Do you dream of a sound and secure financial future? If yes, then you need financial planning. So what is financial planning? It is creating definitive, step-by step strategies to secure your future, reach your financial goals and aid in wealth creation. It is an important aspect of life; simply earning money and living paycheck to paycheck is not enough. One needs to create and preserve wealth so that one doesn’t have to struggle too much and achieves their financial goals easily. If you are planning to secure your finances, there are some factors you need to take into consideration. Let us talk about these in depth.
So here are some of the important do’s you must think through while making a financial plan –
Do think about inflation
Inflation is a reality that one needs to clearly see when planning finances. Think about the compounding effect of inflation on your net savings and then strategise the best way to plan ahead and secure the future from that perspective. It is not enough to just save money; start investing it. Mutual fund investments are a good place to start to make your money grow and secure your future against inflation.
Do save up emergency funds
Set aside a portion of your finances that can cover emergency situations such as hospitalization, job loss, unforeseen events, etc. Deploy these emergency funds in liquid assets rather than long-term investments so that you can avail them whenever you truly need them.
Do your tax planning
Since taxes impact your finances directly, tax planning is an important tenet of financial planning. Plan your taxes optimally so that your cash flow is only minimally affected. Maximise tax deductions and go for various tax saving options available after studying them.
Don’ts of making a financial plan
Following are some of the no-no when it comes to creating a financial plan:
Do not create a lack in insurance
Never under insure yourself. Insurance is a crucial aspect of one’s financial well-being, and essential for you as an individual and for your family as well. There are various types of insurance that you require for different areas of your life – health insurance, life insurance, medical insurance, motor insurance, etc. Figure out which insurance policies you require for your home. And make sure that you get an appropriate value of insurance as per the human life value (HLV). Along with the premium, also take a look at settlement ratio, benefits and additional features, etc.
Do not neglect succession planning
Preparing a will is important and one needs to think about succession planning as well. Good financial planning takes into consideration not only the individual but also the spouse and family after his/her death to enable smooth transfer of financial assets to the nominees/dependants without unnecessary hassle.
Do not invest in equity for your short-term goals
You need to know your investment option and have an investment plan in place. Study the risks; for instance, since equity is volatile and not easy to predict in periods less than 3 years, it is a risk to invest in it for short-term financial goals. It puts the investor at a risk of having to sell it before the intended duration.
So these are the do’s and don’ts of financial planning. Understanding the different types of investment available to you and knowing where to invest money will help you to create wealth in the long-term. This will ensure that your future years are not too burdened and you live a secure and happy life. Happy investing!