Much has been said and written about the benefits of financial planning. There is no denying the fact that financial planning is a must to usher in financial security for the individual and his or her family. There are however a lot of myths surrounding financial planning and a lot of common mistakes. Not everyone can be a financial planner and a number of people with self devised financial plans often end up in a messy financial situations. It is recommended to get the services of a professional financial planner especially when faced with a life changing situation like marriage or birth of a child. Let us look at some common financial planning tips that can help create a secure financial future.
Prepare and Stick to a Budget:
The basic principle of having a well developed financial plan is to spend less than one earns. It is easier said than done as most people fail to follow a savings plan involving keeping aside money for a rainy day. The best way to offset such a scenario is to create a monthly financial budget depending on the income and expenses and allocating some part for regular monthly savings. One big advantage of having a monthly financial budget is the fact that it brings transparency to the funds keeping you aware of where your money is being used. This can be helpful in cutting out any unwanted expenses and money used for savings instead.
The basic principle of having a well developed financial plan is to spend less than one earns. It is easier said than done as most people fail to follow a savings plan involving keeping aside money for a rainy day. The best way to offset such a scenario is to create a monthly financial budget depending on the income and expenses and allocating some part for regular monthly savings. One big advantage of having a monthly financial budget is the fact that it brings transparency to the funds keeping you aware of where your money is being used. This can be helpful in cutting out any unwanted expenses and money used for savings instead.
Plan Finances:
Planning one’s finance is the most important part of any financial planning program. Financial planning begins by cutting out any unwanted expenses and paying and debts. Pay off any high interest debt or loans like credit card loans. This is significant as high interest loans like credit card debts can undermine even the best of financial planning. Having a well oriented financial planning program must include three intrinsic features, repaying old debt, creating emergency reserve funds and investing the money for wealth creation for both short term and long term. If you are not sure where to begin, hire the services of a professional financial planner to create your personalized financial planning program.
Planning one’s finance is the most important part of any financial planning program. Financial planning begins by cutting out any unwanted expenses and paying and debts. Pay off any high interest debt or loans like credit card loans. This is significant as high interest loans like credit card debts can undermine even the best of financial planning. Having a well oriented financial planning program must include three intrinsic features, repaying old debt, creating emergency reserve funds and investing the money for wealth creation for both short term and long term. If you are not sure where to begin, hire the services of a professional financial planner to create your personalized financial planning program.
Have an Emergency Corpus:
A well drafted financial plan must keep allowance for an emergency fund which can be useful in case of a sudden financial need or emergency. Ideally speaking an emergency corpus must cover minimum six month of all household and essential expenses. Keeping an emergency fund as a debt fund is recommended as it is safe investment option while offering returns on the corpus when left unused.
A well drafted financial plan must keep allowance for an emergency fund which can be useful in case of a sudden financial need or emergency. Ideally speaking an emergency corpus must cover minimum six month of all household and essential expenses. Keeping an emergency fund as a debt fund is recommended as it is safe investment option while offering returns on the corpus when left unused.
- A savings bank account is also a good option for keeping emergency corpus fund.
- Avoid keeping emergency fund as cash stacked din the house as it can be at high risk of theft or impulsive spending.
Start Retirement Planning early:
One big mistake a lot of people commit is that they keep retirement planning till very late in life. Retirement planning must be initiated in the early 20's as it offers the best time to devise a long term retirement planning solution. Since retirement planning works on the principle of compounding, the earlier one starts the better. Remember to take inflation into account while planning for your life after sixty and make sure your retirement corpus grows at a better rate than inflation rate.
One big mistake a lot of people commit is that they keep retirement planning till very late in life. Retirement planning must be initiated in the early 20's as it offers the best time to devise a long term retirement planning solution. Since retirement planning works on the principle of compounding, the earlier one starts the better. Remember to take inflation into account while planning for your life after sixty and make sure your retirement corpus grows at a better rate than inflation rate.
Keep Reviewing your Financial Plan:
Remember financial planning is an ongoing process and one must always review the financial plan after every couple of years. Any major changes in life like marriage, birth of a child, a change in job or any other circumstances that can lead to alter one's risk capacity must be covered in a financial plan. The best way is to monitor one's investments and review financial plan annually.
Remember financial planning is an ongoing process and one must always review the financial plan after every couple of years. Any major changes in life like marriage, birth of a child, a change in job or any other circumstances that can lead to alter one's risk capacity must be covered in a financial plan. The best way is to monitor one's investments and review financial plan annually.
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