Planning your finances can be a daunting task, especially if you are not so aware of the plethora of investment options and services available in the market. However, financial planning is synonymous with life planning. In order to lead a stress-free and comfortable life, you must be sure about certain things; at least as sure as you are about receiving your next pay check.
So how should you plan your finances? Firstly, you start by asking yourself some basic questions.
- What is your current lifestyle and what is the level of lifestyle you want to achieve?
- What are the important goals you wish to fulfil for yourself and your family, e.g. education, buying a house, etc.
- What is your current level of savings? Is there a gap between current saving and ideal savings?
- What are your current investments? Is there a gap between them and what you must ideally set aside for investing?
- How much risk are your willing to undertake for earning high returns?
By asking yourself these questions, you are creating a financial picture where you can easily come to know whether you are on the right path or there are still some aspects that need correction. This helps in deciding if you must switch your approach completely, plug some holes in your portfolio, or continue investing as you currently are.
360 degrees approach
Financial planning is not just about investing. It is a wholesome strategy which takes care of all financial aspects of life.
- Investment Planning: Choose a suitable investment planner to help you plan your savings. Make sure that the suggesting investments are suitable to your needs and provides you the optimum portfolio based on your risk profile, time horizon, and goals.
- Tax planning: Minimize your tax outflow by researching on legitimate ways of saving taxes and increasing your disposable income.
- Achieving financial objectives: Defining your financial goals and objectives is a good idea. These could be short-term goals such as buying a car, planning a vacation, or bigger and long-term goals such as saving for your child’s education, buying a home, starting a business, etc. By taking into consideration your time horizon for such goals, income, expenses, and suggesting an investment plan, a good financial advisor can tell you how you can achieve each of your goals and what steps you need to take for the same.
- Financial protection: Protecting your family from unforeseen circumstances like a death or a medical emergency is an absolutely critical element of financial planning. Speak to an expert who can assess all your personal information and tell you how much cover you need to fulfil your family’s requirements. A vanilla term plan is your best bet.
- Covering your liabilities: Once a liability is created in the form of a loan, there must be a plan to repay the same in the upcoming years. Plan to achieve freedom from liability in an organized and planned manner by chalking out steps to repay along with a reasonable timeline.
Thus, 360 financial planning is a more in-depth approach than just investing, and must be the cornerstone of building a happy and prosperous life.