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How to create a financial plan?

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How to create a financial plan?

Having a financial plan can help you eliminate your debt, make some savings and prepare for a comfortable retirement. However, many people put off creating a financial plan due to the fear of making the wrong choice.Not many of us know that delaying such decisions can prove costly to them. Let’s take health insurance decisions, for instance. The older you are, the greater the cost of annual premiums you will have to pay and the greater the chance of getting a disease that might not be insurable.Developing a personal financial plan will not only enable you to control your financial state, but also enhance your quality of life by reducing money-related uncertainty issues.

Step-by-Step Guide

Budgeting, investing and retirement planning are three major aspects of financial planning. You must work on all three to have a balanced financial plan.While one can always opt for employing a professional financial planner, developing your own financial plan is an absolutely feasible exercise. Creating a financial plan is an emotional and financial investment, but documenting your goals can help you enjoy the overall process. With a plan in place, you can set milestones and celebrate the achievements. Here is a step-by-step guide:

Make a list: Personal financial planning revolves around goals. After all, the goals become the driving force behind your overall plan. Consider what you want your lifestyle to be like in the present, near future and distant future. This way you will be able to include your short-term (within one year), mid-term (between two to five years) and long-term goals (greater than five years from today) in the list. For instance, if your medium-term goal is to buy a car, research the car you are interested in and how much it will cost you. Your goal could be based on how much money you will need for a down payment.

But, what you also need to do is to ensure that these goals are realistic and specific.Seek professional help if needed and take the time to complete the list. If you are computer savvy, start with financial plan worksheet.

List out present assets and liabilities: Develop a list of your current assets (things you own that have value) and liabilities (the values of the things you owe). Assets may include cash or cash equivalents, such as savings accounts, personal property (equity in a home or a car) and invested assets such as stocks, bonds, and pensions. Liabilities might include debts such as car loans, personal loans, home loans, medical debt, credit card debt or educational loans. Calculate your current net worth by totaling your assets and subtracting your total liabilities from this figure. The resulting number is your current net worth, which represents the starting point for your personal financial plan.

Budgeting: Budgeting, one of the main processes of successfully managing your finances, helps you see how and where you can spend your money. This is the backbone of your financial plan. It can provide you with a guideline on how to spend your money, helping you to plan your debt elimination.

Once you know how long you have to save and how much you need to save, you can set a monthly savings goal. See where that goal fits in your budget. If you find that you can’t save as much as your goal requires, look at your spending and make some adjustments. If that doesn’t work out too, add more time to your goal completion date.

Investment Planning: If you want to retire comfortably, it is never too early to begin planning for your investments. There are various financial planning options to choose from. Before choosing an option, take the time to research the alternatives.Along with retirement planning and getting your estate in order, it is always wise to have a suitable Medi-claim policy and generous life insurance to cover any emergencies that could pop up. If you can afford it, disability insurance is always a great idea. At later stages, you can also buy a super top-up policy to expand your health insurance coverage. Moreover, it is imperative to buy a separate health insurance policy even if you are covered under a corporate health insurance. In this way, you can assure to get coverage even if you change your job or after retirement.

Organise your financial records: Track your income and expenditures to know how you spend your money. Create a filing system of bank account statements, your tax returns, insurance policy papers, contracts, rent receipts, wills, deeds, investment plan statements, pay slips, employee benefits statements, mortgages, retirement account statements along with a document that is related to your financial life.

Creating a financial plan is not a rocket science. You just need to put in some time and efforts, and you are all set to go.


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