06:23 28 November 2013
Every person needs to have a plan for his or her finances just like you need a career road map to accomplish your professional goals. What is financial planning? In a nutshell, it is a step-by-step process you design to achieve a certain financial status. With enough determination and discipline you can do this yourself, or with minimal professional help.
Maybe that still sounds daunting- but here is how you can get going:
Without clear goals in place, all efforts go down the drain. These take the form of both long term as well as short-term needs. You may have an intermediate goal of buying a car and the long term goal of building enough savings to retire. Not only do these goals help define how much money should be saved, spent and invested in your financial planning, they also prevent splurging.
Now you must outline what is called your “personal net worth” and “cash flow”:
a. What is your source of income? Salary, rental / business income, dividend, etc.
b. What are your expenses? Food, medicine, rent, utilities?
Be honest. Otherwise you’re doing this for nothing. I highly recommend using a Microsoft Excel sheet, or you can use good old paper and pencil. This is your budget sheet.
For your balance sheet, you need to list all assets (value of your house, car, investments, cash, and so on) and your liabilities (outstanding loans, debts, etc.).
You have defined your goals clearly. You have made a financial plan. You have assessed how much money you need to save/invest to achieve your goals. What is next? Start working towards your goals. It is easier said than done.
I cannot over-emphasize the importance of this. It’s the hardest part- living your plan day by day. Don’t let panic, or lethargy, or the varying nature of the market knock you off course.
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