Financial Planning a Must for Everyone

Money is one thing you cannot keep hold of until and unless you plan how to spend and invest it in a  planned manner. It is one process which requires lot of patience and grit. Basically there are two ways to earn money. One is to work for a firm or your own business and then get your salary or profits, the other way although applied by very few is to make your savings work for you. Your savings if not invested properly will erode away with time as inflation eats away the purchasing power of money. Here comes the role of financial planning where you pin point you current and future needs and then plan your finances.

Financial planning is needed by one and the all. Whether you are a top shot business man, a top company executive drawing a handsome pay check or a common man you will have to manage your money either by yourself or a finance professional. Financial planning helps one attain both his.her current and future needs. Financial planning process briefly:

Financial Plannning

The Risk appetite: First of all the risk appetite has to be measured. If the person is too much risk averse. Then he should not invest much in equities, futures and options. Even is equities try to invest in well established blue chip stocks or dividend paying stocks so that you attain a regular cash flow. The rest of the portfolio may be invested in money market instruments, certificate of deposits, fixed income, gold & Silver funds etc. If you like taking risk then at least 70 percent of your investment should be in equities. If you want huge gains then try to pick some good stocks from mid cap or small caps. Pick a bouquet of  5-10 stocks, most probably even is 9 fail the gain given by one will more than cover the losses. 

Your Life stage: Your life stage has a very important role to play in financial planning process. If you are 20 something who has just joined a job and has most of his money at his/her disposal then you can always take more risk. Whereas if you are middle aged then you need to tread with caution as you have very important responsibilities on your shoulders. If you are near your retirement then you should be even more cautious as this is the time when you need you savings the most. After your retirement you savings should last till the end.  

Taking into consideration above two factors Investment objectives are desigen. Some of the investment objectives are:

1. All Equity: Major part into equities
2. Balanced objective: Healthy 60:40 Equity to Debt ratio
3. Balanced Income: Dividend paying equity 
4. Current Income: Mostly money market instruments that pay on monthly basis
5. All fixed income: most of the investment in fixed income

Financial planning is a life long process as old needs end new ones come up and we will have to plan our finances to achieve these goals. Hope you guys liked this article. I will further try to cover this topic some other time as this is a lengthy topic and needs considerable time.