We all are aware of the term financial planning but we do not what are the things involved in the same. Let us take a look the four important things that you should know about financial planning.
What is financial planning?
Financial planning is a long-term plan of how to earn and save sensibly so that all immediate and long-term goals are achieved with minimum risk and loss. Financial planning is necessarily an ongoing process that one must commence as soon as you start earning your first salary
Why is financial planning necessary?
Sound financial planning is of utmost importance, especially in the present times when the volatility of markets is high. Financial planning, if done sensibly will ensure that you apportion your income covering all essential like household expenses, nutrition, children’s education and so on. The same will also provide sufficient cushioning for your latter years when your ability to earn may decrease.
Do I need to seek the guidance of a professional financial planner?
Although you might be good at maintaining accounts and managing your income, expenditure and savings ratio, it would be a wise decision to consult a professional financial advisor. An expert in financial planning can guide you on how to protect your investments and also grow your money safely.
What are the steps involved in financial planning?
If you want to come up with a sound financial plan for your future, you need to do the following things:
- First of all, assess what your current financial status is. Assess how much your take home income is, what portion of your income goes towards recurring expenses, what portion of income goes towards savings and so on.
- Clearly, state your financial goals and update these goals as and when you see a difference in your income to expenses ratio.
- Evaluate all the available options for saving money in the form of fixed bank deposits, recurring deposits, mutual fund investments, life insurance, education investments, purchase of property and other immovable assets etc.
- Assess the risks that may be involved in every investment option and compare the pros and cons of each option.
- At intervals, evaluate your plan and revise it if necessary.