Taking control of the finances and making plan to achieve our goals are the first steps towards mastering the financial planning process. A robust financial planning ensures a sustainable and secured financial life. Though taking the first steps to plan our finances itself is a good start, the following tips would ensure that we reap maximum benefits from the entire financial planning process.
1. Stop leakage first: Correct your past financial mistakes
Each one of us makes some mistakes in our financial decisions. Mistakes like buying wrong insurance products, too many insurance policies, buying a home we cannot afford, credit abuse, taking loans at higher lending rates or a bad investment are few common financial mistakes we often commit. It is important that we learn to accept our past financial mistakes and commit ourselves to correct these mistakes. These past mistakes would always come back to haunt us if we fail to take corrective actions today.
2. Understand that every financial decision has an impact on other aspects of your financial life
Financial decisions should never be taken in isolation. Isolated financial decisions would often have considerable impact on other aspects of our financial life. For example, in the case of tax planning, if every investment decision is made with the primary motive of tax saving only, it will negatively affect the return on the investments we receive. Similarly, every investment when being liquidated should be assessed to know the tax implications. A holistic approach towards financial planning maximizes the benefits of financial planning.
3. Know that goal setting is a trade off: Prioritize realistically
Though financial planning would help to set our financial life in order, it cannot cast a magic spell to make all your dreams into reality. It is important that we prioritize the goals we want to achieve. Prioritizing goals also means trade-off. We would have to let go some of our dreams which we feel are less important than others. Once we prioritize the goals, we have to be realistic while translating our financial goals to monetary terms. It is not advisable to expect unrealistic returns on the investments. The external factors like inflation, interest rate changes and several other macro-economic factors would have a major say in determining the net return from the investments.
4. Go for a credible expert
We generally rely on neighborhood agents, friends or family for financial advice. Internet has also emerged as a source for financial information. It is important that we always assess the credibility of the source before taking financial advice. As mentioned earlier, financial mistakes would always have a major influence in our future well-being. Choose your advisor wisely to make sure that you always make well informed financial decisions.
5. Don’t sit on your financial plan, implement immediately: Costs of delay are huge
Getting a financial plan and recommendations on financial products through expert advice is job half done until put into action. We often postpone implementing our financial plan to later dates. The success of a well planned financial road map depends on how soon we start walking on it. The early starters always have a huge advantage of power of compounding and a flexibility of saving lesser amounts. If we want to accumulate Rs.50,000 in 5 months at a 10 per cent annual rate compounded monthly, we have to save Rs.9,754 per month. However if we have a 10 month period, we would be saving only Rs.4776 a month. Starting today, even with baby steps, is the most critical success factor for your financially secured future.
Apart from the five points mentioned above, managing and monitoring you plan at regular intervals is important. The financial situation of every individual is dynamic in nature. Our goals and priorities change from time to time. Our personal life situations would also have an impact on financial life. We must review our financial plan periodically in order to ensure that it is in tune with the current events in our life and on course to meet our long term goals.
Written By Arthayantra