6 Key steps of Financial Planning

Traditionally, all Indians believe in saving some portion of their earnings. Earlier generation used to spend money conservatively & save money for the education, marriage of their children, etc. Majority of them were largely dependent on their pension & children for their life post-retirement. Moreover, earlier generation was content with whatever they had. Over the period of time such dependence of retirement life has changed due to various changes in social values & hence people now want to be self-reliant throughout their life. New generation has lot of aspirations, dreams & desires like overseas vacations, big house, educating their children in premier schools, buying expensive gadgets, frequent shopping, enjoying weekend at unique restaurants & places etc. & many of them want to retire early from their profession & follow their passion. This generation also believes in living for the day & less worried about future till certain period of time, say around the age of 30-35 years. At this age most of the people take their life goals seriously & start investing some portion of money.
Though beliefs & thinking have changed from generation to generation, one thing remains common that everyone is saving their money without identifying specific goals & timeline to achieve the goal. Many people are clueless when I ask them questions like for what you are investing? Why you are investing? So, if we don’t know our goals, we will not be able to know how much amount we need to invest monthly or yearly & in which asset class. Moreover, many people invest money based on opinion given by some friends or colleagues. Hence investment is done without understanding goals, risk & returns of the asset class. Such directionless investments will definitely derail aspiration, dreams & maintaining similar pre-retirement standard after retirement. Hence following key steps can be followed in financial planning to achieve your goals:

  • Identify key goals along with timelines. e.g. For the higher education of elder child i.e. 7 years from now, we need X amount of money in current terms & calculate inflation adjusted amount. (After 7 years we need Rs. 5 lacs per year for 4 years in current terms. Considering 10% inflation in education, we need around 9.75 lacs after 7 years to meet first year of education & every year it will increase with some amount).
  • Prioritize goals as per its importance. Retirement of self should come at higher order to remain self-reliant throughout the life (However priorities may differ for each individual)
  • Understand your risk profile i.e. Low, medium & high. (remember high risk high returns, low risk low returns) However consideration of risk will also depends on age & time to achieve goal.
  • Identify asset classes for investment i.e. Bank FD, listed shares, Mutual funds, Debt funds, Real estate, Gold etc. Understand risk profile & average returns generated by each asset class over the period of time. (Though past returns do not guarantee future returns, we can still expect certain % of returns over long run for few asset classes namely mutual funds)
  • Plan your asset allocation & start investing to realize your dreams.
  • Review your portfolio at defined time interval mostly yearly & adjust asset allocation.

Above 6 steps are basic steps & need some kind of study to understand, plan & execution.
For more understanding & availing free financial Planning services, book your appointment at https://leofinworld.com/ to realize your dreams.
It’s possible with a little planning.

One Comment

  1. Pranav Malandkar


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