How to have Sound Financial planning

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Imagine that you are on a cruise without a captain, then how would you survive? Financial planning functions as a captain in real life. It will give a direction to your life. It will help you systematically meet your financial goals. Have you ever charted your personal finance goals? If not, then now is the time. Good financial condition will help you have that dream villa and exotic holiday location a reality. Let us see how.

Core elements of Financial planning

A good financial plan will take care of each major or minor need in life. Not only will it increase your financial stability, but, also covers you from future uncertainties. So, what are the significant components of a great financial plan?

Vision

The first key component for the success of any financial plan is the vision statement. It will help you understand your priorities in life and focus all your energy and efforts on them. What do you want to achieve in life? Think about it and set it as your vision statement and record it on your desktop or laptop for your ready reference.

It identifies the scope of your financial goals in life. It should not be broad-based like, "I want financial security in life." Instead, make it more specific and memorable. "I want to have a net asset worth of Rs.10 crore within the next ten years" is an example. Vision should be short and sweet, memorable, time-bound, personalized, and quantifiable.

Objectives

If vision is something like a dream, then objectives are the action plans to reach it. How will you do it? Divide the mission broadly into two major categories. They are long-term, mid-term, and short-term objectives. Long-term objectives need a longer time frame to achieve. Saving for children's education, their marriage, building a home, retirement funds, and value investments that could reap a gold mine in the future are examples of long-term objectives. 

Mid-term objectives are mostly like paying off loans, debts, marriage settlement, buying property, your dream car, etc. They need a lesser time frame than a long-term investment. Setting an emergency fund, budgeting, starting investments, setting up systematic investment plans, investing in upskilling for career growth, etc., are examples of short-term goals. You have to set a time frame for each of these for better results. Tracking and cross-checking will help identify pitfalls. 

Characteristics of a great financial plan

Simple

It should be simple, memorable, and easy to understand. Using simple words or even conversational language gives it a personal touch.

Liquidity

When you set a budget, this is the first thing that you should consider accommodating. A good financial plan is a waste if it does not give you the room for liquidity to buy what you need in life. So, always keep cash aside for spending, and take care that you will only spend within that boundary. Many-a-times, people think they will invest after spending. But practically, that never works out. You have to save first and spend the money later. Most of you might wonder, is that even possible? It is, with, strong discipline.

Fund Optimisation

A good financial plan will allocate funds appropriately to cover all major or minor needs in life. Always try to tap an additional source of income because if situations like the pandemic arise, you will not find difficulty. Never try to play hero/heroine before kids or spouse by buying them whatever they ask. Think ahead, plan wisely and allocate accordingly.

Adaptability

A good financial plan helps in flexible adaptations. Suppose there is a marriage of a close relative or your friend and you want to contribute. If your financial planning is adaptable, you can tweak it a bit and make the necessary changes.

Uncertainties

A good financial plan usually protects from uncertainties by making an emergency fund to deal with illness or unavoidable catastrophes. 

Conclusion

A good financial plan is like having a bodyguard who protects you from impending attacks. It gives you peace of mind, a healthy appetite, and a focused mind. If you do not start to plan your life financially, you might not fulfill your dreams. Financial literacy is the key to the success of any person out there, big or small. Stay focused, stay invested.

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