Building Financial Plans

26/06/2021 0 By indiafreenotes

Set financial goals

It’s always good to have a clear idea of why you’re saving your hard-earned money. Think it through using our financial goals worksheet.

Create a budget

Consider this your monthly cash flow and savings/investing plan. Give yourself permission to decide where and how to send your money with our budgeting worksheet.

Plan for taxes

It can go a long way toward helping you keep more of your money next year. Our tax planning worksheet will help you think through potential income tax credits and deductions.

Build an emergency fund

All the planning in the world won’t help if life throws you a curveball and you’re not prepared financially. That’s where an emergency fund comes in handy. Our calculator will help you decide how much you need.

Manage debt

Understanding and managing debt is a key part of creating a financial plan. Use our debt management worksheet to log your numbers and find the right balance.

Protect with insurance

Life can change in an instant. People with a good financial plan hope for the best, but plan for the unexpected. Insurance helps with that. Use our disability and life insurance worksheet to log your coverage and identify any gaps.

Plan for retirement

Even if it’s a long way off, think about what you want your money to do for you when you retire, and create a plan to make it happen. Our retirement savings checklist will help.

Create your personal investment Portfolio

Constructing your first investment portfolio is an achievement in itself. After all, it is your first step towards wealth accumulation. Building a portfolio involves distributing your investment amongst asset classes like equity, debt, and cash. It is known as asset allocation. Although equity is the best tax-efficient and inflation countering vehicle. However, putting all your money in equity isn’t a prudent move. You need to diversify the sums that are to be allocated in each asset class as per your investment goals. It is always wiser to be a long-term investor in order to accumulate greater corpus. Your investment horizon would ideally be around 10-15 years. Once you have constructed a portfolio, you need to rebalance it periodically to keep the portfolio risk within expected limits. This is relevant from standpoint of market fluctuations. At the very outset, you may decide the time intervals after which you will be rebalancing. You can do it once in every six months or a year.

Dealing with surplus cash judiciously

How you deal with the surplus cash determines your future. When you don’t have a plan, you are likely going to indulge in overspending. This money could have been used to make you financially self-sufficient. In the backdrop of inflation, everything is going to be costlier with each passing year. If you don’t invest, your money won’t grow to bridge the inflationary gap. You might have to work beyond your 70s to pay your bills. It’s like not being able to retire forever. Investing can be a great way to channelize the extra cash and counter inflation. It can be used to grow wealth and divert it to goal accomplishment. The earlier you start investing the better. Investing need not be a difficult and boring task. Perceive it as a bridge between where you are and where you want to be. Start with identifying goals like buying a car or planning for retirement. Categorise those goals into short-term and long-term. Goals that can be achieved within 1 to 3 years are essentially short-term. Goals that need a horizon of 3-5 years are called medium-term goals. Goals that require more than 5 years to achieve our long-term goals. Then identify your risk appetite i.e. the degree to which you are comfortable with a fall in the value of your investments. If you can digest say a 20% fall in the value of investments, you are a high-risk seeker. Else, categorize yourself as a risk-averse person. After identifying your goals and risk appetite, you can conveniently select the investment haven. A risk-seeker may go for a diversified equity fund. Conversely, a risk-averse short-term investor may go to a liquid fund or a balanced fund. Mutual funds have come up as the most versatile investment haven. You can start Systematic Investment Plan (SIP) at a nominal sum of Rs 500. Under SIP, a fixed amount gets deducted from your saving and is invested in mutual fund scheme of your choice.

Maintain a personal balance sheet

Having a personal balance sheet helps to know what you own and what you owe! It’s a pretty powerful tool to take your finances to the next level. It’s a statement wherein you can jot down your assets and liabilities. The difference between your assets and liabilities shows your personal Net Worth. Before getting started, pull together your bank statements and other proofs of the liabilities. Then list down your assets like the bank balance, all investments, home value, and value of other assets. Take a sum of all the assets to arrive at the total value of your assets. Afterward list down your liabilities like the car loan, home loan, credit card balances and remaining balances in other loans. The sum of all the liabilities will show the value of the money you owe. When you subtract the value of liabilities from assets, you get your Net Worth. Ideally, it needs to be positive which means money you own is greater than the money you owe.

Regulate your expenses wisely

If you are living paycheck to paycheck and find yourself struggling for money even before the month ends, then chances are you are living way beyond your means. Maybe there are a lot of unplanned expenses! These might be leaving you with no money for the necessities. But there’s a way out of this. Try making a budget. Unless you have a budget before your eyes, you won’t be able to control your cash flows. A budget simply shows how much money you have coming in and how those funds are spent. Start by categorizing your expenses into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable. In this way, you will create a full inventory of expenses in front of you. The more you convert things from abstract to physical, the better you will get a hold of them. You can create a hierarchy of needs and decide which one’s to address first. It’s all about prioritizing. You need to accept that you have got limited resources and unlimited wants.

Manage your Money

Managing one’s money need not be boring. It’s not rocket science and you need not be from a financial background. You only need to show a bit of commitment. Deciding to save is the first step towards money management. Saving money can be the powerful tool towards greater financial independence. Imagine yourself borrowing from a friend for that urgent visit to the doctor! In case you don’t have any friend, then you might have to swipe your credit card. And you know credit card is the most expensive form of debt. Repeat this a few more times and you end up in a debt trap even before you realize that. You may have many financial goals in your mind. Like buying a vehicle or the latest smartphone or wealth accumulation. In all these situations, you need money.

Cutting Expenses

Determine where you might be spending too much. Are you splurging on entertainment? What about your car payments, vacations, or food?

It’s important to look for ways to save, but balance is also crucial. Your goal isn’t to eliminate every fun activity but to control your spending to free up some of your income for savings.