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How To Create A Personal Financial Plan

Today, it is imperative to supplement your savings with a sound Investment Strategy which is why financial planning is a must! For many of us, creating a financial plan may seem like a daunting task and leaves us unwilling to even start. However, the truth is – it’s simple as well as beneficial! Its All About Money throws light on 8 easy steps – starting from goal planning, investment planning, risk management, retirement planning, and so on; that will help you create your financial plan from start to finish.

FOLLOW THE STEPS BELOW TO CREATE YOUR OWN PERSONAL FINACIAL PLAN

STEP 1. GOAL PLANNING

• Identify your goals & prioritize them
• Assign a value to each goal
• Save for emergencies

STEP 2. INVESTMENT PLANNING

Make a monthly budget where you divide your income into three parts

• Savings
• Expenditure
• Investment
Your investment plan depends on below factors:

How much risk you can take depending on your demographics such as Age, Income, Number of dependants, etc.

• How much risk you are willing to take
• How much time you can spend on monitoring the investment
• Your purpose for investing

STEP 3. RISK MANAGEMENT (INSURANCE)

There are many allied benefits of getting insured if you plan carefully, such as below:

• Your dependants are secured in case of your sudden demise or in case of an accident that leaves you unable to earn
• You can insure an asset that you have purchased (Your Home) using loan
• In case of hospitalization or critical illness, the cost will be taken care of through insurance

Note: It is advisable to start Insurance planning early, as the premium rates are higher when you are older

STEP 4. RETIREMENT PLANNING

One must start laying foundations for one’s retirement from the start of one’s career. Long term investment options are best suited
Equity Investment helps you build serious wealth over the long term. Besides, the risk in equity investing considerably reduce if one stays invested over a long term.

Other retirement investment options are –
• Pension Plans
• Provident/Gratuity/Superannuation
• Public Provident Fund
• National Pension Scheme

STEP 5. CREATING THE FINANCIAL PLAN

Planning your cash flow: Keeping an account of your current and future cash flow will help you plan your investments, stay liquid and deal with emergencies comfortably

An Organised Budget: The numerous, one-time, small expenses add up to land a giant blow to our financial health.

A budget serves three purposes:
• Gives a detailed itinerary of your expenses
• Shows where you can cut down expenses
• Helps you spend and save wisely
• Regulates your expenses

Loan Management: Managing your loan involves –
• Allocating funds for EMI
• Planning large repayments

STEP 6. TAX PLANNING

• Invest in tax-saving investment options
• Make the investment early to enjoy the interest for the entire year
• Compute your taxable income for planning your cash flows
• Use all possible tax deductions that you are eligible for, in order to minimise your tax burden

Read more on different tax saving schemes in India.

STEP 7. REVIEWING YOUR PLAN

Financial Planning is an ongoing process and you must review your plan regularly, because the circumstances in your life change. Any major changes in your life such as marriage, children, education & job change must be accounted for to consider altered circumstances.

This is because as per your life situation:

• Your risk capacity changes
• Your asset allocation gets altered
• Insurance needs will arise or get altered

Review your plan every six months or annually and monitor your investments regularly to protect yourself against sudden shocks.

STEP 8. ESTATE PLANNING

• Create a list of all your assets
• Get familiarised with the estate devolution rules to avoid disputes later
• Create a Will after discussing it with your family and friends
• Place your Will with someone or somewhere that can be accessed easily by your family

In the end, it is your wealth that you will be giving away, so plan for it wisely and generously.

How to create Financial Plan

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