Last Updated on September 22, 2023 by BFSLTeam BFSLTeam
Many Indians fail to plan their finances in such a way as to help them deal with emergencies and other sudden expenses. The trend for any financial planning is to simply go with the flow of life and live with your salary in hand. Surveys by the Reserve Bank of India have shown that Indians are not in the habit of undertaking any structured approaches to financial planning. This is why so many people struggle to meet their expenses.
However, it is not rocket science and all you need is the right approach and the sense to start while you are young. In fact, financial-planning should start when you start your career. This way, you have a long time to invest and can afford a few risky investments but ones that may give you high returns in the long run.
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Why Financial Planning is Crucial
Financial planning is vital as you require finances at every stage of your life, for different needs and to achieve various financial goals. Whether you are planning a marriage, sending your children abroad for higher education, or buying your first home, financial planning helps you to achieve your goals in a hassle-free way. The way to be smart in financial planning is to invest your money smartly so that it yields the returns you require to achieve your goals in a certain time. Therefore, the key step you need to take while beginning to undertake financial planning is to set goals effectively and efficiently. Financial planning importance lies in the fact that it gives you an advantage in your financial future and security.
Setting Financial Goals
If you want an organised roadmap to achieve your financial goals, you have to set them first. Your goals are unique to you and your own requirements. Without goals, you may not achieve financial success and may lose sight of your expenses. Financial planning is especially vital for beginners as they can begin planning early by setting clear goals, making budgets, and effectively managing their capital.
Financial planning assures you that you have money for your essential needs. This is important because needs differ from wants which may not be essential for your daily living activities. The purpose of financial planning is to ensure you have enough money to fulfil your financial obligations by making appropriate investment decisions that may grow your wealth and provide a hedge against inflation.
How to Begin
When you begin the process of financial planning, you are able to identify your needs and prioritise these before you consider your wants. The primary step in financial planning is to make sure you determine and fix clear goals. Furthermore, if you set your goals early, you can plan to make investments and take measures to achieve those objectives. Here are certain elements to consider while you determine your unique goals:
- Goals have to be Measurable
- Goals have to be Specific
- Goals have to be Achievable
- Goals have to be Realistic
Setting goals is not done in a random manner. You have to make goals as specific as possible. This makes it possible for you to monitor your progress and how far you have to go to meet your objectives. It is important to note that for goals to be achievable, they should be realistic and correspond with your income and investments.
The Path to Financial Success
The financial planning process begins with setting goals. While setting goals, consider the timeframe in which to achieve the goals you have decided on. One way you can achieve your goals is to make a budget. This is important as it forces you to allocate your money to things that have priority. It also helps you stay on top of your financial plan and gives you the discipline to avoid spending on unnecessary wants and other luxuries.
With a personal budget that is unique to your needs, you can monitor your expenses and keep your planning on track. In this way, your fixed expenses like rent, utilities, loans, etc., are taken care of and you can budget for any money left over for other expenses. In key financial planning steps, making a budget and highlighting details is one of the most important things to start with.
Apart from creating a personal budget, something you must do as a priority is get rid of any debt pending. This may include any credit card debt or loan payments. In your budget, you may list your debts and the payments you owe and include those to be paid off on priority. Start by paying off your highest debt first. With your debts paid off, you can start your realistic goal-setting in a better and more efficient way.
The Key to Financial Planning – Start Early
The cornerstone of good financial planning is to start saving and investing early so there is sufficient time for your wealth, not just to collect, but to grow into a corpus. For instance, you cannot think of retirement planning when you are about to retire. You have to start planning to achieve different financial milestones as soon as you begin earning an income.
Initially, you do not need large amounts to save and grow your wealth and can begin with amounts as small as Rs. 1,000. As you gradually grow in your career, you can opt for a number of investments like stocks, bonds, ETFs, and more. You can also avail of insurance and plans like ULIPs. It is never too late or too early to begin your financial planning journey.
