Financial Planning … Start from Basic …

I have never believed in planning but when it comes to investment, allow me to change my stance. I am writing this because I really feel that if we do our investments in planned manner then the available investment instruments can really do magic for us.

4 Simple steps you need to perform for sound financial planning.

1) Check your current wealth.
This is required to understand where you are right now so that you can better utilize your funds. Your net wealth is a difference between your assets and liability. Just to make sure that you understand the difference between assets and liability, I am listing below some of those.

Assets:
Cash in hand
Money in your saving accounts.
Investment in MF, Stocks, PPF, Bonds and NSC etc.
Market value of you home
Market value of your Car/Bike.

Liabilities:
Home Loan
Car loan
Outstanding amount on Credit Card.

2) Set your goals:
I have always believed in investment by objective style because unless or until you don’t know where you want to go, you can’t reach. In this step you need to identify …why …when and how much you need.

A sample Goal Chart:
Goal/ Amount Needed/ By Date
Life Insurance 10 Lakhs Cover Effective today
Car 5 Lakhs In 3 years
Home 30 Lakhs In 10 years
Laptop 0.5 Lakhs In 1 year
Pension 0.5 Lakhs per month After 25 years


3) Plan your investment and start investing.
There are many investment instruments available in market, some of them are safe but they give low returns and some are risky but they give high returns. In this step basically you need to identify suitable investment option for your goal and start investing.

Some investment instruments...
Type/ Return/ Risk
Bank FDs 4.5 to 6.5% Low
NSC/PPF 8% Safe
MFs/Stocks 15 to 20% High

4) Review regularly.
And Please …Please …Please review your performance regularly, at least once in a quarter and fine tune it based on your changed requirement.