“Financial Planning is the process of meeting your life goals through a systematic and disciplined arrangement of your personal finances.”
What is financial planning?
Financial Planning is a process consisting different steps. Look at the image below.
1. Determine your current financial situation
You may be a salaried person, a professional or a businessman, check your current financial situation. Where are you now?
Do you have enough savings and investments to back your aspirations?
Is your salary enough to pursue your personal and financial aspirations?
Are you able to manage your home loan and personal loan responsibilities?
Ask these questions to yourself. Be very clear and honest about your current financial situation.
2. Develop your financial goals
What financial goals do you want to achieve?
Retire at 50?
Be debt free at 40?
Want to invest in a second home?
Want to go abroad for further studies?
Want to send your children abroad for further studies?
The list is endless.
Where to start?
Start with important goals first, that can give you financial independence. How about being debt-free at 40? It’s possible and it needs a disciplined and systematic planning.
3. Identify alternative courses of action
What alternative actions you can take to achieve your financial goals?
I believe some actions like learning good saving habits, learning your relationship with money, living frugally and keeping positive mindset are some of the ways that help you achieve your financial goals.
4. Evaluate alternatives
Consider your current life situation, your personal values, and economic factors. Also, assess risk and time value of money for each alternative.
Here, you should check different products available in the market and select the best ones based on your need.
You may need to do some changes in your lifestyle so that you achieve your financial and life goals that are close to your heart.
5. Create and implement your financial action plan
Once you take all the five steps mentioned above, you will get a clear idea about your financial goals and what you need to do to achieve them.
The key words here are implementation and action.
The plan remains on paper if you don’t implement it. So take the first step and rest will follow.
6. Review and revise the financial plan
As you go and implement your financial plan, you should revise your plan periodically, every 6 months or whenever you achieve a milestone.
This step is the last step in the financial planning process.