Did you just take home your first salary? Wow, Congratulations!!
Did you know that earning money is only one side of the coin? The other side is managing money.
We all study for 16 or 17 years so that one day we get a job and earn good money.
But no one teaches how to manage it.
This is the reason why so many young people earn a decent income but their financial condition is not stable.
They are unable to create wealth.
It is like earning a huge amount of money and storing it in a bag full of holes.
At the end, there is nothing left.
Step 1: Ensuring Risk Coverage
The first step to take is to ensure risk coverage for your life and health. This is because, God forbid, anything tragic happens to your life or health, the whole plan will not be derailed. That’s why it is crucial to ensure that your life is covered and your health is covered.
You need to take a plan which offers maximum coverage at minimum cost. Your sum assured in life insurance should be at least 100 times your monthly income (rule of thumb). In case you have huge long term liabilities, the sum assured should also include it additionally.
Similarly you have to ensure sufficient health cover for yourself and your family.
Step 2: Creating Emergency Fund
The next step is to create an emergency fund which will be used during, emergencies, of course. It would be prudent to define what constitutes an “emergency” so that no confusion arises in future.
This step is necessary again to avoid any derailment of your long term financial planning. During emergencies, your long term investment funds should not be compromised by premature withdrawal. An emergency fund can help you ride the tide.
An ideal emergency fund should be around 3 to 6 months expenses. It would be wise to have an emergency fund worth 9 to 12 months expenses if your job is uncertain, or you have other potential liabilities.
Step 3: Goal Creation and Prioritizing
The third step is to create financial goals, including the target amount required and number of years in which to achieve it. Once the goals are decided, you need to prioritize them so that we can decide how much money should be allocated to each goal and how soon it should be done.
The target amount needs to factor in inflation. Depending on the number of years to achieve the goal, money can be invested in short term or long term investments.
Time available on hand and your risk appetite are the two crucial factors influencing your investment vehicles.
Step 4: Analyzing Existing Investments
If you have any existing investment, it needs to be analyzed to find whether it fits into your goals. If it does, it can be allocated to a suitable goal. If not, these investments need to be liquidated and funds released for new and appropriate investments.
Amount available for investment is also a huge factor which affects financial planning. That’s why it is important to create a budget and follow it strictly. This is also a crucial step which would release funds for appropriate investments according to the goals specified.
Step 5: Say NO to Procrastination
People do realize the importance of financial planning and proper investing. However sometimes the biggest hurdle is procrastination. They always postpone it for tomorrow. And tomorrow never comes. It becomes too late before they realize it and liabilities start piling up.
The only thing that remains after that is regret.
So say NO to procrastination and start now.
Surprise: I promised you a surprise at the very end. Here it is:
I will be personally mentoring a limited number of people. I can’t take in more because :-
I will personally make myself available to help you plan and implement each step mentioned above with customized recommendations based on your financial situation.
I will educate you, as needed, regarding wise investment options, depending upon your risk appetite and time available for each goal.
I will be available to answer your questions and doubts, if any
Together, we will kick-start your journey to stable finances and financial freedom.