On a Sunday afternoon, Sameer Nayak was sitting on the couch and pouring over a personal finance magazine. At 25, he was not sure where to begin on financial planning. He was thinking of calling up a friend or was planning to sign up for an investor camp to listen to experts. He was also confused about the large quantity of literature online on financial planning. He had a tough time dealing with this. You need not.
Here are 5 financial planning mantras that will help you achieve your financial goals:
Analyse your situation
Start planning by assessing your current financial state. Step back. Take stock of your income and expenses. Your ability to invest or plan your financial future depends on your current income. You should start saving before you start investing.
When you are young, you have few responsibilities. Starting early can give a significant boost to your financial savings. Years later, you will see the benefit of the power of compounding. The amount that you invest earns interest. You can convert a small investment into a huge sum of money if you keep on reinvesting over the years.
Spend the money left after you budget for your investment. The amount you spent on a recent lavish brunch could have been your first systematic investment plan (SIP). Similarly, you could secure your family’s financial future by using that money to pay a life insurance premium. So, the next time you plan an evening out, think SIP.
Financial planning is not a sporadic activity. It is an on-going process of meeting your financial goals. Have a step-by-step approach. First, invest towards ensuring your security and that of your family. An investment in life or health insurance will serve the purpose. For example, in the case of life insurance, as a general rule, you must buy a life cover that is ten times your income. Once that is done, you can go for investments that will build your wealth. For example, Systematic Investment Plans (SIPs).
Save for the future
Financial planning is not just about meeting short- term financial goals. You must have a long-term perspective too. An accidental advantage of investment is that it encourages savings. Opening a fixed deposit or a public provident fund account can be a good option if you wish you save for an event in the distant future.
Always remember what Bill Gates said – “If you are born poor, it is not your mistake. But, if you die poor, it is your mistake.” While financial planning may look like a difficult task, the process is fairly simple in fact. Understand your needs and invest in a way that ensures your security and stability.
Recently HDFC Life asked India’s various financial experts on their secrets of financial planning and they suggest similar mantras. Check out the video below –