Financial Planning for beginners starts from the day you get your first pay cheque. Good Financial habits always make wealthy and stress free you. In other words it is a better way to manage money. Financial planning is basically a procedure to achieve maximum financial success and Financial freedom in your life.
If applied, these Step by step Financial Planning process can align investments in a better way.
Table of Contents
Top 10 Easy Financial Planning Rules for Beginners
1.Set your goals:
Goal setting is the first step to get financial success in your life. Goals are the lifeline of investments. Saving for Retirement, child education, purchase of assets, wedding of child or your own wedding can be some of your Financial Life goals.
Reaching at a destination is remote if one do not know the destination itself.
Now first, Set your short term, mid term and long term goals. These goals should be realistic in nature. You know well calculated future amount.
If you do not know how to do it than you can take help of a Financial Planner as well.
For example your short term goal can be foreign/domestic vacation, buying a car, your own wedding or child wedding or education whereas
Long term goal may be retirement planning or house purchase or any other goal.
Save before you spend
Align investment dates with that of the salary date and invest before you spend money. This helps you to save better.
Expenses are bound to happen if money is at your side. Basically investing in the beginning of month is a psychologic trick to save better. Otherwise there are good number of chance, that you do not have sufficient amount to invest at the middle or end of month.
Set aside funds for Emergency needs
Set up a liquid emergency fund in a bank FD or bank RD which can cover three to six months’ worth of costs.
As your expenses rise, make sure to keep it updated. Think of your emergency fund as an expense rather than an investment.
Emergency Fund-Why Should You Keep A Separate Emergency Fund
Buy term insurance plan
It is a good practice to buy a term plan. The premium is quite low when you are young.
Buy maximum term till you financial dependent on you. It is best to buy disability rider and accidental benefit rider along with the plan or otherwise buy them as a standalone policy.
Read more about it
What Is Term Plan-Meaning, Risk Cover, Advantages & Details
Buy Health insurance
If you’re single, choose a standalone health insurance plan for 5 lacs as your basic plan and maximise it with a super top-up plan.
Read more about health insurance plans
How To Decide Health Insurance Cover Amount?
Health Insurance-Which Is Better Family Floater Or Individual
How To Increase Health Cover Cost Effective Way
How To Decide Health Insurance Cover Amount?
Set Your investment amount
Next step is to fix your investment amount to achieve your goals. You can follow the 50:30:20 rule for this matter. As per this rule, spend 50% of earnings for your needs, 30% for your wants and 20% for savings.
However, if you can save more than this, even better. Perhaps a single person can also think about saving even more than 50% of their income.
Set up Asset Allocation
What is Asset Allocation?
Set Up your equity to debt ratio and follow it for your present and future investments. One can invest in stocks and equity mutual funds for long term goals and maintain a good allocation in debt investments for any short term needs.
Plan your Retirement
For a young earner Retirement is far away thing and there is no time to think about this phase. But, Start investing for your retirement from your first pay cheque only. Even a small contribution towards this goal will reap better corpus in long run. I and sure, if you adopt this, you will feel proud at some time for your decision.Why Retirement Planning is important?
9 Super Easy Steps To Retirement Planning
Why Is Retirement Planning Important?
How To Plan Retirement Income In India
Best Retirement Pension Plans In India?
Portfolio Review
People invest money but do not review their investment portfolio. But, Portfolio review and regular monitoring of your investments is a MUST. In fact, this is the blood in the veins.
Continue to assess your portfolio at least once a year, and adjust your asset allocation to reflect significant life changes.
Stick to your Plan
Wealth creation is a long term phenomenon. Stick to your asset allocation for the long term. Don’t panic about the short term volatility in equity markets. Stick to your Financial Plan.
Read more Financial Planning -Objective,Features & Importance
Importance Of Financial Planning In Your Life?
Few more tips
- Check nomination in all your investments
- Pay off your loans faster
- Do not mix insurance with investments
- start investment early
- Increase your investments periodically.
- Consider inflation and taxation before investing in a product.
- Do not buy the product until you not understand it.
- Do not follow herd behaviour.
- Do not do panic selling. Instead follow your goal based investment
- Add passive income source to your kitty.
