Financial planning helps in navigating people in the right direction to achieve all their life goals. With a proper financial plan in place, experts say individuals utilize their financial resources efficiently and fulfil their dreams.
How does financial planning help?
Financial planning helps you decide your goals, choose appropriate investments, plan taxes, plan an exit strategy, create an emergency corpus, become debt-free, etc. Simply put, it helps you keep your finances in control in such a way that you can achieve all your goals in the best way possible. Financial planning can help you understand your goals better. For instance in terms of why you need to achieve a particular goal, or how a goal impacts other aspects of your life and finances.
Here are some steps to follow for successful Financial Planning;
Setting ideal Goals
While planning your finances, define your financial goals. For instance, you need to prioritize the most important goals in your life and work vigorously to achieve them. For example, if you set a goal of buying a house worth Rs 1 crore by the age of 45, and you are 30 years old now – Then you have 15 years to achieve this target. Now, all you need to find out is how much you have to invest and what kind of returns you need to earn.
Creating a Budget for your Expenses
To achieve your goals on time and securely, experts suggest investing as much as possible. And when you cut down on your discretionary spending or avoidable expenses, you will be able to invest more. By creating a budget you will be able to manage these expenses better.
Where to Invest
If you are investing for long-term goals you can look into equities, whereas low-risk products like fixed deposits or Debt Funds can be looked at for short-term goals. Industry experts suggest an individual’s investment plan should have a mix of different assets like equity, debt, gold, as well as international investments. The mix of this asset allocation will depend on your risk profile.
What most people don’t understand with investing is – it is not a one-time thing that you create and forget. Investors need to keep tracking their investments and progress towards different goals. You also need to change allocations and close/change investments that are underperforming and include emerging investment opportunities. Rebalancing your asset allocation is also necessary from time to time.