What is Financial Planning?
Financial Planning is a process that Reviews your current financial position, sets goals for the future and creates a plan to achieve those goals
Reviewing your Finances
You should begin with a review of your current financial position. Start with a top down approach.Do the following to ascertain your position
- Total assets + Total savings – Total debt = Your position
- Work it down further by doing a cash flow analysis
- Monthly income – Monthly expenses = Your cash flow
- Further analyse your expenditure in more detail
- Where are you spending money?
- Clothing, entertainment, eating out
- Identify opportunities to save money
- Eg: eating out lesser could save you Rs 1000 per month
Setting Goals
- Identify your goals
- Buying a new car, buying a house, taking a vacation, educating your children etc
- Understand the trade offs
- Lesser money in the short term for clothing, entertainment etc
- Set clear targets and time frames to achieve your goals
- Saving Rs 2000 per month will help educate your children
- Saving Rs 1000 per month will help fund your vacation
Creating A Financial Plan
- Include a mix of short and long term goals
- Convert your goals into rupee amount and set a deadline to achieve them
- Diversify your investments according to your risk profile
- Look for ways to minimize tax
- Don’t forget insurance
- Start retirement planning
- Get professional advise in required
- Don’t wait, implement your plan today
Review your plan
Life is always changing, so it is important to review your plan if any of the following
- Your circumstances change
- Through marriage, new dependants etc
- Your rules change
- Through taxation etc
- Investment climate changes
- Through market boom and busts
Tips To Stay On Track
- Stay focused on your lifestyle goals
- Don’t be distracted by fear or greed
- Diversify your investments according to your risk profile
- Keep a long term view
- Review your plan regularly
- Get advise from a professional