Mumbai: To ensure the success of any financial planning, it is essential to focus on both short-term and long-term goals, considering our different needs at various stages of life. Further, practicing prudence at every stage is imperative, as it will provide security and assurance that our goals are being pursued correctly. Starting early, being disciplined and responsible with money is crucial. Below are essential ingredients to consider in financial planning:
Understanding Your Risk Appetite
Understanding your risk profile before investing in different financial products is important. It’s essential to evaluate your willingness and ability to understand suitable products at various stages of life rather than assuming that all debt products are risk-free and yield higher returns or that all equity products are high-risk.
Budgeting
Starting early is critical to wealth creation. Budgeting helps estimate all expenses, including EMIs, rent, utilities, groceries, medical expenses, children’s school fees, etc. This provides an overview of total monthly expenses, and seeking help from a certified financial planner can help manage cash flows and better understand net income versus net expenditure to reach our financial goals.
Emergency Fund
The pandemic has emphasised the importance of maintaining emergency funds for unexpected expenses such as medical emergencies or loss of employment. Financial planners recommend setting aside at least six months’ worth of living expenses in easily accessible and safe assets such as short-term fixed deposits or liquid mutual funds.
Term and Health Insurance
Financial protection is the foundation of your life pyramid and is essential for a secure financial journey. Protect your family with term life insurance against untimely death. Choose a family floater health plan for hospitalisation protection. Remember to view insurance as pure risk coverage, not an investment, aligning with sound financial planning principles.
Asset Allocation
An appropriate asset allocation should follow each financial goal. Diversifying investments across various asset classes, such as equity, debt, and gold, is crucial. Asset allocation affects returns in the long run, and mutual funds provide opportunities for diversification and asset allocation. It’s essential to remain focused, stay invested, and periodically review your portfolio.
Succession Planning
The pandemic has highlighted the importance of succession planning. It is crucial to plan for the transfer of financial assets to heirs in case of unexpected events. This involves ensuring that nominations for bank accounts and investments are correct and consolidating assets and liabilities to get a clear picture of overall net worth.
Financial planning is essential for achieving financial goals and securing your future. It involves budgeting, making informed decisions, and developing a strategic plan to optimise financial resources. Here are crucial parameters one needs to understand for financial planning Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
