When in their 20s, people seldom worry about their finances. It is when the responsibilities grow, personal finance becomes the centre of the focus. At this point, a personal financial plan can help. It is an overall evaluation of a person's current incomes and future situation and considers known variables to predict future asset values, earnings, and possible withdrawal plans. Such a plan allows you to manage money efficiently and make wise financial decisions. Knowing quite a few financial management hacks to streamline your finances can yield better results.
Why do you Need a Financial Plan?
As it dawns on you that personal finance management is crucial for a secure life in the future, you may be looking at financial planning tips online. However, it would be much better to focus on building a financial plan for yourself. But is this reason enough for you to start drafting a plan? Well, a secured future is just one of the reasons that you need to have a financial plan.
Here are 10 reasons you should consider making a financial plan:
1. Manages Cash Flow
Managing your income is one of the primary aspects of a financial plan. You should be aware of where you are spending your money. In case all the money from your income is getting extinguished by the month-end, you need to develop a personal finance plan. Lack of a proper budget might lead to several problems in the long run. Precisely, it helps in tracking your money including your savings, expenses, and earnings.
2. Helps in Managing Debts
Nowadays, people tend to take a loan for quite a few things like home, education, and buying automobiles. These liabilities might turn into debt traps if proper planning is not done. Some people have credit card debts also. Thus, a financial plan becomes all the more necessary to ensure that one does not end up in a financial crisis. Getting rid of your debts will allow you to focus on other financial targets. As a financial plan helps you in tracking your money, it will also give you room for prioritizing your expenses so that you can clear the mountain of debt.
3. Streamline Investments
Investments should be such that a person gets substantial benefits from them. A scattered method of investment will never be helpful. Sufficient research must be done before narrowing down on what your portfolio should look like. It is advised to have a diverse portfolio to reduce the risks involved with the investment. You should not make investments impulsively. Additionally, it is critical to invest in a life insurance cover.
4. Improves the Standard of Living
The general notion is that you will have to compromise on your standard of living if you start addressing your EMIs and monthly bills. That is not the case. A good personal financial plan will not make you sacrifice your standard of living. On the contrary, it will allow you to live a comfortable life while achieving your financial goals.
5. Provides Financial Security
Having a financial plan allows you to create an emergency fund. In the case of a health emergency or a loss of a job, you will not worry about procuring funds or getting an immediate loan. The emergency fund will provide financial security and allow you to pay for several expenses on time.
6. Builds your Saving Pot
You can save money without a personal financial plan in place as well. However, it might not be the most efficient way to increase your savings. By creating a financial plan for yourself, you will get a lot of insight into your income sources and areas of expenses. If you approach an expert providing financial planning tips, he will tell you to have savings equivalent to your salary of 6 months. It allows you to be better prepared for financial emergencies.
7. Right Asset Allocation
You need to understand that not all assets provide the same return on investment. During a stock market rally, equity can be considered a good investment option. In another scenario, when the stock market might not be doing well, assets like real estate and gold can serve as wonderful investment options.
One of the best financial planning tips for asset allocation would be to invest in multiple instruments. It will help the person to realize his financial goals without too much risk. The financial plan will devise a strategy to shield you during turbulent times of market volatility.
8. Helps in Calculating the Right Insurance Cover
In the case of unfortunate demise or a health emergency of a family member, the right insurance cover proves to be a boon. The right life insurance cover ensures that your family member can pay off the remaining debts and have a proper standard of living.
On the other hand, a health insurance policy ensures that you can carry out the necessary treatment of your loved one in the case of a mishap or medical emergency. A financial plan will take into consideration your income and decide the right insurance covers for you. You can reach out to companies like Canara HSBC Oriental Bank of Commerce Life Insurance for guidance on which policy suits your conditions the best.
9. Beneficial in Achieving Long-term Goals
A personal financial plan can help you conclude where you want to be after twenty or thirty years. It takes you a step closer to your dreams. It allows you to achieve your financial goals within a specific period. It is better to start planning early as it will help you save more money and reach your goals earlier. Early investment will also result in higher returns.
10. Filters out Unessential Financial Products
One important aspect of financial planning is finding the assets which might not be profitable. It might be a share that has no chances of growing. You should let go of such stressed assets. In other cases, people end up taking several insurance policies, and none of them is serving any purpose to the policyholder. It is merely filling up the pockets of the insurance agents. Thus, you must be wise while selecting your life insurance cover or other insurance policies.
A financial plan helps you take care of your dreams without taking you away from your responsibilities. It ensures financial security for your family without affecting your primary goals. Thus, every person should have a personal finance plan to keep more of his hard-earned money. Most of you might not have the expertise to make a financial plan on your own. It will be best to take the advice of an expert for the same.