Why financial planning is important and should be started as early as possible and what do you need to know before you start yours?Does going to a certified financial planner is the only option?If not,Which are the other options and which one to prefer and why?
Financial planning & all about money
Life is an ongoing process and so are certain aspects of the same. Anyone who is strong in planning succeeds in each step he takes in life. Proper planning requires a lot of focus which helps culminate huge successes on the long run. Successes thus achieved demands more focused efforts involving better planning and precise results. Our earlier generations have left enough cues to succeed in many aspects of life provided we make them as habits to reap the fullest of the benefits. One such area where our elders have treaded long paths the hard way is Finance.
Finance is an interesting field which for the layman is dealing with money related matters. Finance, in reality, is a term bigger than it is thought to be by the layman. It is a field that encompasses all aspects of money facilitating business success and individual development in a parallel manner. The term Finance encapsulates many mammoth ideas that work towards societal development rapidly. A society can be successful only when the individual members it comprises of succeed. Individual members require a lot of focus, planning & efforts particularly in terms of Finance to convert their society into a developed one. Habits play a crucial role in individual success specially in money related matters. Let us have a detailed look at some such crucial habits that helps individual succeed, pulling their society to higher levels of financial stability.
Do we save money or accumulate wealth?
Financial literacy is absolutely crucial to have a successful life from money point of view. Finance experts deal with money related matters at lofty levels. When we save money in small chunks over long periods of time, we get a feeling of satisfaction that our money is growing. Understanding about money in the real sense of the word adds to this satisfaction levels in an immense manner. Mere saving of money over extended periods of time means accumulation of wealth and not just growing of money. Wealth, in that sense is a higher level word which is capable of increasing the safety levels much more than all other factors concerned.
While saving money may be attributed to short term, accumulation of wealth offers the safety that one aspires for from a long term angle. High levels of organized thinking, thorough knowledge about the working pattern of money, constant growth of knowledge pertaining to Finance and clear cut financial goals are some of the key factors that play a crucial role in the accumulation of wealth. Money does not accumulate all by itself to create millionaires. It requires a lot of meticulous planning for people to become rich, richer and the richest. Let us have a detailed look at the importance of financial planning and the modalities involved in the same.
Why financial planning is important
Most of us spend our hard-earned money to accumulate things that we really don’t need. These things we accumulate(other than our basic needs), are more for impressing people in our circle whom we mostly dislike or for creating an aura that is just external and superficial. We tend to forget the learning that wealth means possessing fewer needs rather than innumerable number of things that are unnecessary. When this is not understood properly at the right time, money costs too much, damaging the financial basics drastically. Financial Planning thus becomes crucial for building wealth. The key component that plays a significant role in financial planning is setting appropriate goals. Goal setting is an important aspect in finance building which helps implement the plans pertaining to finance in a perfect manner.
Goal setting pertaining to finance can be short term as well as long term. Short term financial planning is mostly done to meet certain commitments that are urgent in nature. Long term financial goals are set to achieve bigger purposes that are of utmost importance. Tips given below will help set high yielding financial goals for short term as well as long term.
- Financial goals must be set with specifics in mind with high levels of precision pertaining to the individual commitments and targets.
- Goals pertaining to Finance must have fixed periods of time to keep a tag on the advancement periodically.
- Financial goals must take into consideration all aspects involving the freedom from debt repayment to building wealth
- While setting financial goals, be realistic. Honesty is another key requisite, be honest to yourself and set appropriate goals as per your monthly income and expenditure.
- While setting big financial goals, take into consideration the many long-term aspects like retirement planning, medical and other specifics of your life.
- Take into consideration debt repayment and mortgages while fixing financial goals since debts and liabilities drain your income more rigorously than you anticipate
- Fix financial goals according to the exact requirement since paying off mortgages may be a fortnightly affair while saving for retirement can be a monthly one.
While Goal setting for accumulating wealth or meeting commitments is one of the first steps towards financial planning, following up the set goals is one of the crucial steps to keep the same on track. Ensure your financial goals are reviewed in set periodicities so it accommodates external changes that have influence over the same.
To put it in a nutshell, financial planning can be encapsulated into four stages namely
- Awareness about money and it’s working along with your stage in financial planning.
- Taking control over your financial situation by directing your finances in the appropriate channels.
- Ensuring financial security for yourself and your dependants at all points of time through diversified investments.
- Making financial planning that would offer complete freedom at every stage of life.
Planning finance from an early stage in life
It might appear to be a joke when you are asked to save something when your earning is still meagre. It might appear more comical if the reason for the same is that you cannot save when you start earning more if you don’t develop the habit of saving as early as possible. As you start earning more, your commitments increase in quantum too. Suppose when you were unemployed, your parents gave you Rs. 1000/month pocket money and you spend it all in just 10 days. After getting a job, even if you are earning Rs 25 k to 30 k a month , you will spend it all because you never developed the habit of saving as you loved being a spendthrift all your life. It’s hard to let go of such habits . This is why it becomes important that saving habits is cultivated in people from a very young age. Our piggy banks in which we used to save money made us wealthier when we were children than the regular bank accounts and investments we make as adults.
As the old saying goes, small droplets of water make an ocean. Like many other good habits, savings is one of those habits that needs to be cultivated in children from a very young age. Helping the children start saving right from a very young age is the best gift any parent can give them for their life time. Some steps that can be taken by the parents and children to plan their finance from an early stage in life are enumerated below for clearer understanding
- Instill the habit of savings in children right from when they are small kids.
- Instilling habit of savings in kids is one of the major responsibilities of parents.
- Kids may initially even resist saving money that is given to them. Keep insisting and they will fall in line.
- Introduce them to the appropriate savings account explaining them the nitty-gritties of the same.
- To cope up with their initial hiccups to find money for investments, contribute from your pocket.
- Teach them the modalities of operating the account and help them learn to build money.
- Teach them the importance of savings rather than spending on things that may soon become unwanted.
- Show them how their money multiplies when the interest component is added to the same viz-a-viz how it deteriorates when the same is spent or only saved. Teach them the power of compound interest and how inflation eats away their money if all their savings are just stagnant in the savings account only. Teach them the tools of investing, gift them a book on value investing, take them to a financial planner if the need arises to make them learn how to grow their money . The emotional bonding they will feel with their growing money will make them a prudent investor in their future life.
- Do not try to keep your child’s finances under your control always. This will deprive them of knowledge about money creating a disinterest in Finance. Instead, make them handle their own finances when they reach the legal age. You can do this by opening an account on their name or handing over the cash they have saved till then , you could also invest on their behalf when they are little , so that they can have a capital to invest when they reach the legal age.
- Teach children the basics of savings right from when they are young.
- Teach them about money and how it works making use of even the smallest opportunity presented out of the blue.
- Ensure you lead them by being an example for what you preach.
- Ensure that the money lessons you teach your children reach them in a funny but informative manner as we are witnessing the short attention span 4g generation.
- Make them feel independent in handling their own finance all by themselves. This will make them responsible individuals in the future.
Things to understand before you start planning your Finance
Financial planning is certainly not a binary affair. There is only one thing that can happen – either you become successful financially or you don’t. Most of the times, people procrastinate from planning their finances due to the inferiority complex they suffer from. We always tend to get a feeling that our counterparts have treaded vast distances and we have lagged in financial aspects. We feel the distance between them and us is insurmountable. We fail to understand what they did and what we did not do to reach where they are. The reality will be really striking when we say
- Today’s millionaires have experienced the same and even more extents of confusions, insecurities, doubts and struggles than you are experiencing.
- Financial planning is a continous activity and not a onetime affair.
Understanding the above points clearly will help you tread the financial path with increased confidence and clarity levels.
Don’t get bogged down seeing others who you feel are way far in front of you. They have experienced what you are experiencing. The only difference between you and them is that they have quickly come out of the ambiguities and have taken concrete steps to move forward financially.
Getting satisfied with your performance in the finance front may stall your further growth in the area. Remember, as mentioned earlier, financial planning is a continous process. When one particular stage is completed, plan to enter in to the next level. Keep looking for opportunities that knocks the door time and again. Look out for newer avenues available to multiply your wealth. Wealth is purely the ability to experience life to its fullest. So make use of all opportunities big and small presented in front of you by the various external forces. When you keep your eyes open to your surrounding you will realize that opportunities galore to build wealth in an easy manner.
The most important aspect which facilitates accumulation of wealth is to remain an investor throughout your financial journey rather than turning into a speculator half way through. This may shake the very foundation of your financial planning tumbling all that you have accumulated till then in a meticulous manner.
Key sources offering finance planning guidance
Finance is a niche area that requires a lot of study before jumping in to accumulation of wealth. Its volatility is attributed to the influence exerted on the same by many external factors. Getting initiated into savings and investment may look like a Herculean task particularly when we lack proper guidance. Many types of guidance are available for people to choose from , some of which are enlisted below.
Specially trained Finance professionals
Investment Advisors are referred by many names some of which are Asset and Portfolio Manager, Wealth Manager, Certified Financial Planner, Stock Market Planner, Portfolio Manager and Family Finance Brokers. Understanding the main difference between a Chartered Wealth Manager (CWM), Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) will help people avail their services in an appropriate manner. While a Chartered Wealth Manager guides people to create and preserve wealth, a Certified Financial Planner guides investors through execution of appropriate financial strategies that would multiply their money. Chartered Financial Analyst on the contrary guides investors about the various products available for investment like Insurance, Mutual Funds and Bonds.
Despite all the technological and scientific developments, when it comes to personal finance, we still live in a society that is full of conservative people. Such people may not want to disclose details about their finances to external sources like above mentioned professionals. Many other options are available for such people to choose their source of investment planning. Some such options are enlisted below for the benefit of aspiring investors.
- Finance Blogs – Keep updating yourself about the current trends in Finance reading value adding financial blogs.
- Friends and network circle – Talk to personal sources you know who are in the Finance field or who in your assessment are good at accumulating wealth.
- Financial planning books – Many value adding books that provide end to end guidance pertaining to planning your finance are available in the market. Get your hands on the best ones and undertake a focused learning.
- Media & News Channels – Keep yourself abreast with financial news by viewing news channels and other media sources that provide pertinent information about money. This is one of the best ways to keep yourself in touch with the current reality. It provides a lot of insight to proceed with changes in your financial planning aspects periodically.
Depending on your risk taking capabilities, you may choose the financial products that work best for you. Right from a savings bank account that yields lowest returns on money invested to Stock Markets that may make you a millionaire over night, financial planning is purely a personal affair. Every individual may have his own apprehension about the various savings and investment options. While some may look at investing in stock market as a profitable venture, the very investment option may cause fear of losing everything in some.
Financial literacy takes us a long way
Becoming a millionaire is an easy task when people have a clear understanding about finance and how it works. Some practical tips derived from the lives of billionaires are provided below with an intention to make more number of financially rich individuals.
- The real interest from money is the interest received through financial knowledge.
- Making money involves being greedy and investing when people are afraid to invest and being thrifty when people are investing like crazy.
- Keep doing what you are supposed to do so that money flows in through open doors.
- As far as finance is concerned, no formal education teaches what you can learn through self-education.
- Wealth building is not about accumulating more things but learning to invest at the right time in the right avenues.
- Buy when everyone is selling. Sell when everyone is buying (Depending upon market scenarios).
- Be the master of your money and not its slave since money is always an amazing servant beyond comparison and the worst master to experience.
- Avoid working for money and learn the knack of making your money work for you.
- Retain control over your financial aspects since the lack of the same may bring your destiny under its control throughout your life.
- Borrowing money for non-value adding purposes is stealing every bit of your own future.
- Wealth accumulation is not directly proportionate to what you have saved out of your earning but to how hard you had made what you have earned work for you.
- The financial budget of a person shows what he exactly values more than his own words.
- Ensure you earn before you spend and you spend only after you earn.
- Ensure you investigate before you invest and you invest only after thorough investigation.
- Be aware of the extent of risk you can afford to take when it comes to finance at all points of time.
- Remember, nobody is interested to make you a millionaire. You have to count on yourself , on your judgement ,on your knowledge, on your wisdom and mostly on reviewing your plans if need arises.
Tips to safeguard, save and multiply your money
Understanding Finance and ways to multiply your money is the first step towards becoming a millionaire. However, some practical steps taken at the appropriate time will save a lot of effort involved in the process. Some such practical tips to be followed on a day to day basis are enlisted below for enabling people to become financially free in a quick manner.
- Let Retirement Savings get its priority in your investment portfolio as you cannot depend upon the 4g generation. Your retirement is your responsibility , you cannot expect the next generation to take care of you. The speed of the new world would incapacitate the next generation and they would not be able to do justice to us what we have provided for our parents.
- Ensure your investments are reallocated in an appropriate manner periodically according to change in worldly scenarios.
- Your financial planning will get stronger when it focuses on real estate aspects.
- Reserve funds to handle emergency situations like death or natural disasters, so that you are immune to urgencies that may cost you your peace of mind.
- Structure the finance you may receive from the official quarters so they do not get frittered away as soon as you receive them at the due date. For example, like setting up an auto debit facility for all your investments.
- Ensure you have enough liquidity at any point of time since liquidity is one of the main concerns even for established millionaires.
- Ascertain that the titling of your assets are legal and you have assigned the beneficiaries for every investment of yours.
- Set up long term financial plans and ensure you stick to the same.
- Plan for taxes related to both short term and long term investments.
- Have a tab on your debts and liabilities so you don’t drown in them. These are capable of toppling your investment plans at all points of time.
- Share about your money dealings with your family members periodically. Lack of knowledge about the same is dangerous which will lead to chaos at the slightest of shakiness. If they don’t understand, make them understand. This also helps in creating savings habit in children.
- Ensure you have substantial Insurance coverage so sudden health and life emergencies do not eat up your savings in an unexpected manner.
- Commitment specific financial planning helps to run life in a smooth manner. Save or invest in financial options particularly when you have children towards whom you have huge responsibilities.
Many applications are available to automate your financial strategies and track your financial investments. Explore and make the best use of the same to multiply your money. Hope the above information provided helps you in every possible way to become financially independent soon. Happy investing.
Written by Rama Ramji and edited by SiteMaster