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Personal Finance

Preparing a financial plan - PRACTICAL CONSIDERATIONS 

 

Each individual or family is different so will have their own financial plans. One cannot expect to have same financial plan as another even if two people are earning the same salary. This is because financial situations and risk taking ability are different. Suppose a person already has to pay a housing loan instalment (EMI) and take care of other personal responsibilities, then his risk taking ability would be much lower than a person who does not have to repay a loan. 

 

How exactly do you go about preparing a financial plan? 

 

 Assess your finances. Make a list of your bank accounts, investments, fixed deposits, mutual funds, shares etc. 

 

 What are your expenses per month? How much do you spend on rents or installments, your kids’ education, monthly kitchen expenses and so on. You will be able to understand where you are with respect to your income, expenses and savings. 

 

 Now the next step would be to list down your goals which could be short term, medium term or long term. Your short-term goals could be buying a car or going on a vacation, let us presume in the next 5 years. 

 

Your medium-term goals could be your child’s education, buying a house, or setting up your own business. This could be planned for may be 10-15 years. For long-term goals you could plan for 20 years after and think of retirement, clearing all loans and keeping some money aside for emergency. 

 

 There are three parameters which you have to consider –time, money you can save and the rate of return. 

 

 Based on your goals and your risk taking ability, you can diversify your money among different asset categories such as shares, bonds, fixed deposit and cash. 

 

Source: The Economic Times

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