Financial Planning Made Easy
Updated: May 4
Everyone has certain goals when it comes to life, the majority of them are related to career, fitness, business, family or even relationship but what we often forget to have is financial goals. One must always be aware of how much money they would need for their expenses after they retire or the corpus that they would need for their kids higher education and many other expenses. Despite knowing the importance of money management we don’t give much importance to it considering the complexity that the finance guys or our financial planners have created among it.
It is important you keep your financial plan simple rather than making it complex by making unnecessary investments or buying unwanted insurance plans. This article can help you to make certain changes to your spending habits to help achieve financial goals and have strong financial planning for the future by considering basic necessities to build a strong financial plan.
Savings is the first thing that comes to our mind when we think about money management. It is important to understand how much liquid cash we need to hold because cash is considered to be a bad investment. It is necessary for each individual to at least have emergency funds that would suffice for 6 months in case you lose your job. Now with no money coming in till the time yo find another income source you can use this funds without piling new debts. You also need to ensure that you get some interest on your savings that you keep in your bank for that reason you can choose the bank or the account that will pay a good interest rate.
2.Loans or Debt:
Debt or liability can be a negative thing Most people would advise us to live debt free but when it comes to debt there is good debt and then there is bad debt. For example, if someone is buying a house by taking a personal loan it’s a poor financial decision and that would be a bad debt. On the other hand a home loan is a good debt. Similarly, if you don’t know how to use credit cards the right way you would be making the worst financial decisions. So the thumb rule is stay away from bad debt and a good debt is good. while making your financial plan you need to make sure you get rid of high-interest loans as quickly as you can.
Most of us are puzzled when it comes to insurance. We have little idea whether to opt for term plan or endowment plan and then we rely on insurance agents. Now these agents will recommends us the plan that would help them gain fat commissions regardless if they are suitable for us or not. To keep it simple, the majority of us only need two kinds of insurance one is life insurance and other is medical insurance.Life insurance is must for every earning member of the family, a person having a yearly income of $100,000 would need an insurance policy that would pay his survivors at least twenty times of his yearly income i.e. $2,000,000. Whereas it's necessary to have health insurance for every member in the family. As unexpected bills can disrupt your whole planning.
In the world of finance, the Thumb rule dictates that one must invest at least 20% of monthly income in equity or mutual funds or gold and silver. Investing is different than saving because you need to wait for the right time to make the investments. The diversification among stocks and mutual funds totally depends on the need and risk appetite of a particular individual. But if one considers stocks to be risky it is advisable to invest in mutual funds for long term as they have a historical record of good returns.Gold investment doesn’t mean buying jewelry. Buying jewelry as an investment gives you poor returns because when you sell them making charges are often deducted from the returns. Instead of jewelry one can buy silver and gold coins or buy Sovereign gold bonds. Other investments which can give us good returns is Real estate.
5: Tax Planning
Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. A good tax planning can save a portion of your income from being taxed legally. One can show his/her yearly expenses such as rent, interests, their child’s education expenses, charity, etc to get tax breaks. You can take advise from your financial advisor regarding tax saving mutual funds and invest in them.
A good financial plan for beginners is all about how simple we keep things, the more you do the more it will be difficult to trace and manage your portfolio. Having all the above mentioned tools in your inventory will make you ready for future and also make you rich