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Financial Planning for Beginners: The Detailed Guide

11/10/2022 |

The key to achieving myriad money goals in your life is making a detailed financial plan at the very beginning of your career. It would help to consider the different factors surrounding your personal and family life to determine your financial plan. Different financial plans with varied features help you achieve all your future financial goals as detailed in the financial plan. The key to doing financial planning right is to follow a few simple steps. Here is a detail to help you best in this regard.
 

Before we get started, let us understand what financial planning means.

 

What is Financial Planning?
 

Financial planning refers to making a detailed plan to allocate your income for your different financial needs, such as clearing off debts, managing routine expenses, accomplishing future financial goals, planning for family commitments, etc., and achieving them as per the required timelines. In addition, it means devising strategies to manage short-term financial emergencies and do retirement planning.
 

If you haven't thought about how to start, here is a guide to financial planning for beginners.
 

How to Start Financial Planning?


Basic financial planning should start as early as you start your career. However, if you haven't started at that time, do it as early as possible to make it more effective and meaningful. These few steps detail financial planning for individuals.

 

  • Make a monthly financial budget - The best way to use your income wisely is to have a monthly financial budget. To simplify, write down all the necessary monthly expenses, such as groceries, entertainment, medical, school fees, etc., and allocate specific funds. Ensure not to exceed this limit in any case.

    To make it easier to manage, you can maintain this budget on a mobile application and note down the changes as and when it happens. For example, suppose you have allocated ₹20,000 for your groceries every month. In that case, if you have spent ₹2000, ensure to make a note of it and try not to exceed the remaining ₹18,000 allocated going forward.
     
  • Avoid unnecessary expenses - While allocating the funds for specific expenses, ensure to do it wisely and avoid unnecessary expenses. It will help you reserve a certain amount for other valuable investments in life for the future, such as  planning for retirement.

  • Allocate funds for short-term emergencies - Now that you have a fair idea about the necessary financial commitments, you can allocate a specific fund as saving for short-term emergencies. It will help you manage a temporary financial crisis.

  • Decide on long-term objectives - Next, consider all the different long-term financial objectives and calculate the funds required to achieve the same. For example, you can decide on purchasing a new house after ten years, planning for your child's higher education after twenty years, etc. Decide on the timelines to make it more comfortable to decide on the funds based on the inflation rate. It will help you work on the long-term financial plan.

    One other important consideration in individual financial management is retirement planning. It should be a major focus because your investments should be in line to help you manage your retirement needs and unexpected medical expenses to lead a peaceful retirement life.
     
  • Make a detailed long-term financial plan - Now that you have realised the monthly budget and long-term investment goals, you can decide on ways to manage money in the long term. Decide how much funds will be required to achieve the long-term financial goals, and determine the amount you need to start saving today. Then, revise your monthly budget and find ways to make a specific fund for your personal investment portfolio.

  • Make a diversified portfolio for investments - After understanding and evaluating the funds required for the long term, you can plan your investment portfolio. If you have started investing early in life, you can take up risks and ensure apt returns in the long term. On the other hand, you can also opt for conservative debt funds to secure your investments if you have increasing family commitments.

    While deciding on a personal investment portfolio, you should also ensure life coverage. It will help your dependent family survive and reduce their financial burden in your absence. Life insurance providers offer comprehensive solutions such as the ULIP that help ensure life insurance and create wealth.

    One portion of your premium will go for the life cover, and the remaining will be invested in the financial securities market. You will get the returns as a maturity benefit at the end of the policy term. You can choose the funds to invest in based on your risk profile and the option to switch between them based on the market conditions during the policy tenure. For example, when you invest in Tata AIA Life insurance, we offer 11 different fund options.

    Choose products that help you save on taxes* to add to the financial tips. For example, when you invest in life insurance plans, the premium and the payout will qualify for a tax* deduction and exemption under Section 80C and Section 10(10D) of the Income Tax Act, 1961.

 

Conclusion

  
Financial planning in India is increasing, considering the pandemic and unexpected economic downturns. When your income can satisfactorily achieve your short-term and long-term financial goals, you are always on the right track! A well-devised financial plan can help you achieve the same during the long term if you have made the right investment choices. Therefore, analyse your income, decide on your financial goals and timelines, make your investment choices wisely and stay invested to maximise the returns!


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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

What is the right time to start financial planning?

The right time to start financial planning is when you begin your career. It will help you save and invest more for your future goals and develop the discipline to secure funds regularly.

Why should you do financial planning?

Financial planning is important for:

  • Managing your income and surplus cash wisely.
  • Manage short-term emergencies.
  • Planning for achieving long-term goals.
  • Saving on taxes
  • Leading a peaceful retirement life

Disclaimers

  • Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.