One day, while giving Rs 100 to my brother, I asked him, what will he do with that amount? He thought for a while, and answered. I will buy a chocolate worth Rs 20, a drink worth Rs 20 and a packet of Chips with Rs 10, and will keep rest Rs 50 for later use.
My second question to him, why will you save Rs50 and not spent entire Rs100? His answer was very simple… he said, because I can buy what I want right now with Rs50, and I am fully happy with it and will keep Rs50 because , if I want some money tomorrow and you are not near to me, what will I do? So I will save some amount.
WOW… isn’t it amazing??? With Rs 100 in his pocket, he is wishing to spend and save it in such a way, that it meets all his need and as well save for unseen contingencies or future requirement. Rs 100 was his income, Chips, chocolate and drink was his requirement, so to fulfil he spent Rs 50. Me not being there tomorrow to give so more money, unseen contingency so he saved Rs 50 for the same.
Financial planning is not for only adults or for any individual with loads of moolah in his /her hand. It is for everyone, be it equity broker, be him/her being richest person or a small kid.
From where do financial planning starts in your life? We all have dreams, aspiration some goals to achieve in life. Some goals are quantifiable while some are not. Quantifiable dreams needs money. We all are running for money, but to live a life of our dream, one has to go out of our conventional way. At all level, it is important to list down your need to set the path of ultimately achieving the goal in near future.
So our first step is to know our goal, i.e. what we want to achieve down 5 year or 10 years time period. And to fulfil the goal how much money we require. Goals can be classified on the basis of time i.e., short term, medium term and long term goal.
Then find out your own worth. To know one’s own worth, he/she must look into his /he asset then deduct all his debt and liabilities, to come to the figure. While calculating net worth, one must also consider the risk taking ability. Risk taking ability is defined by taking in view point of income stability, responsibility and time horizon.
Based on your goals and your net worth, you must decide the Investment Avenue where you wish to park your hard earn money with minimum chances of loss and greater chances of gain. Your planning must start, the moment you start to earn. Why? As the saying goes, the early you invest the better it is, because of magic of compounding.
Based on your risk taking ability and goals in place, once you have put on your money in different asset classes, it is very important to review your investment regularly. Your review shouldn’t be limited to how much your investment grew over a period of time. Your review must include, revisit of your goal, your net worth as of day. Once you review, you actually know how much you have achieved and how far away you’re from your goal. Does your investment pattern require some shifting, or some new permutation and combination of asset classes? Without review no financial planning is complete.
So if you have already received your first salary or first income of your life, start your planning now and retire rich. However if you haven’t yet started your planning, don’t worry, it’s never too late to start.