Financial planning helps you achieve short, medium and long-term financial goals. It considers your current financial behavior and variables to predict and design your future financial position so that you achieve your financial goals.
To be financially successful, setting financial goals is of utmost importance. Financial goals can be of three types: short-term, medium-term and long-term. We will be discussing how to create and manage a long-term financial plan so as to achieve long-term financial goals.
5 Smart Ways to Improve Your Financial Plan In 2018
We all have dreams and goals like buying a house, living a peaceful retired life, educating your children in the best universities, buying a high-end car, going on an exotic holiday and so on. But your dreams will remain just that if you do not have the money to make them come true. So, setting a goal alone is not enough, you need to plan for it in financial terms.
This is when savings and investments come into the picture. Creating and managing a long-term financial plan has 5 steps:
- Set your goals and the respective timelines:
Goals are just dreams if you do not work towards them. To work towards them, you will need to assign timelines. This will give you a time frame to work and achieve them. For instance, say you are 30 years old and plan to retire at the age of 55. You want to buy a car in 2 years as your family size has increased from 2 to 3, with the birth of your new child.
Your child is 1 year old and you want to plan her higher education, which is after 16 years. You also want to buy a house in 3 years. Unless you are a millionaire, you will have to buy a house and cars by availing loans. You will have to arrange for the down-payment for which you have to start saving money.
Once you jot down your goals and timelines, you will have a clear picture on how to achieve your goals. This will determine your investment mix and also your risk taking capacity.
- Set monetary values to each of these goals:
Now that you have set your goals, it is time to assign monetary values to them. If you want to buy a car worth Rs 7 Lakhs, you need to arrange 15% of the value, i.e. Rs 1, 05,000 for the down payment. Also, if you plan to buy a house of Rs 50 Lakhs, you need to arrange around Rs 10, 00, 000 for the down payment. You also need retirement and child education plans. Such planning should be done considering inflation and other macroeconomic changes. You will also need to provide for emergencies by insuring your life, assets and loans.
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