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In order for our financial planning to be successful and achieved within the set time period, an individual should focus on short-term as well as long-term goals. This also fulfills our different needs at different stages of our life. While doing so our focus should remain on practicing being prudent at every life stage, as this will make us feel more secure that our set goals are on right track. Although being discipline and responsible towards our money should start at an early stage, there are five important factors that we should not miss out while sitting down to do financial planning. Let’s take a look:

Understanding your risk appetite

Not understanding one’s own risk while investing at different stages of life has led to some serious money mistakes. Identifying or risk profiling should be done before one starts investing in various financial products.

For instance, thinking that all debt products are risk-free and give higher returns or all equity products are high in risk is a wrong mindset, to begin with. Risk should be analysed by evaluating one’s willingness and ability to understand the suitable product during different stages of life.

Budgeting

Starting early is a mantra for any wealth creation. This will not only boost your investment from the power of compounding but also gives you time to deal with the impact of inflation.

For doing so, the right step is budgeting. Estimating all your expenses or your cash outflow during the month that may include EMIs, paying rent, electricity bills, food expenses, medical expenses, children’s school fees, and so on gives an idea of how much is your total expense over a month. One can take the help of a certified financial planner to manage better cashflows to understand in our net income – net expenditure enough to reach our goals? Effective budgeting helps you save more.

Emergency

If one crucial thing pandemic has taught us is the importance of keeping emergency cash during times of unanticipated expenses like a medical emergency, or a loss of a job. Saving a certain basic sum in a safe asset like short-term fixed deposits or liquid mutual funds can be very useful. Financial planners suggest a thumb rule of six months of living expenses should be kept aside for fulfilling emergency cash needs.

Know your asset allocation

Every financial goal should be followed by an appropriate asset allocation. The most important ground rule is to follow an asset allocation approach by diversifying investments across various asset classes like equity, debt, gold, among others. The wrong asset allocation will always impact the returns in the long run.

For new as well as for experienced investors, mutual funds provide investment avenues through the benefits of asset allocation and diversification. In the end, once the choice is made, with information and understanding, one needs to stay focused and stay invested and review your portfolio. For product selection, it is best to consult a financial planner/advisor.

Succession planning

The pandemic has brought out the importance of succession planning which had earlier garnered low attention amongst the investors. The increased death rates due to pandemic has highlighted the fact that it is important to plan while we live so that during the demise, our financial assets are passed on to our heirs without any obstacles. Succession planning involves ensuring the nominations are correct in place for our bank accounts and investments. The consolidation of assets and liabilities is equally important to get a clear picture of your overall net worth.