Too young for Financial Planning?
Often we hear a conversation amongst youngsters that if it’s too early for them to do financial planning. They think that since they are in the nascent stage in their career and have not accumulated enough money yet, what financial planning can be done for them? According to them, Financial Planning is for people who are in their thirties and up who have enough money for it.
As a financial planner, I thought this is where the real difference between financial planning and wealth planning is highlighted.
Financial planning is more for understanding yourself, analyzing your life so far, your perceptions about money and how comfortable you have been in handling your relationship with money. It also makes you think about your future aspirations in your family, career or finance. Then help you create a road-map to reach these goals as without a sound plan your dreams may remain dreams forever. As Mitch Anthony, promoter of Financial Life Planning says the premise here is of ‘ return on life’.
Wealth planning is more focused on the exercise of wealth creation. The premise here primarily is ‘return on investment’. Wealth managers would recommend best possible investment instruments in line with your financial plan to enable you to achieve your life goals. In wealth planning, maximizing profits for client is important.
Both financial planning and wealth planning go hand in hand. Financial planning comes first and later followed by wealth planning.
Today’s generation is facing a unique set of socioeconomic challenges . The global economy slowdown, job insecurity, midlife career crisis and above all lifestyle diseases are major concerns. All this leads to the fact that one has to be more aware and vigil about his financials than ever before. So financial planning today is the need of the hour.
So, How do you embark on financial planning journey? Following money actions will help you in your endeavor.
Action 1: Become financially aware
‘Education is the best remedy of fear’. In project management, it’s often noticed that projects cost higher due to scrap that is generated when things are wrongly done, undone and redone. Same becomes true for financial lives. We do take certain investment decisions which are not in line with our stage of life, our risk appetite and continue with these investments for a long time. This primarily happens due to ignorance. We need to make ourselves financially aware so that we take informed decisions while investing our money and insuring our lives.
Action 2: Create an emergency fund
Life is uncertain and the events in our lives can take any positive or negative turns without any prior notice or warning. How do we get ready for it? Whether somebody looses his job or somebody gets sick in the family, day to day expenses are bound to continue. It is advisable to develop a kitty which will take care of your family’s day to day expenses for next 3 to 6 months at any given time. This will help you not to panic financially in case of emergency.
Action 3: Cover your life
Life insurance and health insurance becomes a must for any individual who is financially responsible for family. Younger you are while taking life cover , cheaper it will be. E.g. A 25 year old healthy man insuring himself will pay much cheaper premium that a 35 year old healthy man. When you are young you are still in the process of wealth accumulation. An unforeseen hospitalization can burn a hole in your investments, you have been saving for a specific goal. To safeguard yourself from such situation, you must buy a health cover.
Action 4: Identify goals and work towards them
Once you have built your fundamentals strongly in first three steps, now is the time to reflect on your life. Where are you coming from and where you want to go. You want to buy a house, you want to start your business or simply retire from corporate life and want to follow your passion of photography by the age 40 ? What is your definition of success in life? What is your road-map towards achieving that dream financial success? So, take a stock of your current financial position, have a vision of what you want to achieve financially and in how much time you want to reach there. Answers to these questions will give you clarity about type of investments you should choose and guard you from Loan Trap.
Well begun is half done. So, young friends, Start early in your journey towards financial freedom …a journey which will give you the freedom of making choices and leading a fulfilled life.