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8 Questions in Financial Planning Simplified

Do you consider yourself financially literate? Are you aware of the financial terms and assets offered from various banks and financial institutions? Although, the task of planning your finances seems formidable at first, this task is not entirely difficult with the variety of financial strategies available. Planning your financial strategy at the outset of your career is the best way to begin. Yet, it’s never too late to plan your finances well. Whatever be your financial aptitude, here are a few of the questions that help simplify your financial planning:

1. How does one plan goals? To reach at any stage in our lives, there has been some amount of planning involved. In order to crystalize our future based on our dreams and wishes, we need to plan our goals based on the following processes.


• Visualizing goals and ranking them
: Goals need to be identified and then ranked based upon priority given to each of them.

• Attaching value with each goal: Our goals need to have some significance in our future. They need to be planned based upon the value given to them and their applicability in the future.
• Emergencies need to be planned: We must take into account unforeseen financial emergencies that may occur. Allocate funds to help you recover well. The life-cycle of each person is different from the rest and it needs to be planned in a unique way. There are certain broad categories that need to be taken into consideration before you begin your planning. Goals should be further divided based on you the basic needs of our life. Goals are time-bound based upon health, lifestyle, education, residences, marriage, retirement etc.

• Short-term objectives: We visualize some of our goals for our immediate needs. These include meeting our own needs such as immediate medical emergencies, daily expenditures and other bill payments.

• Medium-term objectives: Some goals are important in the near-future. These expenses include vacations, renovation plans, and home appliances etc. that feature within our medium term goals.
• Long-term objectives: Educational plans, marriage, retirement planning and other long-term objectives are also important to be planned.

2. How does one plan investments?
Before you decide to plan your investments, it is imperative that you divide your monthly income (single or double) into various categories. Dividing your income into savings, expenditure and investments will give you a clearer idea of where your money is going. Here are a few questions that can help you with your division:

• Ask yourself in which demographic you fall into, depending upon your age, monthly income and number of dependents, daily expenditures etc.

• Ask yourself what is the level of risk you are willing to take. This will give you a clearer idea about your risk appetite for diverse investments.
• One should also consider if there is enough time to divulge on monitoring investments.
• Judge your need for investments and their ultimate purpose in your lifecycle. If you are a risk-taker, then investing in high-risk investments promises high returns during a good spell in the stock market. Yet, one needs to constantly monitor the trends of the market before judging the right time of investment. Conversely, investing in low-risk assets usually promises low returns on a regular basis. It depends on your appetite for risk and whether you like being a risk-averse person or being a risk-taker.


3. How does one manage risk?

Do you believe that insurance is the best way to manage risk? In today’s world, if you intend to manage your future risks, you need to take insurance that will take care of any eventuality in the future such as accidents, critical illnesses or even in the case of an untimely death. One can consider taking a loan on the insurance. These are the following steps that you need to consider while taking insurance:

• Judge the number of dependents and the impact on them in the event of your sudden demise or an untimely accident that leaves you paralyzed making it impossible to earn.

• Insurance against your home will make it possible for your dependents to retain the roof over their heads in case of your sudden demise.
• Insurance will also make it possible for you to undertake large medical expenses in case of critical illnesses or terminal diseases. Start paying the premiums for your insurance policy at an early age, so that you do not have to pay higher premiums as you grow older.

4. Is it possible to plan for your retirement?

Don’t wait too long to plan for your retirement. It is always ideal to look at the options available such as pension plans, provident, gratuity or superannuation plans. There are several pension schemes such as national pension scheme (NPS) or public provident funds (PPF). Planning for retirement can start at an early age with equity investments which will help you build a serious amount of capital for retirement. If you envision a similar lifestyle that you are living for the future, it may be ideal to begin investing for your retirement so you do not succumb to the ever-rising inflationary trends.


5. How does one begin with a financial plan?
Making a financial plan is not as hard as it seems. It would be advisable to begin with the list of cash flows to help you strategize your investments.


• A statement of your current and projected cash flows
will help you project your liquid assets. You will even need to add a component for emergencies.

• Create a planned budget based on the information at hand. Keep a record of the one-time as well as daily small time expenses. This will give you an idea of your financial health. With a budget you will understand the following:
• A breakdown of your expenses
• Regulating your expenses with possibilities of cutting down on expenses.
• Ideas about expenses and savings
• Plan your finances before you begin undertaking any loans.
Assess your financial outgo in terms of EMIs or making any huge repayments.

6. How to plan for taxation on income?
Investment options that help you save on taxes are the best way to begin with you tax planning.

• Capitalize on your investments at an early stage in order for you to reap the interests in each year.

• Plan your cash flows according to the taxable income. Deduct the amount of taxes from all your income sources in order for you to judge your disposable income at the end of the year.
• Study the amount of tax deductions that you are eligible for in case you want to minimize your tax burden.

7. Is it important to review your financial plan?
Financial planning is simply a finer way of allocating your funds to achieve your goals. As our life changes, our goals also change with events such as marriage and the birth of our children. Assess your financial situation with every new event to make way for future goals. Finances should be reviewed ideally every six months to a year based upon circumstances that affect:

• Your Risk aptitude for the future • Your allocation of assets

• Your insurance necessities.

8. How important is planning your estates?

The final planning of your finances may not seem very important to you, but it would be essential for your dependents. Here’s what you should do for planning your estates:

• List out your assets

• In order to avoid disputes in the future, study the laws and regulations for bestowing assets onto your dependents.
• Get your family or friends involved while creating a will to avoid any disputes in the future. Hand-over your will to a lawyer or a trust-worthy family member to enforce it when needed. Your hand-earned wealth should be planned well so that your family members and friends are financial secure.

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Author Bio:

It’s All About Money is a leading personal finance blog in India which provides simple practical information about money, banking and managing finances. Its All About Money tries to answer the what, why and how about money and everything around it.