Three Steps to Get on Track with Your Financial Planning

You might have heard this saying, “What starts well ends well!” This quote is apt for financial planning as well.

However, there’s a little twist here and with a few more steps, you can be on track with your financial planning.

These are:

  • Starting your investment journey in an informed manner
  • Portfolio tracking, and
  • Rebalancing if required to stay on track with your end financial goal

So, how do you begin getting on track with your financial planning?

You can follow these three effective steps:

1) Start your financial planning journey in an informed manner

  • First and foremost, know your risk appetite

Risk appetite is the degree of risk you are willing to take depending on your age, income level, number of dependents, and more.

  • Next, know your goals

You might have goals like building a strong emergency corpus, buying a new house, purchasing a new car, retirement planning, planning a vacation, and more.

You can divide your goals into short-term, medium-term, and long-term goals. While listing goals, you can ensure that they are SMART (Specific, Measurable, Achievable, Relevant, and Time-bound).

Once you know when you plan to achieve your goals, you can…

  • Find out their real value

Real value means the money value of your goal, taking inflation into account.

Let’s understand this with the help of an example.

Suppose you wish to buy a car worth ₹10 lakhs three years from now. Now, consider the level of inflation for the price of a car to be 5%.

Therefore, the real cost of your new car goal can be ₹10,00,000*(1+5%)^3= ₹11,57,625/-

  • Allocate assets matching your goals

Now that you know the investment horizon for your goals, you can select assets that can match them.

For example, if you plan to invest for your retirement at the beginning stage of your career, you can choose equity investments that can give you returns over and above inflation.

Regular and long-term investments in an equity-based mutual fund can help you with your retirement planning goal.

In fact, you can choose different types of mutual funds based on your risk appetite and your goal’s investment horizon.

  • Prepare for emergencies

For any financial planning to be effective, financial uncertainties and emergencies need to be considered.

These emergencies can pull you away from reaching your goals on time. To manage these, you can build a strong emergency corpus using liquid funds. These are debt-based mutual funds that can be redeemed at short notice.

  • Seek Financial Advice

Considering your risk and goals, you can choose assets to invest in. However, it can be better to seek advice from a certified financial advisor before starting with your financial planning. This can help you stay away from investment biases and understand the assets you are investing in. 

Unsolicited advice from friends, relatives, and peers may not suit your risk and goals and lead to faulty financial planning.

2) Portfolio tracking

The above aspects can help you start your financial planning journey well. But how can you ensure to stay on track?

You can do this by tracking your portfolio regularly. You can consider aspects like these:

  • How are your investments performing every month, year etc.?
  • Are there any goals you were able to achieve?
  • If yes, did your investment horizon match your goal attainment?

And more.

As mentioned above, staying on track with financial planning requires more than just starting well. Monitoring and revisiting it from time to time can be equally crucial.

3) Rebalancing your portfolio if required

When your financial situation undergoes a crucial shift, you can consider rebalancing your portfolio.

Other conditions that can favor portfolio rebalancing are:

  • Macroeconomic changes and
  • Prolonged underperformance of an investment

By and large, the effectiveness of your financial planning can determine whether you feel secure and in control or hassled about financial goals and emergencies.

Therefore, you can follow the above-mentioned steps to get your financial planning on track.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully