Sure you’ve heard of the saying “money can’t buy success” and while it may be true to an extent there’s no denying that it money certainly helps make things easier. Not only for you but also for your close family. Most causes for depression are due to unstable financial situations. Unstable financial situations are in turn caused due to poor handling of finances. Anyone who had trouble handling their financial ins and outs needs a better financial plan.
Why do you need a concise financial plan?
Because it works. Simple as that. Managing finances isn’t just throwing some money in the bank and letting it sit there. No, you need to prepare for each and every obstacle you may face over the course of your life. A better financial plan would be one that deals with such obstacles which include but are not limited to:
- Loans: One of the biggest troubles people face when dealing with life is the inability to repay loans. These loans can be anything. From housing loans to help purchase your first apartment or car loans to purchase your first car (provided your credit score is high enough), these all add to the fire burning a hole in your bank account. The biggest victim of such loans is generally students. Normally students take loans in exorbitant amounts to pay for their college tuition fees. Students work part-time in an attempt to pay off the loan but if things go haywire in college they end up being stuck with a mountain to pay. These all can be extremely mentally taxing and the best way to know how to handle loan payments is to chart out a proper financial plan.
- Debts: A debt is a direct consequence of failing to pay a loan. The loan doesn’t necessarily have to be a bank loan. It can be something as simple as borrowing money from a friend for a medical emergency or whatnot
- Post-retirement woes: When you’re earning, you’ll feel like you’re on top of the world. However, how do you cope when you have no income source after your inevitable retirement? Not everyone, especially those working in the private sectors, is eligible to receive a pension that can keep the flow of income smooth. Sure you’ll have some savings but it’s only a matter of time before those get exhausted. There are many stories of athletes and celebrities who go bankrupt because of their inability to manage their exorbitant finances after their retirement. A financial plan will teach you how to deal with the post-retirement syndrome and manage your assets in such a way that you’ll never have to worry about going broke.
- A succession plan: Anyone who has a decent number of assets will naturally want to pass it onto their children after their death. However, when you gave multiple children, internal conflicts may arise over who gets what. Sometimes the conflicts can create unrepairable rifts within the family. To avoid this, ensure your financial plan goes over the terms of succession and how you can write an effective will to distribute your assets.
- Medical emergencies: Let’s be real here, everybody is going to have some sort of medical emergency or at the very least, some sort of hospitalization at least once in their life. If you’re getting admitted into a private hospital, the expenses can be exorbitant. If you’re someone that falls into the middle-class category of the financial spectrum, such situations can cause serious problems. Normally people use medical schemes or health insurance to cover up expenses incurred. A good financial plan will help you understand what scheme is the best for you and your family.
How can I get my financial plan better than before?
Okay cool. You do understand the need to have a proper financial plan and the risks associated with not having one. However, if you’re still finding yourself exhausted at going through various calculations yourself you can always hire yourself a financial consultant.
A financial consultant is also called a financial advisor. The main objective of a financial advisor is to create a better financial plan for you. They sit down with you and make a highly detailed introspection of your savings and expenses before translating all that information in a manner that is understandable by a novice such as yourself. The advisor will then draw up a rough draft of the plan they wish to propose, again in a manner that is understandable for you. It’s up to you to accept it or not.
Ultimately the effectiveness of the financial plan proposed depends upon two things. The skill and experience of the financial consultant you hired and the honesty in which you answered their questions. The question and answer session is very important because it gives the only opportunity for the consultant to truly understand your situation and chart out a better financial plan for your situation. In such a situation even a detail that you think is insignificant might help your advisor a great deal. So it’s best to be completely transparent.
If you want to hire a good financial advisor, you should know that most advisors or consultants work for firms. So the only way you can get assurance is by checking reviews of the firm on Google or by asking somebody who has been in contact with them. Of course, this isn’t a foolproof method of landing a skilled advisor but it can most certainly help.
Better ways to be financially prepared for the future:
Now that you’ve been warned of the risks that come with not being prepared financially for the future. It’s time to look at some tips that can save your financial situation should a dramatic situation arise:
- Proper saving of money: Yes, this advice sounds like a massive cliche but you’d be surprised at the number of people who grossly mismanage their finances once they get older. Constantly blowing away your paycheck on expensive materials or outings may be fun in the short term but in the long run, if you find yourself in a situation where you are in desperate need of money, you’ll be regretting your life decisions more than ever. Systematic saving of money can help you lead a comfortable life even in the event of any sort of financial emergency. It is advisable to save at least 10% of your monthly income. Do note that simply storing the money in a locker isn’t enough. Invest it in something like a liquid fund which will allow your savings to grow with interest.
- Manage your expenses: If you find yourself struggling to save up and just getting by every month, try to analyze where your money is going. Cut your expenses down to the barebones i.e. only spend on essentials such as food, rent, and travel. Maybe you don’t need those extra drinks at the bar or that golden watch. Control your urge to spend and you’ll reap the rewards soon enough.
- Don’t let your debt accumulate: Focus on paying one loan at a time. The debt trap is one that is very hard to come out from. Having tons of unpaid debts can land you in financial trouble. Also, the more unpaid debt you have, the worse your credit car score gets. Your credit score is a three-digit number anywhere between 300 to 800. Any score below 650 is considered to be poor and will leave you ineligible for some benefits.
- Maintain a sheet that lists all your expenses: Call it a balance sheet. The main purpose of a balance sheet is to calculate your personal net worth which is the difference between your assets and your risks/liabilities. A liability can be anything like a home or bank loan, debts, etc. Assets are your bank balance, property value, and so on. Tally all them up and subtract assets from liabilities and voila, you have your net worth. Negative net worth isn’t ideal but doesn’t start stressing out just yet. Keep repaying any remaining loans systematically and work your way up, you’ll get there eventually.
- Identify short and long term goals: Anything that takes more than three years can be classified as a long term goal. A short term goal is something that can be achieved within a year or two. A better financial plan would be one that has the perfect balance of achieving both short and long term targets. Normally short term goals are saving up to buy a car or a laptop. Ensure that your short term goal is absolutely necessary because sometimes it might be unnecessary.
- Deal with taxes smartly: To most people, especially young people, taxes may seem like this amount you have to pay to the government but the reality is far more different. There are actually various tax exemptions and benefits which can help you overcome your liabilities a great deal. However, note that there’s a fine line in tax planning and tax evasion which becomes a crime in the eyes of the law. So do your research properly to ensure you stay on the right side of the law.
- When buying stuff, always look for the best deals: The stuff here can refer to anything from cosmetics to clothing or even that video game you’ve been dying to play since the trailer came out. Financial planning doesn’t necessarily mean that you have to cut off yourself from any type of leisure-related pursuits. It’s important to be smart and stingy when it comes to shelling out cash for items that are more of a luxury than a necessity. For instance, there are usually lots of great discounts offered on sites like Amazon during festivals or holidays. Keep an eye out on the news and use these sales festivals to the fullest extent. Also, check if you have any spare coupons lying around. If you see a game with a high price on one site, check another site to see if you can get it for a lower price. Every penny counts and if there is even the slightest possibility of you getting a product lower than its MRP, then you better frag that opportunity with both hands.
- Ensure you have insurance: As mentioned earlier in the article, sometimes you’ll get medical emergencies or run into some type of accident. In that case, you’ll have to shell out a lot for repairs or operations. To avoid this, get a comprehensive insurance scheme that is best suited for you. Insurance can apply for health or car damage or even property damage. The type of coverage offered depends on the area you live in and the bank you go to for insurance. A better financial plan is one that considers insurance. A good financial consultant will tell you about the different types of schemes, what schemes you are eligible for, and what you should try to apply for.
Is there a class that I can attend for better financial plan?
Absolutely yes. There are many financial courses available online on various websites that are completely free. These courses all cover different niche. From personal finance to talking about loans to family, you can find it all. Depending on the topic, the duration of the course can range from anywhere between several hours to a couple of weeks. The best thing about these courses is that they are mostly part-time and very flexible. So you can just complete them in your free time while balancing your work or academic life.
Ultimately it’s up to you and you alone if you want to create a better financial plan for yourself and your family. Reckless spending and mismanaging of assets will not help you. It can seem tedious micromanaging everything at first or talking with a financial consultant. It can even seem difficult to control the urge to spend on leisure past times or luxuries but the long term benefits drastically outweigh the short term woes.
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