Financial planning is a process which helps you to manage your finances. It works by linking your investments to your financial goals so that you can secure your future and be ready for life’s surprises.
The right time to start financial planning is as soon as you start earning even if your income may not be high at this point. Starting early will instill discipline in you and it will become a habit instead of urgency in the later years of your life. It will also give you a bigger benefit of compounding and thus a bigger corpus for your later years. At this age, you can afford to invest in riskier investment option such as equities. You will also be able to buy insurance at a low premium when you are young.
You can start by saving a percentage of your income every month. You can use this savings to start investing which will be in accordance to your various goals such as purchase of assets, buying insurance, vacation planning. You should increase your investments as your income increases. One of the important points to remember is that the returns on your investment should help you to beat inflation. Even though it may seem early, it is also the right time to start investing for your retirement.
Until few years back there were not many investment avenues and there was also lack of financial literacy. People mostly saved in bank accounts or in FD which give lower returns compared to other options. So if you are in your 30s or 40s and you have not yet started financial planning, you can still start it now as it is better late than never. It is also the time to rectify any financial mistakes you may have committed in your 20s.
This is the age you will most likely have your own family. Thus you should make place in your investments for the higher education of your children, their marriage and life and health insurance for you and your family. Your home and other assets should also be adequately covered.
If you are in your 50s and 60s, it is the time you need to start being conservative with your investments. Debt oriented investments should be your preferable option. At this age you will be able to reap the rewards of the investments you made in your younger years. Buying insurance at this stage can be very costly, so make sure your insurance is in place before you reach this age. At this point, your focus should be to get regular cash flow after retirement. Investing in pension schemes such as provident fund, national pension scheme will give you a good retirement corpus.
At any point in life make sure to have enough liquidity for emergencies.
Therefore, the mantra for sound financial planning is to start as early as possible, define your goals, make changes whenever necessary and don’t forget to plan for retirement.