7 Important Steps to Begin Your Financial Planning Journey This Gudi Padwa

The start of a new year is always a time for reflection and renewal. As we bid farewell to the previous year and welcome the new one, we often make financial planning resolutions and set goals for ourselves. However, for many of us, the excitement of the New Year's Day celebration quickly fades away, leaving us feeling a little lighter in the wallet with no visible gains to show for it.

Fortunately, in just a few months, we have another chance to start anew with the celebration of Gudi Padwa. Unlike Western New Year's Day, Gudi Padwa is a festival steeped in tradition and culture, reminding us of our responsibilities and duties towards our family and society. As we begin the new year, it is essential to have an auspicious start to ensure a prosperous and fulfilling year ahead.

Apart from the festivities, many Indians follow in the footsteps of their ancestors and make investments in gold and property during Gudi Padwa. While these traditional investments have been the go-to options for generations, they might not prove to be as profitable as they once were. In today's fast-paced world, there is a vast array of new-age investment instruments, such as stocks, mutual funds, Sovereign Gold Bonds (SGBs), and fixed deposits, to ensure your money works harder for you.

While most of us are aware that investing in these asset classes and making a financial plan to achieve our goals is the perfect way to start the new year right, many of us do not know where to begin. This article provides 7 important steps that you can take to begin your financial journey this Gudi Padwa.

1. Set S.M.A.R.T. Financial Goals:

To begin your financial planning journey, the first step is to set S.M.A.R.T. financial goals. If this step is done correctly, your goals will be accomplished within the desired timeframe. So, your financial goals should be Specific, Measurable, Achievable, Realistic, and Time-bound. Some of the examples of S.M.A.R.T. financial goals are a child's higher education, buying a house, retirement, buying a smartphone, etc. Once you have set your S.M.A.R.T. financial goals, divide them into short-term, medium-term, and long-term goals. Categorising your goals will help you create a budget that aligns with each of your goals and helps manage your expenditures so that you do not fall into a debt trap.

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2. Invest Across Asset Classes:

As you know, Gudi Padwa is also an ideal time to explore investment opportunities. Traditionally, the majority of Indians used to invest in gold and real estate during the festival. However, with changing times, investors are exploring other new-age investment options such as equity mutual funds, stocks, SGBs, and fixed deposits. Before investing your hard-earned money, it is essential to educate yourself on the various investment options and seek professional advice if necessary.

Some of us think that market-linked financial instruments like equity mutual funds are very risky and avoid investing in them altogether. However, take note that no investment is completely risk-free, and for every return you seek, there is a certain level of risk associated. While fixed-income products, like fixed deposits, offer guaranteed returns and are considered low-risk, they usually fail to generate inflation-adjusted returns. Therefore, investing in these types of avenues for the long term may not be a sensible choice. On the other hand, market-linked financial instruments like stocks and equity mutual funds carry higher risks, but they have the potential to generate inflation-beating returns and create wealth in the long run. However, to mitigate the investment risk with portfolio diversification, you can consider allocating a small portion of your investment to safer financial instruments.

Hence, mutual funds can be a suitable investment option for investors who want to achieve their financial objectives. By investing in a variety of asset classes like equities, bonds, etc., mutual fund investors can spread their risk across a range of assets and reduce their exposure to a single security. This helps reduce the risk of market volatility and provides a more stable investment experience. Besides, mutual funds are managed by professionals who have the required knowledge and resources to perform thorough research and make informed investment decisions. This gives peace of mind to investors who may lack the time or expertise to manage their investments themselves. Nevertheless, before selecting the appropriate mutual fund schemes for your financial goals, you should carefully analyse your investment objectives, risk appetite, and investment horizon to ensure they are the right choice for you.

3. Review Your Portfolio Periodically:

Investing the required amount in appropriate asset classes is not the final step of financial planning. To ensure your investments are performing well and are aligned with your changing lifestyle and objectives, it is necessary to review your investment portfolio periodically. This allows you to adapt to any personal or economic changes that may occur in the future. For instance, if you have invested in equities, it is advisable to monitor the performance periodically. It is possible that a particular stock or equity mutual fund may not be performing well. Similarly, an equity mutual fund scheme may undergo changes in investment objective or style that no longer suit your investment goals. Hence, it makes sense to review your plan frequently and eliminate the investments that no longer align with your goals.

4. Build a Contingency Fund:

Life is uncertain, and you may never know what tomorrow brings. Hence, having a contingency fund is another important part of financial planning. A contingency fund is a reserve of money kept aside for unforeseen events or emergencies. It can assist in covering unexpected expenses resulting from various causes, such as a medical emergency, loss of employment, etc. This way, you won't have to rely on loans or credit cards to cover unexpected expenses. Maintaining a sufficient contingency fund can provide financial security and assurance because it can assist in overcoming unforeseen financial hurdles without accumulating debt. Nonetheless, the ideal size of a contingency fund is typically between 12 to 24 months' worth of living expenses, and it is crucial to determine the exact amount based on your individual financial circumstances.

5. Buy Adequate Term Insurance Cover:

Although having a contingency fund is crucial, it may not entirely secure your financial future in the event of unexpected situations like death or disability. Therefore, having adequate coverage of term insurance is a must for effective financial planning. Term insurance provides a lumpsum payment to the beneficiary if an unfortunate incident occurs during the policy's term, helping to guarantee financial security for your loved ones.

6. Manage Your Debts:

Having huge debts can negatively impact your overall financial health and ability to achieve your financial goals. By applying the right debt repayment strategies to your financial planning, you can take control of your finances. You can effectively manage your debt by evaluating the types of debts you have and creating a repayment plan that is in line with your financial goals. Furthermore, debt repayment can help you free up more funds for other financial goals.

7. Talk to a Professional:

If you feel you lack the necessary knowledge or expertise to make informed financial decisions, it is advisable to talk to an experienced and trustworthy financial planner. A financial planner can help you manage your finances and design a financial plan that aligns with your objectives.

PersonalFN is dedicated to providing unbiased and honest perspectives and advice on different personal finance concerns that may affect your finances and investments. We have been delivering personalised financial planning solutions to our customers in India and NRIs to assist them in achieving their financial objectives.

We offer personalised Financial Planning services which will help you in planning and achieving all of your financial goals, such as planning for retirement, saving for your children's future, analysing insurance requirements, purchasing a house, and many others. Whether you need a financial plan for single or multiple goals or simply want to review your mutual fund and insurance portfolio, PersonalFN has you covered.

To conclude:

Gudi Padwa is a time for new beginnings and a chance to start fresh. To make the most of this auspicious occasion, it is crucial to make informed investment decisions that align with your financial goals and aspirations. By seeking professional advice and exploring various investment options, you can ensure a prosperous and fulfilling year ahead.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.