Investing for your retirement is one of the smartest decisions you'll ever make! This guide will teach you how to do exactly that.
Financial planning is a process where you create a framework to achieve your financial goals in a certain time frame. Rather than being a one-off decision, it is a constant process of taking logical decisions so that the plan is regularly updated as per the current challenges and ensures the fulfilment of your financial goals.
However, most people feel that they do not have an eye for the right kind of investment or the ability to manage money or expand their finances. This article offers a few tips for personal financial planning for beginners and the reasons why you should plan your finances smartly. We will also learn about the steps involved in effective financial planning.
The following are some reasons as to why you should do successful financial planning –
The following is a step-by-step guide for successful financial planning –
Before you start to create your financial plan, it is essential to analyse your current situation. You should figure out your debts, income, expenses as well as your assets before designing an ideal plan. Ideally, the list of your current assets should include –
The debts that you should record are –
You should remove the amount of debts you need to pay from your total assets to estimate your current net worth. If you get a negative number, it would imply that your assets are insufficient to cover your debts.
To get a better picture of your financial status, you should also include your household income and expenses including -
By comparing your income and expenses, you would get a better clarity about the cash flow. This sets the foundation for your financial plan’s blueprint – when you know your financial standing, you can create a better investment plan.
Setting financial goals implies creating realistic financial targets that you plan to achieve in a set duration. A successful financial plan is one where your goals are based on your current financial situation. It is crucial to set both short-term and long-term goals.
Some of the most common financial goals are –
Having set the goals, you should now understand the importance and priority of each financial goal and classify them accordingly. You should also look into how long would it take to achieve certain goals.
For instance, you may need to purchase a new home and sponsor your child’s education as well. In this case, you should be aware of the need of the hour and invest there accordingly. So if your priority is your child’s further studies, you can set aside a fixed amount every month and invest in a promising plan. This needs to start early on in the child’s life so that the amount is available for them when they are ready to pursue higher education.
Once you have set your priorities, you should now look into how much money would you need to invest to achieve the goal. However, you can determine the amount only after comparing your income and expenditure. To achieve this goal, you can look for areas where you can reduce your expenses. Extra income, too, can help in achieving the financial goal.
Once you set your goals, you should then focus on creating a comprehensive financial plan to ensure their optimal fulfilment. Successful financial planning requires you to create a roadmap to achieve each of the financial goals you have. For instance, if your ultimate goal is to save for retirement, you can start saving early into a balanced financial portfolio and let your money grow. You can achieve this goal by investing in both long-term and short-term investment plans.
Some investment options that you can put your money in include –
Note – You should look at your income and expenditures first before investing to verify if there is a scope for reducing your expenses – this can provide you with more funds that you can invest.
Savings accounts are often used to save for short-term objectives such as paying off debt. However, there are other ways to save money if your objectives are long-term or entail investment. You must consider the following factors to choose the investment vehicle that best suits your requirements –
As discussed in the beginning, your financial strategy ought to be a dynamic process. It is advisable to spend some time checking on your assets and savings regularly to check whether they are on track to reach your financial targets. This can help you make any required adjustments if your present level of risk or investment sources are not generating the results you are hoping for.
Your financial plan should be revised as your situation changes. For this, you can establish a regular timeframe for assessing your financial strategy and deciding where adjustments are needed. Additionally, you should examine your financial strategy if a significant change in your life, such as marriage, the start of your family, a change of employment, and more.
Financial planning is successful only if you begin saving early, no matter how inexperienced you are. You should create a comprehensive and systematic financial plan that helps you meet your financial goals. To achieve these goals, consider following the personal financial planning tips mentioned below:
For beginners looking for high-return investments, it is usually recommended to start investing by putting some funds in mutual funds as they provide the benefits of professional fund management as well as portfolio diversification.