All of us have dreams that we want to achieve. From buying a car, buying a home, planning higher education for children or planning for retirement. Financial planning is the first step towards realizing your dreams. It helps in identifying your goals and putting a financial value to them.
A well thought out and executed financial plan will help you in ensuring that you have adequate money at the right time to meet your financial goals.
It will provide clarity to your decisions by letting you gauge the benefit and impact of every financial product choice that you make. It allows you to see the overall picture and will give you a sense of security knowing that you are on track to realize your goals.
Steps to develop an effective financial plan
Accurately determine your current finances in terms of income, expenses, asset and liabilities. You must now decide on the financial goals you want to pursue and assign a time-horizon by which you want to achieve each of these goals. Be as specific as you can. Involve your family to make the exercise more comprehensive.
After assigning a time-horizon for each of your goals, determine the savings already available for each of these goals. Include the savings available from other members in your family who are involved in the process of financial planning. Assign the expected rate of return that your existing savings will achieve over the assigned time period. Based on the financial value assigned to every goal, you will now arrive at a gap that needs to be bridged. Determine the additional amount that needs to be set aside regularly to augment the existing savings and achieve the goal/s. Based on this additional amount, you may even need to rationalize some of the goals that you might have set yourself in the beginning.
Develop an action plan to help achieve your goals. Implement the plan diligently and seek professional help where you feel the need.
Review and evaluate the performance of the plan vs. goals. You need to be flexible to adapt to the ever-changing environment around you and optimize your plan and implementation accordingly.
While you may be able to develop and implement the financial plan on your own, it may be a smarter idea to avail the services of a qualified financial planner who will guide you through the planning, implementation and review process.
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