Financial planning is the method that offers you a roadmap for achieving your life goals by preventing risks and surprises in an effective and systematic way.
8 Step That Will Help You In Financial Planning
Try Maximum Saving
Handling one ‘s money doesn’t need to be boring. It isn’t rocket science and you don’t have to be from a financial background. You just have to demonstrate a little bit of dedication. The first move toward money management is to plan to save.
Saving money can be the strong instrument to achieve greater financial freedom. Just think about borrowing from a relative for this urgent doctor’s appointment! You may have to swipe your credit card in case you don’t have friends. And you know that credit cards are the costliest form of debt. Do this a few more times and well before you know that, you end up in a debt trap.
You may have a lot of financial ambitions in mind. Just like purchasing a car, or the new accumulation of smartphones or money. You also need cash in all of these situations.
But where will it come from? You must have some money! Saving money helps you stop getting into debt traps. Not only this, but routine, regular saving will make you wealthy. You should meet the financial targets in a timely fashion.
Now you may ask yourself how to save? Start putting it under different heads, as soon as you get your paycheck. Such heads may be consumption, EMIs, income, and savings.
Manage your expenses
If you struggle to make ends meet and find yourself struggling for money well before the end of the month, then my friend you should closely monitor all your expenses.
There could be a possibility of unexpected expenses! This could leave you without any money for your daily needs. Even from there is a way out. Start putting together an estimate.
When you have a budget in front of your eyes you can not monitor the cash flows. A budget basically shows the amount of money you earn and how you invest those funds.
Begin by classifying your expenses into fixed and variable; urgent and non-urgent; necessity and luxury; preventable and inevitable. By this way, you are setting up a full inventory of expenditures before you. You should construct a list of necessities. It is all about giving priority to the necessary thing
Dealing with unexpected income
How you treat the cash surplus is deciding your future. You are likely to engage in excessive spending if you don’t have a strategy. The money could be used to make you self-sufficient economically. In the context of inflation, with every passing year, everything would be more costly.
If you don’t spend, then your money won’t expand to cover the gap in inflation. You can have to focus on paying your bills past your 70s. It’s like can’t live forever. Investing can be a smart way of channeling new cash and fighting inflation. It could be used to build capital and to direct it towards achieving goals.
The earlier you decide to invest the better. Investing doesn’t need to be a hard and dull job. Think of it as a bridge between where you’re and where you want to be.
Start by defining priorities such as purchasing a car, or retirement planning. Categorize those priorities into the short and the long term. Mainly short-term targets which can be reached within 1 to 3 years.
Goals which require a 3-5 year period are called medium-term goals. Goals that take more than 5 years to attain our long-term goals. Identify instead your risk tolerance, i.e. the degree to which you are satisfied with a decline in your investment value.
Creating your first investment portfolio is an accomplishment in itself. It’s the first step of creating money, after all.
To create a portfolio is to distribute your investment among asset classes such as equity, debt, and cash. It is called asset allocation. Though equity is the best weapon against tax efficiency and inflation. It’s not a smart step to bring all the capital into equity, though.
The sums to be distributed in each asset class must be diversified according to your investment goals. Being a long-term investor is also smarter to build bigger corpus. Ideally the investment period will be approximately 10-15 years.
After you have built a portfolio, you will regularly rebalance it to keep the portfolio risk within planned limits. This is true from a market fluctuation perspective. You should agree at the very beginning about the time periods in which you’ll be rebalancing. You can do it once every six months or in one year.
Retirement preparation has become even more critical today than it was a couple of decades ago. There are explanations to this. You’ll live longer than the previous generation because of improved life expectancy.
You are more prone to diseases such as diabetes, asthma and heart attacks, due to a sedentary lifestyle. With each passing year, health-care costs are rising. Finally, in the lack of a social security system, you need to provide your own assets to deal with all these problems.
You may think like so many others it’s too soon to start planning now. It could delay your retirement plans indefinitely.
In reality, inappropriate retirement planning will never allow you to retire from your work.
What you don’t realize is the wealthier you retire the faster you continue. It happens because of the “compounding magic” You can also retire early in this way, and live a trouble-free life.
When planning for retirement, you need to explain a few points such as Decide the age you wish to retire at. With that calculate how much money you’ll need to cover your post-retirement expenditures each month.
Manage your Debt
Debt problems will eat up a large part of your salary. You might end up borrowing new loans to get older loans paid off. If it gets out of sight, you can fall into a debt trap.
Your vital life goals will get postponed, and may even postpone your retirement. Planning ahead your debt payment, however, could make you safe from these troubles. What you want is to be told of how much you owe who. And work out a timeline to pay off.
Cover your risks
You need to know your life and assets are prone to risks. Such threats can lead to revenue loss and place you and your dependents at a financial hazard.
Just as investing is important to acquiring wealth, ensuring is essential to maintaining wealth. Investment and insurance are two different items that most people don’t understand. They purchase a ULIP and feel at home with it.
Yet, the greatest mistake they make is this. They end up spending more, and are improperly insured. Alternatively, it would be a smarter option to buy a term insurance contract.
Term insurance coverage at a fair price would provide you with low risk protection. Do not expect your life insurance policy to yield returns.