Do you find managing money challenging? Are you in financial stress because you are unsure how to achieve your financial goals? If yes, you need a personal financial plan.
A financial plan acts as a guide to achieve your goals. It includes your financial objectives and a step-by-step process to fulfil them. You can create your financial plan or seek professional assistance.
The only problem with financial planning is that most people don’t know where to start. The good news is it’s never too late. You can create your financial plan even without professional help. It’s not as difficult as you think.
So, let’s understand how. But first, we need to know what a financial plan is.
What is a Yearly Financial Plan?
A yearly financial plan is a method to determine where you stand economically at a given time. It involves tracking all your assets – how much you earn, save, spend, and the money in your retirement fund. It also includes debts like loans, credit cards, and personal loans. Regular expenses like mortgage, rent, utility bills, and other monthly costs are considered.
When creating a yearly financial plan, you must focus on your goals and what it takes to achieve them. It may involve pension schemes, tax plans, and investments.
Step 1: Assess Your Current Situation
To begin, understand where you are now. This means understanding your current situation. Use a notebook or an Excel sheet to include:
After analysing these aspects, you can easily understand your current situation. Also, review your bank statements for the past 6-12 months. Highlight irregular expenses in one colour and regular payments in another.
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This helps you understand where your money is going. Then ask yourself:
Step 2: Define Your Goals
Now that you understand where you are, you need to know where you want to go – what your goals are.
When setting financial goals, use the S.M.A.R.T technique. Write down your goals and how you plan to achieve them – your strategy.
For example, ‘I want to have at least 5 lakh rupees in my savings account by the end of this year’.
Set smaller goals too, like, ‘I will invest 20,000 rupees from my salary for next month’.
Small goals keep you motivated.
Step 3: Plan for Your Debts
No one enjoys being in debt, so a personal financial plan can help.
Your payments, loan EMIs, and interest rates can hinder progress toward your goals. Therefore, first decide how you will repay your debts.
Step 4: Maintain an Emergency Fund
This doesn’t mean that your financial plan is foolproof because predicting what might happen next is difficult. Unexpected events like sudden illness or job loss can occur. So, always keep enough money in your emergency fund to face any adversity easily.
Step 5: Invest for Your Future
If you manage to save some money after covering all expenses, start investing for your future. This doesn’t just mean saving but making sure you invest in the right places.
For instance, if you are planning a retirement scheme, consider:
Step 6: Review Your Investments
It is crucial for investors to assess their investments while creating an annual financial plan.
Review your portfolio. For example, check if your stocks are growing in value.
Determine which investments align with your goals and if your current investments match your profile.
Step 7: Rebalance Your Portfolio
Regularly rebalance your portfolio. This involves selling poorly performing stocks and replacing them with better ones. If you are unsure how to rebalance, seek expert advice.
Step 8: Track Your Plan
Creating a financial plan is not enough; you must track it over time. This helps you gain confidence that you are not overspending. Use mobile applications to track your expenses and investments. Review your financial plan every three months to ensure you are moving in the right direction.
Conclusion
A financial plan should be your first step in your financial journey. Tracking your expenses and investments using mobile apps can be beneficial. Always update your plan when significant events occur in your life.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
*Disclaimer:Teji Mandi Disclaimer
