— Investopedia (@Investopedia) June 26, 2017
— Investopedia (@Investopedia) July 7, 2017
so What is financial planing? is it important at all?
In simple words, it is process of meeting your financial goals through proper management of resources.
From starting your life till end of your life you are going from different stages of life and your needs are different for every stages. on all those stages you need money for living your life. Financial planing is nothing but planning for those goals and allocating resources for them as per need.
What is need? Inflation is very important while financial planing. Basic assumption is what cost your retirement today is not equal seven years after or ten years after. Your challenge is to make provisions for it and protect them from loosing their value. How to do that? By using right mix of asset allocation.
Steps in Financial planing
- Calculate current funds, income, savings. What sources you have today and you can use then tomorrow? like home.
- Set your target like buying car. keeping sufficient amount in Retirement fund, Long Foreign trip etc
- Make investment plan for it by using right asset allocation
- Keep emergency fund
- Monitor regularly
Generally it is better to start financial planing in 20-25 age. It helps a lot and there is no need to say that studies found. It is simple logic.
Making budget of your income and expenditure, what are your liabilities, from where you will earn money to service them them? like education. How are you going to Finance it? In India and many other countries your parents pay for your education.
Insurance is also one important factor. Earlier you buy it, the better. There are many types of insurance like Health Insurance, Life Insurance, Home Insurance, Home Loan Insurance. you need to take care about it. Buy buying adequate insurance you are reducing risk taken by you. I found one image from economic times which i think important when thinking about insurance. I am going to share it here.
Many people keep talking about investment when talking about Financial plan. They don’t understand that investment is way to achieve target and so they fall in love with the tool. its very similar like Carpenter forget his work and fall in love with his tolls. why investment and return are important in financial planing? You need to achieve Target and so manage money respectively.
Debt management is important part of financial planing. while study for the post, I found that many most of the time, Debt is the reason for failure in life. I don’t need to give reason here. We all know what are example from our personal life and fro many celebrities. That’s why managing debt and keeping under control is important.
Education planing, for you, your SO, for your children also is not the thing you can avoid. as we know, expense on health care is significant portion for monthly expenditure, you supposed to keep some money aside for it.
Who should inherit your wealth? is very important question. because it is highlighting two important factors in financial planing one is Inheritance planing and second is wealth planing. deciding the inheritance is as important as making wealth. Making one will is very important.
What is wealth? valuable possessions. Wealth creation in simple word is Making something more than inflation rate. say that inflation rate is 7% and your earning growth rate is 5% then in fact you are loosing money. but if you are growing money by 15% then its wealth creation.
Financial Windfall management is very ignored part of financial planing. Maybe because its not certain and the size is also not same. But if you want to successful in financial planing and life, then its very important.
Retirement planing is very vast topic and in fact you can write one large book on it. Many things changed when you are going to retire. Even the starting point itself is very important. when should you retire? very important question and so yes. You need to plan about it.
Many of this things are not the one in which you are expert about. So its always best to keep one financial advisor for it. How to choose one is also important in making financial plan.
Real estate is very important factor. Almost everyone will accept it that Home is not only investment but something more than that. But at what age you supposed to buy? is their any age? What about down payment? yes. you need professional help for it also.
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