Beginners Guide To Financial Planning

What is financial planning?

Financial planning is an approach that helps you fulfil your life goals. A financial plan us usually a document that defines your goals and the strategies that you can employ, to fulfil them. Financial planning enables you to control your income, expenses and investments, and maintain good financial health.

What does financial planning cover?

Financial planning covers all aspects of life goals. It broadly includes:

• Goal planning

• Retirement planning

• General and life insurance planning

• Creation of emergency funds

• Investment planning

• Tax planning

Reasons why financial planning is important

1. Helps sustains inflation in future.
2. Helps you achieve short, medium, and long-term goals.
3. Prepares you for financial and medical emergencies.
4. Enables you to lead a comfortable retirement life.

Example of financial planning

Say, you have a 7-year-old daughter and you wish to send her to abroad for further education, when she turns 18. For this you need to create a corpus. You can create a financial plan to estimate the cost of this goal and accordingly invest in securities. Early financial planning can help you create the corpus you need.

Financial planning for beginners- How to go about it

• Start investing from a young age.

• Create a budget and stock to it.

• Invest in health and term insurance from young age to get benefits like increased sum assured and lower premiums.

• Control your expenses and limit your debts (including credit card debt)

• Invest through SIP in mutual funds.

• Invest in tax saving instruments to get tax rebates under section 80 C and 80 D.

• Seek financial advisory services to manage your finances.

How to start investing?

Today most of the investments can be done online through demat and trading accounts with SEBI approved stock brokers like ICICIdirect. Once the account is opened, you can start investing.