Financial planning sounds like a complex space mission project to a lot of salaried professionals. However, there is no reason why you should need convincing on starting your financial planning today. We understand before you start you should know what exactly is a financial plan and how is it done?
What is financial planning?
In simple terms, financial planning is planning your investments to achieve some preset financial goals.
For example, You want to retire at the age of 50 and shift to Himachal Pradesh and maintain the same lifestyle that you live now.
Now financial planning is finding answers to following questions
How much money will you need for this retirement life?
How much would you require to save each month?
Where should you invest these savings so as to achieve your target amount or corpus before you turn 50?
Consider financial planning as planning a picnic with your family, you decide a spot (this is your financial goal), let’s say you decide to go to Aqua Imagica. Now this place at least 4 hours away from your house. So you all get together and decide on things like what time you need to leave to reach the spot on time? (this is your financial plan).
See…wasn’t it simple to understand what is financial planning?
Do I need a financial plan?
Having no plans is also a plan. Financial planning is a must for each and every family and individual. Financial literacy is extremely poor in India hence this term sounds like space science to a lot of people but it’s not so complex or probably it is just made to look complex.
Yes, you need a financial plan for yourself and the first step towards financial planning is learning what are financial goals.
How is financial planning done or Steps in financial planning?
Step 1: Setting up financial goals.
Setting up financial goals is the first and most important towards the financial planning process. It is important to understand where you want to reach in order to figure out how you will reach there.
Financial goals are a simple list of things you want to buy or experience with your money. Once you are done with setting up financial goals move on to the next step.
Step 2: First things first, planning for emergency and security.
Before you go bold and start investing for your future, you need to secure your present and plan for unforeseen circumstances or contingency that can wipe off your savings.
Factors like loss of jobs, medical emergencies should be taken care of first before you move ahead and save for your dreams and goals. Follow the rules of thumb, to begin with. Following is a list in order of importance on what you should do first before you start investing to achieve your financial goals.
-> Save 12 months worth of your monthly expenses as emergency funds
-> Buy medical insurance for you and your family to tackle medical emergencies
-> Buy a term plan/life to cover up your debt/loans or liability if any
Step 3: Creating an Investment plan to achieve financial goals.
Turn to an expert to create an investment plan to start saving towards your financial goals. A good investment plan considers factors like risk appetite, age etc while selecting asset classes. Investment plan can include investing in equities, mutual funds, fixed deposits, bonds etc to achieve your financial goals. Each financial goal type attracts a specific asset class. Other factors that are considered before making an investment plan is time available to achieve the financial goal and investable surplus available.
Step 4: Executing investment with a perfect stockbroker or financial advisor.
Once you have your investment plan in place, select a stockbroker and open your demat account to start investing. Select a reliable broker who can help you manage your money safely.
Step 5: Constant monitoring investment and revisiting financial goals and status each year.
Financial planning is not a one time exercise, you need to visit this financial plan each year and revisit your investments to see if they are on track to achieve your financial goals. This is a simple and important exercise one should follow for successful financial planning.
Please note: It is always advisable to visit a certified financial planner for advice and financial planning.