Everyone has some aims that they want to achieve over their lifetime. These are usually not one time events; at different stages of your life, new goals keep popping up. In most cases, we set and achieve goals without any conscious. But for that we have to make a financial plan. Now what is a financial plan? A financial plan is a document containing a person’s current money situation and long-term monetary goals, as well as strategies to achieve those goals. A financial plan may be created independently or with the help of a certified financial planner .
– Control over money : One should manage money effectively and it’s not rocket science. Deciding to save is the first step towards money management. Saving money can be a powerful tool towards greater financial independence.Ensure that you save around 20% of your income every month. After saving, don’t keep the money idle, instead invest these funds into the market or purchase bonds etc. to continue the cash flows from these funds.
– Control over expenses : Money saved is money earned. Try to cut your expenses to ensure that the money you are saving from your income increases gradually and you can invest more. Indirectly if we say that we are cutting an expense of 100 rupees per month, this will gradually increase your saving by 100 rupees and in the long term, if we assume a return of 8% p.a. You are saving an amount of 108 at the end of year.
– Determining your financial position : One must know his or net worth so that he can work on a plan and anticipate an estimate of how much he earns in a month, what are the expenses to be carried out and how much he can save and invest.
– Create a portfolio : One must know that the money he or she is saving and investing it into the market should be a bucket of many plans. For example if a person of 23 years age is investing the money, he has a good time left and therefore he can take risks and try to invest 70-75% in shares and mutual funds and 25-30% in Bank FDs or secured debentures. However this will not be applicable to a person who has attained the age of 60 years. He will make a portfolio with less risk instruments and will prefer Bank FDs and bonds over the share market.
– Create a retirement corpus : This is the most important stage of life. After retirement, a good amount of corpus or financial freedom should be available. This can be achieved by investing in right retirement benefit plans or term insurance etc.
– Prepared for emergencies : One should have a fund that is equal to at least 6 months of monthly income. This way you don’t have to worry about procuring funds in case of a family emergency or loss in business or profession or job loss. The emergency fund can help you pay for varied expenses.
– A financial Plan instills confidence : The study found that while only 30% of non planners feel very confident about reaching financial goals, 52% of planners can claim this confidence.That’s because comprehensive planners know exactly where their money is going each month. By taking the mystery out of money, they set themselves up to experience more financial confidence.
– Increases your savings : It may be possible to save money without having a financial plan. But it may not be the most efficient way to go about it. When you create a financial plan, you get a good deal of insight into your income and expenses. You can track and cut down your costs consciously. This automatically increases your savings in the long run.
– A financial plan gives peace of mind : Imagine the peace of mind that comes with knowing you can cover your monthly expenses, set aside money for long-term goals , and dip into a pile of cash in your wallet for a few guilt-free splurges. Even if that feels out of reach for you now, a plan can propel you in the right direction.
As said by Benjamin Franklin : “An investment in knowledge pays the best interest”. Keeping this in mind every individual should update his or her knowledge in saving and investment as this will grow their wealth steadily in a medium span of time which will enhance their life and standard of living.
Further saving may be tough in initial months, due to cut off in expenses and social pressure, but in the long term, these cut off expenses which can be related as a seed will grow and will become a tree whose shadow will relieve our burden.
Anand Acharya | Proprietor at Anand Acharya & Associates | Email : [email protected]
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal views and the authors do not take responsibility for the same and this cannot be quoted before any authority without the written permission of the Author