Why is Financial Planning important for Millennials & GenZs?
5 May 2023
You might not see the value in financial planning when you’re young and just getting started with your career, education and personal finance. But it is essential to set yourself up for success as you continue on this journey towards financial stability.
Financial planning involves creating a roadmap for your money that will lead to meeting your future goals and objectives.
It’s about ensuring that you have enough money saved for retirement, purchasing a home, sending your kids to college and other events that may come up in the future.
Good financial planning ensures that you can meet these goals while managing risk and staying within your specific budgeting needs and restrictions. Financial planning can be complex because there are many different moving parts, starting with how much money you currently have, where it’s stored, what expenses you have today, what expenses you’ll likely have in the future and how much of a risk taker you are when it comes to investing.
In this blog post, we will go over some basic tips on how to get started with financial planning so that you can begin setting yourself up for success sooner rather than later.
Assess where you are today financially
The first step towards effective financial planning is to assess where you are financially today. This means taking a look at your overall financial situation including your assets and liabilities, as well as your current budget. It is also important to identify your risk tolerance when it comes to your investments.
Assets can include savings accounts, stocks, real estate, retirement accounts and the value of your car. Liabilities can include your debts such as student loans, credit card debt and other loans. Once you have a better idea of where you are financial, you can start creating a roadmap for your money that will help you get to where you want to be in the future.
Create a budget
Creating a budget is an important part of effective financial planning. Your budget should include all your monthly expenses, savings and debts. It will also give you a better idea as to where you can cut back on spending to save more money. At a bare minimum, you should have a budget for your monthly expenses and savings.
While budgeting may seem tedious at first, it will become second nature over time and will be well worth it when you start seeing the benefits. To create a successful budget, you should first collect all your monthly expenses and debts.
This can be done manually or online depending on your personal preferences. Next, create categories for these expenses and debts. You can do this manually or online as well. This will make it easier to keep track of your expenses and debts.
Deciding on your financial goals
The next step in effective financial planning is deciding on your financial goals. This includes major events such as retirement, buying a home, sending your kids to college and other events that may come up in the future. Your financial goals should be specific, measurable and attainable. For example, your financial goal of buying a home should include a date that you want to buy that house by and how much you want to spend on it.
Your financial goals will help you stay focused and on track when it comes to your overall financial situation. There are two main categories of financial goals: short-term goals and long-term goals. Short-term goals usually last up to five years and long-term goals last longer than five years. Once you have decided on your financial goals, you can start estimating how much money you will need to reach these goals.
Know what type of risk-taker you are
Financial planning can also help you understand what type of risk-taker you are when it comes to investing. Are you someone who likes to take risks with investments or are you someone who wants to play it safe and stay away from risk as much as possible? This will help you decide on your investment portfolio and which type of investment accounts to open, such as mutual funds, bank deposits, provident funds, etc.
There are three different types of investors: conservative investors, moderate investors and aggressive investors. A conservative investor likes to stay away from risk and prefers safe investments such as government bonds and CDs. A moderate investor prefers to take moderate risks and invests in stocks, mutual funds and real estate. An aggressive investor likes to take large risks and prefers investing in high-risk, high-return investments such as penny stocks, cryptocurrency and venture capital.
Estimate how much you'll need for each goal
The third tip for effective financial planning is estimating how much you’ll need for each goal. Once you have decided on your financial goals, you can start estimating how much money you will need to reach these goals. This will help you stay focused and on track when it comes to your overall financial situation.
For example, if one of your financial goals is buying a house and you decide on a price of ₹ 1 Crore, you can estimate how much money you will need by finding the down payment amount, mortgage interest rate and other closing costs such as closing attorney fees, inspections and fees.
A good rule of thumb when estimating how much money you will need for each goal is to save 10% to 20% more than what you think you will need.
This will give you a little extra wiggle room in case something unexpected comes up. For example, if you want to save ₹ 60 lakhs for a down payment and closing costs for a ₹ 40 Lakhs house, you should aim to save around ₹ 1.2 Cr.
Once you have started effective financial planning, remember to stay focused and keep track of your progress. If you feel overwhelmed, try breaking each financial goal into smaller milestones. This will help you stay focused and keep track of your progress. Financial planning can be complex and challenging, but it is well worth it when you see the benefits. Financial planning is essential for achieving financial stability and will help you meet your future goals and objectives.