Financial planning has changed a lot as a process over the past few years. But the basics remain the same. Here are five tips to help you in your financial planning process
1. Spend less than you earn: This is a no-brainer. Yet most people fail to do so, despite worrying about their ability to meet their financial goals. You must spend less money than you earn. This can be done by first preparing a saving plan – keeping money aside for savings – and then preparing your spending plan.
2. Prepare a budget and stick to it: Preparing a budget that details your income, expenses, and saving is a must if you want to want a smooth execution of your financial plan. When you prepare a budget, you will know where your money is going, so that you can plug out all wasteful expenses. This will also help you in preparing proper spending and saving goals.
3. Follow the cycle of financial planning: As a general rule in planning your financial life, you must first save an emergency fund, then pay off high-interest debt, and only then begin investing.
• We’ve discussed the need to have an emergency fund above. As a rule of thumb, your emergency fund should cover 6-8 months of your household expenses. Thus money must be kept ultra-safe, either in a bank account or in a debt fund so that you can access it quickly.
• In the second leg of the cycle, it’s important to pay off any loan (usually credit card loan or personal loan) as soon as possible. This is simply because such a loan is, well, high cost, and eats into your monthly savings.
• The third leg of financial planning execution cycle is to invest your money after deciding a proper allocation between stocks, bonds, mutual funds, gold and real estate. Investment is in fact one of the most important stages of the financial planning process, as it is here that you are looking to let your money grow on its own.
4. Buy insurance: Research proves that Indians are inadequately insured. If you also fall into this category, don’t delay insuring your family’s future. Insurance can bring you immense peace of mind. So buy some!
5. Make a Will: Like insurance, a large majority of Indians don't have a will. If you have dependents, no matter how little or how much you own, you need a will. Protect your loved ones. Write a will.
Plan your finances...now!
Carefully planning your finances can put you on the road to prosperity for the rest of your life, yet most people don’t begin to get the hang of it until they reach an age when their eyes start to go bad and their waistlines expand. The best time to plan your finances is when you’re young. The more time you have to plan and execute your financial goals, the more comfortably you’ll reach them.
So gear up, the best time to do it is right now!