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Is the ongoing inflation keeping you up at night? Do worries about how you'll manage the upcoming days financially cloud your thoughts? It may be because you do not have a solid financial roadmap. Follow these tips to create one that works for you.
As someone from the millennial generation, We often face monthly financial difficulties due to a lack of money management knowledge.
Living paycheck to paycheck can lead to anxiety about financial stability and the future. Hence developing a comprehensive financial roadmap and personalized finance plan to take control of your finances and secure a stable financial future is integral.
Despite having approximately lakhs of rupees worth of salary, we tend to live paycheck to paycheck. Given our frivolous lifestyle, it’s a no-brainer why we’re plagued with anxiety about financial stability and the future.
Financial planning is a tough nut to crack but not impossible. You can actually set and achieve Financial Goals Effectively.
In fact, financial discipline is one of the basic life-saving skills that one should master from an early age.
There are multiple reasons why financial planning is so important. Let's discover them one by one.
Having a sound financial roadmap can give you financial freedom
Planning your finances early on can help you achieve your financial goals faster and more efficiently.
Else, with a 'we'll deal as it comes' attitude, you will be left grasping for straws when life throws you curveballs.
But there is more to it. Here are some of the significant advantages of financial planning.
- You will be prepared for emergencies like health issues or unplanned unemployment.
- You will be able to make sound financial decisions.
- Optimal use of your money will improve your standard of living.
- You can get an early retirement should you choose.
- You can become financially independent.
- Achieve financial stability for your family.
5 Things you shouldn't overrule while planning your finances
A financial plan is a synergy of five things: investment, insurance, tax planning, retirement, and estate planning. Missing any of these might jeopardise your financial future.
1. Investment planning
The most significant factor in gaining financial independence is where you put your money.
This decision is made after carefully considering your financial goals and risk appetite. It is also known as asset allocation.
It is the most critical aspect of investment planning.
The core part of investment planning is deciding on a strategy that works for your short-term, medium-term, and long-term goals.
You can avert risks by diversifying your money into different buckets (i.e., assets).
The assets are domestic and international stocks, gold, mutual funds, bonds, futures, etc.
2. Insurance planning
Insurance is nothing more than risk management. When you are hit by life's rainy days, insurance helps you to protect yourself against future loss and financial difficulty at an affordable rate.
It does not always have tons of money readily available at your disposal but it does have your back during those uncertain times.
There are three key types of insurance:
Term insurance
This insurance helps you secure your family's life in case you die or meet with an accident that leaves you physically challenged.
This is one of the most affordable and sought-after insurance policies of today.
Health insurance
Your health insurance is like protection gear. If you fall sick and don't have liquid cash readily available, health insurance can help.
This insurance lets you focus on your loved one's health without worrying about the money.
ULIP
Earn money while protecting your family. This life insurance offers equity income, tax-savings facility, and life cover. ULIP is truly a win-win.
3. Tax planning
Most people invest to save on taxes. There is no thought about where the money is put or how it fits into the wider plan of reaching life goals.
Under the Income Tax Act of 1961, there are several places where you might save money on taxes. With proper tax planning, you can reduce your tax liabilities.
You must make wise decisions and invest wisely to save taxes, but don't put all your eggs in one basket.
Remember, tax planning ultimately allows you to minimise the amount you are paying toward taxes, not evade them.
4. Retirement planning
Retirement planning in your twenties may seem extreme, but trust us when we say that the earlier you start, the larger your retirement savings will be.
Take control of your personal finance planning and money now because no one will lend you money for retirement.
Investing in mutual funds, PPF, and NPS until you reach the age of 60 can ensure that you will retire wealthy with crores of rupees in your bank account.
So, be careful where and at the ratio you put your money in. Every cent you save today will turn into riches in your old age.
5. Estate planning
Estate planning is an essential aspect of financial planning, which the majority of people neglect.
It is a much-overlooked component because we don't want to think about our death and what will happen after we die.
Failure to plan for the legal and financial consequences after your death can cause great anguish and pain for the survivors.
So, estate planning is essential if you want to pass on your wealth and finances to your legal successors without any conflict.
Final thoughts
Yes, financial planning is hard, but not impossible. Having a meticulously-crafted financial roadmap can help you make better and sound decisions and streamline your path to achieving all your financial and personal goals.
Being financially free implies being able to live your life without having to worry about the next paycheck.
If you're a beginner seeking to start saving money, read our other Jar Blogs for more hands-on finance lessons.
