Financial Planning for Beginners
Financial Planning for Beginners
Financial planning is a roadmap that guides you throughout your life towards financial freedom. Financial planning is an ongoing process for achieving future financial independence. It is important to create an effective financial plan that can address your current needs, match your present financial situation and help you create wealth for a secure future. For a beginner, it can get challenging to create a financial plan in the right direction. This article gives you some key strategies to ease the process of financial planning for beginners. Let’s take a look at some of the important steps for financial planning:
- Understand your current financial situation
Knowing your present financial situation is the first step to financial planning. Your current source of income, stability, and consistency of your earnings play a role in the planning process. Once you assess that, move on to your expenses and categorize them. Assess your savings, investments, and insurance, if you already have any. Knowing financial status is important to build a financial plan that is in sync with the current financial situation.
- Make budget and master self-control
Budget is an important financial planning tool that compares your income and expenses for the month and allows you to plan your finances accordingly. There are many budgeting apps available which you can use to create a budget. The first step is to calculate your monthly income from various sources and then create a list of monthly expenses by categorizing them as fixed and variable expenses. This process will help you identify expenses you might be able to cut down. Once you create a budget, the next important thing is to stick to the budget by mastering the art of self-control. It is quite challenging to hold back yourself from spending as it seems effortless to use a credit card in a second and buy impulsively. A simple formula is to first pay yourself before you spend so that you can secure your financial future.
- Identify and list down your financial goals
If you do not have financial goals, your financial plan becomes directionless. You need to first identify the goals that you need to achieve and then you can categorize them as short-term, medium-term, and long-term financial goals. For example, setting up an emergency fund, savings for your wedding and vacations can be your short-term goals, medium-term goals can be buying a car, a dream home, etc. and long-term goals can be retirement and saving for the higher education of your children, etc. Once you categorize the goals based on the time frame that you have for the goals, it gives you a path to plan your finances accordingly.
- Avail protection
Before you start planning your finances, it is important to secure your life and health (including your family) against unforeseen events. As insurance gives you an indispensable layer of protection against medical emergencies and unfortunate events like death and disability, it becomes imperative to choose the right cover and the right product. You can seek the help of an expert to choose the best product suitable for you.
- Manage your debt
Managing your debt smartly is also an important aspect of financial planning. Debt includes your high-interest credit cards, personal loans, and other loans that can make you feel like you have more money to spend. Though availing of credit is not bad if you put it to rational use and manage it well without it having an impact on your savings and investments for the future.
- Assess your risk and invest wisely
It is important to assess your risk-taking ability and be aware of your risk profile before you go ahead and choose the investment products. Choose the investment options based on your risk-taking ability, return expected to reach the investment objective, and the investment time horizon. For example, if you are saving for an emergency fund, a fixed deposit or liquid fund could be an ideal choice. If you are saving for retirement, a systematic investment plan (investing in equity mutual fund) or into direct equity is an ideal choice. Investing wisely and building the right investment portfolio also means diversifying your investments to manage risk to maximize return. More than anything, start investing early to get the benefit of the compounding effect to grow wealth over the long term.
- Monitor and review
Monitoring your investments and reviewing your existing investments to make changes and look for new investment opportunities is an important part of the financial planning process. As financial planning is a continuous process, constant monitoring of your portfolio and review to reap the maximum benefits out of your investments is extremely important.
- Seek the help of advisors
Financial planning can be a challenging task for beginners. You can seek the help of investment advisors who can make a comprehensive financial plan for you and extend complete support to have a smooth financial journey towards future financial independence. A good advisor could also be your coach to higher financial literacy.
Have a solid financial plan that can help you manage and grow your wealth. A comprehensive financial plan acts as life-long support for an investor to help lead a healthy financial life. Plan effectively and follow through to achieve financial freedom.
Disclaimer
This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances.
About Rajiv Nair
Rajiv Nair co-founded Finshield Investment Advisors after successfully managing several large clients and businesses in the financial services industry for over 15 years. Rajiv is a Certified Financial Planner who believes – ‘Any amount of effort in wealth management is worthless if at least a part of it is not usable within your lifetime’. He is known to be steadfast in his Investment philosophy and an avid reader on diverse subjects. Learn more about him here Rajiv Nair | LinkedIn
Financial planning is a roadmap that guides you throughout your life towards financial freedom. Financial planning is an ongoing process for achieving future financial independence. It is important to create an effective financial plan that can address your current needs, match your present financial situation and help you create wealth for a secure future. For a beginner, it can get challenging to create a financial plan in the right direction. This article gives you some key strategies to ease the process of financial planning for beginners. Let’s take a look at some of the important steps for financial planning:
- Understand your current financial situation
Knowing your present financial situation is the first step to financial planning. Your current source of income, stability, and consistency of your earnings play a role in the planning process. Once you assess that, move on to your expenses and categorize them. Assess your savings, investments, and insurance, if you already have any. Knowing financial status is important to build a financial plan that is in sync with the current financial situation.
- Make budget and master self-control
Budget is an important financial planning tool that compares your income and expenses for the month and allows you to plan your finances accordingly. There are many budgeting apps available which you can use to create a budget. The first step is to calculate your monthly income from various sources and then create a list of monthly expenses by categorizing them as fixed and variable expenses. This process will help you identify expenses you might be able to cut down. Once you create a budget, the next important thing is to stick to the budget by mastering the art of self-control. It is quite challenging to hold back yourself from spending as it seems effortless to use a credit card in a second and buy impulsively. A simple formula is to first pay yourself before you spend so that you can secure your financial future.
- Identify and list down your financial goals
If you do not have financial goals, your financial plan becomes directionless. You need to first identify the goals that you need to achieve and then you can categorize them as short-term, medium-term, and long-term financial goals. For example, setting up an emergency fund, savings for your wedding and vacations can be your short-term goals, medium-term goals can be buying a car, a dream home, etc. and long-term goals can be retirement and saving for the higher education of your children, etc. Once you categorize the goals based on the time frame that you have for the goals, it gives you a path to plan your finances accordingly.
- Avail protection
Before you start planning your finances, it is important to secure your life and health (including your family) against unforeseen events. As insurance gives you an indispensable layer of protection against medical emergencies and unfortunate events like death and disability, it becomes imperative to choose the right cover and the right product. You can seek the help of an expert to choose the best product suitable for you.
- Manage your debt
Managing your debt smartly is also an important aspect of financial planning. Debt includes your high-interest credit cards, personal loans, and other loans that can make you feel like you have more money to spend. Though availing of credit is not bad if you put it to rational use and manage it well without it having an impact on your savings and investments for the future.
- Assess your risk and invest wisely
It is important to assess your risk-taking ability and be aware of your risk profile before you go ahead and choose the investment products. Choose the investment options based on your risk-taking ability, return expected to reach the investment objective, and the investment time horizon. For example, if you are saving for an emergency fund, a fixed deposit or liquid fund could be an ideal choice. If you are saving for retirement, a systematic investment plan (investing in equity mutual fund) or into direct equity is an ideal choice. Investing wisely and building the right investment portfolio also means diversifying your investments to manage risk to maximize return. More than anything, start investing early to get the benefit of the compounding effect to grow wealth over the long term.
- Monitor and review
Monitoring your investments and reviewing your existing investments to make changes and look for new investment opportunities is an important part of the financial planning process. As financial planning is a continuous process, constant monitoring of your portfolio and review to reap the maximum benefits out of your investments is extremely important.
- Seek the help of advisors
Financial planning can be a challenging task for beginners. You can seek the help of investment advisors who can make a comprehensive financial plan for you and extend complete support to have a smooth financial journey towards future financial independence. A good advisor could also be your coach to higher financial literacy.
Have a solid financial plan that can help you manage and grow your wealth. A comprehensive financial plan acts as life-long support for an investor to help lead a healthy financial life. Plan effectively and follow through to achieve financial freedom.
Disclaimer
This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances.
