If you are wondering how to do financial planning, the following steps will help you create one:
1. Understanding the Current Financial Situation
The first step in financial planning is determining your income, expenses, savings, debts and investments. Upon finding this, you can pinpoint the ways in which you can improve your finances.
2. Chalking out a Financial Goal
Next, you are advised to pen down your financial goals. The goals should be specific. Knowing your current financial situation will help in forming goals that become easier to achieve.
3. Considering Different Investment Options
Investors have a plethora of options available in the current market. Choosing an investment option that generates more returns is their ultimate goal. However, determining the correct investment tool can become difficult if you do not consider factors like your risk-taking capability, current finances, investment purpose, etc.
Therefore, evaluating these factors will help you to choose an appropriate investment instrument.
4. Making a Sound Financial Plan
After selecting an investment option, you need to chalk out a financial plan that improves your financial condition in the long run. For that purpose, you might seek help from a financial advisor if you are unsure about your plan. They will make the right choices considering your current finances and future requirements.
5. Monitoring a Financial Plan Regularly
The process of financial planning does not end with investing in the right instruments. You need to monitor how your funds are performing regularly. Also, you should consider the probability of changes in case of events like the birth of a child, sudden death of a family member, etc. However, following a financial plan is advisable as it can help achieve goals.
Now that you know the financial planning procedure, you can plan according to your needs.
Broadly speaking, there are two types of financial planning one should know about. They are short-term and long-term financial planning. Let’s understand these two financial plans in the following section.