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How to create a Financial Plan? |
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How to create a Financial Plan?
A financial plan is more than a wish list. After you've taken the time to express what you want from your financial life, you'll need to create a strategy to help you achieve those goals. A financial plan is more than a wish list. After you’ve taken the time to express what you want from your financial life, you’ll need to create a strategy to help you achieve those goals. One of the challenges is likely to be that various ambitions compete for your attention:
Identifying your goals Some people know exactly what their financial goals are. And maybe you do, too. Or maybe you’re spending all your energy managing your current financial situation. If that’s the case, it may take a special effort to concentrate on what you think is important for the future. But you’ll find it’s worth the time to consider the next 5, 20 and 40 years of your life to anticipate where you’d like to be when that time arrives. There are some goals that most people share: staying out of debt, owning a home and having a secure retirement. Others may be more specific to who you are, such as paying for your children’s education or starting your own small business. There are no right answers about what your goals should be — with the possible exception that most people have to be concerned about affording a financially secure retirement. That’s why each person’s plan is unique. Some questions to ask As part of the planning process, you’ll want to ask yourself some important questions:
Saving for your goals Once you’ve established your financial goals and their time frames, you need to decide how you can accumulate the money to realize them. Short of working around the clock, there are two possible ways to increase your wealth: saving and investing. You’ll probably want to do some of both. Saving, which means setting aside money for the future, may be the hardest part of financial planning, since you’ll have less to spend on your current needs than you do now. But making regular additions to a savings account is the surest way to move forward toward your goals. Ideally, you’ll be able to save 10% or more of your pretax income. On an income of Rs 50,000, that’s Rs 5,000 per year, or Rs 417 each month. Investing, which means putting money into assets like stocks, bonds and mutual funds, can help you earn more on what you’ve already saved than simply leaving it in a savings account. That’s because the return on most investments averages more over time than the return on savings accounts. The catch is that making any kind of investment means taking a risk that you could lose some of your principal, especially in the short term. But not investing carries risks too because money that’s not earning more than the rate of inflation loses its buying power and can leave you short of your goals. |