Things to keep in mind before making your financial plan

  • July 2, 2021
Life throws a lot at you sometimes. However, there’s no denying that even a modicum of financial stability goes a long way towards assuaging some of those woes. That’s why it’s imperative to have a financial plan at the ready. It will allow you to sleep at night with the knowledge that come what may, at least financially, you have a strategy for most situations.   Whether you're on the verge of entering the working life or a grizzled veteran of the rat race, a sound financial plan is something you should not skimp on.   It’s important to assess your cash inflows and outflows, and know where to invest your money. Not all of us are cut from the same cloth. Knowing how to manage your funds according to your needs is important.  

Why should I bother with a financial plan?

There are innumerable reasons behind it but here are what we think are some of the primary benefits of having a well thought-out financial plan in your arsenal. Helps you to maintain an optimum balance between income and expenses   Aids in you manage your cash flows and cut down on any unnecessary expenditures   Helps you avert any potential tax liability   Helps you pick the best investment and earn the highest possible return    Facilitates better wealth management   Secures retirement life financially   Solidifies insurance planning to ensure the needs of dependents are adequately taken care of  

Where do I start with a financial plan?

Before you go about formulating your financial plan, you need to get a firm grasp over where you stand financially. This means taking a good hard look at your cash inflow and outflow on a monthly and yearly basis.   Leave out any one-time expenditure such as expenses incurred during an emergency, as these do not reflect the norm. Focus on the essentials, such as income, rent, insurance payments, groceries, travel, among other things.   This will leave you with a good idea of your net disposable income that you can put towards investments.    Next, take stock of all your assets, by valuating any land or property you may own, gold, and existing investments such as fixed deposits and mutual funds. Experts recommend subtracting the value of your residence and gold, in order to obtain a more realistic picture.  

Ok, now how to make a financial plan?

What are your goals?   First off, pinpoint and prioritize your life goals. Then figure out the kind of funds you'll need to cover the financial component of those goals. Say you're looking to own your own home at some point. You'll need to be cognizant of the fact the price could be signficantly higher by the time you get around to it.   Are you well covered?   Before you veer towards any sort of investment, first you have to ensure that you and your family are adequately covered for medical insurance. If you have dependents, ensure they have the necessary term life insurance coverage   Invest as per your needs   One-size-fits-all may apply to particular things but certainly not when it comes to investments. In the same way that an off-road vehicle is better suited to rocky terrain than a sleek sedan, certain investment types are more appropriate for the kind of goals you have. So balance the risk against reward, the rate of return, liquidity and other factors that pertain to you.   Once you're sure, don't veer   After careful consideration, you've finally put together a financial plan. Congratulations. But now comes the hard part; maintaining the discipline to avoid drastic changes to that plan.   Stay ahead of taxes   Always aim for optimal tax savings under the income tax laws of the land. Don't pay unnecessary taxes by investing in inefficient schemes. At the same time, don’t run only after schemes that offer the best tax benefits.   Keep track and consolidate   Savings accounts, credit cards, lockers, debit cards, demat accounts that you don't use anymore should be done away with. Don't hold on to them since many of them have certain criteria such as minimum balance or auto-renewal which could end up costing you unnecessarily.   Keeping debt in check   Always keep tabs on your existing loans and try to clear your debts at the earliest. After all, it doesn't make sense if your total return on investments are being far outpaced by repaying loans at a high interest rate.   Taking stock   Even when you have checked all the boxes when it comes to putting together your financial plan, you need to ensure it keeps humming along nicely. Timely reviews and subsequent action, if any, will ensure that the performance of your financial instruments are running in line with your long-term goals.   Whether you’re a college student or a young professional, mPokket is the right instant personal loan app for you to help you manage your finances well. Simply download the loan app for students and salaried professionals. Register by uploading a handful of documents and get approved. Now borrow instant loan online up to Rs. 20,000. We credit the money straight to your bank or Paytm account.
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