Financial planning is a very crucial process that will help you reach your future goals effectively. Thus, if you’re looking to save for retirement, your children’s education, marriage, own home, dream vacation, awesome car, or other contingencies, good financial planning is the only way forward.
Here are the 4 F’s of financial planning process that you must know to make your hard-earned money work for you much more effectively:
1st F: Financial situation analysis
The first ‘F’ and the first step in financial planning is to evaluate your current financial situation. This step involves looking at all areas of your financial life. You need to look at your protection or insurance cover. It is important to know your life insurance cover and whether it is good enough to take care of your family’s needs in case of a tragic event.You need to evaluate your current financial situation vis-à-vis your plans of having your own home in the long run. In case you want to go for a home loan, you must plan for the down payment right away.
You need to know your long-term goals pertaining to retirement, children’s education, and marriage. If you have currently not started anything in this regard, this is a good starting point.Moreover, it becomes very crucial for you to evaluate your short-term savings goals such as the amount you need in emergency funds. Thus, start your financial planning by evaluating your current financial situation.
2nd F: Financial goals identification
This is a very important step in the financial planning process. You need to spend some time with yourself to think and decide where you want to go in terms of your life. For instance, you need to figure out when you would want to retire and how much money you would need to lead the lifestyle that you would want.
Although nobody wants to think about the ultimate event of death, it becomes important for you to have plan of action for when it happens. Your children’s education is one of the major priorities of your life. Therefore, given the growing inflation scenario, it is vital for you to figure out how you are planning to fund your children’s schooling, graduation, and post-graduation. Only if you start planning from today, you can meet these goals tomorrow.
These priorities keep changing with every person. Thus, it becomes crucial for you to jot them down on a piece of paper.
3rd F: Facilitate action process
Once you have identified where you want to go, it is time to take suitable actions towards achieving these goals. You need to look at filling up the gap between what you are currently doing and what you want to do in the future. For instance, you may need an increased life insurance cover or may be a new life insurance cover or you may want to set some funds aside every month for meeting your retirement goals. You need to look at diversified options such as some part of the money in mutual fund SIPs, some in bank FDs, and some in your bank’s savings account to make the most out of your savings. The bottom line is you need to take the relevant actions to achieve the financial goals that you have set for yourself.
4th F: Figure out progress
Once you have taken all the relevant actions based on your financial goals, it becomes very important for you to monitor the progress of your overall financial planning. This begins by tracking what you are currently doing. You must ask yourself whether you are meeting your current goals. You need to often revaluate your goals. Change is the only thing that is constant in life.
For instance, you might have two mutual fund SIPs of Rs.2000 each for you and your wife. If you are planning to have children, it is advisable to start another SIP of Rs.5000. Moreover, you may have to look at health insurance cover for both you and your wife given the children’s scenario. Therefore, it is crucial for you to adjust some of your financial goals and your plans from time to time. This means you must recommence tracking the progress of your plans based on those new goals to optimize your savings.
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