have available to invest. There are plenty of budgeting rules available online, but it’s important to create a plan that is personalised to your financial goals and needs.

Trim the bloat

Take a close look at all of your monthly expenses and map them, including your rent or EMI payments, transportation costs, and grocery bills. You don’t want to invest so much money that you can’t cover your basic expenses. Make sure to separate your needs from your wants and cut back on unnecessary expenses if necessary.

Assess your risk tolerance

Before investing, you need to consider how much risk you are comfortable taking. If you are young and saving for retirement, it may be worth taking on higher risks because you have time to ride out any market downturns. And often, higher risk leads to higher rewards. 

Investment Strategy

Stocks are a good option for those looking to invest in companies and earn high returns. You can make direct investments in growing companies or invest through mutual funds. Tax-saver ELSS mutual funds can help you grow wealth and also offer tax benefits under Section 80C. It’s important to avoid chasing top-performing mutual funds and frequently switching when they underperform. Instead, choose funds with consistent returns over the past 4-5 years and stay invested to build a healthy corpus.

Diversify your portfolio: For those in their 50s who want to minimise risk, fixed return instruments like fixed deposits (FDs), National Saving Certificates (NSCs), or Public Provident Funds (PPFs) may be a good choice. You can also diversify your portfolio by including PPFs, which offer a fixed rate of 7-8% as determined by the government, stocks or ELSS, which can provide a return of 12-14% in the long term, real estate, gold, and insurance. Insurance, both life and medical, is an important part of any portfolio and also offers tax-saving benefits.

Remember that action is better than perfection: People often delay investment decisions because they are seeking the perfect strategy or the best fund to pick. The key is to get started. Set a budget, commit to your investment plan, review your progress, and adjust and adapt to changing circumstances.

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