Financial planning is a process which helps you to manage
your finances. It works by linking your investments to your financial goals so
that you can secure your future and be ready for life’s surprises.
The right time to start financial planning is as soon as you
start earning even if your income may not be high at this point. Starting early
will instill discipline in you and it will become a habit instead of urgency in
the later years of your life. It will also give you a bigger benefit of
compounding and thus a bigger corpus for your later years. At this age, you can
afford to invest in riskier investment option such as equities. You will also
be able to buy insurance at a low premium when you are young.
You can start by saving a percentage of your income every
month. You can use this savings to start investing which will be in accordance
to your various goals such as purchase of assets, buying insurance, vacation
planning. You should increase your investments as your income increases. One of
the important points to remember is that the returns on your investment should
help you to beat inflation. Even though it may seem early, it is also the right
time to start investing for your retirement.
Until few years back there were not many investment avenues
and there was also lack of financial literacy. People mostly saved in bank
accounts or in FD which give lower returns compared to other options. So if you
are in your 30s or 40s and you have not yet started financial planning, you can
still start it now as it is better late than never. It is also the time to
rectify any financial mistakes you may have committed in your 20s.
This is the age you will most likely have your own family.
Thus you should make place in your investments for the higher education of your
children, their marriage and life and health insurance for you and your family.
Your home and other assets should also be adequately covered.
If you are in your 50s and 60s, it is the time you need to
start being conservative with your investments. Debt oriented investments
should be your preferable option. At this age you will be able to reap the
rewards of the investments you made in your younger years. Buying insurance at
this stage can be very costly, so make sure your insurance is in place before
you reach this age. At this point, your focus should be to get regular cash
flow after retirement. Investing in pension schemes such as provident fund,
national pension scheme will give you a good retirement corpus.
At any point in life make sure to have enough liquidity for
emergencies.
Therefore, the mantra for sound financial planning is to
start as early as possible, define your goals, make changes whenever necessary
and don’t forget to plan for retirement.
