7 Things You Need To Know When Doing Financial Planning
You must gain control over your money or the lack of it will forever control you. – Dave Ramsey
You need a sound financial plan for a variety of reasons – to meet your retirement cost, save for your child’s education, secure your family in case something were to happen to you, to purchase home or vehicle in the near future, to meet unseen costs. In an ideal wise world, you should start doing financial planning the moment you receive your first pay-check. The sooner you start planning your finances, larger are the chances of an economically secured future. Unfortunately, very few people realize the importance a smart financial plan. It is often more tempting to retreat back and spend money rather than brainstorming on the right insurance and investment plans.
The good news is you can be a smart financial planner when armed with the right financial planning tips. Read on to know more!
1. Start Earlier with a Plan
What did you do with your first paycheck?
You must have spent the entire amount through various ways – shopping, celebrating the joyful moment with friends, meet monthly expenditures and so on.
How much did you save?
The earlier you plan, the more wealth you accumulate over time. It doesn’t matter whether you are in your 20s or 30s, start spending what is left after saving, not vice versa. Set goals based financial planning as your income and financial liabilities changes. For example, financial planning in your 30s will be different from that of 40s, and 50s because in this crucial phase, you will be married, have children, purchase a vehicle or loan. Therefore, you should start planning for all these future expenses when you are still in your 20s and have the least financial responsibilities.
2. Understand Insurance and Investment
Life Insurance and investment are two indispensable pillars of a sound financial plan. However, there is a great difference between the two, a fact you must understand before you start planning your finances and savings. Insurance is meant to gain protection against rainy days, unfortunate accidents, and unwanted situations in life, for example a life insurance plan makes sure that your family is financially protected if something untoward were to happen to you. . On the contrary, investment plans multiply your hard earned money and let you grow your wealth. Preferably, your financial planning should be a combination of right insurance policies, savings, and investment plans.
3. Choose the Right Insurance Products
It is another mistake many people make – they choose the wrong insurance products. The biggest example of this is term insurance plan. Often people fail to realize the importance of a term plan as it doesn’t offer any lump sum returns. However, a term plan offers the widest possible coverage in the lowest premium available. If chosen wisely, the right term insurance plan can secure your family with 1 Cr. life-cover in just Rs. 17 per day. Similarly, a smart ULIP plan can help you meet the higher education for your child and ULIPs are not even taxable under LTCG tax!
4. Track your Investment
Investments need to monitored regularly to assess that you are getting most of your investment plans. There is no use in investing your precious money on a plan which is not giving you returns you have expected. Mark the progress so that you can take corrective measures to rectify it. Even if you choose the best financial plan, it may require modification. Various landmark events in your life change the course of your investment plan also. You can always re-prioritize your monetary goals and can choose accordingly. For example, when you are in your 50s, you should start paying off all your debts as soon as possible and save the most of your salary for your retirement.
5. Stay Armed for a Rainy Day
Emergencies hit hard the most when you have least expected them. Not taking emergencies seriously is one of the biggest financial blunders, many individuals commit and repent afterward. Never underestimate the importance of an emergency fund and create one as soon as possible. Your emergency fund should be sufficient to fuel at least six months of your monthly expenditures. Keep replenishing this fund as your income grows.
6. Manage your Debts
Debt may become the biggest obstacle on the way of fulfilling your financial goals. Managing your debts wisely should be your priority before you start planning your finances and savings. Along with an investment plan, set up a debt elimination plan to quickly pay it off. In addition, stay out of avoidable debts.
7. Save for Retirement
When you are in your 30s or 40s, retirement may seem a far-fetched dream to you. But, it arrives quickly, especially when you are engrossed in fulfilling your financial and personal duties. If you wish a smooth post-retirement life, cultivate strong habits of savings. Stay armed for your retirement with the right financial plan. After all, retirement should be stress-free, not loaded with financial accountabilities.
Now as you are aware of all the important points for a sound financial planning, stop making excuses. You can always afford time and money to start planning for a secured economic future. Did we leave something important? Please let us know.