FINANCIAL PLANNING: FOUR TIPS TO HELP YOU FACE ANY FINANCIAL CRISIS
financial planning, investment options, types of investment, lumpsum investment, sip investment, where to invest money, importance of investing, Mutual funds
Everyone wants to be successful in life. But, the key factor that decides whether you do or not is if you have a good, well-thought financial plan is place. A good financial plan helps to meet your financial needs, be it undergoing a big-ticket purchase such as a buying a house or a car, or planning your career, or accumulating funds for your child’s education or marriage, or even planning your retirement. To handle financial crisis and uncertainties, you must have a functioning financial plan. This article aims to offer four tips towards financial planning so that individuals can tackle a financial crisis in an efficient manner. Before we dive into that, let’s quickly recall what is financial planning.
What is Financial Planning?
Financial planning is a process of estimating the capital required for an individual to meet their financial needs for the future and where to invest money to achieve it. It involves framing policies, objectives, budgets, and programmes.
4 tips to handle financial uncertainties
Following are the four tips to help you to deal with financial uncertainties in life:
#1 Try to live debt-free and on budget
high interest rate investments such as credit cards and personal loans are detrimental to one’s credit rating and financial health. What’s worse, failure to pay these debts on time could result in piling amount of huge interest rates on these instruments. This increases your debt to a significantly higher rate and often results in a debt trap. Hence, it is often advised by financial advisors to avoid these high-rate instruments and instead live on budget to cut some corners. This will ensure that you do not end up paying a huge chunk of your income or savings towards clearing this debt.
#2 Save for a rainy day
Having an emergency corpus in place is quite important. With the emergency fund in place, an investor can easily pay for several unannounced expenses such as mounting medical bills, unavoidable household repairs, a sudden loss of job, demise of a family member, or even a pandemic such as now. Investors are advised to allocate at least three to six months of their living expenses towards their emergency corpus. You can invest this sum of money in liquid instruments that can cater to your needs on an immediate basis, and at the same time produce inflation-beating returns.
#3 Diversify diversify diversify
You must be well-versed with the ad age saying – ‘do not put all your eggs in one basket’. Well, it holds true for mutual fund investments as well. When you diversify your portfolio, you tend to lessen the impact of loss that may arise from any type of investment. Investors are often advised to diversify their portfolio across different sectors and asset classes. You can diversify your investments across equities, bonds, money market instruments, cash and cash equivalents, real estate, etc. basis your financial goals, risk profile, and investment horizon. Remember, diversification intents to reduce the risk exposure of a portfolio while targeting to achieve maximum returns.
#4 Review your portfolio
It’s quite essential to assess and review the performance of your mutual fund investments and portfolio time and again. This will help you to evaluate how close your investments are to your financial goals. So, review your missed targets and work towards an appropriate corrective plan for the same.
All in all, as an investor it’s vital that you understand the importance of investing and implement these simple tips to avoid any financial crisis in future. Happy investing!