last year Quick access: What is financial plan? It is actually simple to make one Listing the framework The cashflow query Failsafe Using debt the smart way Wealth creation Financial Plan: What is it? In simplest terms, a financial plan is a roadmap designed to help you manage your money better & let to you reach your financial goals down the line. That includes building wealth for yourself in long term. Photo by Med Badr Chemmaoui on Unsplash As with google maps, knowing your destination is not enough. You also need to know how to get there and plan accordingly. Same applies to your financial goals and the plan to achieve them. Even if you have not written them down, you have financial goals. Like buying a car, going on good vacation, or buying a house etc. These are the financial goals. How you plan to achieve these goals is what is called as the financial plan. Sounds boring and difficult. It is not. Now, when you understand the work it takes to make the financial plan for yourself, it feels like task which is boring and also difficult. Especially, if finance is not you thing. But, let me clear one thing, it is not. It may be tedious, yes. But not difficult. And definitely not boring once you get it. Again coming back to our example. If I explain any address to you in words, it will sound difficult to you. Especially if you are new to that place. The easy to understand and follow thing these days is Google Maps. You know right away, how will the journey look like, how much traffic to expect, expected time to reach etc. Isn’t it? It same when your financial plan is prepared by either an expert or you make one, after reading below mentioned points. It will look easy to understand and easier to follow. For creating a financial plan for yourself, just follow below mentioned steps: 1. Set important goals Knowing your financial goals, what you want to achieve down the line, like buying a house, car, further education etc. and what is the tentative time that you want to achieve most of these goals is the first step. It is good idea, not to set too many goals. 4 or 5 top goals is what you should note down. Anymore than that is mixing your desires with your goals. If you are not sure, write all the financial goals you can think of. Then think over them and eliminate things which are not that important. In the end, when most important goals are left, they are the ones you need to focus on. 2. Note down your money inflow and outflow The money you are earning is what is going to build your future and your wealth. Knowing how much you are earning today and where it is going is important. By knowing the inflow and outflow of money, you can have an accurate picture of your current money situation. Then you can rearrange it to align it with your goals. There is certain amount of money, that goes into necessities of your current lifestyle. Read: How to avoid lifestyle liabilities 3. Emergency fund You should plan for emergencies. They come unannounced. The next step is to decide how much should you put in emergency fund? It depends a lot on your current finance structure. Like, if you covered under your company’s good health policy then you can keep less for medical emergency. The general idea is to have an account which holds your emergency fund. Add money to it to let’s say something like equal to or at least half of your monthly income. Once you have reached that number you can target for higher number. Remember, it is emergency fund. Which means, don’t use it for anything other than emergencies. 4. Planning your debt Let me tell you one thing, if used properly, debt can be a useful tool. With right usage of debt, you can build assets as well as saves on taxes too. The issue comes with using debt just to upgrade your lifestyle, with not tangible addition in value. Like buying the expensive phone on EMI, or going on vacation, or buying a segment higher car than what you planned for and so on. When you plan your debt, you have good CIBIL score. This leads to getting loans at better rates as compared to others with lower score. 5. Investing your savings Investing even small amount on regular basis can grow up into sizeable amount over time. Rather then investing lumpsum in one go, invest on regular basis in well researched Mutual Funds or stocks. When you invest, even small amount on regular basis, you don’t feel the pressure of saving. Just consider it like one the monthly bills you need to pay. And before you realise, you money starts to grow with you or even faster than you. Read: What is a demat account? A complete guide This part will take little effort but plan your investments in such a way that they mature along with time for your financial goals. Final thoughts To any young person who has just started his or her career, thinking so much into the future sounds a tedious thing. It’s okay. Once you have settled down a little in your job, then you need to sit down and create your financial plan. Even a crude one with approximate details will do. This will keep you aware that only you are responsible for achieving your dreams. The other thing is, keep it flexible. Situations change. Learn to change along with them. When your income increases, don’t keep saving the same amount. Increase the amount that you put in your monthly investment account. Having a financial plan is important. As I just mentioned, having a map helps you a lot in reaching your destination. Similarly having a financial map for your goals is something that can help you plan your finances in better way.