BANGALORE: The month of April signifies a new beginning. It is the start of a new financial year and it is the month when many celebrate their New Year. A New Year signifies a fresh start. It is that time of the year when one is more optimistic, and open to new possibilities, new strategies and new aspirations.
For a calendar new year many start making resolutions to live a healthier lifestyle, to diet and exercise, to spend more time with family, and to quit smoking etc. As the financial New Year starts it makes sense to focus on your personal finances as well. Your resolutions now could be saving more money, getting out of debt and planning for the future. You should resolve to make a good financial road map to secure your future. The time is right too. With the onset of a new year a new financial plan can help you towards a better and happier year.
Right financial decisions
One takes many decisions each day. Most of these decisions are quite simple and have few consequences. Some decisions are complex and have a long-term effect. Personal finance is one of them. Not taking the right decisions at the right time can have a negative long-term impact.
Personal finance is a black box that many people are afraid of. They think it is something very complicated and difficult to do. It is not so. Personal financial planning is the process of managing your money to achieve personal economic satisfaction. This planning process allows you to control your financial situation. Every person, family, or household should make a separate financial plan as each family has a unique financial position. This implies that each family has to put in careful thought to create a plan that is uniquely theirs and suited for their needs. Any financial activity therefore must be carefully planned to meet specific needs and goals. A comprehensive financial plan can enhance the quality of your life and increase your comfort by reducing uncertainty about your future needs and resources.
Financial planning process
The financial planning process is a simple, logical, six-step procedure.
The six steps are:
-Determining your current financial situation
-Developing financial goals
-Identifying alternative courses of action
-Creating and implementing a financial action plan
-Re-evaluate and revisit the plan
Financial planning can be done for the long term or for the short term. Some assets require long-term planning. For example, buying and saving for your home would require long-term planning.
Buying a house is an attractive way to build your wealth. As you pay your EMIs, over time, the home becomes yours. This option helps you create a large asset by repaying a loan over a long time. Buying a home also calls for a higher upfront financial outlay in the form of down payment. This is a sum you have to pay at one go while buying a home. Saving for this amount can be done easily with good financial planning.
Plan for down payment
Once the decision to buy your home in the near future is taken, it is time for action. If fact, planning on the financial front should ideally start a few years before you purchase your home – much before you take a decision about the home itself like the location, type of home etc. This plan would be for accumulating for your down payment. The down payment itself forms a big chunk of money for you to pay while buying your home. It would be difficult to pull out such an amount from your savings. Not only will it upset your portfolio, creating short-term chaos, it may not be a sufficient amount. Therefore, it makes sense to adopt financial planning to plan for the down payment ahead of your decision to buy a home.
Small amounts put aside periodically do accumulate to a larger one over time. Putting a financial structure to this scheme would bring a system to your financial planning, yielding much better returns. This also helps you put aside a little lower amount than required for your down payment.
Planning for a home
Buying a home involves financial planning not only for the short term but for the long term also. In the long term planning, you have to figure out how to repay your home loan. A structure has to be put in place on long-term asset creation and liability mitigation on your home.
In fact, the larger the outlay and longer the duration of the loan, the stronger the emphasis you have to place on careful planning. Unfortunately, too many people use the ‘we will work out the details as we go along’ approach when it comes to one of the most important aspects of life – building a secure financial future.
Educate yourself financially
The more you understand finance – from budgeting to investments to buying a home – the more confident and motivated you will be to take the right financial steps this year. If your goals are worth sacrificing to achieve, taking the time to establish a comprehensive plan is the first step.
This year, replace your good intentions with action by creating, and faithfully following, a personal financial plan.