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Most goals and targets can only be achieved through planning and execution. Whether it be for a cricketer on the field or for a student before exams, planning is the first activity to achieve the desired results. But most people don’t pay much attention to plan for the most important aspect of life, their money.

When it comes to finance, people just think about the present, not realizing the importance of money management and planning.  But no one knows how the future will unfold and when we might come under a huge financial burden. As the saying goes “By failing to plan, you’re planning to fail”.

In reality, personal financial planning is not very cumbersome. All it takes is a little commitment. To help you understand Financial Planning better, here are 7 things to know.

Know Your Finances

The first step to personal financial planning is to understand your current financial situation. You can begin by assessing your net worth. This can be done by adding up your bank balance, various investments and assets like home and car and subtracting it with your bank loans, car loan and credit card loans.

Then one must assess their income and total expenses. This includes their monthly credit card bills and insurance premiums. This is called budgeting and will help you understand the state of your finances and ways to improve.

Savings are important

If you are someone who spends less than what you earn and save a chunk of your income, the most important part of financial planning is already being done. Savings is the only way to grow your wealth because you invest what you save.

Savings do not just enable you to grow your wealth to achieve your dreams but also helps you during emergencies. You could end up losing your job, or suffer huge medical costs. In such scenarios, savings act as an emergency fund. It is suggested by experts that one should save between 10%-30% of their total income every month.

Invest your Savings

After having done the critical task of saving money, what one does with the savings determines their financial growth and stability. Most people tend to leave their savings in a bank account or a Fixed Deposit. But the interest rates from these avenues are lower than that of our country’s inflation rate. This means that over time, your savings would end up being lesser in value.

It is therefore important to invest your savings in places which give returns higher than inflation which will help in financial growth. There are many asset classes to learn about and invest in such as Mutual Funds, Bonds, Stocks and gold etc which are historically known to provide better returns. In case you are someone without much knowledge about investing and finance, seeking a financial advisor is recommended.

Cover Your Risks

It is important to stay alert and track your investments at regular intervals. Often people get complacent with their investments because they believe in the long term they will get back good returns no matter what. But in reality, this is not always the case. A certain investment in a stock may end up making losses due to sudden economic shocks to the company. Hence one must cover their risks associated with their investments.

This can be done by diversifying the investment portfolio. Investing in different asset classes such as gold and SIP’s is a good way once can hedge their risks. Staying aware about their investments and making changes to the portfolio based on the economic situation is also something one must do regularly.

Family Wealth Planning

A person’s family may grow in size as he gets married and has children. This might create unexpected expenses over time and may lead to financial shocks and depletion in savings. To avoid such circumstances, creating a family budget is helpful. This helps in evaluating the total expenses of the family members and allows them to cut down on unnecessary expenses.

Investing in Life and Health Insurance plans are also important instruments to secure the financial needs of your family. In a life insurance scheme, the dependants are given an amount after the death of the earning member. Ideally, one should go for an Insured amount 3 times the yearly income. Whereas in health insurance, all members can be insured against accidental or sudden illness. As medical expenses can be high, this protects the family savings.

Understand your Taxes

Taxes can take away a large chunk of your annual savings and income. Timely financial decisions and tax planning can help you to save up on a lot of tax expenses. The idea is to efficiently take advantage of various tax exemptions, deductions and other benefits. This will help in significantly reducing your tax liabilities at the end of each financial year.

Remember that even though tax planning is legal, one must not indulge in tax evasion as that can have adverse consequences. A good example of Tax planning would be to invest in Equity Linked Savings Schemes. Under Section 80C, one can take the advantage of saving as much as Rs45,000 and enjoy upto Rs1.5 Lakhs in deductions.

Retirement Goal

In today’s age of scientific progress in the health and medical industry, the average life expectancy of humans have gone up significantly. This makes us vulnerable to various ailments later on in life, making it physically impossible for us to be able to work efficiently in our jobs. This is why everyone should save money for our retirement life.

For this, all you need is proper learning about personal finance via books, courses, blogs or a learning app. Also, due to the power of compounding, the earlier someone starts saving for retirement, the richer he will be during the retirement time.

This also means one can retire early and explore their passions and fulfill their dreams. Thus early retirement planning will help you to identify your retirement goals and how to achieve them early.

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