Financial planning is an important part of your life and you should not take it lightly. If you want to make the most out of your money then you have to do financial planning. Many people think that it is a complicated task to manage your finances and thus don’t give it much of importance which is harmful for them in the long run. So you should start doing financial planning early in your career.
It is a fact that all of us dream. We dream for ourselves, we dream for our family and we dream for our kids. Now most of these dreams would require some sort of money for it. Every dream has a price tag attached to it. So for achieving these dreams you need to do financial planning so that you have that money that is required.
You can go with a professional financial planner who can help you in managing your finances. But if you want to do it yourself then we have a guide for financial planning that you can use to manage your money and do effective financial planning for yourself and also for your family members.
Step by step financial planning Guide
Step 1 – Set goals
The first and most important step of any planning is to setup a goal and financial planning is no different either. You need to identify goals for yourself. You would need to write down all the things that you would like to achieve in your life. You can write the short term financial goals as well as long term ones.
Now it is important to note that these goals must be realistic and achievable. They should be in capability of your present income level. They might take into consideration the progress that you’ll make but they should not be too unrealistic.
Step 2 – Analyse your current situation
Now you need to analyse what is your current situation in life. You would need to see what is your current income level, what are the responsibilities that you have in your life, what responsibilities out of those are immediate, how much are your expenses, what are your present investments, how much more money can you take out each month, etc.
Apart from this you also need to analyse the future possibilities. These could include –
- Are you prepared for any possible future expense?
- Do you have money for some emergency that can appear which might not have any insurance cover associated with it. Is the size of your emergency fund enough?
- How protected are you from sickness, disease, accident or death. You would need to think how much money would be essential in case any of this happens and if you have a sufficient cover on you that might be enough for dealing with any of these events.
- Most important of these being the life insurance cover. You need to analyse if the money that your family will get would be enough for them or not.
- Does your family have insurance cover for sickness, accident or death?
- Is there possibility of your current income going up?
- Can there be any unexpected income?
All these question needs to be answered when you are making a financial plan for yourself.
Step 3 – Making a Plan
Now the basis on which all your planning should be based on is how you are going to achieve the goals that you listed in the step 1 above. There can be a variety of investment option available to you. But you would need to choose the ones which will suit your needs. There can’t be a single plan that can work for every individual.
Now while you are making the plan and thinking on possible investment options, you would need to know how much risk are you willing to take? This is very prime question that needs to be answered in the early stage of a financial plan.
You also need to think about the possible tax saving that these investment options might offer to you. After this you would need to write down all the possible investment options that are suiting your requirements.
After this you need to assess the percentage of investment you can make in each option. You can’t just put all your money into one investment option. You need to have a diversified portfolio so you need to invest in a variety of options. So just make a plan of how much to invest in which one depending on the risk, return and liquidity associated with each investment option.
Step 4 – Implement
Now the next part in financial planning would be to implement your plan. You need to start investing your money as per the plan. Also make sure that once the plan has been made don’t procrastinate the implementation because situations change and your old plan might become useless if you keep delaying the implementation for long.
Step 5 – Constantly Keep Reviewing
As already mentioned that the situations can change so you would need to keep reviewing your plan to keep it in track with your goals. You also need to keep judging the performance of your investments so that you are able to make changes if a particular investment is not giving enough returns.