Let me start this blog with a question? Do you dream? I’m sure all of us have dreams some fulfilled, some yet to be fulfilled. How do you hope to accomplish the unfulfilled dreams? These dreams do surely need financial aid in the form of savings. And for that you have to think about your financial future. A survey done by Aviva India reflected that Indians lack the discipline to create robust financial plans to secure their future hence exposing them to uncertainty.
If you don’t have a financial plan, it would be difficult to make your money work for you. Without proper planning and goal, your money in the bank account will yield no results. Here are a few steps to help you build a financial plan.
I. Financial Assessment
You need to know where you stand in terms of your finances. Your current assets, liabilities, savings, and your financial goals. For making a picture, you need to have the frame first. Similarly, for building a financial plan you need to have a fair idea on your current financial situation. You should know important money aspects like your monthly average expenditure, a detailed report on your investments, and your net-worth. Once you have this big picture you can easily define your financial plan.
II. Decide on your Goals
You never go on a road trip without knowing your destination. Then why should you do the same when it comes to your finances? Goals could be either for long term or short term. Long term goals include goals like retirement planning, kid’s education and short-term goals include goals like buying a car, or a home. Sometimes goal classification also depends on your age e.g. if your kid is 15 years old, his graduation goal becomes a short-term goal as it needs to get accomplished in next 3 years. Goals should be SMART in nature.
I. What NEEDS to be done?
Now, you have set your goals which are SMART in nature. What is the next step? You need to know how much money you should save to achieve the goals. For that you need to know how much your savings will earn i.e. the rate of return at which your investments will perform. There are different savings instruments.
Equities – give higher returns over long-term but has volatile nature so you should have the heart to stay invested during market ups and downs.
Debt – gives conservative returns with less risk, but the quantum of investments has to be higher as money invested would be earning less.
Real Estate – a very illiquid investment but gets all the love due to its tangible nature.
Gold – an asset class to be used for diversification in the portfolio, but one shouldn’t have higher allocation.
There is no need for you to choose only one strategy for your investments. You can blend all depending upon your risk profile. And it is good to take conservative projections when it comes to expected returns from your savings for your goals.
II. Balance - Regular savings and expenses
Once we know our goals and the regular savings which are required to be done to achieve those goals, it is the time to do a reality check. Whether we will be able to save? This depends upon our current income and expenditure. If yes, then we should start saving immediately. If NO, we need to relook our goals once again. Questions like – are the goals realistic in nature, can they be achieved on time, should be asked. For non-negotiable goals like retirement or kid’s education – we need to try to reduce our expenditure so as to save for these goals. For negotiable goals like buying a house, or vacation goal, you can either reset the goal, or increase the time-line for the goal. All these changes should be thoroughly discussed with your family members who get affected by the goal and your financial planner.
III. Regular Monitoring and Update
Once your financial plan is running, you should maintain the discipline of sticking to it. You should monitor your plan once a year or if there is any change in your lifestyle – may be a job change, or a salary hike, or even any change in the family structure.
It is also important to relook your investments on regular basis (at-least once in 6 months). Sometimes, the money we have invested isn’t giving the desired return, our risk preferences also change depending upon various factors. So, portfolio re-allocation has to be done on regular intervals otherwise it may lead to unaccomplished goals.
Financial Planning is a life-long process. One just can’t do it once a year and then leave it for the lifetime as it would need corrections, changes, updates just like your life which doesn’t stay the same forever.
Charu Hastir, CFPCM is founder of. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: