1. Set your short term and long term goals
Undoubtedly, the first step in financial planning is to determine your immediate and long-term goals. This will give investors a clear view on how to make investment plans. For example, if you have long term goals like retirement planning and aggressive risk taking ability then you can invest in a retirement fund which is equity oriented. But equity funds are volatile for short term investments and if you have any short term goals then you can look for relevant debt schemes that have the potential to help you achieve those goals.
2. Track Your Expenses
If you have a habit of spending more than your savings, then it has to be stopped. If you want to achieve financial success in the future, you can start by spending less in the present. Be it a small item or a big purchase, make sure you write everything down and keep a close track of your monthly expenses. This will give you a clear understanding of where your money is going and whether there is any way to reduce these expenses. If you have a habit of going to restaurants frequently, you can stop it. Or if you use a private vehicle to travel everywhere, you can reduce your expenses by opting for public transportation instead. If possible use an expense tracker app so that you have a clear idea of ​​whether your expenses are exceeding your income.
3. Save so you can invest
The most important thing in financial planning is not just managing your expenses, but also saving money well so that you can allocate a part of this savings for investment. The problem is that most people follow this formula: Income – Expenses = Savings. However, this formula is not a valid formula at all, especially if you want to be financially stable in the long run. Instead of spending first and saving what’s left, investors should go the other way. The formula should be the following: Income – Savings = Expenses. Yes, you should first decide how much you want to save monthly and keep that money aside and then spend what is left.
4. Always be debt free
Remember that a credit card may seem like a savior at the end of the month, but it’s actually eating away at your savings. If you have any unpaid credit card bills, please pay them first. Also, if you have any loans or you have any personal loans, get rid of all of them. Because if you want to build a good corpus through effective financial planning, then you cannot take any loan.
5. Build an Emergency Fund
You may be in good health now and so may all your close ones. But emergencies are unpredictable and you never know when a time will come when you may need money urgently. If you do not have an emergency fund, you may have to break your investments. If you don’t want to fail at financial planning, make sure you build an emergency fund. You can use liquid funds to create an emergency fund so that your investments remain unaffected in case of an emergency.
6. Build a fund for unbridled expenses
Now we understand as young individuals, there are going to be moments where you indulge in weekend parties or going out with friends and colleagues. Keeping these expenses in mind, investors should keep 10 per cent of their income in reserve for such unbridled expenses. This way, they will not need to touch their investments and can use the money from this fund to buy the products or services they desire.
7. Invest in Tax Saving Scheme
This is something that young investors often ignore until they realize that they should have done it much earlier. Tax deductions also increase along with your salary. If you have not invested in the right tax saving scheme, then you will have to bear the brunt of it in future. Besides, why would you want the government to take your hard earned money when you can invest it and earn some capital gains out of it? Tax saver funds like ELSS allow individuals to invest up to Rs. 1.5 lakh per financial year and claim tax deduction for the same. However, since this is an equity oriented scheme, investors should determine their risk appetite before investing
ELSS
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Remember to keep these tips in mind when creating a financial plan. Financial planning is essential if you want to build wealth over the long term and should not be taken lightly.
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