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Step by Step guide to Financial Planning

Financial planning helps you be prudent with your money and achieve your life targets. Although it is a simple process, it requires proper planning over a period of time. That’s because it comprises several steps. Each step has a particular objective. One misstep and your financial plan could be in tatters. It’s just like a house of cards. You remove one card and the whole house falls apart. Therefore, to create a successful financial plan you should follow each and every step in the correct order.

Are you familiar with these steps? Do you know how to prepare a financial plan? Worry not, this piece will give you a step-by-step guide in preparing your first financial plan.

Step 1 – Set your goals

Identifying your goals at the start can give you a sense of direction. Unless you know why you should save, your savings will not hold much importance. So, whether it is buying that trendy car, building your own home or setting aside money for your daughter’s wedding, identify your financial goals.

Step 2 – Plan your taxes

Tax-planning can ensure you have more money in your bank account. So, why do you want to give away your hard-earned money in tax? There are various tax-saving investment instruments available in the market. These instruments can give you tax exemption not only on the amount invested but also on the returns generated.

Step 3 – Create an emergency fund

An emergency fund can bail you out in tough times. It gives you a financial cushion in case of an emergency. So, hold at least six months’ worth of your income in an easily liquid investment option. Liquid mutual funds can be ideal.

Step 4 – Think insurance

You should also think of getting a health and a life insurance plan. While a health plan can take care of your medical emergencies, a life insurance plan will give your family financial stability in your absence.

Step 5 – Invest

This is when you think of investing your money. Know the risk involved, the returns you are likely to get and its tenure before you zero in on an investment option.

Step 6 – Invest for each goal separately

Choose separate investment options for your short-, medium- and long-term goals. You should not park all your money in one investment option. Different investment vehicles serve different needs. So, do some research, learn what each option’s forte is and then invest. For example, investing in equity or equity fund is not advisable if you want to achieve a short-term goal. Instead, invest in them for the long run. That’s because equity tends to be volatile over the short-term and generally steady in the long run. Therefore, your investments and goals should not obstruct each other.

Step 7 – Review your plan from time to time

Your goals are dynamic and so are your financial requirements. Hence, your financial planning should be dynamic as well. So, review your financial plan periodically and make necessary changes to suit your requirement.
So, is it difficult? No. You just need to follow a few steps to reap benefits of financial planning. It is just the lack of knowledge which makes the process seem difficult.
Alternatively, you can choose to get professional help from a financial planner. India Nivesh’s financial planning team can always help you plan your finances and investments.

What next?

Financial planning. Tick. Next chapter will explain how budgeting is different from financial planning.

Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.