Are you a working professional forever hounded by the growing tax and expenses? It's true, as we are developing our standard of living is also growing. However, very few people realise that with time, the inflation rate will also keep increasing which will keep eating into your income on regular basis. What makes it worse is that one day you will retire and you won't have a source of income. The struggle to meet the ends will be far more intense in that stage. But there a solution to counter this issue--financial planning.
Financial planning is a blueprint of all your financial needs. It's a plan that covers things like what investment instruments you should invest, when to start and when to stop, etc. Every individual needs a robust financial planning to live a happy and well-provided life. So let's throw some light on what are the essentials of financial planning and how to go about it.
Financial Planning For The Important Stages Of Life
First things first, one has to determine what are the important stages for which you will need a big chunk of money. For example, children's education, marriage, vacations and retirement planning are some of the critical stages of the life where you need big money. There are some of the important stages of life and to meet them proper planning is an absolute must. But here is a catch - for different stages you need to opt for different investment mediums. Thus the investment medium that you use for retirement planning may not be appropriate for saving for a vacation. It's important to compartmentalise your goals in the brackets like short-term goals and long-term goals.
Children's Marriage & Education - This can be looked at as a long-term goal hence you have to choose investment instruments which will give you good returns over the long period of time. To save for kids marriage and education you get plenty of time i.e. 20-25 years. So the instruments like equity mutual funds and direct equity investment in stocks with long-term potential are the best options.
New Car, Home Renovation & Foreign Vacation - These are the short-term goals. At best, you get around 3-5 years to save for them, so to meet your goal comfortably a combination of equity and debt fund and direct equity investment should be looked at. A good financial planner can help you to choose good mutual funds. However, you need to be very careful when it comes to direct equity investment for the short-term. While investing in shares for a shorter time one needs to be absolutely certain about the growth potential of the security and its time-frame. There are some stocks which perform well in short-term but fail in long-term while some stocks grow sluggishly but give big growth in the long-term. To meet your short-term goal you have to choose the former.
Retirement Planning - The cornerstone of financial planning is planning for your retirement. The simple idea behind planning for retirement is that save enough so that after you retire you will be able to afford the same lifestyle that you lived while you were working. The reason we call it a cornerstone is because you get the maximum time (investment period) and the opportunity to build huge corpus through retirement planning. However, while you are planning it you have to exercise utmost care and diligence. The margin of error is very less in retirement planning as whatever medium of investment you opt for you have to stick to it for long period of time. Hence, make the right choices and keep investing.
As this goal is considered to be a long-term goal, a perfect combination of debt and equity mutual funds should be coupled with the direct equity investment in long-term shares (Blue-chip stocks) can give handsome returns. It also gives regular dividends which is a bonus and can be rolled over in other investment instruments.
How To Get It Right?
As you must have realised by now, planning your money is a work of a professional. To draw a good financial plan one has to take into account all your needs and goals (short and long-term) and accordingly make provisions for the same. Getting an expert on board also helps you avoid the investment mistakes which not only saves you a lot of money but also a lot of time which is extremely critical in investment.
While selecting mutual fund it is important to check the history of the fund and the performance of the fund manager. On the other hand, investing in stocks is all the more complicated. There's a way skip all these complications. Avail the services of a good stock advisory firms. It provides you stock calls periodically as well as research reports and timely exit calls.