Do you know that is the main thing that makes people fail in their financial planning? The fact that they remain unaware of the problems and the things which need to be done to solve them. In our financial planning, we do plan a lot thinking that we are doing the right thing. However, that does not always prove to be sufficient. Thus, it is important to know what are the key components which you need to focus on when making a road map for your financial life.
In this blog, you shall learn about the various aspects of your personal finance. This shall give you a good idea of your complete financial picture.
Before we dive deeper, it is useful to know that the 5 levels of creating your financial plan are:
Saving: The main thing on this level is to save enough to face a sudden financial need.
Investing: Investing is more important that you give it credit for. This lets you aspire for your goals.
Financial protection: These take the form of insurance plans and savings which protects you and your family, especially during tough times.
Tax planning: When you have a proper tax planning process, you can bring down your expenses and save a lot more than what you are now.
Retirement planning: This is a crucial part of your financial planning. You need to save up for your retirement, when you’ll have nothing to fall back on but your savings. Here is where you need to make sure that you have a big enough savings or bank account for your twilight years.
You never know when you may need a lot of money. It can be as commonplace as a car breakdown or as serious as unemployment for a few months. At times like these, you need as much savings as you can have. Experts say you should have savings enough to meet 6 months of all expenses. This is why you need to invest in debt instruments. These give you better returns than savings accounts, are highly liquid and have low interest and credit risk.
Investing is different from savings. When saving, you are putting money aside. When you are investing, you are making your money grow. For investing, mutual funds are an all-round investment option, but only if these are used right. You need to choose the right fund, according to your needs and risk horizon. Pick mutual funds based on your short term goals, mid-term goals and long-term goals.
Financial protection is what actually makes our dreams and visions come true. These give us and our loved ones a safety net, but if the protection plans are not chosen well, these can turn into a liability. Here, we are talking about insurance. There are 43 types of insurance of which you need to know and have. These are Term insurance, Health and Critical Insurance, Mortgage Protection Insurance and Personal Accidental Insurance.
We can reduce how much we give in taxes, even though we need to adhere to tax slabs. There are as many as 70 tax exemptions and deduction options for you. With these, you can bring down your taxable income. The most important ones here are Section 80C and Section 80D.
Retirement planning is essential. When you have retired, you’ll just have your savings to fall back on. To plan for your retirement, you need to build a retirement corpus and plan to generate an income on retirement.