5 Golden Rules For Financial Planning | Tata AIA Blog (2024)

We spend most of our lives working our jobs to fulfil our desires and ensure our loved ones' financial protection. However, just like the stock market, our world is an unpredictable place, and it isn't possible to predict what lies in our future. Along with this, our daily expenditures and expensive lifestyles may be costing us quite a lot. Therefore, to ensure you have the ability to face any devastating events and plan for your and your family's financial future, individuals must adopt financial planning.

Financial planning is a process through which individuals can meet their life goals. Following thesteps for financial planningwill help you when you go through life. At its core, thefinancial planning process and stepswill help you take control of your life financially. There are a few basic yet effectivefinancial planning tipsthat individuals must follow for decent financial planning.

5 EffectiveTips for Financial Planning:

1. Create a plan and manage your funds:
   

   Managing your funds is one of the most critical steps to attaining financial freedom. It's not a complex concept, and you do not need a financial background to benefit from it. With a little commitment, you can manage it well. Taking the first step of beginning your savings is optimal for excellent money management. It can be a powerful tool required for financial independence.
   

   Along with managing your funds, you must also build a financial plan. When you build a plan, you will have a clear picture of your financial end goal. This will help you make steps towards reaching the goal. Your financial plan will function as a roadmap for your financial journey. A foolproof financial plan will help the individual get back on track even if they face some hiccups on the way.
   

   Building a plan can be strenuous, as it involves every aspect of an individual's life, but necessary. Combine the two, and you can save your funds systematically and achieve all of your financial objectives. You can also add a life insurance plan to your portfolio, preferably when you just start off with additional financial responsibilities. This will help you obtain life cover protection for your family and secure their future. In uncertain times, they will be able to sustain themselves and attain their financial goals even if you are not around.
   

   You must save at least around 10% of your income every month. Holding the funds and investing them in liquid funds will help you. Liquid funds are a type of debt mutual fund that invests money in fixed income instruments like FDs, paper, deposit certificate, etc.
   

2. Regulate your expenses
   

   If you're entirely dependent on your monthly income and cannot save up through the income, there's a chance you may be living beyond your means. You may not be properly planning your expenses. Following this routine may leave you with no money for the requirements. However, there's a way out of this. You can try budgeting. Once you have a budget, you will not be able to control your cash flow.
   

   A budget will illustrate how much funds you get in a month and how they are spent. You can begin by separating your expenses into variable/fixed, urgent/non-urgent, necessity/luxury and unavoidable/avoidable. This way, you can create an inventory of your expenses. You can build a hierarchy of needs and decide which ones you want to work on. Budgeting can help you understand how to utilise your monthly limited resources judiciously. Individuals should learn about the concept of budgeting young in their lives.
   

   There are a plethora of applications available these days that help individuals budget well. If you wish to refrain from overspending, you can also list the monthly expenses and stick to them. Committing to your budget can be of immense help to you.
   

   Yet another way to regulate your monthly expenses would be to get a life insurance savings plan. With such a policy, not only do you get to set aside a fixed amount of money each month, but you also make a provision for your family’s future financial needs. Savings insurance plans are flexible, and by the end of the policy tenure, you can save any amount of money you need for yourself and your family’s goals without inflation affecting your savings.
   

3. Personal balance sheet
   

   Holding a personal balance sheet will help you understand what you owe and what you own. In the personal balance sheet, you will have to list your liabilities and assets. The difference between your liabilities and assets will show you your personal net worth. Before beginning, you must gather your bank statements and other liability proofs.
   

   Once this is done, list down your assets, including your bank balance, home value, all investments, and other assets' value in the balance sheet. After this, list your liabilities like your outstanding loan obligations, card bills and remaining balances in other loans. Life insurance, in some way, is also an investment for yourself and your family. If you are keeping an account of your assets, do the same with your life insurance policy as well. This will help you understand if all your premiums are being paid on time so that you and your loved ones can enjoy uninterrupted life insurance coverage.
   

   The sum of all liabilities will provide you with the amount you owe. When you subtract the value of your liabilities from your assets, you will get your net worth. Your net worth will need to be positive, which means the money you own is higher than what you owe. As you maintain your loan repayments, your net worth will keep increasing.
   

4. Handling extra funds:
   

   Your ability to deal with extra funds will play an essential role in what your future looks like. When you are squandering your funds without a plan in hand, you will drop down the spiral of overspending. Many individuals who overspend have the revelation about saving very late in life.
   

   You can stay two steps ahead by using the extra funds to better prepare for your future. Along with this, due to inflation, the cost of everything around us will keep getting high with every passing year. If you don't invest, your funds will not grow to take care of the inflation gap. Investing your funds accordingly will also help you stay ahead of inflation. You can use the invested funds to build your wealth and accomplish your life long dreams with it. However, they may be profitable only if you start early.
   

   With additional funds, you can plan to purchase a life insurance policy if you do not already have one. In fact, to ensure that you do not waste any surplus funds, pay regular premiums for your policy. While the policy is active and when it matures, you can receive the benefit of life protection and savings, respectively. These funds will ultimately benefit you in the long run. Even in the event of your death, your life insurance can secure your family and ensure that they do not have to worry about their financial needs at all.
   

5. Build an investment portfolio
   

   It is evident from the point above that investment plans are extremely crucial for building wealth. One of the efficient ways of investing is by building a decent investment portfolio. Building a portfolio involves allocating your funds among different asset classes like debt, cash and equity. This is known as asset allocation. You must learn about the different assets and what type of returns they offer. It is advised investors must diversify their investments since it reduces the chances of facing risks. It is always better to be a long-term investor to build a bigger corpus. Your investment corpus should be around 10-15 years. After you have built your portfolio, you must learn how to rebalance it regularly as well. Since the stock market is unpredictable and a volatile place and market fluctuations are a common thing.
   

6. Develop a life insurance portfolio
   

   All the financial plans and strategies will remain incomplete if you do not have an effective life insurance plan in place. While you may create an extensive financial strategy to provide for your dreams and take care of your family, all of it can fall apart in case of an unfortunate eventuality. So, to ensure that your family is protected and well-provided for even in your absence, it is advisable to opt for a life insurance policy.

   You can choose from a host of life insurance plans:
   

   • Pure protection with term insurance: Get pure life cover, extensive sum assured for the beneficiaries and affordable premium costs with term life insurance plans.

   • Savings-cum-insurance plans for assured returns: Get the dual benefit of life cover along with guaranteed1 returns on the premium paid with life insurance savings plans.

   • Wealth creation with ULIPs: You can get life cover and the ability to invest in market-linked investment solutions with Unit Linked Insurance Plans.

   • Retirement Solutions: Buy guaranteed1 monthly income plans or annuity plans for a secure and stress-free post-retirement life.
     

Summing up

You may have several dreams and goals in your life which you wish to achieve one day. However, to achieve them without facing any issues or hampering your household's financial stability, you must follow the goldenfinancial planning rules.

L&C/Advt/2023/Mar/1112

People Like You Also Read