The financial lives of every individual has become complex as there are multiple sources of income and a number of expenses. Such scenario calls for the need to keep the finances in order so as to avoid challenges in future. Every individual has a unique set of financial goals and challenges, which needs customized personal financial planning.
Here are some basic principles to be kept in mind while doing Financial Planning.
A vacation or a holiday with family, a regular family gathering/event should be considered as top priority while making a Financial Plan. To make things happen and achieve overall goals, one must be self-satisfied and happy.
People save money and if it is not invested in the right instrument but kept as it is in a locker then probably it will amount to zero savings over a period of time. Thus, it is important to invest money that gives higher returns on those savings, which will help money grow over the years. Higher the risk, better are the returns but such instruments should be selected based on a person’s risk taking ability.
Since every asset class has its own advantages and disadvantages, it is recommended to distribute the surplus to be invested across different asset classes like Mutual Funds, Fixed Deposits, Gold, Bonds, etc. as per the individual’s requirements.
Do not underestimate the impact of Inflation. To consider the impact just look a decade in past and consider the value of common purchases like Gold, Real Estate, 2 Wheelers, Electronic Appliances, etc. and compare it with present cost. Inflation is a slow but steady monster which eats away your value of money over time, so one should always consider Inflation as an integral part of Financial Planning.
Financial Planning is all about planning and implementing about future events which is unpredictable. Hence, an individual should prepare himself to meet any adversity or emergency that he might face at a future point of time.
Avoid getting caught up in purchasing of unplanned investments as there will be professionals who could mislead you just to earn their commissions. Like I said earlier, it is recommended to have your own set of research and information ready to prevent incorrect buying or unplanned Investments.
Savings should be considered as a part of Overall Fixed Expense per month and the other variable expenses should be planned accordingly to the surplus remaining. This will go a long way in creating a systematic and robust Portfolio and help in achieving all the Goals over a period of time.
Saving and Investing should become a habit and not a once in a while event, hence a constant monitoring and investing is the basic requirement of Financial Planning.