Financial planning is a concept that teaches us the importance of valuing our money and utilizing it in the right way to secure our future. It does not only involve saving money but tells us the correct way of how and where to use it.
If you are planning to save your money and utilize it in a specific way, you don’t need to be a financial planning expert. All you need is proper guidance to start your journey towards financial planning. For guiding you, this article covers most of the necessary steps that you need to take during your financial planning.
- Make a Budget
This is the primary and most crucial step to start financial planning. To make the entire process a success, you need a proper control on your budget. The appropriate method of budgeting includes making a list of your monthly earning and comparing it with your monthly expenses. Once the budget is ready, you will get to know the amount that can be saved every month. Money management is very important aspect of creating a monthly budget.
Another important fact about budgeting is that it makes you highlight the unnecessary expenses when you list out all your monthly expenditures. In this way, you can find a way to cut those expenses whenever required. Budgeting in the right way helps you make a fair decision with finances because when you carry along with a list, thinking twice before spending comes naturally.
- Cutting down Expenses
While you are planning your finances, the most valuable step for you to take is limiting and cutting down your expenses. Once you have successfully made a budget, you can easily differentiate between necessary and unnecessary costs.
Cutting down the expenses is beneficial for your financial planning though it is a slow process. When you start limiting your expenditure, it takes time to make a difference in your savings. It will prevent you from using credit cards and loans in the long run for your more significant expenses once you save enough.
Moreover, if you are under debt and could not clear it, this is the best way to pay it off. Having extra money in one’s bank account can never be a bad idea, so start limiting your expenses and try to save a little amount every month.
- Clearing Debts
Wondering how to start personal financial planning while being already under debt is never going to benefit you. Taking financial help from someone is not bad, but not being able to pay it back is what causes you trouble.
When you take loans from the bank or use your credit card, the payment may seem easy due to the installment scheme, but the thing that hits you hard is their interest rates. Paying just the minimum amount every month makes it more difficult for you to clear the debts because of high-interest rates and finance charges. For saving a reasonable amount of money, you need to try and pay more than the minimum amount.
- Retirement Planning
While you are earning and still have time to increase your savings, make it to your fullest. Most of the people do not take it seriously and end up without enough savings after retirement.
Saving for your future has become much more crucial nowadays due to the increase in life expectancy. Since medical facilities have improved with time, people are living longer, which is one of the reasons why one should have enough savings for the future because with the improvement in lifestyle, the chances of facing many ailments increase. Another reason is the increase in the number of younger patients of blood pressure, diabetes, heart attack, and hypertension, making it even more critical for people to start saving.
A lot of people tend to underestimate the vulnerability of their assets. Your assets – be it the properties or vehicles, are prone to higher risks that need to be covered at the right time. These risks can turn out to be a significant loss for you as well as your family.
People often get confused between investment and insurance. Investing is a whole different thing than insurance. While investing turns your money into an asset, insurance makes sure that your asset is in safe hands once you are not around. Along with the term insurance, health insurance is equally important to ensure that your family doesn’t face financial instability in case of any unfortunate event.
- Managing the excess cash
Dealing with excess cash is vital for better financial stability in the future. It somewhat defines how your financial status would be after some years. Making a plan and investing is always a good idea because when you don’t, you may end up spending the money unnecessarily, which could have made you financially stable. That’s why you need to properly manage the surplus amount of money you own and decide the correct way to invest it.
Since the world is continuously advancing, everything is going to get costlier day by day. Once you retire and stop earning, the savings and the assets are all that you will be left with. For coping up with the expenses, it is crucial to managing your savings now.
Though you have a perfect retirement plan, savings account with enough savings, but having an investment plan is always a good idea. Collecting assets throughout your life benefit you as well as your family in many ways. But it would be best if you understood that there is a difference between investing in assets and purchasing a liability.
First, you get a place to invest a large amount of money altogether, which saves you from spending it unnecessarily, and secondly, the asset that you had got will again return you a good amount of money in the time of need. There are multiple ways of investing money, including properties, vehicles, gold, and even you can go for direct stock purchases.
Direct Stock Purchase Plans or DPPs are beneficial if you want long-term investments in which you purchase the stocks directly from a company without paying commissions to a broker or middleman.
- Create your personal investment portfolio
It is always a smart move to construct your investment portfolio. It is an essential step as you are initiating your wealth accumulation. It involves dividing your investments into some asset classes such as equity, debt, and cash. Once you are done, it becomes easier for you to keep a check on the invested money and chances of any risk to occur. But creating it once will not help you throughout your journey of financial planning as it needs to be continuously rebalanced with time.
- Plan your Estate
Every single person, wealthy or not, must plan their estates at the right time. All the people comprises of estates in various forms – vehicle, property, savings in the bank account, or any asset. You should understand the importance of estates and decide what happens to them after you are no more to own them. It is solely your responsibility to determine which estate needs to be assigned to whom and at what time. If you fail to do the right planning, your estate will be gone to the unwanted hands, and there will be no way left for the right person to reclaim them.
If you are aware of it and still waiting for the right time to plan the estates, make sure to do it as soon as possible.
- Get Mediclaim
The fact that health is an individual’s real wealth cannot be denied. Though you have everything planned for the future, you cannot plan your health, and neither can you ignore any health emergency. Getting health coverage should be your primary concern not only for yourself but for your entire family, especially the members above 30-35 years of age.
Everyone should lead a healthy lifestyle to reduce the chances of any health issues, but you should make sure to get your health covered with Mediclaim. No one can predict the problems approaching us in the future, but all we can do is to be prepared. This is a vital step in financial planning, which keeps your family financially secure in case of any unfortunate events.
All these points discussed above are supposed to guide you in your journey of personal financial planning. Financial planning covers a diverse area, and hence achieving it is a time taking process. Therefore, if you are not clear with all the points as mentioned earlier, make all the necessary improvements in your plan, and try again. Once you are done improvising, the steps would seem to be more precise and comfortable to follow.
Financial planning is not a complicated task, but you miss a single step, and it gets tricky. If you still have any confusion regarding any step, we recommend you to take advice and discuss your problems with a reliable source.