4 Key Steps to Create a Financial Plan1
To aid your understanding of how to create a financial plan, we have broken down the process into four key steps.
Step 1: Set an Objective
When you begin with the destination in mind, half the task is done. You will have a clear objective towards which you need to work—be it buying a house, funding higher education, or planning for retirement.
Step 2: Have a Budget
A budget helps to strategize the allocation of funds for different kinds of expenditure. The ideal practice is to have a savings budget instead of an expenditure budget. This process is empowering, as it facilitates limiting expenses, prioritising savings, and letting you be in total control of your money.
Step 3: Maximize Savings through Tax Planning and Investments2
When a child is born, the parent envisions all the things best for the baby. The end goal of a father’s financial planning endeavours is the well-being of his family. Any untoward incident should not hamper the journey towards the goal. When it comes to long-term financial repercussions and safeguarding themselves during their journey, insurance acts as a shock absorber.
Based on your needs, there are broadly three different types of insurance plans available, which are essentially investment plans with life insurance:
- Term Plan - Term insurance plans are traditional plans that protect the life of the insured. The sum assured goes to the beneficiary in case of any untoward incident.
- Savings Plans (Offering Guaranteed Returns) - There are several kinds of savings plans —Endowment Plan, Money Back, Retirement, Child Plan, etc. These plans come with guaranteed returns and can be enjoyed by the insured himself after the policy term. These plans also give the added benefit of tax shelter and qualify for tax-free investments.
- Unit Linked Insurance Plans: ULIPs are pure investment plans and give the dual benefit of market-linked returns and life insurance.
Insurance plans are not given their due, as many still consider them a luxury or a product-driven by fear. However, it is not so in reality. When the insured knows that they have secured their family’s future and planned for all financial goals, they have the mental peace, positivity, and strength to navigate life.
Additionally, you must also build a contingency or emergency fund. It will ensure that an unexpected and sudden event, like a medical emergency, does not derail your financial plan. It is your fallback treasure that helps you navigate when cash flows go through a challenging phase.
Step 4: Revisit your financial plan
Debt erases freedom more than anything else. Your twenties and thirties are seen as more chaotic as the responsibilities rise, and so do the borrowings. The forties and fifties are markedly calmer, as you may have paid off the larger part of your borrowings.
However, mid-life is also the time to revisit your financial plan and scale up investments. It is the time when you should consider increasing your stakes in ULIPs to accelerate wealth creation. After all, financial planning is an ongoing process and not a one-time exercise. You must revisit, review, and adjust your financial plan to incorporate significant life changes like marriage, childbirth, or just a windfall gain.
It is imperative to know how to create a financial plan to make your savings goals a reality and enjoy your journey with each step towards them. With these pointers and various online planners available, you can either build a financial plan yourself or seek professional help in developing one. Whichever you choose, the bottom line is: do have a financial plan. It gives a roadmap to the future that you have dreamt of.
Going for different life insurance products like term plans, guaranteed savings plans, etc., then Future Generali India Life Insurance has curated need-specific products for you. So that you can accelerate your journey towards the ultimate goal of having financial freedom. It lets you take control of your money and helps decide how you want to enjoy your financial freedom.
Read more about healthy financial planning or take your first steps towards complete financial freedom with life insurance, all from Future Generali India Life Insurance.