A Perfect Beginner’s Guide on How to Plan Your Financial Future

Financial security probably ranks high on your priority list once you begin earning on your own. Not only does it offer you a sense of confidence and self-sufficiency, but also provides you ample headroom to seek alternative career options or to compensate for expenses incurred due to unforeseen circumstances.  Financial security also enables you to enjoy a better quality of life, now that you allocate funds as per your economic goals and expectations. 

Why is financial planning important? 

1. Combating inflation – Perhaps the most crucial reason in this list, inflation should be the primary reason why you should formulate a good plan to grow your wealth. We have all observed growing up how prices of day-to-day items have gradually increased by a fair margin.

So, merely saving money in your bank account will not cut it. You may have many questions. How much does it cost to manage an SMSF? How can I grow my funds? Investing in Mutual funds or the stock market are ways to do so. Do keep in mind that both have associated risks associated with them so pick a scheme that makes the most sense. 

1. Boosting your retirement fund – Saving early and preparing on how to invest for retirement provides you the luxury to retire earlier than you initially planned for. A good retirement capital allows you to take it easy and fulfill the desires you have always dreamt of – Maybe it’s traveling to exotic destinations or building your dream home. Now that you’ve worked hard and earned yourself a leisurely retirement, you may wish to splurge a bit now and then.  
2. Tackling unforeseen expenses – The Coronavirus pandemic has been a glaring example of how quickly unforeseen financial strain may arise – people have lost their jobs; cost of intensive treatment has spiked and shortage in raw materials have caused items to become expensive. 

All of these combined can swiftly drain your savings if you aren’t prepared well enough. Experts advise that a contingency fund worth half a year’s worth of salary should always be kept as a backup. This can be done in the form of a liquid fund – which provides you a better ROI while maintaining the liquidity of a savings account. 

Why should you start thinking about planning your finances? 

1. Helps you save money more effectively – Instead of relying on a rare influx of extra cash to add to your contingency fund, having a financial plan in place allows you to save money consistently. Carefully evaluate your income and expenses and settle on a sum to save up. You will be more determined to cut back on unnecessary expenses to hit your target. 

2. Offers you peace of mind – Most equity plans provide decent gains over a longer period of investment. Therefore, you can allocate a fraction of your savings for the same. This causes steady growth of capital in the long run while also eliminating the need to invest a large sum of money at once. A consistent influx of savings also helps you invest in term insurance policies. What is term life insurance, you ask? It’s essentially a life insurance plan that guarantees a lump sum payment to your family upon your passing irrespective of the completion of all installments for the entire term of the policy – as long as timely installments were paid right up to your demise.   

3. Saving up for your child’s education – Education is absolutely necessary for every child, but good educational services are expensive – Right from preschool to college. You really do not want your children to miss out on the best opportunities due to financial constraints. 

What are the requisites of a good financial management plan? 

1. Start planning early – Financial strength is key to fulfilling your future endeavors, therefore it is better to get a head start by formulating a plan to build your capital right after you graduate and start earning. The initial transition from living off your parents’ allowance to making do with your salary alone is difficult but also rewarding – helps you identify priority expenses, makes you learn to live within your means, and teaches you the value of saving up for the future – however meager your initial amount is.  
2. Fix long and short-term goals – Make sure that you set a time span for their fulfillment and have a rough estimate of the potential expenses.  
3. Choose an investment plan depending on your financial prowess – If you’re young you can probably opt for a high-risk high-gain equity plan as you can make up for potential losses incurred. On the other hand, debt schemes offer less but more consistent ROI over long periods. Maintaining a fair balance in the risk factor earns you the most satisfactory gains.  
4. Take the aid of a good financial advisor if required – With thousands of investment schemes available, it becomes really difficult to narrow it down to one specific plan that’s perfect for you. Feel free to seek advice from an expert.     
5. Careful monitoring of investments – Growth is a dynamic process and one should always consider alternative plans should your current ones underperform. Your goals may change with time so switching over to the most ideal scheme which serves you best is the way to go. 

In conclusion, money makes the world tick and sophisticated management of your finances are absolutely necessary to make the most of your savings and to maintain a decent quality of life.