In this century it has become most important to control finances because surviving in this increasing inflation is very difficult. So financial planning is not just for becoming rich; you also need to invest to maintain your current financial standard in the future. Whoever you are, from student to working professional to retired person, everyone should do financial planning. So that is why we are here to give you some good knowledge regarding financial planning, which can change your life.
Why is financial planning important ?
Any work, whether small or big, requires planning to do it. That is why we should bring planning into finance as well. Financial planning helps you to control your money. It divides your income into many parts so that you can achieve your financial goals and keeps you prepared in case of medical emergencies and other financial crises.It also brings a good impact on your retirement so that you can remain tension-free. When your income stops, only your investments will come in handy.
How to Start Financial Planning
- Set a Financial Goal: First of all, you have to set your financial goals on the basis of long-term and short-term. Set a particular amount, such as 1 lakh in 12 months.
- Know Your Financial Condition: The next step is to know your financial conditions by tracking your income expenses , your total assets, and your liabilities. Basically, you have to calculate your net worth (assets – liabilities).
- Create a Monthly Budget: You have to create a monthly budget according to your needs on the basis of the 50/30/20 rule, where 50 is considered as needs, 30 as wants, and 20 for savings. It will be applied to your overall income. You can record your books with the help of Google Sheets.
- Build an Emergency Fund: You have to be ready all the time for any kind of emergency; that is why you have to keep 4 to 6 months of money in such a place that you can get it immediately, and this fund will be for your living expenses. You can easily calculate how much money you need to keep by following the above steps.
- Save and Invest: For the savings section, if you just start saving, then in the future the value of your capital will keep decreasing because of the inflation. So, if you have to, then manage your funds and invest them smartly. You should invest in SIPs, PFF, FDs, and much more. You can also go for real estate, mutual funds, stocks, etc.
- Plan for Big Life Events: There are big projects in your future like marriage, educating children, their wedding, for such work you should set a budget and start saving from now itself.
- Get Proper Insurance: No one knows what will happen; that is why you should take all types of insurance, like health insurance, life insurance, insurance for your car, and other valuable assets.
- Do Tax Planning: If you are an income taxpayer, then you need to do proper tax planning and take different deductions like 80C, 80D, etc. You can also use tax-saving instruments (ELSS, PPF, NPS).
- Review & Adjust Regularly: Whatever you are doing in this financial planning, you will have to review it every 6 to 12 months so that you can know your mistakes better and adjust accordingly. What will happen with this is that you will not miss any opportunity.
Conclusion:
Financial planning may seem like a complicated term to you, but when you start from the smallest part, you will realize the difference. It is all a game of consistency, commitment, and patience. So what you earn does not matter; how you manage it does.
