6 Key steps in financial planning

Identification of goals: An individual or business must determine their long term goals and understand the financial requirements to achieve them. Ask yourself questions like “Do I need to buy that villa?”, “at what age should I retire?” or “where do I see my business in five to ten years?”, “What kind of investors should my business attract” and so on.

Amassing financial data: Understanding crucial things like your current net worth and the projected net worth over a period of time is important. Determine the value of your investments, liquid cash, additional assets like land, flats, properties etc. versus your debt. See how much cash is flowing in and how much is going out. Take a gander of your annual spending habits as all these things are tied into your financial plan.

Put it all together: Contrasting your goals along with the data about your annual income, expenses and net worth is the next step in financial planning. If the numbers don’t add up the way you’d have liked them to, don’t be disheartened. Remember that this is a process and you are currently only creating a map that can take you where you aspire to be from where you currently are.

Devise immediate medium and long term plans: A common immediate thing to do is to make and follow a budget. Reducing debts on credit cards and other high interest debts is a standard medium term plan, effective for unlocking long-term growth. Life stages also help dictate a few things. If you are drawing close to retirement and haven’t saved enough, now is the time to sit up and consider financial planning.

Put the plan into action: Make sure your set realistic and achievable goals, while also checking on your budget and short-term goals every month. Setting a simple goal like reducing credit card debt, by say ₹10,000 every month facilitates the medium-term goal of improving your credit, which further aids your long term goals like saving for retirement or purchasing a home.

Keep monitoring and updating your goals vis-à-vis life events: Even if you may have planned everything, you must remember the presence of an x-factor; certain life events that can intervene with your plans. A sudden health crisis or being laid off from a job, are some factors we cannot foresee. Make sure you keep checking on your finances and updating your goals even when life intervenes.

Source: http://www.karvywealth.com