Financial Planning includes a process that streamlines key financial aspects such as savings, setting goals, making investments right, securing assets, achieving wealth creation, and more. It helps take care of your current and future financial needs.
The earlier you pick financial planning, the better financial standing you will have in the future. It helps you face crisis situations in a better way and also ensures peace of mind later in life.
Also Read: Importance of Financial Planning in India
6 Golden Rules of Financial Planning
Adopting financial planning in day-to-day life is absolutely vital. However, when people decide to manage their finances with financial planning, they don’t know where to begin from.
Read through the 6 golden rules that everyone should stick to managing their money.
Related Reading: Thumb Rules of Financial Planning
Rule 1: Manage Financial Resources
To be financially successful, you don’t need to be born rich. Managing finances requires only a few simple steps. The first step towards money management is to save money that can further be utilized in achieving financial goals.
You may have various financial goals you need to achieve that require you to make savings. To achieve savings regularly, you must create a monthly budget and make expenses within the budget amount.
Managing your savings and expenses becomes an uphill task until you don’t create a budget for it.
It’s advisable to put aside some funds (as savings) from your earnings and meet all your essential expenses from the budget you allocate. It helps you make savings every month that helps meet your future financial obligations.
Rule 2: Identify Financial Goals
Everyone has one or more financial goals in life including children’s education & their marriage, purchasing/ building a home, going on a dream vacation, planning for retirement, and much more.
Get your financial goals enlisted, prioritize them and plan your investments to meet those goals.
Moreover, goals tend to change over time and you should focus first on goals that are more important to you. In your late 20’s or 30’s, goals including children’s education, buying a home are the most important ones. In your 40’s, you would like to meet goals such as retirement planning, marriage of children.
However, focusing only one goal at a time is a wise move, as it causes delay to meeting other long-term goals. Thus, you need to continue saving and investing to meeting all long-term financial goals.
Rule 3: Manage Risks
Several unforeseen circumstances such as sudden illness or accident needs urgent medical attention that trigger medical expenses. In this situation, you need to pay for these expenses from your pocket that will for sure disrupt your financial standing. Here, you can purchase the health insurance that assures financial safety against mammoth medical expenses.
To cover life risks such as loss of income due to death or accidental disability, you can have life insurance. With life insurance products such as term life policy, you can ensure financial security for your family & loved ones.
To protect your assets and protect against uncertainties, you can have insurance products such as motor and home insurance.
It is a must-add component to your financial planning and provides additional protection to your finances.
Rule 4: Estate Planning
Estate planning refers to activities that protects your assets and specifies who will you own your assets, property and investments in your absence. It is a legal document in which you can name your assets and its beneficiaries who will take care of those assets, after you pass away. It focuses on transferring your wealth to successors, charity or any other beneficiary.
You may ask for professional assistance from an estate planning attorney to get things done right.
Rule 5: Investment Planning
The funding of financial goals is a vital aspect in personal financial planning. Investment planning helps choosing the right avenues (depending on specific financial goals) in which you can invest savings to gain expected returns, build wealth and achieve financial goals.
It is advised to build an investment portfolio, considering your goals, amount you can invest, expected returns, and risk-taking ability.
Rule 6: Efficient Tax Planning
The amount you save, earning from investment returns and the corpus you build, all are impacted by the existing tax regime. So, you must evaluate the impact of taxes on the finances or take assistance from a financial advisor, and then pick the suitable saving and investment options.
While choosing investment products, you need to consider the post-tax return and invest your funds with avenues that offer tax benefits. Public provident fund, Sukanaya samriddhi yojana, National savings certificate, and ELSS mutual funds are one of the most popular tax saving investment options in India.
Also Read: Best Income Tax Saving Investments
Financial planning gives you a thorough guidance to help achieve the financial goals. You must follow these six golden rules of financial planning that facilitate to managing your finances. Also, it helps fulfilling your current needs and reaching future financial goals.