Basics Of Financial Planning

For individuals seeking financial security and stability over their lifetime, financial planning is essential. It can seem overwhelming at first, but with the right approach, it can prove to be simple and effective. Moreover, a solid foundation of financial planning laid in the early years of your career can lead you towards becoming a fiscally responsible individual.

Let’s look at the basics of financial planning to help you make informed decisions.

Why is Financial Planning Important?

Financial planning provides a roadmap to achieve various life goals such as homeownership, children’s education, and retirement. Without a plan, managing finances can become chaotic, leading to potential debt or financial insecurity.

How to Execute Financial Planning?

Here are a few steps you could take if you are looking to start your financial planning journey.

1. Assess Your Financial Situation

Take stock of your total income, expenses, liabilities, savings & investments, their returns, and more. This gives you an idea of where you stand and where you can start from.

2. Set Financial Goals

Define your short-term, medium-term, and long-term financial goals. For example, short-term goals could include international travel, whereas long-term goals could be about creating a retirement corpus.

3. Develop a Budget

Create a budget covering your monthly expenses, savings, and investments. It’s essential to allocate a portion of your income towards savings and investments for future growth.

4. Investment and Savings Options

Based on your goals and budget, assess which savings and investment options are appropriate for you. For example, a ULIP could cover your needs for life insurance and market-linked returns. A fixed deposit could help you create and maintain an emergency fund. For creating a retirement corpus, you could consider the right combination of retirement plans such as annuity or pension schemes.

5.  Protecting Assets with Insurance

Considering the right insurance plans – whether it be a life insurance plan based on your financial responsibilities towards your loved ones, or general insurance plans to secure the assets you own – is important.

For any liabilities you may be paying off, getting a level term insurance plan can be helpful. This will allow you to pursue your financial goals without worrying about the future of your loved ones in your absence. A term insurance policy is considered one of the most cost-effective life covers, making it easy to add to your financial portfolio.

6.  Review and Adjust Your Financial Plan

Financial planning is not a one-time activity. As your income, goals, and life circumstances change, revisit your plan and adjust it accordingly. Regularly reviewing your investments, savings, and insurance coverage ensures you stay on track to meet your financial goals.

Financial planning equips you to manage your resources effectively, ensuring your present and future financial needs are met. Whether it’s through a solid life insurance plan or strategic investments, proper financial planning helps you reach your goals while minimising financial risks.

Disclaimers:

Unit Linked Insurance Products are different from the traditional insurance products and are subject to risk factors. The Premium paid in unit-linked life insurance policies are subject to investment risks associated with capital markets and NAVs of the units may go up or down, based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges from your Insurance Agent or the Intermediary or policy document issued by the Insurance Company.

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