The year 2021 is drawing to a close, and you are full of plans about how to make the year 2022 your most successful one. You would like to have a good bank balance, start good investments, build wealth. The first step lies in good financial planning.
What does financial planning entail?
It is a roadmap that you create to get an accurate representation of your current income, your future goals for wealth, strategies to achieve those goals, and the desired timelines for each. Detailed financial planning entails listing the details of your savings, cash flows, investments, current debt, insurance outlook, and any other areas that you spend or have spent money on. It is crucial for a secure financial life, goal fruition, and comfortable retirement.
If you are unsure about how to conduct this exercise, you can enlist the help of an experienced financial planner to create a financial roadmap for you. However, be sure to do it so that you can be on your way to achieving your dreams and get the kind of wealth you’ve always dreamed of.
Let’s get you started on your financial plan for 2022 with these essential markers:
Set goals for five years
Your financial roadmap comprises specific goalposts with a timeline. Instead of starting with a vague plan that you will have X amount of money in a few years, cite specific numbers and time frames. Start by listing your goals, both short-term and long-term. These can comprise foreign travel, creating lucrative investments, buying your first home, buying a car, starting your own business, etc. Put down a timeframe for the fruition of each goal. Ideally, start with goals that you wish to accomplish in 5 years. Set realistic goals with timelines that can be accomplished with planning and hard work.
Invest your money in the right instruments
Simply having a source of income will not help you achieve financial success. Your money must be put to work so that it grows even in your idle hours. This can happen only by plugging a part of your income into suitable investment options that align with your goals. We recommend going with a good mutual funds investment – you can buy mutual funds online from reputed fund houses and maximize your money to grow into a large corpus in a few years. The best mutual funds in India offer steady growth while lowering risk, especially when you stay invested for the long term. Apart from mutual fund investments, you should try options like ELSS, PPF, bank fixed deposits, bonds, equity shares, and liquid funds (for very short-term goals).
Save a part of your salary every month, and increase the savings amount every six months
Apart from investing your money, you must also get into the savings habit. A savings fund is one of the most underrated financial tools – but it is one of the most valuable ones for future wealth. Aim to save a portion of your monthly income in a savings account that you do not withdraw money from. A sum as little as Rs 5,000 per month can accrue Rs 60,000 in a year plus the interest that the bank pays on it. Every six months, increase the savings amount by Rs 1,000 so that the final corpus increases proportionately. Every time you get a cash gift or bonus/increment at work, do divert the additional money to your savings fund.
Repay expensive debt
Debt can cut into your income every month and reduce your spending power. Besides, it’s a liability that you are well rid of at the earliest opportunity. Some loans are high-interest ones (personal loans, car loans, credit card loans) while others might have lower rates of interest (home purchase loans, private loans from individuals). Identify the most expensive debt and how much of it is still unpaid, and start periodic pre-payment to close the loan faster. You can even consolidate debt to reduce the burden of multiple EMIs.
Create separate funds for emergencies, travel, acquisitions
Life is not just about the hard grind – a little enjoyment and recreation bring flavor to what would otherwise be constant drudgery. Though you must plan to meet emergencies, you must also plan to spend on enjoyable activities like travel, shopping for expensive gadgets, house remodels, etc. However, these are costly heads of expense that cannot always be met with your salary or job income. Thus, you must have separate plans for each. Create separate funds for emergencies, yearly travel, buying expensive items, etc., and use each fund strictly for the purpose it was set for. This exercise keeps your income safe from last-minute spending. Add to each fund periodically the way you contribute to your monthly savings fund.