10 steps to a better financial future
BLURB: Financial planning offers you a structured approach to achieve your financial goals.
A weekend outing with office colleagues means a lot of planning and lot of preparation. They are essential to ensure that the weekend brings in a lot of fun and there are no any untoward surprises. Same holds good when it comes to your financial matters. Here are 10 things that you should keep in mind while doing your financial planning:
It is personal: When it comes to the words ‘personal finance’, the former is more important than later. It is not about money or finances, but it is about ‘YOUR’ money. Do not go by what others want and what they do. Know your needs, wants and devise a plan that you can execute.
Financial goals: Your financial goals matter the most. Start with defining your financial goals. Ensure that they are SMART – simple, measurable, achievable, realistic and time-bound. Buying a car worth Rs 3 lakhs, five years from now, can be a financial goal. Once you know your financial goals clearly you can plan to achieve them.
Know where you are: This could be the next thing you should be focused. Though your destination is important, your starting point will influence the course of action. If you are indebted, you have to put in place a debt repayment plan in place so that you pay off all your debt as you invest for your other financial goals.
Emergency funds: This should be the first on ‘to do’ list. Keep aside money enough to pay off your expenses for at least six months. This money should be kept in liquid funds. In case of a situation such as job loss, it comes handy. You need not dig into your long term savings.
Insurance: You can settle for a sedan instead of a swanky sports utility vehicle. But your child’s education is a financial goal that cannot be compromised –whatever be the situation. Buying right amount of life, health and personal accident insurance pays. It ensures that all your financial goals are achieved, even when you are not around.
Investment plan: Make an investment plan based on your goal. Long term financial goals such as retirement should be funded by SIP in equity and balanced funds. Though these investments are volatile, they offer scope of earning better returns to beat inflation. If you are aiming at a short term goal such as paying your kid’s school fees next year, use short term bond funds or liquid funds. A goal focused investment plan ensures that your money works in an optimum manner.
Risk management: If most of your investment in a single asset class, consider diversifying your portfolio across asset classes to mitigate your investment risk. Decide your asset allocation based on your risk profile.
Estate planning: While the right investment plan accompanied by robust risk management ensures that you build your corpus, you need to ensure that you put in place nominations. Mutual funds offer nomination facility free of cost. Also do not forget to write your will. This ensures that one’s assets go to the person of his choice after his death. Estate planning is an essential component of the financial planning.
Implementation of financial plan: They say, “Well begun is half done.” You may think that getting a good financial plan is akin to half the work done. But do not forget – it is just half the work done. If you do not implement the financial plan, you will never achieve your financial goals. It is like making all the plans and booking venue for your weekend outing, but not stepping out of home on weekend. Play by book: you better implement it.
Financial plan review: Sit down with your financial advisor at least once in a year and review your financial plan and your investment action. Over a period of time your goals may change, some investments do not deliver, some investments beat your expectations by a wide margin, new risks become visible as you age, your risk appetite changes. Financial review provides you an opportunity to take corrective actions. Timely review ensures that financial plan keeps catering to your needs and do not remain a flashy document.
To sum up, make a financial plan that helps you achieve your financial goals while managing risks. And review your financial plan to keep it relevant.