August 10

Ten Commandents of a Financial Plan


The life of common man revolves around some financial goals which he/she wants to achieve. Buying a house, Comfortable retirement, children future planning and their marriage are those primary goals which all people would like to see through. However, the limited resources that one has does not allow allocating money towards all of these, which impact some of the goals.

Hence, there is always a need to plan all your finances well in advance so that it is easier to draw a roadmap for your financial well-being. Financial planning is a true process by which you create a blueprint for achieving your life goals.  it helps you to bridge the gap between the funds required and resources you have.

To go through the entire process, you need to first identify your goals and quantify them. Then analyze current financial situation and utilize your limited resources in meeting the financial goals. Changes should be made in your cashflows, if required. Once implemented, review it periodically to accommodate any change in your financial situation during your lifetime.

However, many individuals find it difficult to implement a financial plan. Primary reason for this is the change in lifestyle recommended by their planners. Even if it gets implemented it loses track in between and the entire objective of creating a financial plan becomes redundant.

Financial Planning strategies recommended by most planners are not new innovations but mostly follow the basics of personal finance, which if followed rigorously, can help immensely in achieving life goals. Listed below are  10 basic strategies which drives success story of any financial plan.

  1. Budgeting:  For managing your finances awareness on what’s coming in and what’s going out is very necessary. Draw a budget as soon as you start earning. It involves writing down all your expenses and preparing a cash flow to identify any unwanted expenses happening from your pocket.
  2. Emergency Fund: Is created to meet any emergency due to any unforeseen events in the future. This is also the most neglected aspect of personal finance. People keep on investing without putting aside funds for their emergencies and when it arises they have to dip into some investments. Maintain good amount of liquid funds to meet any contingencies.
  3. Insurance: It protects your loved ones from unpredictable events like accident or death which may result in loss of income. Although, it can never replace the emotional loss your family has to bear, it helps them financially. You need to evaluate your insurance needs and buy the right amount of coverage. Life insurance should be bought through term insurance as it is the cheapest form of insurance available.
  4. Health Care: A minor ailment in a good hospital today cost you very dearly. It can drag you few years behind if not provided for. Many people lose all their savings or pull out investments if any of the family members fall sick. Avoid such situations. Evaluate your need on basis of your income and city of residence and buy the right amount of health insurance for your family.
  5. Investments: Investments are very important for achieving our financial goals. Long term investments help in achieving the growth target. It in turn gives you a financial security for your succeeding generations. However many people do not stick to the basics and utilize their long term investments if any need arises, in between. Make sure not to make this mistake. Keep all your long term investments intact till the goals are achieved. Follow the asset allocation approach and invest wisely.
  6. Credit: Buying on credit has been the major contributor in mismanagement of finances. As a youngster we find it difficult to resist our temptation to enhance our lifestyle and so go for maximum credit even if our repayment capacity do not allow. Avoid falling in such traps. If you have accumulated debt, settle it very soon. Even if you buy on credit, do it only if you can repay from your income comfortably.
  7. Estate Planning: Your financial goal gets achieved when your accumulated wealth goes to the right heir. In India members of major families are fighting for their share. The biggest sufferers of no succession plan in place are your spouse and children’s. Prepare a plan for distribution of your wealth among your heirs. Write a will and buy the right insurance to protect your estate from disaster like natural calamities and crime.
  8. Taxation: Do your tax planning at start of every financial year and allocate money towards such investments gradually. This will help you in savings yourself from those costly mistakes done at the last moment and will spread your cash flow evenly throughout the year. Look beyond 80C to take advantage of tax benefits, you can avail.
  9. Review: Once a financial plan is implemented it is necessary that you track the performance. Many people make mistake by not sticking to their plan and failing to create a financial nest for themselves. There are many tools available for achieving your goals but each of it has its own limitations. Hence evaluate and pick the right tool. Most importantly stick to it till your goal is achieved.
  10. Learning: The best way to make your financial plan succeed is by learning yourself. Learn how money market works.  The learning can help you immensely in making those prudent decisions and saving yourself from all those costly mistakes which any financial planner highlights.

 Creating a financial plan is only the beginning. The most important thing is to stick to the plan and follow it rigorously. If you stay patient and be disciplined, you can create a glorious future for yourself and family. It is always good to sacrifice now and enjoy your life in later years rather than enjoy now and pay the price in future.


Financial Planning

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