Financial Planning For Beginners….

Dr. Viibhor Agarwal

Management of our own money is a must in today’s life as money is something which can help you anyway in times of crisis, health issues, inflation etc. Problem Never comes with a warning. So a person needs to be ready for it and in money is something which is one of your best friends, if you have it people will be your friends too and if not people will find ways to ignore you as they feel that you might ask for monetary help from them. Management of money is not a rocket-science and for managing your funds you need not be from a financial-background. The only thing that you need is to show a bit of commitment.

  • Savings– Saving is the primary step towards management of money. Saving proves to be a powerful tool towards financial planning. Imagine yourself borrowing money from a friend or relative for that urgent visit to the hospital. In case you don’t have any friend or relative available, then you might have to use your credit-card. And you know credit cards are one of the most expensive forms of debt. Imagine repeating this a few more times and you end up finding yourself in a debt-trap even before realizing that.You must be having many financial goals in your to do list like buying a vehicle or the latest smartphone etc. In all these situations, you need to have money. But where will it come from? You need to have savings for that purpose! And my dear friend saving money will help you to avoid falling into debt-traps. You need to ensure that you save 10% of your total income every month. It can be that simple! But do not put it in a piggy-bank. Idle money in a piggy bank never grows. Even the amount in the saving-bank account may not fetch high returns. Instead, you should invest this amount in some liquid funds. The liquid fund is a kind of debt mutual-fund which invests the amount of money in fixed income generating instruments like Fixed Deposits, commercial paper, certificate of deposits etc. around 4% return. Save every month and on a regular basis. See that the magic happens before your eyes!

 

  • Wise Regulation of Expenses :If you are living pay-check to pay-check and find that you are struggling for money even before the month ends, then chances are that you are living a live way beyond your means. You never know when any unplanned situation arrives and you have no money left with you.Spending much might leave you with no money for the time of emergencies. there are a lot of unplanned expenses! These might be leaving you with no money for the necessities. So you need to make a budget before receiving your salary or spending your salary or income. Categories your expenses which are necessary which are avoidable which are at priority etc.

 

  • Maintain Personal Balance-sheet- Maintenance of a personal balance sheet or budget is really important. Having a personal balance-sheet helps to know “what you own” and “what you owe!” It’s a quite powerful tool to take your finances or budget to the next level. It’s basically a rough idea of your assets and your liabilities so that you can jot down what exactly you will be left with at the end of month. It’s a statement wherein you can jot down your assets and liabilities. The difference between your all the assets and liabilities will show your personal Net Worth. Before starting, gather your bank statements and other expenses and jot down your assets like the bank-balance, all the investments, home-value, and value of other assets. Add all the assets to arrive at the total value of your assets. Later list down your liabilities like the car-loan, home-loan, credit-card balances and remaining balances in other loans. The sum of all the liabilities will show the value of the money you owe.

  • Construct Personal Investment Portfolio :Creating your first investment portfolio, is an achievement in itself. After all, it is going to be your first step towards your wealth accumulation. Constructing a portfolio involves distribution of investment among-st different asset classes like equity, debt, and cash. It is also known as asset allocation. Although equity is the best tax efficient & inflation-countering vehicle. However, investing all your money in equity is not a beneficiary move. You need to diversify the sums of money that are to be allocated in each asset class as per your investment planning or goals. It is always wise move to be a long term investor in order to accumulate greater profits. Your investments horizon would ideally be around 10 to 15 years.

 

  • Planning for Retirement:Planning for your retirement has become more important than it was a few decades ago. There are many reasons behind that. Due to the increase in life expectancy, you are going to live longer than your previous generations. Nowadays the expenses of people, the medical problems etc are also increasing. Owing to our hectic lifestyle, you are more into diseases like diabetes, hypertension, high blood pressure and heart attacks. Healthcare costs are increasing with every passing year. Lastly, in absences of a social-security net, you need to have your own funds to tackle all these issues.

 

Conclusion

So we have gone through all the basic points which are needed for financial planning for the beginners as we can not start with a big investment initially but with small savings and controlling day to day unnecessary expenses can bring a change for sure.

Related posts

Leave a Comment