Financial Planning – Golden Rules
Financial planning is the process which provides you a game plan for achieving your life goals in a systematic and planned way.
1. Manage Your Finance
Saving is the first step towards money management. Saving money can be the powerful tool towards greater financial independence. You will have many financial goals in your life. Systematic saving on a regular basis can make you rich. You may achieve your financial goals in a timely manner.
First you should know how to save?
And even more important how much to save?
When you get your first salary, start putting it under various heads. These heads can be expenses, EMIs, investments, and savings. Ensure that you save 10% of your income every month. Save every month and on a continued basis.
See the magic before your eyes!
2. Manage Your Expenses Wisely
If you are living depends on your monthly salary and find yourself struggling for money even before the month ends, Maybe there are a lot of unplanned expenses! These might be leaving you with no money for the necessities.
But there’s a way out of this. Try making a budget.
Unless you have a budget , you won’t be able to control your cash flows. A budget shows how much money you have coming in and how those moneys are spent.
3. Maintain A Personal Balance Sheet
Having a personal balance sheet helps to know where you are now. It’s a statement where you can write down your assets and liabilities. The difference between your assets and liabilities shows your personal Net Worth.
After list down your liabilities like the car loan, home loan, credit card balances and remaining balances in other loans. The sum of all the liabilities will show the value of the money you are having.
4. Dealing With Surplus Cash
Dealing with the surplus cash determines your future. When you don’t have a plan, you are likely going to overspending. This money could have been used to make you financially self-sufficient. In the backdrop of inflation, everything is going to be costlier with each year.
If you don’t invest, your money won’t grow.
You might have to work beyond your retirement age to pay your bills. It’s like not being able to retire forever.
Investing can be a great way to channelize the extra cash and beat inflation. The earlier you start investing the better.
5. Create Your Own Investment Portfolio
Creating your investment portfolio is very important. It is your first step towards wealth creation.
Building a portfolio involves distributing your investment amongst asset classes like equity, debt, and cash. It is known as asset allocation. It is always wiser to be a long-term investor in order to accumulate greater corpus. Your investment time period would ideally be around 10-15 years.
Once you have created a portfolio, you need to rebalance it periodically to keep the portfolio risk within expected limits.
6. Retirement Planning
Planning for retirement is more important today . There are reasons behind that. Due to increased life expectancy, live longer than your previous generation.
You can even retire early and lead a hassle-free life. While planning for retirement, you need to clarify a few points like retirement age and how much money you will need every month to meet your post-retirement expenses.
Suppose that you plan to retire at 60 years and your monthly estimated expenditure after retirement is Rs.50,000/-. then assuming a rate of return of 12%, you need to contribute a SIP of Rs.3000/- every month for 30 years to accumulate a corpus of Rs.1 crore.
7. Manage Your Debt
Lack of debt management may eat up a major part of your salary. You may end up borrowing fresh loans to pay off previous loans.
If it gets out of control, then you may fall in a debt trap. Your critical life goals may get affected and even your retirement may get delayed. However, strategizing your debt payment may keep you away from such troubles.
You can transfer your loan to another bank offering a lesser rate of interest. In this manner, you will save a lot of money going out as interest. Never borrow for assets which are depreciating. In this way, you can avoid falling into debt trap.
8. Get Your Risks Covered
Ensuring is essential for wealth creation. Investing and insurance are two separate things which most individuals don’t understand. Term insurance plan will be a wiser proposition to buy. Term insurance plan provides you higher risk coverage at a reasonable price.
Ideally, the sum assured needs to be at least 10 times your annual income. Apart from life insurance, you may need a health insurance as well. It will enable you to access quality healthcare at reasonable prices.
9. Planning Your Estate
Everyone one of us has an estate. Whether it’s your land or your home; the cash lying in your saving and current account, every asset constitutes an estate. It’s your responsibility to decide what happens to these after your demise. You need to ensure that the right asset is assigned to the appropriate individual in the right manner. Ultimately, you need to think about estate planning.
10. Planning Your Taxes
In tax planning, you analyze your finances from a tax efficiency point of view so as to plan these in the most optimized manner. You attempt to take advantage of the various tax exemptions, deductions, and benefits so as to reduce your tax liability at the end of the financial year.
If you don’t know where to begin from, then take advice from a certified financial planner (CFP).
We from Finselva Financial Planners provide you the customized and transparent financial planning advice.