Guide to Financial Planning For Beginners
Financial planning is crucial for anyone who wants to become better at managing their finances. A solid financial plan will help you manage your finances better and it will guide you to spend your money wisely.
We are all taught about saving money ever since we were young. Piggy banks were what we used to save and all our cash gifts went inside them.
We might have saved for different things from buying our favorite toy to a flashy pencil case. Now that we are adults, we have different goals on our minds and we are trying our best to save or invest to achieve those goals.
In this day and age, all kinds of financial advice and investment recommendations are thrown at us. If we follow all of them, our finances will be disorganized and we will become overwhelmed.
Hence, it is important to have a proper solid financial plan. This plan will help you understand where you should be investing your money and how you can stay focused to achieve your goals.
Know Your Wealth
The first step in creating a financial plan is to know how much wealth you have. To know your net worth, you need to subtract your liabilities from your assets.
If you don’t want to do any calculations, you can find it out the easy way. Create an account with Koshex and calculate your net worth in under 2 minutes.
You can create an account in a couple of minutes and you can bookmark this blog to go create the account and come back to it later. How about that?
Manage Your Wealth
Now that you have found out how much your net worth is, you need to learn how you can manage your wealth. The first step in managing your wealth is to create a budget and stick to it.
When you create a budget, it will help you control your spending. A budget will also help you save for various goals and cut down all unnecessary expenses.
There are many ways you can maintain a budget. You can do it in a notebook or through apps that track your expenses.
Guess what? Koshex will help you do that too. You can track all your expenses in Koshex and our platform will help you with your bills and payments. Create an account with us today!
The next step will be to pay off your debt on time. If you don’t prioritize your debt, you might end up paying penalties and this might also lead to a decline in your credit score.
You might have education, personal, or home loans, and it is essential that you make a detailed plan on how you can pay off your debts as soon as possible.
One tip that you can follow is automating your debt payments. This will ensure that the money gets deducted from your bank account automatically and that you don’t dip into the money allocated for paying off debts.
The next step is a crucial one and it is to help you build a fund for unexpected events and emergencies. An emergency fund should have enough money to cover your expenses for 6 to 12 months.
The first thing you should do is find out how much money you need to have in your emergency fund. So, if you are earning ₹45,000 per month, your emergency fund should be ₹1,35,000-₹2,70,000. It might look like a lot of money but if you save ₹15,000 every month, you can save ₹2,70,000 in 18 months (1.5 years).
Creating an emergency fund should take precedence over saving or investing towards achieving any other goal as this is what will help you during your emergencies.
Even though there is nothing wrong with trying to pay off your debts as soon as possible, you should also save for your emergency fund at the same time.
Oftentimes, we give a lot of importance to paying off debts, and we end up not saving enough money for our rainy days. Always remember that saving a little bit every month can help you over the long run.
If you wish to learn more about paying off your debt and creating an emergency fund, please read our detailed article Managing Your Debt & Building A Safety Net
Growing Your Wealth
Start Investing – Once you have started managing your money properly, it is time to grow your wealth. How can you do that? By investing in those instruments that are suitable for you. There are a lot of financial instruments these days – from mutual funds to ETFs.
The first thing you need to figure out while choosing the right investment instrument is how much risk you are willing to take and how long you are willing to stay invested.
If you have a high-risk appetite and want to stay invested for 10 to 15 years, you can consider investing in mid-cap or small-cap equity mutual funds. On the other hand, if you have a low-risk appetite, you can consider investing in debt mutual funds or large-cap equity mutual funds.
If you are someone who has a very high-risk appetite, you can consider choosing stocks or even cryptocurrencies. However, be mindful of the risks involved in stocks and cryptocurrencies, as they are highly volatile.
If you wish to learn more about investing in mutual funds for beginners, please read our detailed article on the topic.
Diversify Your Portfolio – As an investor, it is important that you diversify your investment portfolio. What does it mean to diversify your portfolio? When you start investing your money, it is crucial that you don’t put all of your money in one investment instrument.
For example, if you invest ₹10,000 every month, it is crucial that you don’t put all of your money in stocks alone. You can consider investing ₹1000 in stocks, ₹3000 in an equity mutual fund, ₹3000 in debt mutual fund, and ₹3000 in a savings account. This is called diversification and it reduces your risk and helps you in making higher returns.
If you wish to learn more about Portfolio Diversification, please check our article here.
In The End…
Financial planning is all about knowing your wealth, managing it, and growing it in a smart way so that you can achieve your goals seamlessly.
If you are looking to start your financial journey and are looking for a platform to help you calculate your net worth, manage your wealth, and grow it, you need to sign up with Koshex.
Koshex is a new-age personal finance platform that is designed to make everyone’s financial lives easier. You can check your net worth, track your expenses, and automate your payments through our platform.
You can also invest in hyper-personalized investment solutions, by entering your goals and risk tolerance into our platform. Koshex takes personal finance to the next level. So, stop waiting and start investing today to fulfill your dreams and achieve all your goals.