Keys to Financial Planning

"I know at last what distinguishes man from animals; financial worries." - Romain Rolland (French writer (1866 - 1944)

Financial planning is a process of setting certain financial goals, assessing your assets and also planning for the future financial requirements. Financial planning is important if you are planning to make future investments and also to achieve your monetary goals. The elements involved in financial planning include asset allocation, tax, retirement planning and investments.

Setting priorities and careful planning is necessary to achieve a long-term monetary benefits. The term "Financial Planning" means different things to different people. For some, it may mean investments on retirement policies to provide security at old age. While for some, it may mean putting aside some amount for higher education of a dependent or himself. Choosing the right kind of insurance product also falls under financial planning.

Financial Planner

If you are planning to achieve your monetary goals in a fixed period of time approach a financial planner. A financial planner would be in a position to help you achieve your goals by giving useful suggestions. You need to understand, financial planning is not about short-term investment but planning for the long-term financial goal. The financial planner can give you useful suggestions regarding the investments and also would chart out a long-term achievable and realistic monetary plan. Before you plan to meet a financial planner, it would be a wise idea to identify your goals and priorities.

Keys to Financial Planning

One of the basic rules of financial planning is spend less than what you earn. Many people find it difficult to follow this simple basic rule. Many of us forget the saying "money saved is money earned" and tend to spend more than we earn.

Make a budget. This is one of the keys to effective financial planning. Without budgeting you would not know where your money is being spent unnecessarily. Set aside certain amount of money for emergency purpose every month.

Avoid using credit cards. Many people do not realize that they are paying the real money when they swipe the plastic card to pay for their purchases. Remember, a credit card debt is one of the major obstacles to achieve a financial goal. Pay off the credit card bills before charting out the financial plans. The reason is, the rate of interest of a credit card is high and it could destroy your financial plans. Till you clear your credit card bills cut down on your expenses and pay using cash.

If you have any loans with high interest rates, it would be wise to pay off at least a part of the principal amount. Clear your debts, if possible. Most of the people think it is better to clear off loans with smaller amounts or low rate of interest first. But that is never a good option in the long run. It is better to pay off loans with highest rate of interest first.

Buy a good insurance policy to help your family tide over at the time of unforeseen eventualities. Investing in an insurance policy such as life insurance and medical insurance is a key to good financial planning.

Remember to keep records of all your investments and bills. This would be useful while claiming the income tax deductions. You can maintain a file or make a system to keep the financial records.