Why Setting a Financial Goal is Important
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The first step towards successful financial planning is to decide what’s most important on an investor’s financial to-do list. For instance, these financial goals could be related to tax planning to reduce taxes, remain debt-free, build a retirement corpus, etc.

The process of financial planning can be initiated by adopting the following strategy in a step-by-step manner:

Know your risk-bearing levels: Thoroughly identify and understand how much risk you can bear before investing in any asset. This is known as risk tolerance and is about how much risk a person can take before it begins to impact his financial health. 

To do this, one needs to take into account one’s age, regularity and sustainability of income, family situation, current financial picture, and overall tendencies and investment disposition. 

Analyse your expenses and liabilities: Put aside funds for contingencies or for a rainy day. Normally, this is six months of average monthly income. This is also known as emergency funds. Besides, keep funds aside for your insurance premium, medical insurance premium and other such expenses and liabilities.

Analyse your investments: Investing is a crucial part of ensuring your finances grow through the power of compounding. Additionally, one should not let the money remain idle for long. When an individual is planning for future goals, it is crucial to plan for their future value rather than their current value. Inflation is a very big factor in this.

As it is, a person sacrifices the use of their money today, for a higher gratification at a later date. So, identify your need and goal, and then you can evaluate where the investment funds are required to be allocated. 

When you are in receipt of a lump-sum amount, you should ensure that you invest it according to your real requirements. Apart from this, one should make regular investments to ensure that you are disciplined in saving habits. Without maturity in your savings habits, you will go absolutely nowhere. 

Financial cash flows and budgeting: Living within a budget is quite important.  So, plan and budget your expenses. Understand your personal cash flow and always try to keep it positive. Do not indulge in needless, whimsical expenses, and you are good to go. All this is not hard to understand. All one needs is an attitude of discipline!

Finalising investment strategy: Start with an investment plan that earmarks money to be invested in various asset classes: equities, bonds, fixed deposits and others. An individual should prioritise their investments in short-term and long-term requirements or commitments. Remember, if your asset allocation is right, most of your problems may have been sorted out. Asset allocation helps you invest in optimum assets as per your profile and minimizes risks. More importantly, it is drawn up with your short-term and long-term fund needs in mind. 

However, regular review of investments and taking corrective actions when necessary is equally important, else meeting financial goals may seem like a tough nut to crack. 

A periodic review of the financial plan can be done once every six months or a year. A few of the external factors, which need to be considered for effecting changes in an individual’s financial plan are inflation, interest rate changes, stock market fluctuations, regulations and new financial products.

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