Article written by Sherin Dev; Follow me in Twitter or be a fan in Facebook
Every family, whether rich or ordinary, requires a financial plan. No doubts. There are lots of false assumptions, myths and ignorance in this area. Most of the people wrongly believe that, financial planning is only practicable and desirable for families with high earnings. They believe those families with sizable income can only spare enough funds to create financial planning through investing lot in various investment products. Most of them wrongly believe that, financial planning means only investing and which required high earnings. Ignorance to the real meaning of what a financial plan is, the major culprit to drag back most of the families from creating one to secure their entire family and prevent spending, savings or relying on debts.
I too agree that, one step or area in financial planning process is, investing. Yes, it requires considerable amount of money to invest in various instruments regularly to build wealth for long term. But, what would happen if a family have one bread winner and lead very standard life which means their income is sufficient only for each month’s expenses? Here is the importance of thinking about a financial plan that suitable for such families to all the means. This article tells you how to create a ‘mini financial plan’ that works best for standard families by providing all the benefits of a real financial planning.
Financial planning generally meant financial safety of a family from various emergencies like sudden demise of main earner in a family or costly hospitalization expenses etc. Another goal is to create an emergency fund to meet contingencies. In a Mini Financial Plan, savings and investments occur in the same time and both together work as an emergency fund with high liquidity.Generally, involvement of a highly experienced professional required to create a financial plan for families. But, a Mini Financial Plan can be planned and executed by anyone who have standard intelligence and have capacity to identify the income and financial requirements of family at present and future with or without his presence. Mini financial plan is a simple three step process that anyone can easily create.
First step in a Mini Financial Plan – Safety of Family
First step of a mini financial plan is the planning of family safety. This means safety against any happening contingencies due to the untimely demise of main earner in the family. Insurance is the best option to protect a family from such situations. It is always not possible to subscribe an endowment plan within the reach of everyone. An alternative to this problem is the subscription of a cheap term insurance which required lower premium but high insurance. Paying little premium in each year or half yearly, ensures your family will be protected from the above contingencies.
Second step – Protection against hospitalization charges
This is the second most important element in a Mini Financial Plan. Having a health insurance always ensures protection from highly expensive medical requirements that happen to any of the family members. Subscribing family floater insurance is the best option to fulfill these requirements. This is not only cheapest, but best suitable by protecting each and every member in a family! Such policies generally offer cash less treatments to the policy holders and their family members or immediate reimbursement from the insurer. One should choose right insurer by considering their service quality, reputation and offered facilities.
Third and Final step – Emergency fund creation through savings which also works as investments
Third and final essential elements in a Mini Financial Plan is the creation of emergency fund which also should work as an investment by generating further income time to time. A savings plan can be started by equally contributing little amounts in each month to a or two right investment instruments. Such funds should have high liquidity that generally insurance companies not offering. One of the best way is open a recurring deposit account where you put small amount of money regularly. Alternatively one can buy units of mutual funds or index funds in small tranches through the Systematic Investment Plan (SIP) route or using Dollar Cost Averaging (DSA). This would grow your money over a period of time using the power of compounding! To get more information on financial planning, here is a classic financial planning process chart for you. Have a look. It would provide you exact ideas on the real steps involved in it. If you are the one not yet done a financial plan, why to wait for the same now? You now having all the required information on what a financial planning is and who all can start it. Plan and start it now to get financial prosperity to all in your family.