Financial Planning Tips for Beginners: Where should I start?

Financial planning is very critical in building long term wealth. It helps in answering many unknowns and ‘what ifs’ in our journey towards prosperity. Perhaps financial planning is more crucial than ever in today’s era of chaos and uncertainties.

Many freshers / beginners who have just entered into corporate world face the daunting question : Where should I start?

Here is 5 steps guide on how you should take control of your financials.

Early Bird gets the worms

1.     Start Early…. Start Today
  

It’s often said that “Early bird gets the worm”. This is perhaps most apt in world of financial planning. Let’s learn this with an example.

Let’s take example of two friends, Ramesh and Kumar, both 23 year old, who have landed in their first jobs. Let's assume both earn approximately Rs 25,000 a month.

Ramesh the “live the moment” type guy, is not bothered about saving money and spends almost everything he earns. On the other hand, Kumar is the conservative one and know importance of saving for the rainy day. Kumar invest just a little over 20% (or 5000) in investment plan suggested by his financial planner.

Ramesh realizes his mistake after 10 good years after looking Kumar accumulated corpus. He decides to copy Kumar’s investment planning and started investing Rs 5,000 per month. Now let’s assume a CAGR of 12% over the investment period for both Ramesh and Kumar. Now can you imagine the difference between amounts accumulated by both at end of investment period (20 years)?  The difference will be staggering Rs 1.25 Crs.


2.   Define where you want to go

When we embark on any journey, we must know where our destination is. Same apply in financial planning too. Make a list of your goals, the timeline of when you wish to achieve your goals and then prioritize them. Goals and priorities will vary from person to person and hence just copying someone else’s plan won’t work. If someone is from well to do background, his goals would be buying his dream car vs for someone from a more humble background buying a flat will be aspiration. For both these goals, both timelines and capital required vary greatly. 

2    3.  Goal categorization

Financial goals may be categorized as

a)     Emergency Fund

b)    Repaying of loans

c)     Short / Medium / Long Term goals

Note : we recommend having a emergency pool equivalent to minimum 3-6 months. This should be first step of any planning. Now, when we hear sudden industry lock downs announcements, that may affect monthly cash flows persons employed, such emergency pool become more critical and must have.

4.   Buy Life / Term Insurance

Usually we see people defer buying insurance till the time they start family / have kids. But we suggest buying Term / health insurance as early as possible. Term insurance premium for 30-32 years old may cost 20-25% more as compared to that for 20 years person. So why delay? Also in case you get some medical condition as you grow old, health insurance will become further expensive.

5. Consult financial planner 

A financial planner is not just an investment advisor or a mutual fund agent, but he will help you shape your overall finances. He will help you in organize and manage finances, plan for retirement and estate planning.  As a doctor advise is crucial for our health, a financial planner makes wonder to your financial health

About Us

We are a neo advisory firm that believes in Goal based investment. We offer advisory services in Mutual Funds and retirement/ Life insurance domain. For any clarification / investment needs call us on +91 9325295502.

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