HOW DO I START MY FINANCIAL PLANNING?
- Varsha Gaikwad
- Aug 19 2020
Estimated reading time: 4 minutes 54 seconds
What does Financial Planning mean to you?
Is it all to do with “Investments”?
Is it about creating an unknown corpus of funds?
Is it “Thinking about money all the time?”
NO!!!
It’s about your Financial Freedom
Planning for worst-case scenarios
Your Life Goals & Aspirations
It is about YOU and Your Family’s Financial wellbeing NOW and in the future
1. Financial Freedom is a REALITY!!! People typically consider this to be a Myth.
Financial freedom can be defined as the freedom to follow your Aspirations & Goals. Having built-up for your corpus for living, Passion, and Goals.
Financial Plan lays the roadmap for the future and helps avoid surprises.
The BEST time to start financial planning is “NOW”. It’s never too late to review your financial decisions and take corrective actions.
Make your money work for you. Time is what you can give your money to help it grow to the point where you can meet all your needs, reach your goals, and become financially independent.
Isn’t that easy?
2. Venture at 45, Retirement home at 55, International vacation every year, retire tomorrow...the list is long. What is it that you want to plan for?
Scenario Planning is an integral part of Financial planning which helps one decide and lay the roadmap for the future. Offers more clarity and options that one can opt for and workaround.
3. Life Goals & Aspirations
Having great experiences and memories for the family by spending time together, travel, be your own boss, living for a noble cause and the list continues…
Plan for your Dreams, Aspirations and Passion. The step next to Financial Freedom is living your dreams. Life goal planning is an essential element of LIFE and planning. Make your money work for you while you sling on the ride!
The happiness chart should be rising while your corpus continues to grow with proper risk management and time.
Financial Planning helps one realize their Aspirations!!!
4. In Financial planning, you plan for yourself along with your family’s financial wellbeing.
Financial Plan is a step towards the two key aspects - Risk Analysis and Succession Planning along with Financial Freedom.
Healthcare cost which ends up creating a big dent in your overall financial situation, while sudden death of an earning member without proper term cover may tear the
family apart financially. Also, the transition of assets to the beneficiary in a hassle-free way is invaluable for an individual.
To make your Financial Planning exercise successful you need to take them along and seek their support in achieving the goals.
5. Financial planning is not a result-oriented exercise but habits building exercise.
It’s like exercising, following a nutritionist, which you do to keep yourself fit and active. There is a very strong similarity in maintaining your Physical health and Financial Health. Both need regular, consistent, and disciplined efforts. To give you a gist of how you can start your Financial Planning, below are the basic steps:
- Determining your current financial situation
- Developing financial goals
- Identifying and evaluating alternative courses of action
- Creating and implementing a financial action plan, and
- Re-evaluating and revising the plan.
How to Start?
To get a basic idea on how to start financial planning below is the link for a video, which was an initiative taken by Mitraz financial to create awareness.
Approaching a registered Financial Advisor with SEBI is the apt way and step towards creating a holistic Financial Plan. Some common stages at which people look out for Financial Planning is nearing high priority financial and retirement goal, having built a decent corpus, change in a financial situation like promotion or wedding, etc. However, the apt age to start with this may be the start of a family or right when you receive your first salary.
“Start where you are. Use what you have. Do what you can.” - Arthur Ashe
We miss out on this beautiful concept called “power of compounding” by just delaying. Every year gone by is an opportunity lost. Mathematically speaking, compounding is defined as, ‘the increase in the value of an investment, due to the interest earned on the principal, as well as the accumulated interest.’ and also
“Compound interest is the eighth wonder of the world. He who understands it earns it... He who doesn’t pays it.” - Albert Einstein
For Example:
As you can see, a delay of 2 years reduces the corpus by 1.40 crores.
A delay by 5 years reduces the corpus by 3.06 crores.
This is the opportunity cost due to delayed investments. The money lost 2 years and 5 years of annual compounding
This happens because in later years you don’t get the benefit of compounding.
Lost time can compound financial problems. If small loopholes are left unaddressed now, what was an easy-to-fix mistake, could become a massive mess!. This mess gets highlighted at the time when you’re looking at interest on a loan, or if you’re paying overly high fees for investments or products. The longer you let those things sit and fester, the more it will cost you.
So, TIME and STRUCTURED PLANNING are the secret sauce for all the good as well as the bad!
You may start by doing it yourself. To begin with, start with budgeting your liquid income where all you need to do is follow the famous 50-30-20 rule. 50% of your income for fixed expenses including EMIs, 30% savings, and remaining 20% or lesser for discretionary spending. Once you are in your stage of life with complex goals and you’ve built your money to a sizable amount where you find it difficult to manage on your own, you might want to consider hiring a SEBI registered Financial Planner/Adviser.
The writer is a Wealth Adviser in Mitraz Financial Services Pvt. Ltd and can be contacted at micontact@mitraz.financial
