Financial planning involves mapping out a person’s goals and helping them achieve it while protecting them against any potential risks. It enables you to save, invest, and spend your money in ways that help you achieveyour long-term goals sooner rather than later. With the correct financial planning, you can choose the best investment plan for yourself.
But where does financial planning begin? And what do you need to know to get started? The answer to both questions is surprisingly simple: you just need to clearly understand your personal finances. After all, without a firm grasp of your finances, it will be difficult for you to make informed decisions about planning your future and reaching your goals.
This article will help you get started with the basics of personal finance by explaining everything from why you should plan for your future to how investing can help you reach your goals.
Why is Financial Planning Important?
Planning makes sense for a few different reasons. First and foremost, it’s crucial to ensure you’re on track for your long-term financial goals. Take the current value of your goal and factor inflation to arrive at the amount needed.
Second, planning can help you avoid unnecessary risks. As you grow, your health complications increase which contributes to increased health costs. Thus, it is important to have emergency finds. If you’re not sure how much you should be saving or if you’re concerned that you’re not saving enough, planning can help you make sure you’re contributing enough.
Finally, you can use planning to help decide how and when to invest your money and what the best investment plan for you is. This can help you reach your goals faster while still having a healthy and balanced portfolio.
The first step to starting financial planning is to understand your own financial situation. Once you’ve done so, you can begin to look at your long-term financial goals and see what changes you might need to make to reach them. From there, you can start to map out a plan to help you get where you want to be and determine the best investment plan for your situation.
Why Do You Need Financial Planning?
Before you start, you might want to consider why you’re planning. Does it simply help you decide how much to contribute to a retirement plan? Or how much to contribute to your child’s education? Or do you have other specific financial goals, such as paying off your debt or starting a business? Once you’ve understood why you’re planning, you can start looking at the investment options and decide which is the best investment plan for you.
What Are the Basics of Financial Planning?
- A Clear Knowledge of Your Financial Goals: You can divide your goals into three categories- Short Term (next two years), Medium Term (next 2-5 years), and Long Term (over five years) goals. These goals must be realistic and achievable, so be smart when you are listing them. Based on the goals, different investment products can be ideal. For the short term, mutual funds may be suitable, and in the long term, a Unit Linked Insurance Plan may be beneficial.
- Budgeting: To arrive at the best investment plan, you need to be aware of how much you must invest and how much you are spending. By having a monthly budget in place, the picture can become clearer. You can also see where you might be wasting money and redirect it to other areas in the budget.
- Having a Contingency Reserve: Having a rainy-day fund is wisdom passed down generations, and it is sound advice. Having at least six months’ worth of expense amount put aside can-do wonders for your financial security and let you pass through tough times unscathed.
- Optimum Asset Allocation: Having a balance of risky and non-risky investment options in your portfolio is the ideal way to look at your best investment plan.
- Regular Review: As the situation is ever-changing, it is a good practice to regularly review your financial plan to see if any changes need to be made or if any course correction is needed in your portfolio.
There are a plethora of financial products out there, from fantastic term plans to comprehensive Unit Linked Insurance Plans, that can serve multiple purposes in your financial portfolio. Of course, the best investment plan is the one that lets you achieve your goals while also allowing you to save enough for emergencies.
Insurance companies like Edelweiss Tokio Life Insurance understand the modern need for sound financial planning and varied portfolios. They thus offer lucrative insurance options that can double as investments. A case in point is the Wealth Secure+ Unit Linked Insurance Plan, which is extensive enough to satisfy many purposes. It is a mini-portfolio in itself.
Once you have your best investment plan figured out correctly, visit their website to see which products suit your needs best. Hurry up! Time is money.