Financial Planning Will Empower Your Future Goals

Recently, a friend of mine Dhriti called me and said, "Mitali, I finally got a new job, after these months of struggle. You know, it's a great profile and despite the pandemic, they have offered a decent remuneration."

Dhriti had lost her job amid the COVID-19 crisis and was experiencing financial difficulties just like many of you. While she had accrued an emergency fund based on my advice earlier, it only lasted 6 months and she was in immediate need for a source of income. She eventually got a new job after a few months of job hunting.

I replied, "Congratulations Dhriti! That is great news and I am happy for you. Now that, you have a fixed source of income again, there may be some changes you need to make in your financial plan and future goals."

Dhriti responded, "Yes, that is exactly why I have called you. Previously you guided me so well and helped me with a financial plan. But, this time it's different, as a result of the financial hardships I faced amid the pandemic, I have lost all my savings and I am back to square one. So, we need to start over with a new financial plan and ensure that it is pandemic proof."

To which I responded, "I totally understand your point, we will build a robust financial plan and ultimately your financial plan will help you achieve your envisioned financial goals."

Dhriti added, "Mitali, I need to revise my financial goals and you know I have been planning to buy a car, which will be my additional short-term goal to achieve through this financial plan."

I further explained to her saying, "Your envisioned financial goals whether long term or short term will be achieved successfully only if you have an efficient financial plan working towards them"

You see, whether you need to review your existing financial arrangements due to Covid-19, or you are looking to create a new financial plan to ensure that you are fortified and less vulnerable to any future uncertainties, consider financial planning as a crucial task to safeguard your finances and achieve set financial goals.

Financial planning is not just about investing money in various investment avenues. Here are some activities that are linked to financial planning:

1. Budgeting

To make optimal use of your hard-earned money you must engage in budgeting exercise, which will manage your cash flows and keep your expenses in check, control your debt or work your way out of debt if any. Budgeting will also help you set your S.M.A.R.T financial goals that will have a certain time horizon.

The budgeting exercise will assist you in efficiently allocating your earning accordingly to outgoings, savings and investment plans in order to meet your desired financial goals.

2. Preparing for rainy day

Preparing for an emergency fund is an essential part of any sound financial plan. Dhriti had an emergency fund in the above case, but due to her low savings over a short period of time, it only served her financial stability for 6 months during the pandemic.

Since you have witnessed how life can throw curveballs at you, it is a wise decision to keep an emergency fund as part of your financial plan. Budgeting allows you to set aside money for an emergency fund, and you can aim to keep a contingency fund of at least 12 to 24 months' worth of expenses, including loan EMIs.

3. Selecting your Investment avenues

With multiple complex financial products in the market, it may be a daunting task to choose the right option. You must consider to align your future goals with your investment avenues and ensure your risk appetite and investment horizon to achieve these goals.

Asset allocation strategy is the key to any robust investment portfolio; your asset allocation will diversify your portfolio risk, generate better risk-adjusted returns and help you survive the tides of volatility in uncertain market conditions.

In case, you already have an investment portfolio, reviewing it on a periodic basis will keep you on track to meet your financial goals during various market cycles.

4. Managing your debt burden

Amid the COVID-19 pandemic, many of you have faced financial difficulties and some have borrowed through various means, such as online applications, payday loans, bank loans, etc. and this may have created a debt burden on you now, when you need to manage your hard-earned money wisely due to unprecedented events.

If you have any such debt, try reducing the interest rate on loans and minimize the debt amount with timely payments. It is advisable to repay the debt outstanding as early as possible so that you have a surplus amount to save and invest towards your financial goals. You must reduce your debt burden with help of debt consolidation methods and maintain your debt-to-income ratio below 50% to have better scope for future borrowings.

5. To secure your and your family's future

A part of your financial plan is maintaining security for yourself and your family by providing insurance coverage. Your life insurance policy will assist your family in meeting their financial obligations in your absence, avoiding financial hardship. Insurance protects your income, assets, and, most importantly, your family from life's unforeseeable risks.

The financial plan will include safeguarding your family's financial future, and another way to protect your family's financial future is by being their Financial Guardian, guiding them in making informed financial decisions for the family's financial well-being.

However, financial knowledge is the key to constructing a strong financial plan that will empower your future financial goals and enhance financial awareness. Financial literacy will assist you in implementing the above-mentioned points and a path to achieve your envisioned financial goals.

Considering the current unpredictable events caused by the second wave of COVID-19, it is essential to be financially aware and have the relevant financial knowledge to manage your finances properly in order to avoid making any dubious financial decisions.

Therefore, you must consider sharpening your financial knowledge to construct a financial plan that will empower your future goals and help you become a financial guardian to your family.

PS: PersonalFN understands that not everyone holds the adequacy of financial knowledge and here we encourage you to enhance your financial knowledge and become a 'Financial Guardian', who understands the financial planning elements to guide your family through these challenging times.

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Organised into eight modules with 24 extensive videos, the "Certified Family Guardian" will help you with all the relevant tools and learning modules needed to get better at money management. It also offers a host of other benefits to help you make informed investment decisions. Read here for complete details.

So, if you wish to improve your financial knowledge and become your own financial planner to empower your future goals, enrol to "Certified Family Guardian" course today!

Warm Regards,
Mitali Dhoke
Jr. Research Analyst

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