Financial Planning defined as ‘A Process to achieve your financial goals with high returns by minimizing risk’. But what exactly the Financial Planning Process means? Does it means savings & investment or choosing product/ services for investment? Or asset allocation & diversification? How and where to start? I can go on and on. Further, if it is a process then what are the main components of the process? Let’s try to understand this process in simple stages.
Savings Planning:
It is the first component of financial planning. To save money, a right spending plan (income and expenses) is necessary. As we all know, income resources are very limited but expenses are not, therefore minimizing expenses is the best way to save more money. Developing a budget for every expense, liability & debt is necessary. Keeping aside a fixed sum of money each month as savings is an effective idea.
Also, there should be a purpose of saving like buying a car/home, child education, marriage etc. Identifying savings purpose will help determine the duration and how much money is required.
Insurance Planning:
Insurance planning is the second component of financial planning. There are different life stages – like a person who has just started earning or a person with family/dependents or a person approaching retirement and post retirement. At every stage insurance is important!
Insurance is not an “Investment” but a necessity. Before going for insurance, an Investor must take into consideration his needs, goals and his ability to pay the premium amount. Choosing a policy suitable as per needs helps achieve goals smoothly.
There are different types of insurance policies available in the market. Main ones are:
There are various factors which impacts selection of a right insurance policy. Some of them are:
By taking into consideration above factors one can make insurance planning a breeze.
Investment planning:
Investment planning is third component of financial planning. This requires a lot of research and dedication. Before making any investments you need to assess some factors which are (but not limited to):
With the above factors as a guideline, one should also consider the life stages as one important aspect.
See you later!
Source: Internet.
Nice, quick overview! <3
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