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What Should You Look For While Doing Your Financial Planning?

Read to know the process, advantages, and stages of personal financial planning to achieve your financial goals.

By RonakPublished 3 years ago 3 min read
Optimo - Free Financial Planner

Personal financial planning is the process of managing your money to achieve personal economic satisfaction.

Let’s look into the advantages of financial planning

• Increased effectiveness in obtaining, using and protecting your financial resources throughout your lifetime

• Increased control of your financial affairs by avoiding excessive debt, bankruptcy and dependence on others for economic security

• Improved personal relationships resulting from well-planned and effectively communicated financial decisions

• A sense of freedom from financial worries obtained by looking to the future, anticipating expenses and achieving your personal economic goals

Before you create your own financial plan know what influences financial goals,

1. Personal values and attitudes towards money

2. Time frame in which you want to achieve your goals

3. Type of financial need that drives your goals

4. Your Life situation

Essentially the financial plan is a 3 step process

1. Budgeting and optimizing expenses (Expenses and Surplus - First, optimize your expenses and calculate your yearly surplus, that’s your savings.)

2. Insurance planning (Life and Health Insurance)

3. Investments (Plan your goals and investments)

Now, why is budgeting income the first step? Because the saving and cutting down unnecessary expenses is the first step to successful financial planning. You cannot plan anything if you don’t save and ultimately invest.

“Don’t spend what’s left after spending, instead spend after you invest or save.” – Warren Buffett

Step 1 – Budget Creation

Get a diary or a page and divide it into Expenses and Expenditure columns with the title “My Income and Expenditure”. Now record all of your earnings in Income column and all expenses in expenditure column. Don’t worry about being too precise as we only want to arrive at an estimate initially. We will get how much you save or expenses one can do without.

This is the most crucial step and you will be surprised at how many people actually do it. Think of your budget as your guide to reaching your financial and personal goals. With your budget in place buildings your savings will be that much easier.

(Let’s say you save Rs. 10,000 and if you put that in a fixed deposit for 10 years with an interest of 8% per annum then you will have a corpus of Rs.17,81,000 at the end of 10 years which is impressive but this income will be taxable)

Stage 2 – Insurance Planning and Emergency Fund

Hospitalization expenses are going through the roof. Maintaining your health is more important than ever so that one does not end up anywhere near a hospital.

A good life and health insurance expense is absolutely mandatory. A term life insurance can provide respite to your family in case of an untimely demise.

At this stage it is important to think of an emergency fund. Building up an emergency fund to help cover unexpected expenses like a sudden medical bill, home or car repair or even a job loss can help you avoid going into debt when life takes a sudden detour. Instead of borrowing money to cover these emergencies you’ll already have the money saved up and this can end up saving you a lot more money in the long run.

Start by building up 3 months expenses a goal.

Stage 3 – Investments and Goal planning

It is imperative for you to understand how to grow your wealth, fixed deposit is not the only option. There are many instruments like mutual funds, equities etc that can get you where you’d like to be.

First is to define your goals and then use the instruments that can get you there.

You can do the above 3 steps or simply get Optimo, a free financial planner from Investica.

Below are the stages in Optimo’s free financial plan

1. Insurance Planning

2. Expense Management & Emergency Fund

3. Asset Analysis

4. Retirement & Goal Planning

As you can see it covers everything that we discussed above, so go ahead try the Optimo and get your financial life in order today.

personal finance

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