A Complete Guide: How to do a Proper Financial Planning?

Once you attain financial independence, it’s important to ensure that you remain financially independent for the rest of your life. You may also have to support relatives, spouses, children, parents, etc. out of your income. 

Proper Financial Planning

Your lifestyle, status, income, age, and circumstances could change, and your financial commitments may increase. You need to save for retirement and/or unexpected crises that could dry up your income and ramp up your debt. 

It’s wise to have a proper financial plan in place to avoid anxiety, stress, confusion, and making costly financial mistakes. This helps you to keep track of where your money goes, where it comes from, and how you spend it. It can also give you support in times of need and ensure that you maintain the lifestyle you want. 

Factors That Affect Your Financial Planning

It’s a smart move to find a financial advisor in San Francisco with the right experience and reputation who has been established in this business for a considerable amount of time. She/He would have the expertise and knowledge to give you the right inputs. Being professionals, they keep themselves updated with the newest amendments and regulations so that you would always remain in compliance with existing tax laws and financial statutes. 

There are several important elements that could influence your financial planning. They include:

Your Current and Future Lifestyle:

These are important aspects to consider, especially if you aspire to a higher standard of living in the future as compared to your current one. Lifestyle features such as the kind of home and car/s you own/wish to own, holiday plans, social life, etc. can determine how you need your investments to work for you. If your current level of income is at a particular point, and you’re sure that it will increase over the years, your financial planner can plot a suitable route for achieving your goals.

Age and Time:

The younger you start with financial planning, the more time you have to reach your goals. If you’re younger, you would have a higher appetite for risk, and you can choose higher-risk higher-returns investment products and not worry about damaging your financial future. You may also have enough time to educate yourself in financial aspects and gain a better knowledge of finance and planning. 

Aspects Beyond Your Control:

Global events, political stability/instability, war, pandemics, etc. are occurrences that are out of your control. The fluctuating currency rate, price of oil, and your country’s economic policies could impact your savings and income. Similarly, inflation must be factored into any good financial plan as the worth of your money could be very different by the time of your retirement. 

Tips For Proper Financial Planning

Types of Financial Planning:

Your financial plan must be calibrated to include short-, medium-, and long-term plans. 

  • Short term planning is focused on immediate requirements – for instance, saving for a medical emergency. It involves creating a corpus to meet a specific need and can be achieved through investments in high liquidity funds. This type of planning covers a shorter period of about a year and can be rectified/modified whenever it doesn’t seem to be working. 
  • Medium-term planning is required when you have a five to seven-year window to work with. You may have plans to go on a dream cruise for a milestone birthday/anniversary, save for your wedding or educational purposes, purchase a luxury vehicle, or invest in property. This can be achieved by investing in debt funds, time-specific bonds, fixed deposits in banks, etc. 
  • Long term planning is typically to meet end-goal requirements, such as retirement, usually starting at a younger age. You can plan for expenses such as your children’s education with a twenty-year window to work with, so you can invest in safe shares, equity funds, etc. 

Use The Right Tools:

The present generation has very different financial goals and career aspirations. They rarely stay with one company from recruitment to retirement – instead, they explore different career options and may switch fields and areas of interest completely. Many of them turn entrepreneurs and launch their start-ups, which could take a financial toll if they fail to make the grade. In such a situation, saving for retirement needs to be a carefully planned move. You can use several tools such as structured government funds and programs, savings deposits, tax-savings schemes, term deposits, market-based investments, etc. 

Keep the End Goal in Mind:

People often get caught up in the finer details of financial planning, forgetting what their ultimate aim is. Financial planning aims to achieve something that cannot be done immediately and has to be chalked out. It’s important to have a mission/vision of what you want your life to be at the end of your income-earning years, and this will go a long way in helping you create an effective plan. 

Some Things That You Can Do:

While your financial advisor can certainly chart the path for you, there are several things that you may have to rely on yourself for. For instance, set reminders for certain events such as filing your tax returns, pulling your credit reports, making fresh investments, etc. You can also check interest rates periodically to ensure that you’re getting the best when you invest and paying out the lowest when you borrow. 

Follow The 50% Rule:

As soon as you get your paycheck, make sure that you keep it in a separate account and draw from there for your expenses. This helps you keep track and also feel confident about your spending habits. According to financial experts, allocate 20% of your income to building up a nest egg, saving for a rainy day, paying off high-interest debts, etc. and allocate 30% of your income to maintaining your lifestyle. This gives you enough to spend on eating out, movie and concert nights, shopping, gifts, etc., and you could be surprised to learn that you can even save something out of this budget every month.

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