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Golden Rules of Financial Planning Research Team | Posted On Monday, December 14,2015, 06:20 PM

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Golden Rules of Financial Planning



There is a famous saying “If you fail to plan, then you plan to fail”. There is no better place to test this rule, than the World of Finance. If you do not do financial planning, you bear the consequences, faster than you know. You lose a lot of money and get into depression. Getting out of depression and then managing your finances, is a tough job. Prevention is better than cure. Make sure you do not fall into a deep financial hole in the first place.

Just do your financial planning.

How to plan and invest?

Find out how much you are worth

Assets: You need to calculate the value of all your financial assets. The money you have invested in the fixed deposits, PPF and the Postal saving schemes. The money you have invested in shares and mutual funds.  The value of your home and your car, gold jewelry and so on. All these are your financial assets.

Liabilities: Take a look at your debts. Do you have a personal loan, home loan or a car loan? Do you have any credit card dues? Take a look at all your loans. The amount outstanding (yet to be repaid) and the interest on these loans. The EMI’s you repay on your loans each month, are your liabilities.

The difference between your assets and liabilities tells you how much you are worth.

Know your financial goals

Your short term goals could be buying a car. Your medium term goals could be going on a vacation abroad. Your long term goals could be children’s education and planning for your retirement. You need to know your financial goals.

Plan for your financial goals

This is simple. How much money you need and when you need it.

Can you bear risk?

All investments no matter how safe, carry risk. You think your investments in fixed deposits is safe? What if the interest you get from your fixed deposits is lesser than inflation? Would not inflation eat up your earnings? Higher the risk in your investments, greater are the rewards. An investment in equities though risky, gives you good returns.

You need to decide how much risk you are willing to bear, to get good returns.

Your final decision…. Where to invest?

If you are a risk averse investor you invest in fixed income. Invest in fixed deposits , PPF or postal saving schemes. Your investment is safe, but you get lesser returns. If you are willing to take risks, you can invest in equity. You get higher returns at higher risk. An investment in equity mutual funds or shares helps you attain your financial goals.

Cover Risk

Protect your assets

Your assets will be washed away in case of a medical or any other emergency. Avail a term life insurance plan if you are newly married or have dependents, who depend on your income. Your family will be able to lead the same quality of life they lead today, in case of your untimely demise. Family floater health plan provides you and your family, money for treatment of a disease, or a medical emergency. Medical costs can blow your savings away. A Householders Package plan (Home insurance), provides you money to repair your house, in case of structural damage, due to a natural calamity. The contents of your house are insured in case of theft.


SEE ALSO: Scope of Financial Planning


Review your investments

Monitor your investments

You have invested your money in different financial instruments. Can you just leave these investments alone, without monitoring them? No, you need to monitor your investments and take corrective action, if your investments do not align with your financial goals.

These are the golden rules in finance. Make sure you follow them and attain financial bliss.

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