Many people find it difficult while taking money decisions.
They like to grow their investments and increase various income sources but they do not have a proper plan. None have told them how to make a proper financial plan.
They do not have a clear idea about Managing their money, expense control, increasing and improving their savings and investments.
Whether you are a Salaried Person, Student or a Proprietor you will get complete knowledge about Financial Planning.
So, in this article you will get the complete guidance about everything related to Expense, Savings and Investment too.
What is a Good Financial Planning?
A good Financial planning helps you determine your short and long-term financial goals and create a balanced plan to meet those goals.
Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.
Eight powerful reasons why a Good Financial Planning is important.
It is possible to manage income more effectively by Financial Planning. Income is the fundamental part of a financial plan. Without income all planning will fail.
When we are imposing a financial planning, we open the doors for new income opportunities by investing our saved money.
A Good Financial Planning helps you to manage income to understand how much money you’ll need for tax payments, regular and uncertain expenses and savings too.
Learn Financial Knowledge
Better financial understanding can be achieved when measurable financial goals are set. The effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle. It also adds up the common sense which should possess by everyone while dealing with money.
Providing a financial safety to our Family is the prime responsibility for a Earning Person in that family. Considering family for Planning Finances is very important part of a Good Financial Planning.
Following financial steps helps our family a lot to face financial uncertainties.
- Having the proper insurance coverage and policies
- Having a good amount of reserves and investments
When these steps kept in place then our family feel financially safe, secured and it will provide a peace of mind for you and your loved ones.
Standard of Living
Everyone want to live longer, better with full of amenities.
If we have enough money in our pocket then only we can satisfy our wants.
For that it needs a Rigid Financial Planning.
Financial Planning creates a basis to track all the Cash Flow which includes incomes and expenses. Because it Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard-earned cash.
The savings created from good planning can prove beneficial in difficult times.
Saving can be done while excess money is coming inside to protect uncertain financial future. And it needs Good Planning.
If we ignore it now then sudden financial changes will throw you off the track. It is good to have some savings with high liquidity.
Apart from Savings Cash Flow also generates a capital and appreciate it for investing into new businesses or Estates. It allows you to consider investments to improve your overall financial well-being.
A proper financial plan shows your personal level of risk bearing capacity, the key objectives and goals. Which helps to find investment sources for highest possible returns. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals. Without duration, risk appetite and goals investment planning can not be done.
A nice ‘cushion’ in the form of assets is desirable. Investment gives the opportunity to create assets. Assets helps us to cover other expenses and hence helps us to maintain our lifestyle.
When the Financial Planning can be done?
Although financial planning has a various outstanding reasons but everything has a time.
When you have water then only you can manage it for using. Whether to drink or to use for Dish/Cloth wash. Similarly, when you do not have any money then it will become worthless to imply Financial Planning.
The structure of a financial planning is as below
According to Investing.com, An expense is the cost of operations that a company incurs to generate revenue. As the popular saying goes, “it costs money to make money.”
There are lot of expenses an Individual have to face. It has categories as below.
- Home – Rental / EMI on Loan, Maintenance of Electricity, Gas, Water, Lift, Security, etc.
- Food & Snacks
- Healthcare – Cosmetics, Medicines, Subscriptions of Gym and Swimming
- Knowledge and Education – Books, Stationary, Novels, Fees, etc.
- Child Education
- Transportation – Vehicle EMIs, Repairs and Maintenance
- Entertainment – Parties or Gifts for Friends and Families, TV, Netflix Subscriptions
- Apparels – Clothing, Accessories, Ornaments, etc.
- Savings and Investment – Savings for Reserves, Investments for SIP
- Insurance Premium
There are various methods which help you to control the expenses and hence improve your savings as well as overall lifestyle.
- Set a shopping limit
- Make a Grocery List before stepping out of your home
- Prepare food at home
- Don’t burn electricity unnecessarily
- Use low consumption electric gadgets
- Buy necessary consumables in bulk like pantry, Toiletry Products, etc.
- Avoid friends group who squander their money unnecessarily.
Read this article for more ideas
In simple words, Savings is the amount kept for various future requirements or to cover any uncertain expense.
Sources of savings is the area for which we save money primarily.
- Uncertainties – Travelling, Medical Expenses, Accident, Expenses after losing Job or loss in Business
- Money to buy a Desired Home
- Money to buy expensive things such as Bike, Car or Ornaments
- Capital to Start a Business
- Appreciating money for Travelling at a New Place
- For buying a new Gadget
There are various purposes like this which can be the reason to save money.
Ways of Saving
The ways of saving means by how many ways we can save our money to meet our requirements.
Saving by SIP. (Best for Salaried Employees)
Like an EMI, you save a fixed amount of money every month after getting a salary.
Salary is a fixed source of income which is certain, regular and fixed in nature. So moving some part for saving is possible.
Saving after Profit (Best for Business Persons)
As compared to Salaried Employees business can not generate regular flow of income which is fixed in nature.
So, it will be impractical when you decide to save money like Salaried Person.
Hence, when you have a business it should drawn from profit account when you draw good profit from it.
In colloquial terms, investing can also mean putting in time or effort – not just money – into something with a long-term benefit, such as an education.
But in Financial Terms, Investing is the act of buying products or securities which act as a Capital to an endeavor (a business, project, real estate, etc.), with the expectation of generating an income or profit.
There are various investment options are available for Investment.
- Equity Stock – Company Shares
- Mutual Funds – Equity, Debt, Hybrid
- NPS – National Pension Scheme
- Bank Fixed Deposit (FD)
- Bonds – Govt, RBI, Corporate (Debentures)
- Precious Commodity – Gold, Silver, Platinum, Diamond
- Real Estate – Plot, Flat, REIT, Inv-IT
References : ET – Top 10 Investment Options
Investment has different goals such as follows,
- Maintain Capital
- Achieve income and Growth
- Retirement Plan
- Marriage for Children
- Higher Education for Children
- Securing Reserves (In less secured like Govt. Bonds / FDs)
Where to Start for a Good Financial Planning?
Step 1 = Income
When you want to live a dream life then grow your income.
Just Run, Run and Run.
You should be internally motivated enough to unleash your potential towards income.
Remember that, No Financial Planning can be done if you don’t have income.
So, try to increase your income by various possible sources.
Here are some reference articles which will help you to know various income sources. Online and Offline both.
- Traditional Business
- Make Money Online
- Get dream job Quickly and Easily
- Freelancing – An Exciting Business
Step 2 = Saving
Once you have a good amount of money as an Income you will have higher possibility to save more.
Ideally experts suggest that at least 10% of your total income should go into savings. But it will be hard if you have less income.
So growing income is very important to save more.
Because Saving is the basis of Investment. Without savings you can’t go for Investing those money.
First change your formula,
From Income – Expense = Saving :: To, Income – Savings = Expense
It is very simple to transform this formula, just do simple things below.
- Firstly calculate your total yearly expenses
- Then Calculate by 12 to find monthly expense
- Now Subtract the amount from Income to find Savings.
i.e. Income – Expense = Savings
- Now you will get some amount which is called your Savings to be done per month.
- So, you are done, every month when you get your salary simply subtract savings amount and transfer it to your another bank account to have a transparency.
- And whatever the money remains that is going to be your expenditure.
- But remember that, do not throw away all that money because that expenditure amount is the average monthly expense.
- Expense is the variable in nature so don’t squander it relentlessly.
Step 3 = Investment
Now, its time to enter into an Important part that is Investment.
If you are young or middle aged you can invest in little bit risky place because it will create higher returns as such.
Experts say that early you invest, early you grow.
So, having an Trading Account as early as possible makes sense.
Here are the sources of Investment you can choose to enter into Investment.
- For REIT, InvIT, Stock Market, Mutual Funds
- For Free Pension
All the best for your Good Financial Planning!!!!!