Why SMART People Do "SMART" Financial Planning?
Are you someone who is finding it difficult to manage your money?
Are you someone who is not able to control the urge of spending money every time you see something new?
If yes, Then this article could be a life saver for you!!!
There is an old saying "Who fails to plan, plans to fail!!!". It is applicable in all aspects of life but here I am specifically concentrating on "Financial Planning".
First let's understand what is meant by Financial Planning.
Financial planning is a step by step process which helps you manage your finances so that you will achieve your life goals.
But why is it so important?
Below are 8 important reasons why financial planning is a must in your To-Do list!!!
1. Financial Planning makes you aware of your earning, spending, saving & investing. It helps you to stick with your life goals whenever you are handling your money. So in turn it makes you in charge of your finance and gives you peace of mind.
2. Based on your goals, it helps you plan your current/future income & expenditure strategy.
3. It allows you understand the difference between asset and liability, so you won't spend on unwanted liabilities.
4. It helps your family to be future ready even in cases like unemployment or loss of breadwinner of family.
5. It makes your family financially secure and avoids any unexpected hustle in cases like medical emergencies.
6. It helps you to grow your hard earned money by investing it in multiple asset allocations as per your risk appetite.
7. It will make you realize that you need an additional income source due to growing inflation.
8. It allows you to save/invest money for future or it can be used in building a new business or grow an existing one.
Define your goals :
It is crucial to define your goals prior to plan out a financial plan.
You must have SMART goals.
SMART means Specific, Measurable, Achievable, Realistic, and Timely.
Below are few examples.
Save money for a first home, bike, car, international holiday, a business etc.
Buy adequate Term Plan and medical insurance.
To have an emergency fund which is equal to 3 to 6 months of your monthly salary.
Plan for a wedding, birth of a child.
Plan for education & marriage of a child.
How should you plan it?
1. Take help of a financial adviser for financial planning, but also do your home work to understand finance better.
2. Analyze all data, like goals, monthly income, expenses, liabilities, different investment returns etc.
3. Depending on your goals you need to plan your expenses, savings and investments.
The earlier you start to invest, greater is the benefit from the power of compounding over time.
4. Invest as per your risk capacity. Don't put all eggs in one basket.
5. Once you put your plan in action, review the progress every 6 months with financial adviser and make the required changes in approach.
Financial planning will help you adopt a disciplined approach to invest, accumulate wealth and meet your life goals.
Breaking your financial plan down into above specific steps which can be followed each day or week will serve as a motivation to stick to the plan and achieve your long-term goals successfully.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2019 Avinash Khopade