Guide to Financial Planning

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

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Step I

Put your house (financial profile) in order

Most of us spend more than half our lives working and saving because money is important, in fact crucial. However, most of us spend almost no time planning to make that hard-earned money work more effectively for us. So, how do you plan your financial life?

Financial planning does not begin at investing, but instead at reviewing your overall financial profile.You need to address the following issues before rushing to build an investment portfolio.

You should start your financial planning by taking steps to protect your family’s current lifestyle from events and expenses that are not in your control. You can achieve this by buying appropriate insurance policies for your medical expenses, life, car, and other important assets. You can use moneycontrol's Are You Adequately Insured?

planning tool to estimate your insurance needs.

Repay your high-cost loans

A rupee saved is a rupee earned. Paying your credit card bills on time can save you more money in interest costs than most of your investments could earn you. This is also true of borrowings that cost you more than 15% per annum (after adjusting for any tax benefits). So, invest in repaying your high-cost loans first before you start building your investment portfolio.

Put aside money for emergencies

Deploy some money in short-term investments (you can refer to Financial Investment Options) that can be encashed on demand to help you tide over unforeseen needs and emergencies.

Draw up a savings plan

Income - Expenditure = Savings

You don't want this equation to be left to chance, therefore moneycontrol strongly recommends you make a savings plan. Under your savings plan you should put away as much as you can, as regularly as you can, with the aim to save at least 15% of your take home annual income.Depending on your financial commitments, you may be able to save more or less. It doesn't matter, as long as you are saving something.

Step 2 of financial planning: How to prepare to invest