Money Tree
Getting started on Your Financial Plan
By Ranjan Varma
I always believe that life unfolds itself, and with utter disregard for your plans to achieve this or that. But I guess, Dwight D Eisenhower is more articulate. Read on.
Plans are worthless, but planning is everything. There is a very great distinction because when you are planning for an emergency you must start with this one thing: the very definition of ‘emergency’ is that it is unexpected, therefore it is not going to happen the way you are planning. (Eisenhower quotes)
What is a Financial Plan
Financial planning is the process of achieving your goals and objectives through the proper management of your assets.
Financial planning provides direction and meaning to your financial decisions. It also makes you understand how each financial decision has some impact on other areas of your finances. For example, buying a particular investment product might help you pay off your loan faster or it might help to support your retirement significantly. By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your financial goals.
You can also adapt more easily to life changes and feel more secure that your goals are on track. You may have many dreams, choices, preferences needs and desires like:
• Buying a comfortable house
• Possessing a new car
• Starting a new Business
• Giving children the best education
• a great wedding for children
• Enjoying financially sound life after your retirement
Implementing your plan
Unless you have taken a bit of time to read the various things that your financial plan tells you, you will fail to see the importance of doing financial planning.
But once you see the various reports about your assets and liabilities, suggested asset allocation plan, net worth, strengths and weaknesses of your financial situation, you would be compelled to take corrective actions.
A lot of people get phased out with numbers. Or may have difficulty understanding the numbers and the interpretations. That’s why, a Financial Planning exercise needs a trained consultant to help make sense of the numbers.
I also believe that a planning exercise is a blue print for further discussion and brainstorming. You can do this with your family members. But a trained consultant would add a lot of perspectives, I believe.
There are a whole lot of assumptions made to present the report. One should be able to understand those assumptions
Based on the above two points, I think it makes sense to have a fee based financial planning exercise.
Your wish list for a Financial Planning Tool:
Some tools assume that you know your risk profile. I think that the newbie user may not be aware of his own risk appetite. That’s why it’s a good idea to ask a few questions and let the application decide your risk profile.
The assumptions the tools make in calculating various reports like the insurance cover required should also be clear. I would like to know the assumptions they make for all their calculations. I guess the fee based plan will give me that clarity.
What do you wish your financial plan was like? What more about financial planning would you like to know? Please mail me on ranjan@ranjanvarma.com.
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Ranjan Varma, Founder, RupeeManager believes that learning is a continuous process and does not agree with the adage that you can’t teach an old dog new tricks. Approaching the age of 44, he left his job in a PSU and now is a blogger and editor of a Personal Finance website , is building financial management software and conducts RupeeCamps. His writings are also available on :http://ranjanvarma.com
He thinks it’s possible to start a new business after 40, run a marathon at 50 and re-wire your brain after 60. It’s not easy and that’s why it’s worth doing.
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