Finance

10 Steps to Set Financial Planning for Your Future

Finances are important to complete monetary expenses at present and in the future. It is also necessary for the accomplishment of several important events in life. So establishing financial goals during your 30s can help you prepare well for your autumn years.

But the limited source of income and countless expenses generate the need for financial planning, as it allows you to have an organized way to maintain savings and expenditure. So, here are some major financial goals for proper Financial Planning

10 Steps to Set Financial Planning for Your Future

1. Determine Your Financial Condition

You might be a salaried individual, an expert, or a businessman, check your current financial condition. This is the first and important step out of six steps in the financial planning process.

It is important that you should ask yourself where are you now? Do you have enough investment and funds to back your desired goals? Is it true that you are ready to deal with your home loans and personal loans? Is your pay enough to achieve your own financial aspirations? You should be honest and have correct data with you about your financial situation.

2. Budgeting and Savings

For effective budgeting, most financial experts recommend using the 50-30-20 rule. The 50-30-20 rule is the simplest way of planning your budget, where your expenses are divided based on requirements. According to this, 50% of your expenses must be spent on needs, 30% on wants, and the remaining 20% must go into savings.

However, in your 30s, the rule comes with some significant amendments to save more and spend less. This does not mean cutting down on personal expenses completely, but adjusting the proportions by increasing the savings from 20% to about 30% can work.

3. Save for retirement

Delayed gratification remains an elusive concept for some Americans. “Everything around us is a push to buy, a push to consume,’’ Annamaria Lusardi, a distinguished professor at George Washington University School of Business said. “We need to make a saving – particularly retirement saving – as exciting as consumption.

And it is exciting when you consider it gives us the capacity to reach our long-term dreams. People just need to see it that way.’’ Set aside cash each month to grow your retirement portfolio. You’ll thank yourself later.

4. Expenditure Control

In today’s day and age, when everything is available at your finger steps, people don’t realize how vastly their spending capacity has increased. The use of mobile apps and mobile-based payments have made it easier for consumers to get things done quickly, and that has changed the way a transaction is perceived now in comparison to earlier.

Preferring food delivery overcooking, multiple streaming platform subscriptions, etc are now opted more by the millennial generation. This in turn has given rise to a lot of expenditure that is non-necessary and can be avoided very easily. Expenditure control can help increase savings and allow more assets to be invested, as the more you save, the more you can invest.

5. Build an emergency fund

Experts suggest saving as much as six months’ salary and setting that money aside in a safe place, like an FDIC-insured savings account. The particulars of an emergency fund (aka safety net or opportunity fund) may vary with the individual or family.

For example, if I own my home outright (no mortgage), grow my own food, and live within walking distance of neighborhood amenities, then I may need less than someone with a large mortgage and car loans. There’s nothing right or wrong about either scenario, but one will demand more cash if I experienced a sudden loss of income.

I periodically evaluate my circumstances, determine how much to hold in cash, and then set that dollar amount as a financial goal.

6. Create Long-Term Fixed Deposits

When it comes to investment, the fixed deposit is the safest and most potent way to invest your precious and hard-earned money as compared to all the other volatile and risky investment options.

After you have paid all your existing dues, be it a car loan or a student loan, or credit card debt, creating long-term fixed deposits is the way to go. This will ensure the safe compounding of your money and give you reasonable reaps.

7. Save money for my children’s education

I didn’t save as much as I would have liked, but I did save some money for my children’s education. When the time has come to pay these expenses, I’m happy to draw from these accounts to cover any shortfalls between my discretionary income and tuition bills.

Fortunately, striving toward these goals all work together. If I have an emergency fund, for example, then I’ll be less likely to put a major bill on a credit card and pay high-interest rates on the balance for several months or years. If I’ve eliminated debt, then I’ll have discretionary income to save for my retirement and my children’s education.

Now, I could and probably should have financial goals in addition to this list. For example, I may want to save and invest enough to launch a business, leave a legacy or enjoy a hobby to its fullest. But having these basic goals – saving for an emergency, eliminating debt, saving for retirement, protecting my family, and saving for my children’s future – has helped me establish the foundation for fulfilling future and ever-changing dreams.

8. Always Identify Your Plan B

I trust a few activities like adapting saving techniques, strengthening your relationship with your funds, living a positive life, and keeping inspirational others are the ways in which you can accomplish your financial goals.

But it is always advisable that when you prepare your Plan-A as your action item to achieve your goals at the same time you should be ready with Plan-B. This is one of the important steps out of six steps in the financial planning process which should be your mitigation plan for all your actions.

9. Allocate Funds for Emergencies

Life is full of uncertainties, and a financial crunch can be major trouble in such situations. Especially as you enter your 30s, you need to prepare for unprecedented circumstances. You might need more medical cover, or you need to fund your child’s college education, etc. Here, building an emergency fund is one of the most important financial goals to master in your 30s.

Let us say Animesh was a healthy man, but just before his 50s, Animesh succumbed to a critical illness. It was difficult for the family to cope, as Animesh was the sole earner. Fortunately, Animesh had set aside an emergency fund that was enough to sustain his family for a while.

An emergency fund can be created using any income instrument such as mutual funds, insurance policies, and investment in stocks and shares. It helps you create a financial cushion for yourself and your loved ones.

10. Review your Financial Plan Periodically

As you go ahead and actually execute your financial plan, you should re-examine your plan at regular intervals as a checkpoint towards accomplishing your life goals. It is advisable that if you have long-term goals then you should divide your goals into small-small milestones.

With this, you will be able to keep track of your progress by re-visiting it periodically. For example, You want to invest in the best mid-cap mutual funds with the goal of earning a minimum 50% return on investment for 5 years. Then you break this goal into year-on-year milestones to keep checking the progress on your milestones periodically.

Leave a Reply

Your email address will not be published.

Back to top button