We’ve all heard the horror stories, about financial planning, where everything seemed like it was going right until one day it wasn’t. When it comes to financial planning for your future there is an abundance of people and sources doling out advice: invest in mutual funds, take risks, protect yourself, insure yourself. Everyone has an opinion about what you should do with your money, however, despite all the advice we can never be too confident about the way we manage our money.
It is very important to have a financial plan which includes your financial goals and budgeting amongst other things which you review on a regular basis to make sure that you are managing your finances as well as you think you are. Often it might be a good idea to consult an expert from time to time to get a professional outlook on your finances. Following these little steps while you manage your finances will make sure you are safe and secure.
Have a financial plan
The importance of having a financial plan, where you plan out your savings, investments and financial future goals cannot be stressed on enough. This is usually the first step to ensure your financial management is on track as it provides you a system where you can review and assess your finances and align them with your long term and short term financial goals.
Having a financial plan includes having an investment plan, whereby, you have a clearly laid out structure about how and where you want to invest your money. Your investments could be a combination of savings account, investments in shares and debentures, fixed deposits, real estate investments, investments in bonds and many more sources, depending on a range of factors. These will include, your income, your propensity to save and spend, your ability and willingness to take risks amongst others. In the booming economy of today, it is not merely enough to save money, one has to be smart about investing this money in the right places to get a substantial return on the same. Often people consult investment portfolio managers and agents to get a professional viewpoint on their investment decisions.
Most importantly, it is critical to understand that your responsibility doesn’t end when you make a financial plan and decide where you want to invest your money. In fact, going back to this plan and revaluating your finances to account for any changes in lifestyle, economic climate and financial needs is perhaps as critical as having a plan itself.
Budgeting, budgeting and more budgeting
To be able to achieve any short or long term financial goals, the importance of budgeting is paramount. Often being able to budget is regarded as the first step to understanding how to effectively manage your money. Budgeting gives you a clear and concise idea about your expenses and income and helps you weed out unnecessary expenses from your everyday life. Doing so will help you be more efficient with your money management and contribute towards your financial goals.
Often people in comfortable lifestyles tend to think, “I’m making a decent income, why would I need to budget?” This could be a fatal mistake in financial management, as budgeting is not only for those on an economically challenging income. In fact, budgeting is crucial for your ability to manage money no matter how much you make as it helps you understand where exactly you are spending the money you make.
Always keep track of your debt and spending
One of the biggest and easiest mistakes of financial management is perhaps falling into a debt trap. If you keep racking up credit card or overdraft debt and spending beyond your means, you are spending on borrowings. This is perhaps the silent killer of your future finances and often causes individuals to be stuck in a cycle of debt whereby they borrow more money to pay off interest on other borrowings and continued. No matter how small of an expense, always judge the prudence of borrowing for the same, and the impact this will have on your overall finances. It is always advised to have a bigger gap between your earnings and spending rather than the other way around and this can be critical to your money management.
It is certain that perhaps one of the key mistakes you can make while managing your finances is assuming that you will be ‘okay’. Financial planning and management requires time and attention and it is critical to review this on a regular basis to ensure you are on track. If the process seems daunting to you, there is no harm in enlisting the help of a financial management profession or seeking out relatives or friends who have knowledge about the same.
Advt. no.: IA/MAY 2018/3996