5 key things that should be the homepage of your financial plan
You need a financial plan in place to handle short-term and long-term goals while also having finances to meet unexpected something that everyone should do before investing. A normal financial plan will address all of your income, expenses, risks, and objectives, among other things. However, there are few elements in a financial plan that might be deemed more important than others. The chance presented by shutdown can be used to take a close look at finances and, if necessary, rework them.
Here are five key things that should be the homepage of your financial plan.
1. Put plans to paper
You should have a financial strategy in place before investing in Reliance, HDFC, or any other top Nifty 50 company’s stock, or even equities mutual funds. It is preferable not to invest any money until you have a solid financial strategy in place. Investing on the spur of the moment without a clear aim in mind and the appropriate quantity will not be effective. Based on your risk profile, a proper strategy will assist you in saving the appropriate inflation-adjusted amount for all of your goals. Furthermore, having a strategy will assist you in creating an asset allocation before you begin saving for your goals.
2. Prepare a budget
In the long run, having a home budget planner in place is beneficial. It shows you the various sources of revenue and expenses, as well as the breakdown of each. Account for some of the major expense headings without diving into micro-expenses. The ideal situation is to gain a firm grasp on cash inflows and outflows and manage them appropriately. The goal should be to reduce non-discretionary spending. As part of your financial planning, create, analyze, and monitor your personal household template.
3. Save funds for emergency
A financial emergency might strike at any time, putting your existing savings under strain. As a result, it’s a good idea to have enough emergency money to cover at least six months of your household needs. Whether it’s a medical emergency that need immediate cash or a job loss, an emergency fund should be your best friend in these situations. Half of the emergency money can be kept in a savings account or a sweep-in fixed deposit, while the other half can be invested in short-term or liquid mutual funds.
It’s time to create your life goals now that you have an emergency fund and a family budget in place.
4. Identify goal-posts
Discuss your life goals with your partner, such as your children’s schooling, marriage, property ownership, and your own retirement. Put a number next to the amount of years it will take to accomplish them. Calculate their inflated costs and how much you’ll need to save for each of them, assuming a cautious annual growth rate of 10%. Because your savings for these goals will come from your income, use the method of “Income minus Savings equals Your Expense” and don’t save what’s left over after costs.
5. Managing Risks
Taking care of hazards is the first and most important stage in any financial plan. Even before you begin investing, it is critical to plan for medical and life risks. Take out appropriate life insurance, ideally through a term insurance plan, if you have financial dependents. Purchase health insurance plans with appropriate coverage for self and family to defray hospitalized bills, especially in these days of the Covid-19 pandemic.