How To Make Financial Planning Work For You?

All of us are conscious of the phrase ‘Financial Planning’ but few know how to make effective personal financial planning.

If you want to focus on your financial planning process and to know why is it important for proper financial planning to achieve your personal aim efficiently, you are in the right place at the right time. As your involvement in the process is
important to your successful financial planning.

Some might have frustrations on the result of your financial planning process on achieving your life goals; So in order to achieve your desired personal goals effectively and to avoid some of the common mistakes arising from your Financial Planning process, Just consider the following basic principles of financial plan to make your financial planning work well for you.

Some of the important issues to consider when approaching financial planning are:

1. What are your goals? What do you want to achieve? Define measurable financial goals.

2. Are you realistic in your expectations? Financial Planning is an ongoing process and cannot help to change your situation overnight.

3. Do you understand the Risk & Return involved in Investment? Risk and Return are interrelated.

4. Do you understand the effect of each financial decision? Each financial decision made by you can affect several other areas of your life.

5. Do you periodically review your financial situation? Financial planning is a ever evolving, dynamic process.

6. Are your plan made on time? Do execute your plan on time.

7. Are you waiting to begin your financial planning "later?" Don't delay your financial planning.

Set quantifiable goals

Primary motive of a financial plan is to set specific targets of what you want to achieve and when you want to achieve results. Always be quantitative and measurable wherever possible. For example, Instead of saying you want to buy a “comfortable and decent” house before your retirement, you need to quantify what “comfortable” and “decent” mean so that you’ll know when you’ve achieved your goals. For such case, your goal may be set specifically to buy a 3-room condo resale flat for not more than Rs. 1,00,00,000/- (10 Million), when you turn 40 years old. Always remember to put a realistic monetary value to your desired goal.

Be realistic in your expectations

As you know, any of your current situations cannot be changed overnight, understand that Financial Planning is a lifelong process. So frame a realistic financial Plan which is of a common sense disciplined approach to managing your finances to reach life goals. Expect the unexpected things might happen while remembering that events beyond your control such as inflation, market volatility and interest rate fluctuations will affect your Financial Planning results.

Understand Risk and Return

We understand that there is no free lunch i.e., "No Pain No Gain". Risk and Return are interrelated with each other. Set reasonable objectives because every return / yield you expect has its own risk associated with it. Mostly, They are directly proportionate to each other i.e., High return will have high risk, Low risk will yield less return, Average return will have average risk. Do not expect high yield investments not to have any risk, they usually do. In most cases, it’s better to be safe than feeling sorry.

Understand the effect of each financial decision

Be remembered that all of your financial decisions are inter-related. Each financial decision you plan may affect several other areas of your life plan. For example, an investment decision may have tax consequences that are harmful to your estate plans. or a decision to set aside a regular amount of money for your child’s education / marriage fund may affect when and how you meet your retirement goals.

Periodic re-evaluation of your financial plan

Financial Planning is a dynamic, lifelong and ever evolving process. As you know, any of your situation cannot be changed overnight except the word "CHANGE", Financial Planning is of no escape from this;  Once the financial plan has been implemented under present conditions, it requires a periodic review because your goals may change over the years due to changes in your lifestyle, financial situation and income levels such as an inheritance, marriage, birth or a change of job and increase in income. Reanalyze and re-evaluate your financial plan regularly to ensure that you are staying on track with your long-term goals.

Execute the Plan on time

Speed and timeliness of financial plan execution makes the difference between a millionaire and an average performer with the help of compound interest, rule 72, time value of money and many more.

Start Early in Life

Two of the saddest facts as of today related to financial planning is that 1) majority of people start realizing importance of saving money and financial planning when it is too late; 2) There is a wrong fact that financial planning is particularly for the elderly. But actually, "Plan Early to Retire Early" is the basic motto of Financial Planning. The earlier you start financial planning the better chance you will be in achieving your life's goals. People, who start to save or invest small amounts of money early at a younger age often tend to do better than those who wait until later in life. Developing and following simple, good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to handle emergencies and meet the various changes in your life.

The simplest answer for when to start financial planning? is you should start your financial planning now as It's never too late to start your financial planning… So better don’t delay your financial planning.

Categories: Personal Financial Planning, Principles of Financial Plan, Tutorials