Financial planning to meet your future goals

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We all make some plans to manage our income, savings, expenses, future liabilities (money we expect to spend in future) whether we understand anything about financial planning or not . Even if we are managing it well right now, it may not be the best way to do it or it may not give us the best results. While financial planning may sound technical, what it means is how you identify your future earnings and liabilities today, list your current earnings and expenses, see what you need and can afford in the future. Current means and then plan your savings and investments to bridge that shortfall.

List Current Income and Expenditure,

Start with your current income which should include your salary, salary of other working family members, any other income like rent, business income etc. To finally arrive at the net income for your family at present.

After arriving at your family’s net income, deduct all expenses such as household expenses for the year, tuition fees, loan EMIs or any other short term liabilities (expected within the next 3-5 years) such as home renovation or medical treatment etc. Give The savings you are getting now after this deduction are what you need to invest wisely for the future.

setting future life goals

The next step in financial planning should be to jot down all your future financial liabilities, the time when they will arise, the amount you will need, etc.

target 1: For example, if you are a person of 40 years and expect your daughter’s college education to be due after next 8 years and estimate that it may cost around Rs.30 lakhs, do you have it? Will there be money to finance it? Decide an investment today and the amount required to achieve this goal after 8 years.

goal 2:Similarly, if you intend to retire at the age of 60, you need say 1 lakh per month to maintain your current lifestyle which is Rs 50,000 in today’s value. Given the advancements in healthcare, you can easily expect a long retired life of 25-30 years. The money you need to live your retired life can be financed by long term low risk investments (like debt mutual funds, pension plans) made today. Keep some money aside for such investments to be made today.

goal 3: You can set aside money to buy some health insurance which you will need during your retired phase or even before that. Insurance premiums need to be funded from your current savings.

The process of goal setting helps you understand your future needs, quantify them and invest in the right asset class to meet each goal as and when they become due.

asset allocation,

While asset allocation can be done with goal setting, it is better to understand how asset allocation can affect the success of your financial plan. You can invest your savings in various asset classes like equity, debt, gold, real estate etc. Look at the investments you have already made like if you have a PPF or EPF account, the money you have invested in bank FDs, home loans you have. Payment etc. From current savings and investments that you have already made, calculate the percentage of allocation made to each asset class. For example, all bank FDs, PF money, government bonds, debt-oriented pension schemes should be classified as debt. Any money invested in IPOs, company shares, equity mutual funds should be classified as equity, loan EMIs should be classified as real estate etc.

As a general rule, 100 minus your current age should be allocated to equities and equity-like products. If you are 40 years old, 60% of annual savings should be invested in equity-like products and the rest in debt products. If this is not reflected in your current investments, try to balance your investments by reducing the money put in debt products like FDs and bonds and put that money in equity mutual funds or stocks.

Most people are not comfortable investing in stocks as it requires specialized research, constant monitoring and a lot of undue stress. Hence equity mutual funds are a better option as your money is professionally managed by fund managers who do all the research on the companies before investing and continuously monitor the fund performance by buying good stocks and selling poor performing ones We do.

start early

You should start your financial planning early as this will give you the benefit of compounding example, whichever option you choose to invest in, your money will grow for a long period of time with compounding returns every year.

Annual Review and Rebalancing

While a good financial plan is a good starting point, it is very important to follow it with discipline and rebalance your portfolio every year. Because life’s circumstances change frequently, you should revisit your plan with your financial advisor and make changes to reflect your new circumstances.

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