“Someone’s sitting in the shade today because someone planted a tree long ago” – Warren Buffet
Our current generation (1980-2000)’s is enjoying the life at age of 25-35, that the previous generation (1960-1980)’s people achieved at their retirement time, like bike, car, and home, etc.
In recent decades, when a person gets a job, he/she tends to buy a bike with the help of EMI, though their salary is a maximum of 15k. Then, once they reach a position to earn 35k, their mind is ready to buy a car through car loans, and in the next promotion, they get a home loan.
This leads to a heavy financial crisis and this is because of improper money management and improper financial planning.
Foremost, one must have a clear knowledge about what they need and why they need it. They have to understand the difference between WANTS, NEEDS, and SAVINGS.
On all occasions, before buying anything instantly, plan it as a goal, work and save for it. Make your goals emotional and work to achieve them in life, so that, there won’t be any addition to your debts.
Financial planning makes you build your asset rather than liabilities and debts.
Here, we are taking you through the phases of,
- What is financial planning?
- Benefits of financial planning
- Proportion we must do for financial planning.
WHAT IS FINANCIAL PLANNING:
The process by which we plan our future endeavors like smart goals, asset allocation, and retirement planning thereby beating the Inflation.
When a person has proper financial planning, they can be more assured about their future. Proper planning can make our future safe.
Thereby, proceed with a peaceful mind, it reduces stress, which ultimately leads to a better healthy life. In simple terms, financial planning is saving a part of your monthly income before spending it for a particular month.
This might fulfill your dreams and financial freedom.
BENEFITS OF FINANCIAL PLANNING:
- Can be debt-free, EMI free.
- Will become more vigilant of what you spent and where you spent.
- Plan your goals and achieve them.
- Wealthy at your retirement and can retire early.
- Can save more, as a consequence, you can invest more and yield more capital gain.
- You can provide the best education to your children which they dreamt of.
- Lead a healthy and happy life for which we all are born.
ALLOCATION OF MONTHLY INCOME FOR FINANCIAL PLANNING:
When it comes to the segregation of monthly income for financial planning, the part which we allocate for savings is the part for financial planning. Most often, Financial Experts say 50% on Needs; 30% on Wants; 20% on Savings.
DIFFERENTS BETWEEN NEEDS, WANTS & SAVINGS
- NEEDS is something that is necessary for an organism to live a healthy life, without which you can’t survive. (e.g.) Food, Groceries, House Rent, EB Bill, Water Bill, Milk Bill, Medicine, Term Insurance, etc.
- WANTS is something without which one can live or survive, it just adds some fuel to our life, (e.g.) Shopping, Grooming, Movies, Outing, Trips, etc.
- SAVINGS is something which we take some amount from today’s earning for the life after retirement and also for our goals and desires to achieve.
Practically, 20% of savings from total income cannot make you richer, you have to start saving more than 30% – 50% minimum. Here are a few steps to make it possible.
BEST PRACTISE IN PLANNING:
- Start figuring out the expense where you spent unwisely and stop those habits.
- Stop using credit cards.
- If you spend on unhealthy habits like smoking, drinking, please try to reduce it and park that money further into savings.
- You shouldn’t touch anything in NEEDS, but you can plan to reduce WANTS and increase your SAVINGS
- If you go to the office on daily basis, try to avoid motorcycle instead use any public transport.
- If you have any EMI’s, please pay it soon. Once you clear you’re EMI, park the same EMI amount in savings.
- If you are paying rent for a mortgage, try to accumulate the amount for lease and park the rent amount for savings.
- Don’t buy anything for EMI or Personal loan.
Through these small changes in your life, you can increase your savings. When you start your financial planning, it’s really hard to save 20% of your earnings. So, start to save a minimum of 5% from your earnings and gradually increase it till you save a maximum of 50% from your earnings. So, you can build a huge corpus (strong asset) which eventually gives you a peaceful life.
Plan wisely to increase your savings, invest them wisely to beat inflation, and lead a financially free life.
This subject is completely taken from a practical sense from most of the successful financial leaders and even from my mentors and myself.
If you have any thoughts or comments please do share with us. Also, if we need to cover up on any specific topic please let us know. We will work together in bringing valuable content to enhance the wealth of your life.