Guide to Financial Planning

MONEY MATTERS: Financial planning does not begin at investing, but at reviewing the overall financial profile.

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Keywords: Investment, Savings

Prepare to invest

Investment planning is simpler than you think, and more rewarding than you would imagine. Also, it is irrelevant how old or rich you are, or how small or large your portfolio is - NOW is the best time to start. And no, you do not have to be a financial wizard to make your wealth grow faster. So where does one start?

Identify your financial goals

Explicitly setting out your financial goals is the best way to start. What are your goals? What are you saving for? Buying a house? Your child's education? Your child's marriage? A new car? A world tour? Providing for retirement? Ideally, quantify - both amounts as well as time horizons.

To understand the process of defining and quantifying your future goals, use our Retirement Planner. Even if you do not have retirement planning as one of your financial goals, this planning tool should help you understand the process of financial goal planning.

Understand your risk profile

Each of us has a distinctive capacity for risk (based on our individual income and wealth levels) and a varying tolerance for risk (based on our individual psychological make-up). Understanding your risk profile before you plan your investments is essential to optimize the risk-return profile of your investment portfolio.

moneycontrol’s Risk Analyser Tool can help you profile your risk capacity and tolerance levels.

Plan your asset allocation

Most of us tend to approach investment decisions based on the returns that we want to achieve. Although returns are an end objective, they should not be the starting point in the portfolio construction process. If returns are the primary driver for your investment decisions, you run the risk of a negative impact on your financial health - you could be taking more risk than you are financially/ psychologically capable of or be losing out on potentially higher returns by assuming lower risk than you can bear.

Different asset classes carry different levels of risk. It is important for you to structure your portfolio in a manner in which the resultant risk profile not only matches your individual risk profile but also your liquidity needs. moneycontrol's Asset Allocation Tool can help you structure your financial portfolio keeping in mind your risk profile.

Step 3: Why it is important for you to Start investing NOW