Month: December 2018

“Many People Take No Care of Their Money Till They Come Nearly to the End of it, and Others do Just the Same With Their Time.”     

– Johann Wolfgang von Goethe

Financial Planning and its Benefits

As human beings, we are all blessed with the ability to think and act. Our minds are the best supercomputers that have the ability to think and plan for the future ahead. One of the most important things to do, therefore, is to plan your finances in order to keep your future secure. Financial planning is of utmost importance because it concerns not just your own, but the future of your loved ones as well.

When you have planned your financial future, you will no longer have to worry about long term life goals or even unforeseen expenses as a medical emergency, accident or a job loss. If you adopt a disciplined approach towards your money, you can put away that little extra amount each month from your budget and can use it on a rainy day.

Most of all, proper financial planning leads to the ultimate goal of living a comfortable retired life, when there is no longer a pay check coming in. After you have worked hard all your life, you can put your two feet up and enjoy your retired life in style! But all that can happen if you go about with financial planning when you are young.

If you do not know where to begin, here are seven easy steps that will help you go about with your financial planning:

Set Your Financial Goals :

The very first step of financial planning is setting of goals. You have to identify your goals and assign a

value to each of them. Your financial plan must be divided into short term, mid-term and long term goals. Depending upon the stage of life cycle that you are in, your goals can be categorized under the following broad heads:

• Marriage
• Lifestyle
• Owning your own home
• Education of Children
• Marriage of children
• Retirement

While identifying your goals, always keep in mind that you have to take into account emergencies and plan your present and future strategies accordingly.

Plan Your Investments :

Budgeting is a very important part of planning an investment strategy, so once you have identified your financial goals, divide your income into three heads:

•  Expenditure
•  Investments
•  Savings

Your investment strategy should depend upon the following

• Your risk taking ability based upon your age, income and number of dependents on you.
• How much of a risk you are willing to take depends upon your appetite for risk.
• You must also take into consideration your know how about financial instruments and how much time you can spend monitoring your investments.

Do bear in mind that though high risk instruments deliver high returns, as compared to low risk instruments, they also require some amount of technical know how and the ability to track the markets. It is therefore very important for you to study the various investment options and their implications carefully, before you decide to take the plunge.

Managing Risks :

While you can hope and pray that everything goes well in your life, there is no ruling out the possibility of mishaps. In order to safeguard your family in case of any untoward incidents, you need to be adequately insured. The three categories of must have insurance policies are:

 

 

• Life Insurance
• Health/accident insurance
• Insurance for loans

The benefits of taking insurance are as follows:

• In case of your sudden demise or a crippling disease or accident that leaves you unable to earn, your family is secure and does not have to worry about their daily bread.
• In case of hospitalization for critical illnesses that normally cost a lot, the hospital bills are taken care of without causing a strain on your finances.
• In case you have purchased an asset (this is most applicable in the case of a home loan) make sure you shell out those extra bucks and take an insurance policy on it. Once again, in case you are not around to pay off your loan, the insurance company continues to pay off the loan to the bank and your family does not have to worry about keeping the roof over their heads.

In case of insurance policies, you should try and take as many till such time you are young. The older you get, the higher is the rate of premium you are required to pay.

Planning for Your Retirement :

When you are young and in the prime of your career, you are so busy earning money and living life king size that it is easy to forget about the travails of old age. That is exactly why you need to start planning for your retirement from your youth.

• Long term options for investment are best suited for retirement.
• Investing in equity helps you build considerable wealth over the long term and you can reduce risks as well if you remain invested over the long term.
• You can also consider other options for investment such as pension plans, public provident fund and the National Pension Scheme.

If you intend to maintain the lifestyle you are leading now, post your retirement, you must take into consideration the inflation factor. You therefore need to invest in a manner that your retirement corpus grows at a higher rate than the inflation rate.

How to create the Financial Plan :