You should always prioritise your finances right after you enter the workforce and start earning money. Understanding the tenets of financial planning and implementing the right strategy is what will serve you well in this case. Let us look at a few strategies that are worth considering.
Top Strategies for Financial Planning that You Can Use
Here are a few financial planning strategies that may come in handy:
- Contingencies- Sudden situations in life may necessitate unplanned expenditure and financial stress, including medical treatments (not covered by insurance), urgent repairs and breakdowns of vehicles, household needs, job losses, etc. To mitigate the same, you should build a contingency or emergency fund with 3-6 months of your net monthly salary at least. It will help you avoid dipping into your other savings and investments. Keep this as a liquid fund that you can withdraw whenever necessary.
- Coverage- In this category, you will have to allocate a decent part of your investment kitty to financially securing your family with life and health insurance coverage. Term plans may work best in the former segment, helping your near and dear ones stay afloat even in your absence.
- Future Goals- Have you narrowed down the goals that you wish to budget for? These can be anything from buying a home and car to going on a world tour, paying for your children’s higher education, and saving ample money for retirement. First, you should shortlist these objectives and then calculate how much you will need to achieve them (after accounting for inflation or cost escalations in the future). Then, allocate your investments towards achieving each of these goals separately, if possible. You can opt for a mix of unit-linked insurance plans (ULIPs), retirement plans or pension plans, child plans, equities and mutual funds, ELSS, PPF, FDs, and so on.
- Risks- Whenever you invest for the future, make sure you do it after assessing your own risk appetite/tolerance levels. When you are young, you can take more risks, i.e. deploy more towards equities to create future wealth. As you grow older and have more financial responsibilities to fulfil, you can steadily switch more towards debt and balanced funds while retaining a lower equity component in your investment portfolio.
- Horizons- Remaining invested for a long period is the best way to build wealth. If you wish to purchase your dream home, pay for higher education expenses, and save considerably for retirement, then you should not withdraw or surrender investments at the first sign of volatility or temporary market fluctuations. Hang in there, and you will reap the rewards of compounding over 10-20 years or more. For short or mid-term goals, choose strategic investments with suitable tenures.
These are some tips that will help you master financial planning for the future. Make sure you diversify investments to spread out the risks and maximise your returns. Also, start as early as possible, as this will help you amass more wealth for the future.These are some tips that will help you master financial planning for the future. Make sure you diversify investments to spread out the risks and maximise your returns. Also, start as early as possible, as this will help you amass more wealth for the future.These are some tips that will help you master financial planning for the future. Make sure you diversify investments to spread out the risks and maximise your returns. Also, start as early as possible, as this will help you amass more wealth for the future.
