Financial Planning for Family Explained
As you transition from a young, carefree adult to a family person, you will experience many changes in your life. These changes may range from minor changes in your eating habits to your choice of leisure activities. You will observe that your spending patterns also change during the different stages of life. When done right, financial planning can help you transition from being single to a family person with ease. Planning finances is also crucial for people who already have a family and want to secure their future.
Importance of Financial Planning
Financial planning can help you define your long-term and short-term financial goals and create the required plan to fulfil these goals. It helps you create a roadmap for fulfilling your dreams and stay on track while doing so.
Family financial planning helps you plan for retirement, buy a home, and ensure your kids' education through the right combination of investments and appropriate insurance cover. Planning your finances helps you follow a disciplined approach, and you can manage your money better to achieve your financial goals.
Steps to Financial Planning
Financial planning is an ongoing process, and there is no perfect approach. You can choose the one that works for you the best. We list a few steps below that can help you plan your finances better:
1. Define Your Goals
Defining your goals is the first and most crucial aspect of your financial plan. Till you are not sure about your goals, you cannot make plans to achieve them. Have clear goals in mind; you may aim to buy a house in 10 years or have a corpus of ₹ 1 crore when you retire.
If you do not plan to have kids, your goals will be different from those who have kids. Similarly, if you will receive a pension after retirement, your needs will vary from those who may not get any pension after retirement.
2. Make A Budget
Budgeting is a simple habit that can be the difference between a successful and unsuccessful financial plan. Making a budget ensures that you can track your expenses and direct enough funds towards your savings plan as per your income flow.
Income is limited for most of us. Writing down your expenses helps you figure out your spending pattern and limit wasteful expenditure.
You may realize that a small thing like paying bills on time or planning your shopping, so you don't make multiple trips, can help you save money. Making a note of your expenses may help you figure out that you may be spending too much on delivery charges or ordering takeouts, and there might be scope to reduce these expenses.
There will be some expenses that occur weekly, monthly, or annually. You should include them all in your budget. Your budget should include a fixed amount that you will save every month, and you should ensure that you do not deviate from the defined budget.
3. Invest in the Right Products
Your savings are not sufficient for you to fulfil your goals unless you invest them wisely. Select the right product mix depending on your goals and lifecycle. Even though people save for retirement, according to a survey, 56% of the respondents said that they do not actively invest in a retirement corpus. Your investment must be in line with your goals. Similarly, you might want to save and plan for vacations or buy a home.
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When you make investments, bear in mind that you should have a mix of products, ranging from fixed income products to products that help in wealth creation and beat inflation.
4. Have An Emergency Fund
You may assume that savings are enough to take care of emergencies, but this is not the case. Savings and investments are for specific financial goals. You should invest with specific long-term or short-term goals in mind, and these investments should not be disturbed.
An emergency fund will help you deal with an unforeseen event without the need to dip into your savings. Your emergency fund should have enough to take care of your expenses for approximately six months.
The COVID 19 pandemic has emphasised the need for building an emergency fund. According to a report in the Hindu Business Line, research conducted by YouGov (British Internet-based market research) revealed 40 percent of Indians consider saving money for unexpected hardships as their top financial priority in 2021.
5. Insurance is Important
Getting adequate and suitable insurance cover is an integral part of financial planning. Insurance policies provide the required security net to you and your family and help you deal with unfortunate events. You should buy the right kind of insurance plans that cover your life, assets, and health.
People often tend to ignore the importance of buying health insurance in India. As per Statista, only 35% percent of the Indian population had health insurance cover in 2018. If you do not have adequate life cover, you and your loved ones could be denied the required healthcare when the need arises, or you could be forced into debt. Choose a health insurance policy that takes care of the entire family. If your organisation provides you with health insurance, assess if the cover is adequate. If not, buy additional health insurance coverage.
Buying insurance or paying your premium is just a click away. Tata AIA Life Insurance online premium allows you to pay for your policies from the comfort of your home. Being adequately covered ensures that you have the financial capacity to deal with unforeseen events.
6. Review Regularly
Financial planning is a continuous process that requires you to review not only your progress but sometimes your goals too. Financial planning for a family in India is often just limited to saving for retirement. But, in current times, it is important to periodically evaluate your family dynamics and reset your goals if required. When you are young, you may not plan to save or invest in a child’s future. But this will have to change when you have a kid.
You should periodically evaluate if you are saving and investing as per the plan keeping inflation rates in mind. If this does not happen as per the schedule, you might need to determine the problem area and fix it.
Family financial planning should take care of the entire family. Therefore, it needs to be comprehensive. It is a dynamic process, and you should encourage your family members to be a part of it and make decisions collectively. There is no right time to start financial planning. The sooner you do it, the better it is. If you do not have a plan in place already, you can start right now. Do not procrastinate.