4 Steps to a Sound Financial Plan
Creating a good financial plan that aims at achieving your life’s financial goals requires you to do your homework and familiarize yourself with the basics.
The following are the key steps you must following when devising your financial strategy:
- Plugging the Financial Leaks
Mistakes in personal finance are quite common. There include using credit cards excessively only to damage the credit rating and posing the risk of getting a higher interest rate on future loans, making investments with little knowledge, and simply splurging the money on unnecessary things.
Thus, the first step to creating a good financial plan is to identify these mistakes and fix them immediately. This helps to bring down the outflow of the funds and also helps to prepare for the future.
- Understanding the Impact of Financial Decisions
When it comes to financial planning, you should never take a decision on the basis of the entity/idea itself. Instead, you should look at the context in which it resides. For instance, if you are going to invest in a fixed deposit scheme, then you should not merely focus on the interest rate that you can earn, but the tax implications of the returns, the duration (as it will give you an idea of how much liquidity you can be comfortable with), etc.
- Balancing the Trade-Offs
If you want to make huge returns on your investments and achieve your financial goals faster, then you must be willing to take some risks. This is because safe investments don’t usually provide high earnings.
So, if you are going to invest in mutual funds, 5-year fixed deposits (these allows tax benefits), etc. then take the trade-offs into account. It’s possible that you become cash strapped down the road, due to external factors like inflation, inflation rate changes, etc. So, you must be prepared for that.
- Act Upon the Plan Immediately
When it comes to financial planning, delays can often cost you a lot. The banks change the interest rates frequently, the stock rates are always fluctuating, and tax benefits are also often scraped by the government. So, you may miss on many opportunities if you delay your plan’s implementation.
Mastering the art of financial planning takes patience and time. However, if you are willing to work for it, you get to enjoy the benefits.