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Financial planning is a process of understanding your income and expenditures, and planning accordingly for your future – both short term and long term life goals.
Most often when you go shopping, you look at how much money you can spend and then accordingly prepare two lists. The first list includes stuff you NEED and MUST BUY. And the second list is all about the stuff you WANT to buy if you have ANY EXTRA CASH left.
Now, look back at the second list. You will notice that the little things here are the ones that are really going to make you happy from within. But most often, as expected, you just begin on the ‘Want’ list before you run out of cash.
Financial Planning will help you change this. It is all about looking at the larger picture.
It is important to set your goals on what you ‘need’ and what you ‘want’ and pay equal attention to both.
These 6 simple steps will help you get your Financial Plan on track:
1. Know your income:
Where is your money coming in from? Pay check, investments, small business, etc. Try to add-on as much as possible – without killing yourself about it.
2. Understand your expenses:
Where does your money go? Food, bills, mortgages, shopping, recreational spends, medical emergencies, education, etc. – and try to save.
3. Estimate what will remain:
Try to do this regularly and start thinking about what you can do with the remaining funds. This will also help cheat yourself into saving more, by not spending. Invest, don’t spend.
4. Invest wisely:
Don’t let money lie in dud investments. There are numerous investment options in the market. Invest keeping in mind your short term and long term life goals, your budget and what you want out of your investments.
5. Pay-off mortgages :
Paying off your loans on property, credit cards, etc. as fast as possible, will give you peace of mind sooner and allow you to start saving sooner. Another little known fact about loans is that you will also save up money paid out as interest by shortening the term of your mortgage.
6. Improvise, if needed:
Things change. Over time, good stocks may turn bad. Inflation rates may get to your fixed investments. Modify plans if necessary. Break bonds and reinvest if needed. Look at the long term returns and take action – change course. Don’t panic every time though; play smart.
Following a plan does not mean you will get everything you want immediately. But having a realistic financial plan – and sticking to it – will ensure that you achieve most of your life goals.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in
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