To manage your personal finance well you need a financial plan and while doing so you need to follow certain steps. Remember, a financial plan provides you an opportunity to spend wisely and invest efficiently. So if you want financial freedom then, initiating a financial plan is of utmost importance to you. Following are the stages:
Stage 1: Set your financial goals by distinguishing between needs and wants. If you are one of the people who don’t define financial goals and spend as and when they want, immediately get rid of this attitude and analyze your future dreams so as to set your financial goals and achieve them. If you have a family, you would need money for your children’s higher studies, marriage and you must add this as your financial goal. Moreover, you would also need good amount of money to spend those post-retirement years leisurely. Also keep in mind future health issues and your family while setting financial goals so that you may save money for miscellaneous medical expenses. This is the most important stage in making a financial plan.
Stage 2: Analyze your income and see if it can enable you to fulfill your dreams! With rising inflation and thus cost of living, you need to build a good corpus. If you are not earning enough to save against inflation for your financial goals, then you need to increase your monthly intake. You can even invest your money judiciously to meet your financial goals.
Stage 3: Always keep a watch on your expenses. Are you spending more than what you earn? Do you have several credit cards? Are you in a big debt? Do you indulge in luxury you cannot afford? If your answer is yes to any of these questions or for all of them then you are in serious trouble. Get hold of this thumb rule, ‘don’t spend more than what you earn’. It’s better to spend less than you’re earning. Buy a notebook and note down your daily expenses in it and analyze them weekly. If you find any unnecessary expenditure then immediately stop it. Accumulation of various little saving every month will only lead to big savings in long term. Trim down your expenses and spend according to your needs and in case of needs also, make a list of priorities.
Stage 4: Now, when you have set your financial goals, analyzed your income and expenses, this is the appropriate time to make a budget. A budget is a financial statement which details your expenditure. Plan a budget every month and abide by it. Calculate your total monthly income by adding all your sources of revenues in a month and divide the money into various heads like grocery, bills, kids fees and others and strictly follow it. The amount left should be deposited in bank account.
Stage 5: Now you have deposited the surplus money in a bank account but it is of no use as long as it lies idle. Invest it judiciously so that you may earn money from the money you have gathered. You can either go for fixed instruments or share market, your decisions entirely depends on your choice of returns.
The above mentioned stages will help you in making an effective financial plan.