Financial planning in its basic form can be termed as “how to manage your money “. With change being the only constant, Finance has transformed itself to great heights. However, many term “financial planning” as very tough, complex concept or that “we cannot manage it” . Financial planning cannot be stressed any more than the fact that “growing your money is more essential than earning it”. Financial planing is not an art or practice. It is an “Art Put Into Practice”. Financial planning is disguised so well in everyone’s daily life that one hardly manages to recognise it.
When a school-going child gets his first pocket-money , he realises the need for saving. He spends only a portion of it in order to save the remaining for something big and special. Furthermore, even the cupboards of every homemaker or wife in general always has more money saved than expected. They all have the intellectual ability to think of savings. Furthermore, from a roadside vendor to the owner of big companies to the earning members of the house, manage their finances in their own style without realising it. There is a big difference between planning and planning effectively. Financial planning for long-term is very essential and needs to be done well in advance and in a particular format or manner. Here is a simple procedure to follow for those who do not know how to effectively manage their finances. If you face cashflow issues, if your money is not growing enough, if you do not have the savings to meet your future endeavours, if you’re not pre-planned , if your always in a state to borrow to meet expenses, do not shy but take the first step to understanding this and going about it to make a difference to you and your family.Use the skills of a housewife, child , vendor along with this effective procedure to make a difference to your life.
1)”Gathering your life”- The first, but basic step is to collect and make a list of all your existing savings and investments. This list should be a reality check of how much you own , where is all this money invested in and how much return are you already earning.You must also keep a list of your monthly spending, your current savings and your investments in financial products.
2)”Set your REALISTIC goals”-Once you’ve got a reality check of what you have, own and possess. It is time to set a goal for yourself. If you think your earning enough and your plans are going well, then the process ends here and you need to just maintain it. However there is no end to hunger. Thus, set goals, but realistic and achievable ,to improve your finances.Deciding the time period to plan your finances is another factor to consider at this point. Eg:I am currently saving 8% of my post tax income at the end of the year,and my wealth is growing by 7%. However, I am unhappy and want to grow to at least 9-10% per year for the next 10 years. Thus, this goal is realistic. Wanting a change to 20% is very un-realistic within one year.
3)”Determine your cashflows”- It is now time to make a list of all your incomes.Your income from pensions, gratuity, yearly salary from doing a job or estimated incomes from business constitute this step. It also includes steady income from investments like fixed income bonds, fixed deposits, recurring deposits or dividend. Making a list of this helps in determining the amount of CASHFLOW we have to grow and achieve the realistic goal we’ve set for ourself.
4)”Become the opportunity seeker”:It is now time to dwell deep into there country’s financial system.Find out all the possible financial products and investment opportunities existing. Make a list of all the forms, products and materials worthy of being invested in. There is no need to shortlist your selection at this point. Just a list of all possible opportunities is the perfect way to go ahead.
5)”Become the decision-maker”:It is now time to evaluate each opportunity accurately. Every investment product has a history attached to it. Obviously no future predictions are precisely accurate. Thus, looking at the past returns, flops, risk , dividend payable, ranking and coupon rate, P/E ratio,Debt-equity ratio, operating ratio etc one can clearly make out the average returns and risk involved . Filter your list by the one’s that interest you and are capable of making a difference to your portfolio. This is very essential to balance your portfolio and to handle your cash flows and time management perfectly.
FUN-FACT:- How does cash flow and time management get affected?
There often comes time when you need a big chunk of money at one time i.e. for your children’s marriage, abroad studies or purchase of an house.During these unavoidable moments, one always needs to be financially planned in order to meet these expenses easily.
On another occasion one has periodical expenses i.e. yearly children fees or medical claims or insurance money, one needs to be financially well planned to meet these expenses on time. Thus, filtering the product based on the risk(so one can get the money without stress),cash flows(one can have available funds at the right time), and the interest or return(to plan future upcoming expenses with the right amount in mind)is very essential.
6)”Fine tuning is very essential”:once you’ve made a list of the potential investment opportunities with your future estimated expenses and in accordance with your income, its time to fine-tune and prepare a strategy for the near future to achieve the goals you’ve set. Match your inflows of cash to the date on which they are available for investment, keeping in mind the maturity date. Every expenses having a back up of investments along with contingency funds for unforeseen expenditures should be well planned in advance.The final strategy should be well tuned with its tax effects and in accordance with the law. Payment of taxes and following the legal procedure is very essential to avoid unnecessary penalties, fraud cases and IT raids.
7)”Wait but don’t forget to watch”:Once the strategy is ready doesn’t mean you have achieved the goal and you can relax for the next X number of years. Keep track of all upcoming opportunities in the market Eg:IPOs, Shares issue, Bonus issue, Rights issue,Mutual fund schemes which may turn out to be more beneficial to you and alter the plan accordingly. If you are not vigilant you might turn out “ahead of the goals, behind the times”. Keep the hardworking, research and efforts going on till the end. The key to planing and growing your money is to execute and maintain your financial position . Growing the money you already have is even harder than even earning it. Keep yourself in a situation where you are never in a problem with your finances .
Eg:It is easy for Virat Kohli to score 30 runs initially but to maintain the momentum and change with the time and situation and score a century is the key to success.
According to Bill Gates “if you are born poor it’s not your mistake but if you die poor its your mistake”.
The following are just common rules or arrangement of finances being done. They are not proven theories of any kind as there is no right way for planning your finances. Every individual in this world faces his/her battles and has his/her way of handling finances.
1)When you are young your expenses are less, you can afford to save up to 10 to 15% of your post tax income . However as you grow older with great responsibility comes a great amount of expenditure thus savings need to be set at around 30-40 % of post taxable income
2)The 50-20-30 Rule-50 per cent of your income should go towards living expenses, i.e., household expenses, including groceries; 20 per cent towards savings for your short, medium, long-term goals; and 30 per cent towards spending, including outing, food and travel.
“Plan manage and implement your finances well”
But don’t forget to :-
“KEEP PEACE WITH THE CURRENT FINANCIAL SITUATION”