Financial Planning is about a lot more than just making investment decisions. It’s a more holistic approach towards your finances. Therefore, it is important to prepare oneself to learn managing money matters. This blog focuses and shares how you should give yourself a fresh start and boost your savings.
As it is said that “Money is hard to earn and easy to lose; you should guard yours with care”. So let us have a look at some of the tips for financial planning that will help you to create a strong financial base. This will even make your upcoming years financially better:
- Have a glance at the big picture:
You must understand your overall credit, savings as well as debt picture in order to know well in advance where you actually stand before setting your goals. Your credit savings would help you a lot in order to make the better financial planning. This will help in making the future plans with confidence. Besides that, you could brief out your future financial goals that you have to achieve in the near future. This will ultimately help you to reach the biggest financial goals of your life.
- Monitor your monthly expenses:
Keep an eye on your spending and monitor each and every expense – be it small or big spending. At the end of the month, you could tally up all yours spending and find out whether it exceeds your budget! Work on those areas where you can do cost cutting ultimately saving the excess amount that can result in monthly savings. This can boost your financial condition as you can use it to pay your own debt. You can even be flexible with your budget. List out all your monthly expenses and look at the total. If the total exceeds the budget, review your expenses and even cut them down or extend the timeline as per your need, requirement and priorities.
- Prepare rough timelines for saving:
If there are a number of goals you are wishing to fulfill at the end of the year, list down the goals and divide the amount that you need to save for each goal by the total number of months until the deadline. This rough timeline can prove to be a better opportunity in saving the amount you need to fulfill your goals.
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- Reallocate your investments
There has been observed a great volatility in the equity values and so it is better to do stock allocation as it will offer a great return on value for long-term performance. Depending upon your risk profile and asset allocation, you can rebalance the portfolio.
- Don’t just plan but actually, invest for long term benefits
I am sure you must be planning to invest for long term benefits but never be able to do so, right? This year just stick to your decision and develop an investment strategy that could help you in building strong financial background for the upcoming years. It is said that success in investments is a marathon and not a sprint which you should believe and do something to reap long-term benefits
- Stay out of debt
Debt is like a parasite that always keeps you low, especially in financial management. Plan your finances in such a way that you stay out of debt this year. Also, if you have some previous loans, make sure that you build strategic debt management plan to get rid of it. Try to pay down most expensive debt first and then proceed towards smaller ones. Once you are debt free, plan to spend smarter in future to avoid any future debts.
- Reviewing insurance coverage
It is advisable to review your insurance coverage on regular basis in order to ensure that the amounts of coverage are still consistent with the original needs and intent. This covers each and every insurance policy that you have subscribed for like the life insurance, health insurance, homeowners insurance, car insurance and much more. It will ensure to grant you secure life while reevaluating your beneficiary designations as well as coverage amounts after major life events.
Thus, these were some of the most beneficial financial tips that you must know. It is great if you plan your finances accordingly and save as much as you can while spending smartly. This is how you will cherish successful financial planning for this year and many more upcoming years that are yet to come. So plan better, save more and update your investment strategy!
Effective financial planning is needed to achieve the predetermined financial goals and objectives. Even when you are carrying out your daily responsibilities and chores, you would be relaxed with respect to finance position if you have planned finance effectively.
Prepare a budget
You may be salaried or self employed or newly recruited, but there is one common thing which all of them need to take care of, i.e. “Money”. Prepare a budget by considering similar level of income and estimate the probable routine expenditure. If there is surplus after this, assign some of the balance for contingency and unforeseen emergencies. If you still have any surplus left, then don’t rejoice and spend it in a jiffy. This is the amount which you should save, as they say money saved is money earned.
A Budget helps you keep a tab on your spending and encourages saving habit, because it will take care of every paisa earned. If you are not arriving at any surplus after reducing your routine expenses, then it would suggest that you are spending unnecessary and it would create a problem in the long term.
The Budget is not a comparison tool which you can draft and copy from any other, because every person’s budget will vary according to his income, spending pattern, expectations and savings pattern. Make sure to modify the budget periodically to accommodate new expenditure like kid’s education etc.
Stick to the budget
No matter what, you have to stick to your budget and consider it as your bible. Where you find out that your expense variance is more than 5% – 10%, then it is an alarm bell for you. It means that you are spending more than what you actually should. This will directly impact the savings budget and will bring down the disposable income for savings or investment. It is, as they say “ If you spend money on what you don’t need, then you won’t have money to spend on what you need.” So, ensure that you have no other go but to follow your budget.
Moreover, you should save first and then spend and not the other way round. This would require you to cut back on credit card expenses, personal loans and unnecessary spending on luxury.
A drop makes the ocean
Remember the times when you cracked open your piggy bank and bought a little something you wished for so many days. You will get even more if you save now for a better future. If you start saving early, then you will enjoy compounding effect, even if the rate of interest or growth is not attractive. The most important factor is that certain investment options like insurance charge more as your age progresses. Start saving as soon as you start earning. It will be better to start browsing retirement planning options which may be at affordable prices at a young age. Considering ever escalating health care costs, you may have to opt for health insurance also for you and your dependents. This would save you from pocketing out at once if any unfortunate incident takes place. Hence, keep in mind that the early bird catches the worm. There is no tomorrow for saving, so start today.
Cash buffer for contingencies
The only thing permanent in your life is change, so be prepared for any unexpected and unforeseen change which may shake things down in your life. Unfortunate events like accident or sudden job loss may lead to a situation with no income, but there is no stop on basic utility expense like electricity, school fees, etc. Hence, you need to maintain an emergency buffer of liquid investments or cash or both, in case of such emergencies. Ideally, an amount equal to 3 months of budgeted expenses should ideally be kept as a buffer in Flexi Fixed Deposit or savings account, which allows fast withdrawals. The investment options where there is no lock in period and unconditional withdrawals are allowed.
“There are only two things certain in your life, one is taxes and another death.” Well said. Humor aside, this is actually true. You can’t run away from taxes. At most what you can is doing tax planning with the help of your financial advisor. There are certain investment options which comes with dual advantage of wealth appreciation along with the tax benefit. Also, your tax advisor may suggest you to invest in instruments which have no taxability on income streams such as PPF. The Only thing to be kept in mind is that for most of the instruments, either investment is out of taxable income (no benefit of tax deductions for amount invested) or investment income (capital gain on sale or redemption and income in the nature of interest etc.) is taxable. So look out for those pointers according to your affordability and liquidity needs.
Don’t put all your eggs in one basket and yes it applies to your investment portfolio as well. You should consult with your financial advisor with respect to asset allocation needed for achieving the long term financial goals. Diversification depends on the age and needs of the individual. For e.g. if a person of 25 years is investing, then his portfolio for at least next 5 years would be 65% – 75% equity and the rest of its debt or balanced investment options. This is because his risk appetite would be more as compared to a person of 45 years (who will be looking at retirement planning and secured income flow).
Financial Planning is not an easy task to do and also very unique for every individual. Financial Planning differs according to age, gender, income range, long term financial goals, short term financial goals, tax effect, etc. So, consult your financial advisor and plan your finances in a way that best suits you.