Financial Planning today has become a term which is used to lure investors. Every insurance agent, mutual fund advisor, banker talks about financial planning however, there are very few who live up to the actual meaning of this word. Women especially are easy targets as they are often emotional and that makes it easy to convince them. So here are a few tips to help you make the right decisions when it comes to financial planning.
Identify your financial goals
Identifying your financial goals is the most important step, however, usually ignored. We often start saving without a goal and hence we are always unsure if we are saving enough. Having clearly defined goals (with a definite value attached to it) makes it easy to track. Some common goals could be Retirement, Child Education, Marriage, Buying an asset (house, car, etc), A luxury holiday, etc.
Prioritize your goals
Once you have identified your goals, it’s important to prioritize them. This helps in deciding which goals to focus on first.
Bucket your goals – Short Term, Medium Term, Long Term
Risk that one should take has a direct connection to the time which you have to reap the benefits. Longer the duration, higher the risk as time averages the risk to some extent. So, bucket your goals into Short Term (1 to 3 years), Medium Term (4 to 8 years) and Long Term (more than 8 years).
Select the right instrument to invest
Choose an asset class for each goal. The thumb rule is that the shorter the duration lesser should be the risk taken. So for all short-term investments fixed interest giving instruments like FDs, Bonds, RDs are preferable. For medium and long-term goals some amount of risk can be taken through mutual funds or direct equity.
The thumb rule is that the shorter the duration lesser should be the risk taken.
Start Investing – Label the bucket of each goal
Once you have decided where to invest, start immediately. Every single day counts. Most importantly, do not mix investments of two separate goals; that leads to cross-subsidization.
Review every six months
People often start investing and forget. But it’s essential to review your investments once in six months to check if you are on the right track.
While you may take help of an expert or someone from your family to take the final decisions; remember… it’s your money… you have the right to choose and the capability to decide!