If you have a goal, you need a plan to achieve the goal. For the life goals that you set for yourselves or for your family, you need to be extra cautious that the plan to achieve these goals is almost impeccable. After all, the multitude of variables in life can act and react in unexpected ways to derail your plans. That being said, one important variable that connects most life goals is availability of financial resources. If you act in a way that this variable is taken care of, the chances of achieving all your life goals go up manifold. The process to ensure that this happens can be broadly called Financial Planning. In other words, Financial Planning can ensure that an individual or a family has adequate resources so that the current as well as future financial needs are taken care of.
Why do you need Financial Planning?
You might wonder the need for Financial Planning in your life. This is more likely to happen if you have a stable flow of adequate income or an existing corpus that fulfils your present financial needs. However, with the uncertainty of life, the current fortunes or present regular income can see a setback anytime in the future. This could happen due to a loss of employment or a sudden loss in your business. This could also be due to an unannounced ailment or any other unfortunate incident in your life.
The best way to deal with such situations is to use your existing resources and channelize a part of your existing income in a way that any setback does not derail your life goals. This has the potential to ensure that you meet the major and common life goals like buying a house or a favourite car, providing the best education to your kids, getting the kids married, taking the dream vacation or even having a stress-free retirement. All of this, and much more, can be achieved by using a portion of the current income to create assets that can be monetised at the right and required time.
Start Budgeting Immediately
While there are multiple steps that you need to take to put in place a detailed and effective financial plan, the first step that you can yourselves take is to get in to a habit of budgeting. In a nutshell, this means ensuring two things: One that your current expenses are less than your current income, and two that your income also provides for the savings you need to fulfil your future goals.
To simplify is further, budgeting can be aimed at curbing impulsive expenses, thereby distinguishing between ‘wants’ and ‘needs’. The idea is to meet all your ‘needs’, but avoid the ‘wants,’ at least for the time being. For instance, budgeting can help you realise that ‘eating out’ is actually eating out a disproportionate chunk of your income, or that you need to delay your vacation to ensure that you do not end up in financial trouble in the near future.
Here are some simple tips for Budgeting. The first chunk of expenses you have each month should be mandatory expenses, like paying taxes or repaying a loan. The next in line are the essential (but not mandatory) expenses, like living expenses. Only after all this come the discretionary expenses like entertainment. An effective financial plan is the one where you make your investments for future goals and then start spending the remaining amount in the order mentioned above.
To start with your budgeting exercise, track all your expenses for a month or two and list everything down. Also, list down the income for each month. Segregate the expenses as described above. This will give you a fair picture of your financial situation, and give you actionable insights too.
The first question you need to ask yourselves after that will be if the savings are adequate for your future goals. If not, then you need either to increase income or if that is not possible, then reduce your expenses.
As the age-old, clichéd, but effective adage goes, “Well begun is half done!” Start Budgeting today and get started with your Financial Planning.