The world of financial planning can look like a whirlwind of numbers and jargon to a new investor. Whether it’s mutual funds or stocks, you need to be clear about all the rules and liabilities before you put your hard earned money into them. However, while the learning curve looks quite steep at the first glance, the gradient becomes easier to tackle as you move forward in your financial planning journey.
But don’t worry, you’re not alone. You’re not the only one who’s faced with this seemingly impossible task of understanding how you can put your money to work. There are countless people who are sitting on their computers as you read this, trying to find out what ‘credit score’ means. And as you may already know, that’s not even the tip of the iceberg. So be ready to take down some notes, here are x things you should know before you start with personal financial planning.
Stop Being Nervous
If this is your first time dealing with investments, we can safely assume that you’re probably quite uncertain about what happens next. Well, don’t worry about it. Just the fact that you’ve decided to do this implies that you’ve already taken the first steps towards securing and stabilizing your financial future.
If you’re ever nervous, feel free to get in touch with your financial advisor and ask them as many questions as required to put your mind at ease.
Build Your Future Roadmap
As you grow older and experience different situations and multiple changes to your life, your financial plan should be built keeping all major life milestones in mind. From buying a house, starting a family, sending your kids to college, and eventually, retiring, a good financial plan takes cognizance of everything that life may throw at you.
The point is, don’t assume a linear trajectory for your financial planning journey. There are many twists and turns along the way, so be prepared to change gears as and when required.
Invest In Things That Matter
Many rookie investors make the mistake of going straight after the pot of gold and look for getting the highest returns in the shortest period of time. Unfortunately for them, they soon realize that such an approach only sets them up for failure. When you’re making an investment you need to think beyond ROI. Identifying when you need money, why you need money, and how much you may need is the key to financial planning.
Always remember that you’re doing this for yourself and for those you care about. You’re not investing simply to make money, you’re investing to ensure that you have a satisfying and fulfilling life without money being a constraint for the things you really want to do.
Categorize Your Goals
An average adult can broadly classify their financial goals into four different categories –
- Debt Repayment – As the name suggests, this covers all your current and upcoming debts and how you plan to clear them off in a stipulated period of time
- Emergency Funds – Savings which can be accessed immediately in times of dire need
- Short-term savings – Saving for upcoming life events, international vacations or for a big planned expenditure in the near future
- Retirement savings – Simple enough; saving for a comfortable life after retirement
When you start making your plan, make the effort to categorize your goals accordingly. If needed, hire a certified financial planner to help you out.
So what happens after you invest? Do you just sit and wait for the policy to mature or the stocks to rise? Absolutely not. Making an investment is like building a multi-layer cake. You need to be careful at every step of the way, and you need to make sure that the next layer is the right layer. Similarly, with investments, you need to be meticulous in your tracking and planning, making sure that you don’t stray from your financial goals at any point in time.