I wish my high school had taught me how to construct a personal financial planning process. Burdened with the responsibilities of adulthood post-graduation, my friends and I struggled to learn the ins and outs of creating a personal financial plan to secure our futures. If this sounds intimidating, that’s because financial planning is what can make or break your ability to create wealth in the long run!
This article will explain why you need to start your personal and family financial planning immediately.
Personal finance skills can help you grow your money, apart from giving you insights about your relationship with it. There's a bunch of reasons around why personal finance planning should be on your list of things to learn, let's check some out -
One of the foremost reasons, your financial plan is going to help you improve the quality of life you live. From being able to save on yearly taxes to wise investments early on in your career, you will likely be able to save more and grow your wealth.
You also get an idea of spending only what you need, provided you are disciplined with your plan. This will vastly improve how you live in the long run and likely secure the future of those you care about as well.
An emergency corpus is one of the most critical components of a strong financial plan. With a corpus that will keep you afloat during trying times, you can restore your quality of life to what it was quicker.
This preparedness secures you against any unforeseen crisis that can turn out to be a major expense for you and your loved ones: an accident, death in the family, unforeseen loss of income, or unexpected detour in your plans of any kind. Emergency preparation is ensured with a good financial plan.
Notice how the cost of living just keeps increasing? Instead of using flowery terms like inflation that sound off-putting, let’s phrase it this way: the cost of every single thing you buy each month will only increase. Your income and savings need to match that to maintain your current quality of life. You cannot be assured that these two variables will stay constant, so having contingencies is important.
These are your investments that will grow your savings and make all the difference. Investing in assets and building a financial portfolio geared to your risk appetite and goals is one of the essential parts of a financial plan. One of the best consequences of sound investing is creating wealth.
I hate thinking about what my retirement will look like, but a financial plan forces me to. This is important because your are saving up for retirement and healthcare costs that are potentially increasing during this stage of life. It can make or break the last few decades you have to enjoy your life.
At a time when you want to sit back and reap the fruits of your labour, it’s wiser to let a financial plan dictate your retirement assets and how you get them instead of struggling to make ends meet.
The first step to a financial plan is creating a budget and sticking to it. As your expenditures change over the years, learning to adapt your budget to your needs helps you make the most of your earnings.
Without a budget, it is easy to overspend in certain domains like eating out, buying new things you might not need, or spending on experiences you can afford to save on. Not only does a budget structure and manage your finances towards your saving goals, but it also teaches you the financial discipline of learning how to use your funds wisely.
Your financial plan can make or break your future and the future of your loved ones. From things as basic to figuring out how to spend on your wants vs needs, to be prepared for emergencies, it's got it all covered. To make the most of your financial needs, check out the digital financial services offered by Fi.
To begin with your personal financial planning process, start with assessing your current finances and your financial goals. This will give you an idea of how much you need to meet these goals in the long run. Then begin learning about your investment options: from mutual funds to fixed deposits, you have a slew of options to choose from as you plan your finances.
Begin implementing your financial plan by allocating funds towards certain investments each month, and stay disciplined with it. Ensure you have an emergency corpus you are building and a budget to keep you on track.
Here are five steps to creating an effective personal financial plan:
Step 1: Create a list of financial goals and be specific.
Step 2: Gather all information about your current financial situation.
Step 3: Establish your financial strategy by learning about various financial tools like savings and investment options.
Step 4: Opt for automation wherever you can to establish your rhythm and remain disciplined with your investments.
Step 5: Team up with experts or get help whenever you need it with regards to adapting your plan, covering all your bases, and more.
A personal financial plan is your map to actualising your financial goals in the future. It comprises a budget, an emergency corpus, wealth-building investments, retirement savings, and a healthy savings corpus. This plan is essential to helping you meet your changing financial needs, grow your wealth, stay prepared for potential financial crises, save for retirement, and manage your finances on a daily basis.
Expenditure, income, savings, investments, and protection are the five areas that are critical to shaping your personal financial planning.
Any sound financial plan will comprise the following seven key components:
Financial planning is an absolute necessity to ensure that you're not overspending, over-saving, or planning in misalignment to your needs. Having a financial plan ensures that you reach your long and short term goals, have a realistic emergency fund, and live a fulfilling life by spending on things that matter.
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