• on 6 Aug 2021
• By growmymoney
• Financial Planning, Investments, Mutual Funds

A perfect Financial Planning for your better future

Financial planning is the most important key to ensure a hassle-free future. Financial planning involves a systematic approach to link the present financial situation to future goals. This is hardly possible to achieve all our future goals without proper financial planning. 

Step by step direction of Financial Planning

Determine your asset: To set up perfect financial planning, you need to determine your present asset. Your financial status should match with the investment schemes. For instance, if you have the ability to invest more than 50 lakh per year, you can manage your investments through Equity Portfolio Management System or equity PMS. If you have the ability to invest 2-5 lakhs per year or less than that, mutual funds might be the best option for you. At first, you need to find out the present values of your home, income from different sources, your car, jewellery, money in the savings accounts, investments, insurance policies, retirement benefits, provident fund, etc. The next step is to determine your total outstanding that may include the existing loan amount and your debts in credit cards. You can determine your present asset in this formula: 

Present Asset = Present value of your assets – Present outstandings

Calculate your present expenses: This is the most important thing to set your financial planning. You have to keep a track record of the flow of all your expenses. You may maintain a diary to keep records of each and every expense. Otherwise, you can sum it up through your bank and credit card statements. There are festive seasons and months having birthdays of your dear ones. Hence, you can not maintain the same flow of your financial expense every month in the same way. The best way is to calculate the expenses of the last twelve months, add at least 10% in the next year thinking of inflation, and then divide it by twelve. 

Restructure your future expenses: Based on the previous year’s balance sheet, you may make a plan for the next year. You have to determine your priorities and it is the most vital thing to set a financial goal. Suppose, you had spent a lot on entertainment in the last year and you need to pay extra money for your child’s education in the upcoming year. Then you can reduce your expenses from things which are not essential for life. We can not cut our expenses for food, house rent, policy premium, education, and health. Hence, we need to set up our priority so that we can manage our expenses with our income keeping a portion intact for investment. Investment is necessary for multiple reasons in our life. They are:

• To manage the expenses in your life for a longer run
• To ensure a better education for children
• To meet our dream of apartment, car, and foreign tour
• To manage the moments of crisis in our life
• To live an easeful life after retirement
• To gain financial freedom
• To manage our investment goal 
• To save tax 

To meet all these requirements in our life, perfect financial planning is highly necessary. It would help you to utilize your surplus money judiciously even after ensuring an uncompromised lifestyle. 

Thinking of perfect planning

Now on the basis of your present financial position, you may invest your money in the following schemes:

Mutual Fund Investment: Mutual fund investment is one of the popular schemes nowadays due to its flexible investment plans and higher return. There are multiple schemes of multiple durations in mutual funds like debt funds, ELSS or tax savings funds, equity funds, hybrid funds, etc. Investors need to know their investment goals and risk appetite before choosing the schemes of mutual funds. Investors can invest a lump sum amount at a time or they can opt for an easy monthly plan through a Systematic Investment Plan (SIP) in a mutual fund scheme. Currently, there are more than 51 SEBI authorized mutual funds working in the Indian market, but you need to read all the schemes before investing because the return of a mutual fund is subject to market risk. If you want to overcome the risk of the market, we have to think of longer-term investments in mutual funds. You can contact an AMFI registered mutual fund distributor for investments and experts’ advice. 

Public Provident Fund: Public Provident Fund (commonly known as PPF) is very popular among middle-class professionals who want a secured return to meet their goals. But it has no risk and similarly less prospect of return in comparison to the mutual funds. One more reason for choosing PPF for investment is its tax benefit under section 80C of income tax. 

Risk management plans: Risk management plans include general insurance, life insurance, term insurance, health insurance that would cover our expenses during times of crisis. Without a proper risk management plan, we may lose all our investments during a crisis in our life. Be sure that you are not taking risk management plans as your primary financial goal, just take those for an emergency. Many of those (like life insurance) have low returns, most of those (like term insurance, medical insurance, and general insurance) have no cash return at all except their benefits during the emergency. So, it is better to have proper risk management plans to cover up our crises. 

Tax management plans: Tax management plans include life insurance, health insurance, PPF, and ELSS schemes of mutual funds that would help us in multifaceted ways. These plans would cover our risk, would give some monetary benefits, and would save our annual tax. 

So, it is very urgent to follow proper financial planning to make the best use of our hard-earned money. Nowadays, managing investments has become so easy because an investor can invest online in almost all the schemes mentioned here. A financial planning agency may properly instruct you to manage your financial matters for meeting your long-cherished dream.