Financial planning: It pays to start right

By: Aadi Sharma
Financial planning: It pays to start right

Contrary to popularperception, financial planning involves much more than mere budgetingand is definitely an exercise which requires expert attention. Giventhe immense complexities of life, a complex financial marketplace,multifarious investment instruments, multiple short term and longterms financial goals, planning for a safe and worry free financialfuture is not an easy job.

There are many steps that gointo the making of an efficient and truly effective .Proper goal setting and assessing one’s correct net worth are twoof the most important principles of any process.

The first step is often theidentification of the short and long term financial goals. One thingthat should be kept in mind while deciding on financial goals is thatthe more tangible and precise the goals, the easier it is to plan forthem.

Short term goals can be thethings that you want to accomplish within a shorter time span say 3-5years, like buying a car or a vacation etc. The long term goals haveto be achieved over a period of 10 to 20 years or more like planningfor daughter’s marriage, kids education, retirement planning,buying a house etc.

Assigning priorities to goalsis another major thing that one should not overlook. Privatization ofyour goals will help you allocate your valuable financial resourcesin a way that is most profitable and allows you to accomplish themore important ones. For example, if you owe a huge credit card bill,it should be one of your priorities to get rid of this high interestdebt before going on a vacation.

After the process of goalsetting has been done, one needs to assess his current situation andget an accurate estimate of his or her existing net worth. This willrequire the listing of all the assets and liabilities one owes.Assets can be your bank balance, investment in stocks, mutual funds,gold, property, insurances, vehicles etc. And liabilities are theloans to repay (they could be home loan, personal loan, credit carddebt, car loan).

Begin by estimating the valueof your entire assets. The next step is to get an idea of the debtsor liabilities you owe and subtract your liabilities from yourassets. This will help you arrive at your net worth.

This exercise will give you aclear picture of what you have and what you owe. As a first steptowards correcting the financial situation it is always better to getrid of costly debts such as credit card bills, personal loans, carloans etc. as soon as possible.

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